British Airways and the Problem of Fees, Frills and Perspective

While British Airways might not be suffering as much bad publicity as some other airlines, a recent comment from its Chief Executive Alex Cruz has been jumped on as another sign that the carrier is going further downmarket.

In an interview with the London-based Sunday Times, Cruz hinted that the carrier might look to start charging for food on long-haul flights in the future.

This follows a decision to scrap free snacks and drinks on short-haul flights last year, a move that was criticized by the press and frequent fliers.

On flights within Europe, BA didn’t really have much of a choice. It is being outgunned by operators such as Ryanair, whose costs are substantially lower. To try and compete BA needed to find bits of its business to trim — or another area from which to make money.

While Cruz and his predecessors have been battling Ryanair and EasyJet for more than a decade they could at least comfort themselves with their continued dominance on long-haul routes. Not anymore.

Thanks to the latest range of fuel-efficient aircraft, Norwegian Air has finally found a way to make low-cost long-haul work, meaning that while it is not necessarily always cheaper than BA and others it has reframed the narrative.

BA’s parent company International Airlines Group has sought to counter this with a new airline called Level, which launches later this year, and will compete with Norwegian in terms of pricing. With only two aircraft though it isn’t going to be enough.

Cruz’s comments were not a firm commitment to change, but they do show the predicament BA and all other full-service carrier’s face: how do you compete on price but still offer a premium service?

Not wanting to lose

The problem for BA is that the status quo is the customers’ reference point and any change to this will provoke a negative reaction even if it leads to cheaper fares for some (although there is no guarantee it will).

Passengers have come to expect a certain level of service from BA and will find it hard to accept anything less.

Behavioural economists have long noted the impact of loss aversion. In a 1983 article Daniel Kahneman and Amos Tversky wrote:

“Many decision problems take of the form of a choice between retaining the status quo and accepting an alternative to it, which is advantageous is some respects and disadvantageous in others. The analysis of value…can be extended to this case by assuming the status quo defines the reference level for all attributes. The advantages of alternative options will then be evaluated as gains and their disadvantages as losses. Because losses loom larger than gains, the decision maker will be biased in favour of retaining the status quo.”

Amitav Chakravarti, Professor of Marketing at the London School of Economics and Political Science, explains how this might work with airlines.

“In essence anything that you take away from the status quo, tends to hurt almost twice as much as anything that you add to it. So you could argue that if BA takes away a packet of peanuts and Ryanair adds the peanuts in the end these should negate each other or should roughly have the same magnitude of customers loving or hating it. But that is usually not true, we usually react much more violently to a 5 percent loss than a 5 percent gain,” he said.

“Just as a rule of thumb if someone loses $5 to make up for it you can’t just hand that person back another $5 you literally need to get that person another $10 to make up for the loss.”

When it decided to drop food on its short-haul services, BA framed it as a desire to increase choice rather than as a cost-cutting exercise.

Should BA go down the route of charging customers for food on long-haul routes, it will be difficult to employ the same tactic because there is already meal choice. Instead BA might look to add an extra fare type.

“Like most companies, we don’t stand still and we are very focused on what customers want. We have no plans currently for a buy-on-board economy product on long-haul, but if that is what interests customers of the future, we will listen,” a BA spokesperson said.

The new reality

In an interview with Skift last year, Cruz said that the likes of EasyJet and Ryanair had helped to re-educate consumers. This is true, but the problem for BA is its position within the market. It uses the slogan “To Fly. To Serve” and is an entirely different proposition. There is also the problem of how a company presents itself to two different types of customers: those on a budget and those willing to pay for business or first-class.

Speaking last week, Kenny Jacobs the Chief Marketing Officer of Ryanair, neatly encapsulated the issue for BA and other legacy carriers.

“If you’ve had it good and then good gets stripped back you kind of think: ‘Whoah, I used to get free stuff on the flights, and I used to go into the lounges for free and I used to get all these points’ and now when you start to take things away from people, people always react that way. We’re adding things on rather than taking things way,” Jacobs said.

“So I think that’s why our customers are saying ‘great I can bring two bags, great I can pick a seat, great I can do things that I wasn’t able to do before and I’m getting better value with Ryanair’.

“Pre-AGB [Always Getting Better, the company’s customer experience improvement programme] Ryanair did a great job of conditioning you into [thinking] this is what a stripped back service looks like. So everything we added on top over the past three years has been a plus, in the minds of our customers. Whereas it’s the opposite at British Airways… you’re taking away something but while still charging the same fare.”

If and when BA decides to start charging customers for food on long-haul flights it will have to get its message right, or risk alienating its entire customer base.There is, however, some good news, for BA according to Chakravarti.

“This is a short-term reaction. In the long term people get used to things and then the status quo might shift to such a situation where you’re used to no meals.”