The hidden costs of flight disruptions20.04.2022
In most cases, a flight cancellation is a stressful experience. Passengers may miss a business appointment or a family event. Airline staff is suddenly confronted with many challenges at once. As flight disruptions are often unforeseeable, there is little time to prepare. Consequently, the costs for all parties involved are substantial. The Federal Aviation Administration (FAA) estimates annual costs of $33 billion in the US alone. Airlines incur additional expenses for fuel, maintenance, and salaries. They may also have to arrange accommodation for stranded passengers. Moreover, travelers have to pay to rearrange their travel plans.
With the many operational challenges, it is easy to overlook the long-term effects of flight disruptions. In some cases, the passengers’ expectations on how airlines should handle flight disruptions might not have been met. As a result, formerly loyal customers choose a different airline in the future or switch to another means of transport altogether. The foregone revenue of a lost customer can go well beyond the direct operational costs. Fortunately, there are means to minimize customer churn during flight disruptions.
Passengers don’t feel treated well during flight disruptions
Due to the sudden workload caused by a flight disruption, airline staff are too preoccupied to take care of their passengers. As flight disruptions occur infrequently, airlines often have few tools in place to effectively manage the passenger side of such disruptions. This is especially the case outside the airlines’ major hubs. Consequently, passengers go hours without receiving any update on their flight’s status. A survey conducted by the Civil Aviation Authority supports this conclusion. It shows that a mere one percent of disrupted passengers is satisfied with the information received. This is especially problematic considering the high importance passengers attribute to receiving information. But even on other priorities, such as organizing food and accommodation, satisfaction is low. Among the respondents in the study, 92% were unsatisfied with their treatment.
Disrupted passengers means lost customers
The low satisfaction of disrupted passengers has long-term effects on the airline’s relationship with these customers. Several studies conducted at airports in Spain, China and Korea researched passengers’ reactions to flight disruptions. All found that passengers who felt angry about how they were treated were more inclined to choose another carrier for future travel. Consequently, an airline risks losing the whole customer lifetime value for each passenger who has had a bad experience. Own estimates show that some 24% of passengers forced to have layover due to cancellation opt for other transport providers in the future. For a large cancelled flight that could mean lost future revenues in excess of €100,000, far exceeding operational costs.
One study finds a link between anger and negative word-of-mouth. This means that dissatisfied passengers tell other people about their negative experience. In the worst case, those people avoid the carrier in future, as well. Importantly, however, it is not the flight disruption itself that causes these results. Rather, it is the anger passengers feel about the situation. If the situation were handled better than expected, the passengers’ overall experience could be turned from a negative to a positive one. This indicates that airlines are able reduce customer churn by dealing with flight disruptions in the right way.
Airlines need to know their passengers’ expectations
An airline that reacts adequately to a cancelled flight can greatly improve customer loyalty, even when things didn’t go as planned. But what is an adequate reaction? The simple answer is: passengers want to be treated fairly. They want their needs to be understood and prioritized and need to know what the next steps are.
Nevertheless, there are differences in the expectations of different passenger segments. For instance, business travelers’ reactions to a dissatisfactory experience are stronger than those of tourists. Their expectations regarding efficient management and communication are likely higher. Given that business travelers represent on average about 75% of airline revenues these needs should be taken seriously. On the other hand, passengers who have had positive associations with the airline before the disruption are more forgiving. In sum, airlines need to know their passenger groups’ expectations to react adequately to flight disruptions and prioritize according to the financial risk each group poses.
Three measures to keep disrupted passengers
This discussion shows that airlines can influence customer loyalty during flight disruptions. But how can airlines minimize customer churn with limited staff and no time to get ready?
First, airlines need to prepare in advance. Clearly define the steps of rebooking, accommodating and communication with customers. If everybody knows what to do, time-consuming tasks such as rebooking and arranging accommodation can be solved in no time. This reduces waiting times for passengers and makes the feel prioritized. Similarly, by solving passenger-related issues early on during a flight disruption, airlines can satisfy their passengers’ desire for information much faster.
Second, get to know your customers’ needs. As shown above, not every segment of air travelers expects the same during a cancelled flight. For instance, when booking hotel rooms during a layover, business passengers may expect an upper-class hotel and a taxi voucher. Tourists traveling with a low-cost airline, on the other hand, may already be satisfied with a motel reached by public transport. Once you know more about your segments, analyze customer lifetime values to find out where losing customers poses the largest financial risk. For these segments, it is especially important to meet expectations during flight disruptions.
Third, automate processes involved in managing flight disruptions. The causes for not meeting passengers’ expectations regarding information dissemination and layover arrangements lie in the manual processes behind IROP management. Airline staff cannot do everything at once and humans make errors. Using digital solutions, for instance when booking hotel rooms for stranded passengers, is considerably faster and more cost-efficient. Passengers benefit directly from the right solution and have a better overall experience.
Using these measures helps airlines reduce the hidden costs of flight disruptions – losing customers who are dissatisfied with their experience. Once flight disruption management is seen as a chance to exceed customer expectations it has the potential to become a source of competitive advantage for airlines.
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