The airline industry is generally considered a risky investment -- many major airlines carry large amounts of debt and are subject to bankruptcy rumors. In addition, airlines face the challenges of high elasticity demand (for every 1% that income drops, demand for airline travel drops by nearly 6%), unpredictable fuel costs, and plenty of competition.
Just to keep its head above water the industry has taken up various strategies. Many major airlines including Delta (NYSE:DAL), United (NASDAQ:UAUA), American Airlines (NYSE:AMR), and US Airways ( NYSE: LCC) have laid off workers. "Unbundling" -- meaning every flight feature is sold separately -- has also become an industry standard. Charging for baggage is so common that Southwest Airlines' (NYSE:LUV) latest -- and very profitable -- tag line is "Bags Fly Free!" And let's not forget about Ryanair's (NASDAQ:RYAAY) infamous rumor that it was going to start charging customers to use the toilets.
However, the attempts to nickel-and-dime customers can only go so far.
According to a recent New York Times article, the newest strategy is to provide extra perks for the best customers. Now, frequent flyer perks have been around for a while, but airlines are apparently stepping up the competition and creating new tiers of status. Benefits for elite members include anything from free cocktails and waived fees, complementary access to airport clubs, special hotlines, and even free flights for companions. The idea is to pamper the big spenders in order to compete for their loyalty -- because they are valuable to the bottom line.
What do you think? Is this a good strategy, and if so, will airlines become a good investment in 2010? Has anyone experienced this elite treatment? Let us know in the comments box below!
