About the Airline Customer Experience ROI Study
The U.S. airline industry certainly isn’t renowned for the quality of its customer experience (CX). Fees go up, leg room goes down, and – if you’re lucky – you won’t get booted off the plane due to overbooking of seats.
Many in the industry question the true value of a differentiated customer experience, given that the four biggest U.S. air carriers control over two-thirds of the market and enjoy near-monopoly conditions at many airports. Those competitive conditions make it difficult for fliers to completely boycott an airline that consistently mistreats them.
However, we suspected that there were still ample opportunities for consumers to exercise choice in carriers, or to at least influence other fliers’ behaviors via word of mouth.
So, we set out to determine if there really is a Customer Experience ROI, even in the seemingly commoditized business of air travel. We sought to explore the impact of good and bad traveler experiences, using the universal business “language” of shareholder value.
What we discovered should be of keen interest to airline executives, as well as any business leader who questions the value of customer-centricity. That’s because, as it turns out, airlines get quite a lift from a great customer experience.
Thank you for the interest in our study. I wish you the best as you work to turn more of your customers into raving fans.
Best regards,
Jon Picoult
Founder & Principal, Watermark Consulting
Author, From Impressed To Obsessed
(Follow me on LinkedIn, Instagram, or X)
The Business Challenge
What’s a great, differentiated customer experience really worth to an airline?
It’s a question that seems to vex lots of industry executives, many of whom publicly tout their commitment to the customer, but are actually unsure about the ROI of customer experience. Skeptics view the benefits as soft and intangible, the payoff uncertain — leaving them reluctant to invest in CX improvements.
As a result, many airlines continue to subject passengers to a whole host of aggravations and indignities: Poorly designed websites, hidden fees, cramped seating, overbooked flights, weak communication about flight delays, interminable waits for customer service, infuriatingly unhelpful AI chatbots, and frustratingly restrictive mileage award redemption policies.
To help industry leaders understand the overarching influence of a great customer experience (as well as a poor one), we sought to elevate the dialogue. That meant getting the industry to focus, at least for a moment, not on the cost/benefit of specific customer experience initiatives, but rather, on the macro impact of an effective customer experience strategy.
We accomplished this by studying the cumulative total stock returns for two model portfolios – comprised of the Top 3 (“Leaders”) and Bottom 3 (“Laggards”) publicly traded companies in J.D. Power and Associates’ annual North America Airline Satisfaction Study. (A full description of the study’s methodology is available at the bottom of this article, and we’ve also compiled a list of frequently asked questions about the analysis.)
As the graphic in the next section vividly illustrates, the results of our latest Airline Customer Experience ROI Study continue to be quite compelling.
Airline CX ROI Study Results
Our latest analysis incorporates 13 years of customer experience rankings for U.S.-based airlines. The graph below shows the cumulative total return across that period for the Customer Experience Leaders and Laggards.
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Airline Customer Experience Leaders far outperformed the Laggards, and the size of the performance differential (nearly 135 points) was striking.
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Airline Customer Experience Leaders generated a total cumulative return that was 3.4 times greater than that of the Customer Experience Laggards.
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The total return of the Airline Customer Experience Laggards wasn’t just inferior to the CX Leaders — it was actually negative.
Behind The Numbers
As this study demonstrates, the fortunes of Airline Customer Experience Leaders and Laggards have diverged in a dramatic and revealing way. What’s driving the disparity in performance across these two groups?
While there are obviously many factors that influence a company’s stock price, the results of this study indicate that, over the long-term, a great customer experience helps build business value, while a poor customer experience erodes it. That’s an important takeaway, for public and private entities alike.
But what exactly is creating that enhanced value? Answering that question requires understanding the economic calculus behind great customer experiences. When a company consistently delivers an impressive experience to customers, it triggers behaviors that influence business financials in two important ways:
- A great CX helps grow revenues. When most people think about the economic benefit from a great customer experience, this is where their heads go. And that’s entirely appropriate, because revenue growth is indeed one clear advantage of CX excellence. Why? Happy, loyal customers have better retention, they’re less price-sensitive and they’re more willing to entertain offers for other products and services – all helping to raise revenue. Plus, because they love you so much, they spread positive word-of-mouth and refer new customers to you – lifting revenue even higher.
