While the world was horrified by a viral video of Dr. David Dao being violently dragged off a United Airlines flight last month, everyone naturally wanted to find a culprit. The flight crew, the police, the pilot—who was to blame?
The answer to that question goes much deeper than the employees tasked with dealing with the customers. An analysis of the airline industry, customer service policies, and corporate structures published Sunday by The New York Times places the blame squarely on the shoulders of Wall Street.
Anyone who has traveled on U.S. airlines over the years has probably noticed a marked decline in customer service, passenger rights, and ease and comfort of travel. This isn’t speculation, the newspaper notes, but rather an intentional corporate design that links executive bonuses solely to short-term income targets and better profit margins, at the expense of customer service.
The Times writes:
Rich bonus packages for top executives are now largely tied to short-term income targets and fatter profit margins instead of customer service. Of course, bolstering profits—and in turn, stock prices—has always been a big part of management’s responsibility to shareholders, but making it virtually the only criterion for executive pay is new.
Five years ago, American Airlines factored in on-time arrivals, lost baggage and consumer complaints to help calculate annual incentive payments for top management. Today, these bonuses are based exclusively on the company’s pretax income and cost savings.
That means that airlines would rather pack their customers into cramped aircraft, or manage overbooked flights—risking incidents like the one that happened to Dr. Dao—than build or buy new planes, the report says.
Profit predictability for shareholders also is one of the main reasons behind airline moves to charge additional fees for checked baggage and assigned seating:
Known on Wall Street as ancillary revenue, this stream of income is especially favored by investors because it doesn’t swing sharply the way fares do.
And so far, despite occasional bouts of air rage and frequent consumer complaints, Wall Street has been getting what it wants.
From a corporate perspective, these efforts have paid off. United’s stock has more than tripled in the past five years, the Times notes, and budget airline Spirit’s operating margins “are among the highest in the industry.”
Nevertheless, things are getting ugly. In the latest scandal earlier this month, nine flight cancellations by Spirit Airlines left angry passengers stranded at the Ft. Lauderdale-Hollywood International Airport. The situation quickly turned into a melee, with fists thrown, a swarm of police officers descending on the chaos, and several people arrested.
But customers still have some say in the future of the industry. That requires travelers to understand why bad incidents are happing with increasing frequency, and who really is to blame. Airlines cannot entirely ignore their obligations to customers. The more vocal travelers become about their rights and their demands for better service, the more executives will be forced to listen.