‘Managerial myopia’ is a condition in which the management of a business puts short-term prosperity before long-term value. This type of quick-fix strategy is now commonly being implemented in the airline industry due to the impact of Covid-19, especially in terms of how airlines now handle refund procedures. Airlines across the world had to make a swift decision between protecting cash reserves by holding on to refunds or providing customers with timely refunds in order to retain loyalty and boost image, which could increase market share over the long term.
Culprits of managerial myopia
Two prime examples of airlines that have received negative attention for their refund processes recently are Air Canada and Ryanair. According to the Department of Transportation data, there were 969 refund-related complaints about Air Canada during April, the most of any foreign airline and more than all US airlines except United and American. According to the consumer group Which?, Ryanair customers were responsible for 44% of all refund complaints received in July. These two airlines differ in pricing strategies, geographical locations served and overall image. However, their respective positions in the market they operate in means that this current outrage may not impact their revenues in the long term.
Positioning is key
It is likely that customers currently complaining about these airlines will still use them in the near future. This is due to the two most influencing factors for travellers when self-packaging a holiday – affordability and accessibility.
Ryanair is a European low-cost leader and has developed a low-cost strategy that has enabled international travel to become accessible for a wider range of consumers. Although these consumers will be experiencing lengthy waits for their refunds, they will be likely to use Ryanair again as its (and easyJet’s) prices cater to their budget.
According to GlobalData’s 2018 Q3 Consumer Survey, 58% of Europeans assemble their holiday based on affordability. Then, in the case of Air Canada’s customers, the Canadian airline market largely remains a duopoly. Domestically, Air Canada and WestJet Airlines Ltd command more than 80% of traffic. Because of this, Canadian travellers have access to a lack of alternatives, meaning that Air Canada at least provides travellers with accessibility. According to the same 2018 Q3 consumer survey, 36% of North American travellers assemble their holiday based on accessibility, which was the second most important factor after affordability.
A calculated risk
Delaying refunds is a calculated risk that not all airlines can get away with. An airlines’ position in the market needs to be carefully assessed to ensure that this strategy will not have a detrimental impact on long-term viability. It is well known that customers do not forget negative experiences, but the price is king and accessibility is becoming ever more important in an increasingly globalised society.
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By GlobalData