- A great CX helps control (if not reduce) expenses. This is the part of the customer experience economic equation that many businesses fail to appreciate. (It’s also why using revenue growth, alone, to demonstrate customer experience ROI is misguided.) When you have happy, loyal customers, it has a very favorable influence on operating expenses. For example, due to all the customer referrals you’re getting, you can spend less on new business acquisition – which reduces expenses. In addition, happy customers tend to complain less, putting reduced stress on your operating infrastructure (e.g., lower call and chat volumes), thereby also helping to keep expenses in check.
Higher revenues and a more competitive cost structure translate into superior profitability, and that’s what helps fuel exceptional shareholder returns for the CX Leaders.
Of course, those economic forces cut both ways. In contrast to the CX Leaders, the CX Laggards struggle to raise revenue (e.g., poor retention, high price-sensitivity, limited cross-purchasing, negative word-of-mouth) and they’re burdened with higher expenses (e.g., to acquire new customers, and to deal with the existing unhappy ones). This weighs on their long-term profitability and makes them less valuable in the eyes of the market.
Learn From The Leaders
How do Customer Experience Leading firms create such positive, loyalty-enhancing impressions on the people they serve? It doesn’t happen by accident. They all employ the same set of proven CX design principles to achieve that outcome (as detailed in Watermark Founder Jon Picoult’s book From Impressed To Obsessed). In addition, the CX Leaders embrace a few fundamental, shared philosophies that guide their customer experience design efforts:
1. They aim for more than customer satisfaction.
Satisfied customers defect all the time. And customers who are merely satisfied are far less likely to drive business growth through referrals, repeat purchases and reduced price sensitivity. Maximizing the return on CX investments requires more than just satisfying customers, it requires impressing them.
2. They leave nothing to chance.
The Leading companies have a keen appreciation for the wide array of live, print, and digital touchpoints that comprise their customer experience. They design each of these touchpoints very intentionally, carefully choreographing the interaction to create an experience that consistently nails the basics and also delivers pleasant surprises.
3. They shape memories, not just experiences.
How people remember the customer experience is arguably more important than the experience itself, as it’s those memories that ultimately drive repurchase and referral behavior. The Leading companies recognize this, and they use cognitive science to engineer experiences that people both enjoy in the moment and also remember fondly in the future.
4. They capitalize on the power of emotion.
People’s affinity toward a business is ultimately shaped by how they feel after interacting with the company, its representatives, and/or its products. CX-leading firms recognize this, and so they engineer experiences that don’t just focus on customers’ rational requirements, but also address their emotional needs.
5. They focus on both the customer and the employee experience.
Happy, engaged employees help create happy, loyal customers (who, in turn, help create more happy, engaged employees). The value of this virtuous cycle cannot be overstated, and it’s why the most successful companies address both sides of this equation – obsessing not just over their customers, but also over the employees who serve them.
Implications For Airlines
For much of the time covered by our analysis, the same four airlines dominated the J.D. Power rankings: Delta, Southwest, JetBlue and Alaska Airlines.
Understanding how these carriers create positive impressions on their customers is instructive not just for business leaders in the airline industry, but those in any industry. Among the strategies they employ:
- They focus on organizational culture and employee development. There are many touchpoints in the airline customer experience that involve interactions between passengers and employees (such as gate agents and flight attendants). CX Leaders tend to create a workplace culture that engages their staff and encourages customer-centric behaviors (something that’s been a hallmark of Southwest, for example, since its founding over half a century ago by the eccentric but brilliant Herb Kelleher). More recently, both Southwest and Delta have made significant investments in their workforces, to help ensure frontline staff are leaving the best impression during these interpersonal interactions.
