JOHN STRICKLAND
DIRECTOR OF JLS CONSULTINGO
ne of the many memorable
comments by Ryanair boss
Michael O’Leary over
the years was this, back
in 2002: “Are we going to
say sorry for our lack of customer service?
Absolutely not. If a plane is cancelled
will we put you up in a hotel overnight?
Absolutely not.”
He has probably softened his stance,
if only because today airlines experience
increasing external challenges to
maintaining their schedules while at the
same time facing the threat of regulation
in the form of EU261,
under which significant
compensation payments
can be claimed by passengers.
To express an opinion
that might be unpopular:
we want low prices, we’ve
seen an enormous increase
in affordability and
choice of f lights, and yet
compensation culture has gone crazy.
The sums being paid out by airlines under
the EU261 legislation are
rising and bear no relation
to the typical prices paid
for tickets. Why should
a customer who has paid
£50 (US$63) for a f light be
compensated to the tune of several hundred
pounds if it is delayed or cancelled?
Consider that for other forms of
transport there’s nominal compensation,
if any, when things go wrong – maybe a
ticket refund if you’re lucky. If the car you’ve
ordered for a Friday delivery is late you’re
not compensated with two cars on Monday.ILLUSTRATION: BENJAMIN SOUTHANOr if a burger chain burns your value meal,
you’re not compensated with a three-course
dinner at a fancy restaurant. So why is the
airline industry different?EXCESSIVE BURDEN
How long can carriers sustain the rising
levels of payouts? A look at the growing list
of airline failures over the past 18 months
is indicative of the challenge. There
were various reasons behind each failure,
but in a number of cases the burden of
excessive compensation payouts has been a
contributory factor in driving some of these
companies to bankruptcy.
The big guys may be able
to live with it, but even for
them the compensation
bill is becoming one of the
biggest costs of operation.
Last year Easyjet saw
disruption costs rise by £70
million (US$88 million).
For Lufthansa, irregularity
costs were up 70 per cent
to more than €500 million
(US$560 million).
Air traffic control (ATC)
delays or strikes, completely
outside of airline control, have
been two of the biggest culprits. An
ATC delay on one f light typically knocks
on to other f lights, especially on short-haul,
where aircraft f ly back-to-back between five
and eight times a day, so there is a massive
multiplier for airline liability. Under the
legislation, technical delays or cancellations
are not regarded as exceptional circumstances.
It’s as though airlines are being “punished” for
focusing on the enshrined principal of safety.Of course, the aftermath of delayed and
cancelled f lights is terrible. Holidays ruined,
funerals missed, business plans in disarray.
But I’ve never seen an airline willingly
inf lict this kind of pain on its customers.
After all, ticket revenues are their lifeblood.
When f lights are disrupted, these very
revenues pour out of the door. Carriers
face a double whammy as costs ratchet up
to pay for refreshments, accommodation
and potentially having to book disrupted
passengers on to competing airlines.
All of this is before the f loodgates of
compensation are opened.
Do we want to see more airlines go to
the wall? To lose many convenient but
marginally profitable air services because
they become unsustainable owing to the
excessive burden of compensation costs?
One regional airline that I spoke to last year
offered a popular summer seasonal service
to Nice from a smaller northern European
city. The compensation payments it was
obliged to pay for two f light diversions and
two cancellations caused by ATC strikes
more than wiped out its modest profits for
the entire summer. Its decision: it would not
operate at all this year.
Is this what we really want? Sure, airlines
should be accountable for factors that are
genuinely within their own control but
the list of things for which they are now
expected to carry the can and pay out has
long passed the point of being a joke. If we
want the certainty of long-term sustainable
air services and the array of competitive
choice of products and prices that we enjoy
in many markets, then there needs to be a
change to this compensation culture and a
more realistic approach adopted.BTOut of proportion
Compensation culture is pushing airline
payouts beyond what is reasonableThe list of things for
which airlines are
expected to pay out
has long passed the
point of being a jokeOPINION
60
JULY/AUGUST 2019 businesstraveller.com