I don't know about you, but I'm not a big fan of flying. The waiting, the cramped conditions, and the exorbitant optional fees make it a fairly joyless process. Yet in spite of this, I hop on a plane about a half-dozen times a year because there's simply no more efficient way to get to my favorite vacation destinations -- and I'm not alone.
The airline industry gains altitude
According to the U.S. Department of Transportation's Bureau of Transportation Statistics, 846.4 million people in the U.S. traveled by airplane in 2014, including 662.2 million who were flying domestically. This is up substantially from 2002 (which is as far as the BTS' data goes back), when just 670.6 million people stepped onto a plane in the U.S. -- although I should note this figure could be skewed by the tragic 2001 terrorist attacks. Nonetheless, the desire to travel by plane is arguably higher than ever.
With that demand comes an enormous opportunity for the airline industry to cash in. BTS data shows that between 2002 and 2013, operating revenue for the U.S. airline industry nearly doubled, from $107.1 billion to $200.2 billion.
But choosing which airline to fly with can often be difficult for consumers. With the sector being highly competitive, and airlines offering a varying degree of perks and pricing, selecting an airline can be downright overwhelming. This is why brand loyalty in the airline sector can be so crucial.
The importance of brand loyalty for the airline industry
Of course, deciphering the factors that drive brand loyalty isn't always cut-and-dried. That's why we'll once again turn to Brand Keys and its 19th annual Customer Loyalty Engagement Index to get an understanding of which airlines are the best at driving customer loyalty and engaging consumers, and which are missing the mark.
Brand Keys surveyed more than 36,000 people across 64 categories (including airlines) to get a feel for how they view a brand, how that brand engages with consumers, and ultimately how consumers compare that brand to its peers. The end result is Brand Keys' Customer Loyalty Engagement Index.
Brand loyalty among airlines is important for two key reasons. First, word-of-mouth advertising is infinitely more powerful to the airline industry than any marketing campaign they can devise. You are far more likely to fly with an airline that a family member or friend recommends than to be moved by a 30-second ad from an airline. Not to mention, an unhappy customer is far more likely to voice their opinion on social media than a happy customer, so it's in the interests of all airlines to strive to meet or exceed the expectations of all passengers.
Second, I'd suggest that loyal customers tend to be more willing to accept ticket and fee price increases because they trust their airline. Now, this doesn't mean loyal customers couldn't care less about the money they're paying to fly. Practically all passengers are cost-conscious and looking for a good deal. However, loyal customers tend to be less reliant on steep sales to stick with an airline they trust, and are thus some of the best cash cows for airlines.
Now that you have a better grasp of why loyal customers are so important for the airline industry, let's have a look at which company is flying above its peers in terms of brand loyalty, and which airlines should be grounded.
Stuck on the tarmac
Overall, Brand Keys ranked eight airlines in terms of brand loyalty. Yes, there are far more than eight airlines to choose from, but Brand Keys needs a certain number of responses before an airline qualifies for ranking on the brand loyalty list. Ultimately, just eight made the cut.
As should come as little surprise, major airlines made up the entire bottom half of the loyalty rankings. Delta Air Lines (NYSE:DAL) came in fifth, American Airlines and US Airways, which are part of American Airlines Group (NASDAQ:AAL) ranked sixth and seventh, and United, which is part of United Continental Holdings (NASDAQ:UAL), finished dead last.
One thing working in favor of major airlines is the fact that their credit card programs do help coerce some fliers to stay loyal to a brand. By offering flight perks for credit card usage, companies like United and American Airlines can keep at least some of their customers from jumping ship to a rival.
However, there are a number of factors working against Delta, United and American Airlines Group. For starters, they can often be undercut on price by regional or national airlines, which instead make a good chunk of their profits from optional fees (e.g., bag checks, food, and so on). Second, major airlines are often operating some of the oldest fleets of planes. Although most passengers aren't thinking about the age of the plane they're flying on, there's little denying that newer planes have better amenities, which can go a long way toward pleasing consumers and making a flight more entertaining. Finally, major airlines have difficulty in shutting down unprofitable routes. With hubs across the United States, profitable or not, major airlines face consumer expectations to maintain their routes.
Airlines that consumers favor most
By contrast, you'll discover that some of the best-ranking airlines for brand loyalty have few of these problems.
Southwest Airlines (NYSE:LUV) and WestJet Airlines tied for the No. 3 spot in the airline brand loyalty rankings, while JetBlue (NASDAQ:JBLU) slid into the second spot. All three of these airlines maintain a "small" feel, even though WestJet might be the only one here truly qualified to be a small airline, with just over 100 planes, compared to JetBlue and Southwest, which have two and six times as many planes, respectively.
Both Southwest and JetBlue offer a number of perks that make flying with these airlines enjoyable for passengers. Southwest allows passengers to check in two bags for free, while JetBlue allows select customers to check a bag for free. These two airlines also have relatively young fleets, all things considered. AirFleets.net pegs JetBlue's fleet age at eight years and Southwest's at 11.8 years. This means consumers are likely to find new technological advances in its fleet -- perhaps plugs for electronic devices and/or seatback television screens for the ultimate entertainment experience while flying.
But taking the crown as the airline fliers prefer most is Air Canada (TSX:AC), for a second straight year. Though it's not as well known as the major airlines, Air Canada is no stranger to receiving accolades, having been named the best airline in North America by Global Traveler, and the best North American in-flight experience by Premier Traveler.
One factor that stands out is that Air Canada's optional fees are actually quite reasonable. Among the 15 North American airlines, only it and Southwest don't charge over-the-phone or in-person booking fees, and it charges the lowest price to bring your pet into the cabin ($50) of all 15 airlines ranked by SmarterTravel.com. In an era in which consumers feel as if they're being nickel-and-dimed by the airline industry, having reasonable fees can go a long way to building customer rapport.
Another key component to Air Canada's success is its enjoyable in-flight experience, highlighted by the enRoute in-Flight entertainment system. This is a touchscreen system with hundreds of hours of TV shows, movies, and audio selections on demand for the passenger. Seats also come with a charger so passengers can use their own mobile devices and laptops.
While brand loyalty is just one measure of success for the airline industry, the implied benefit here is that airlines that make their customers the happiest should have the most successful growth prospects. For investors, it means Air Canada, JetBlue, and Southwest Airlines could be a great starting point for further research for those interested in getting investing exposure to the airline sector.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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