United's Unfriendly Skies

Airlines stink at service.

That's the conclusion of the University of Michigan's American Customer Satisfaction Index (ACSI), which today reported that, in the first quarter, the airline industry suffered its worst service rating in seven years.

Weather's partly to blame, no doubt. Blizzards throughout the eastern seaboard in February and early spring disrupted service for most airlines, though Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU  ) arguably paid a higher price than most.

Then again, the millions that the upstart carrier plans to shell out to mollify angry fliers and keep its best customers could prove both smart and timely. Why? All but two of the top carriers scored below the industry-average service score of 63:

Airline

Score

% Change

Southwest Airlines (NYSE:LUV)

76

2.7%

Continental Airlines (NYSE:CAL)

69

3%

Northwest Airlines

61

0%

US Airways (NYSE:LCC)

61

(1.6%)

American Airlines

60

(3.2%)

Delta Air Lines

59

(7.8%)

United Airlines

56

(11.1%)

Source: ACSI survey, University of Michigan

Notice who brings up the rear in the survey. As a longtime customer and fan of the carrier, seeing UAL's (Nasdaq: UAUA  ) United lag so badly is disheartening. But I can't claim to be surprised.

A read of United's proxy statement shows that the airline routinely underperformed its own customer-service targets in 2006:

Would fly UAL again

Q1

Q2

Q3

Q4

Target

38.2%

35.8%

35%

35.2%

Actual

35.6%

34.9%

34.4%

35.1%

Source: SEC filings

On-time departures

Q1

Q2

Q3

Q4

Target

59%

59%

59%

61.1%

Actual

56.6%

58.6%

61.2%

61.1%

Source: SEC filings

Ouch. United failed to meet its expectations 75% of the time.

To be fair, UAL was stellar at managing costs in 2006, outperforming its internal targets for cost per available seat mile in three of four quarters.

But successful firms don't cut their way to long-term growth. The ACSI report authors say it best. From the press release announcing the results:

Companies don't have much pricing power unless there is shrinking supply or higher customer satisfaction. There are no signs of the former in most industries, so the latter becomes more critical. Companies may begin to see narrowing profit margins unless there is further improvement in customer satisfaction.

Or, in simpler terms: unfriendly skies won't produce smiling shareholders. Straighten up and fly right, United.

Taxi toward related Foolishness:

JetBlue is a Stock Advisor recommendation. Click here to get access to get 30 days of free access to the entire portfolio, which is beating the market by nearly 37 percentage points since inception.

Fool contributor Tim Beyers, ranked 6,142 out of more than 28,700 rated players in Motley Fool CAPS, wonders if anyone else gets the irony that bulkhead seating is about as good as you'll get in coach class. Tim owned shares of Southwest at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on travel, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy lost its luggage on a trip to Sin City last year.


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