- They make it effortless for customers. Traveling can be a hassle, even for the most experienced road warriors. Airlines that make it easy for passengers to navigate their travel journey are rewarded with those customers’ loyalty. That involves the simplification of routine transactions (such as booking a flight or checking-in), but also the streamlining of more complex and emotionally-charged ones. Delta, for example, understood the highly negative impression that flight cancellations can leave on air travelers, so they rallied their whole organization around becoming the “no-cancellation” airline. And for scenarios where cancellations couldn’t be avoided, Delta made it effortless for customers to find and book alternate flights via their mobile app.
- They advocate for customers. In an industry where most firms seem to exploit their monopolistic position at the expense of customer interests, CX-leading airlines – each in their own way – provide tangible illustrations of customer advocacy. Southwest eliminated concealed fees (such as baggage and ticket change charges) with its “Transfarency” approach. JetBlue allows families to pool and share their mileage points, so they can earn award trips faster. Alaska Airlines offers a 20-minute baggage delivery guarantee, backed by actual passenger compensation. And, more recently, during the Covid-19 pandemic, Delta blocked middle seats for over a year to facilitate onboard social distancing – the longest such policy of any major airline. These are all examples of how CX-leading airlines elicit a strong emotional response from customers, by demonstrating that they’ve “got your back.”
It’s also worth noting that the intensely positive impression that these Airline Customer Experience Leaders leave on passengers isn’t just a consequence of low fares. As many discount carriers around the world have demonstrated, low fares and a great customer experience do not necessarily go hand in hand. In addition, keep in mind that JetBlue and Southwest are no longer the low-cost providers in the U.S. airline industry (that distinction belongs to carriers such as Allegiant, Frontier and Spirit).
What CX-leading airlines bring to the market, however, is a deliberately designed and consistently delivered customer experience.
It’s an experience that infuses humanity and hospitality into an industry that is notably devoid of it. An experience that builds shareholder value, by growing revenues and controlling expenses. An experience that, quite simply, allows these widely admired airlines – like all customer experience leading firms – to repeatedly reach new heights.
(Want more? Check out Watermark’s other Customer Experience ROI Studies here.)
Ready to Turn Your Organization into a CX Leader?
Watermark is a customer experience advisory firm that serves some of the world’s leading brands. We help companies impress their customers and inspire their employees, creating raving fans that drive business growth.
What’s your challenge?
- We need to make the case for CX at our company. Our executive education programs will help demonstrate the value of customer experience excellence to company leaders, and show them how time-tested CX design techniques could be applied to your business.
- We don’t really know what customers think of us. Our Consulting Services include quantitative and qualitative tools which help bring the voice of your customer to the forefront, revealing game-changing insights that will drive your business forward.
- We need to rally our employees around CX. Watermark founder Jon Picoult is an acclaimed keynote speaker. Invite Jon to your next all-employee meeting, sales conference or corporate event – he’ll inspire your team to deliver CX excellence, and show them exactly how to do it.
- We need to improve our CX, but we’re not sure where or how to start. Our Consulting Services, including Watermark’s proprietary “Customer Experience Reality Check” will evaluate your current CX and develop a detailed roadmap for turning it into a competitive differentiator.
Through our Customer Experience ROI Studies, we’ve uncovered the techniques that top companies use to turn everyday people into loyal brand advocates. Let us help you apply the same techniques to your business. Contact us to start the conversation.
Study Methodology
The Watermark Consulting Airline Customer Experience ROI Study is based on the cumulative total stock return for equally weighted, annually readjusted model portfolios comprised of Airline Customer Experience (CX) Leaders and Laggards.
For each year covered by the study, CX Leaders and CX Laggards were identified via J.D. Power and Associates’ annual North America Airline Satisfaction Study (averaging each carrier’s First/Business, Premium Economy, and Economy ratings). In any given year, the Leaders and Laggards were defined as the Top 3 and Bottom 3 publicly traded companies in these rankings (which generally represented the top and bottom quartiles of the ratings).
Portfolio returns were based on the prior-year performance of the Leaders and Laggards, to ensure that the results were not influenced by the publication of the research studies themselves.