Must airlines take away customer perks to placate investors?

Why isn't your favorite airline more customer focused?

This is a question asked this week by Scott Mayerowitz, a reporter with the Associated Press. He finds, as I did in recent stories about Virgin American and JetBlue, that investors are wary about any airline that offers unnecessary perks to customers. Investors tend to dislike stuff that makes passengers happier, like extra legroom in standard coach seats, free wifi, free TV and complimentary snacks.

It's not that the investors are anti-customer. It's just that few analysts believe customers will pay more money for a standard experience that is slightly better. JetBlue and Virgin America do provide regular economy passengers with just a little bit more. But in the aggregate, they have been unable to charge customers more money for the better product. In fact, according to Mayerowtiz, Delta regularly gets a higher fare than JetBlue and Virgin America. 

"We have a Wall Street today that seems less interest in product and much more interested in return on invested capital," William Swelbar, a researcher at MIT, told me for a recent Aviation Week story. "I would say that Wall Street is less enamored with a customer only focus."

 Virgin America treats its customers well. But will customers pay for a better product? Photo: Virgin America

Virgin America treats its customers well. But will customers pay for a better product? Photo: Virgin America

Here's what Mayerowitz writes about the Virgin America and JetBlue problem:

Analysts are pressing Southwest and JetBlue to make changes favoring investors over customers, such as charging for a first checked bag, reducing legroom and increasing reservation change fees. The financial benefits would "significantly outweigh the potential customer backlash," Cowen Securities analyst Helane Becker wrote in a note to JetBlue investors.

A couple of months ago, I interviewed JetBlue CEO Dave Barger about this phenomenon. At the time, he was adamant that JetBlue could win a fare premium, especially on competitive routes from the Northeast to Florida. He said every seat is not created equal. "I truly don't believe it's a commodity business when you are talking about a 1100-mile stage length," he said.

Not long after that interview, JetBlue's board announced it was replacing Barger in favor of a new CEO whom Wall Street believes will be less customer focused.