Earlier today I speculated on whether United and American would copy Delta in introducing free economy class meals on premium transcon routes. Gary had a different take on the issue. Now I get to respond!
First, I hope it goes without saying that this banter is in good fun. I consider Gary truly a “Thought Leader in Travel” and hold him in high esteem.
Even while not totally dismissing the idea from a revenue standpoint, I expressed doubt over whether Delta can actually win loyalty and ultimately increase revenue by providing free meals.
I do think it is a curious move by Delta, but perhaps the analysts truly are wrong. We often hear a refrain something like this: consumers are primarily price conscious and will not pay more for an airline ticket with extra benefits if there is a cheaper option. That’s not totally true, as many refuse to fly ultra-low-cost-carriers like Spirit or Frontier even though it saves money. Nevertheless, consumers are not going to pay an extra $50 to fly Delta over American at approximately the same time in economy class just for a “free” meal.
Arguing my analysis fell within “the Scott Kirby spreadsheet approach” (i.e. without incremental revenue directly tied to this investment, the cost isn’t worthwhile), Gary argued that in providing a reliable, high-quality onboard experience, Delta primes customers to choose it first without first factoring price (obviously within reason).
He uses two examples to make his point. First, he argues that US Airways did not see internet as a source of positive revenue thus was reticent to install it. But US Airways quickly found out that it was losing bookings because of the lack of internet and was forced to play catch up. Similarly, the merged American – US Airways drastically reduced investment in onboard meals in 2014 but had to undo the cutbacks less than a year later in response to consumer outrage. His bottom line: think big picture.
Secondly, Gary points to a conversation he had with a Delta Diamond Medallion member in New York. She flies between JFK and LAX for work is very content at Delta. According to Gary, she had no idea that other competitors have flat beds or even that Delta doesn’t have flat beds on other transcon routes. Put another way, she is happy with Delta and has no desire to even learn about the competition, let alone shop around. The point is that she has “internalized that she prefers the experience on Delta, so goes to Delta first when she needs to travel”.
Thus, providing complimentary meals may not be a winner on a transactional basis, but it engenders loyalty, which pays off on a macro basis when a traveler returns to Delta instinctively.
My Rebuttal to Gary
While Gary’s argument is cogent and rational, I still do not buy it.
We agree that rewarding customers purely on a transactional basis as opposed to their long-term loyalty is a curious strategy to win customers at margins. Yet, I think Gary’s two examples rather make the point that this experiment by Delta will only result in lost revenue.
First, the lady he uses as the basis for his argument does not even know what other airlines offer and was already happy with Delta. If she is already predisposed to just book Delta, why would a free meal make her more loyal?
Lack of Consistency = Disappointment
On the contrary, I think a customer like her would be much more disappointed to receive her free meals between New York and LA and then fly from LA to Boston or New York to Seattle on Delta and find no free meal service. Thus, the lack of consistency will be a greater danger to someone who does not tend to shop around.
More importantly, Delta is not just paying for the cost of food: it losing quite a bit of potential ancillary revenue from buy-on-board (BOB) sales. Delta’s BOB program has been generally well received and represents a source of income that contributed to its approximately $3.8BN in additional revenue collected in 2015.
Next, how will Delta advertise this? Certainly on its website this can be highlighted, but how about with online travel agencies and other booking sources? Will passengers really read the fine print and be able to distinguish between and ?
Catching Up vs. Trendsetting
Isn’t this situation different than US Airways sitting on its hand while other carriers installed wi-fi? In the case of in-flight internet, travelers began to expect it and insist upon it and US Airways could not withstand the competitive disadvantage of not offering internet. Here we see the opposite. No other legacy has put forward a free meal plan and it is unlikely they will except perhaps to match Delta. Indeed, after a decade of no complimentary meal service on domestic flights, passengers have been conditioned not to expect it. By offering it again everyone may match, but that hurts revenue and leads to my next point.
Finally, if United and American match, what competitive advantage does Delta have? Will passengers really become so enamored by Delta based upon a complimentary meal that they will automatically shun other carriers offering the same or superior product at a similar price point? I just don’t think so. If everyone sticks to their “usual” carriers because each one increases quality, consumers may win but no airline does.
I admitted in my earlier post that if I had to choose between Delta or American in economy from JFK-LAX, I’d chose Delta simply for the free meal. Nevertheless, I would only fly Delta if both United (my preferred carrier) and JetBlue (fast complimentary internet) were not available. And I’m the guy who writes about airline meals multiple times each week! While I love the concept of free meals on domestic flights, I assert it 1.) does not win meaningful loyalty and 2.) hurts revenue on a transactional and long-term basis. Therefore, my advice remains to keep improving BOB offerings. Maybe something like Austrian…