ACSI Commentary June 2012
June 19, 2012
Commentary on Airlines, Consumer Shipping, Full-Service Restaurants, Hotels, Limited-Service Restaurants, and
U.S. Postal Service
Customer Satisfaction Improves for Airlines and Fast Food;
Sit-Down Restaurants and Consumer Shipping Services Drop
Passenger satisfaction with airlines improves 3.1% to an ACSI score of 67, the result of gains both large and small for almost all of the major airlines. While the industry matches its highest ACSI level in a decade, air travel continues to be problematic with low passenger satisfaction, rising prices, expanding fees, and generally poor customer service.
Passengers who pay to check bags are particularly disenchanted (ACSI score of 62 compared to 73 for those who do not pay these fees). The overall airline gain in satisfaction is a result, at least in part, of passengers becoming savvier and avoiding checking luggage—the number of passengers surveyed who checked luggage dropped by nearly 20% from a year ago. Airlines are doing somewhat better in another important area: frequent business travelers. The overall ACSI score for business travelers is up from a dismal 61 in 2011 to 66 now, but this remains far below the ACSI score for leisure travelers (71).
Among individual airlines, the debut of JetBlue and the decline of perennial leader Southwest shakes up the top of the industry. JetBlue enters the ACSI with a score of 81, matching Southwest’s 2011 industry-leading score. Southwest falls 5% to second place at 77, its lowest level in five years. Southwest’s decline occurs amid its merger with low-cost competitor AirTran, Southwest’s first major acquisition in two decades. More often than not, mergers create significant passenger dissatisfaction in the short term as operations are combined and consolidated. Southwest’s share value fell 20% over the past year, whereas the market was largely unchanged and the share values of many other major airlines were flat or improving.
The closest challenger to the two leaders is the aggregate of all other airlines at 74, which includes smaller carriers such as Alaska Air and other low-cost operators such as Spirit and Frontier. Further down and scoring in the 60s, the large legacy airlines do much worse in passenger satisfaction than their smaller and low-cost counterparts.
While high ticket cost and poor service are not a winning combination, both Delta and US Airways show significant improvement. The two airlines are tied at 65 after a large 16% gain for Delta and a 7% gain for US Airways. Still, this is a very low score compared with most other companies in the ACSI. Last year, Delta had a freefall in passenger satisfaction in the wake of its acquisition of Northwest. This year, many of the merger issues seem to have been ironed out, and the airline shows a better record of on-time arrivals. Delta’s stock price has rebounded as well, up 25% over the past year.
The industry rounds out with American Airlines at 64 and United at 62, both up 2%. United bucks the trend of declining satisfaction after a merger, probably due to the fact that its acquisition, Continental, has had a long record of higher ACSI scores compared with its acquirer.
Hotels continue to leverage perks, but rising prices appear to offset whatever good the perks are able to do in the eyes of customers. Guest satisfaction for hotels is stagnant at an ACSI score of 77, but this is obviously much higher than satisfaction with airlines. Still, as with airlines, the business traveler—critical for hotel profitability—is less satisfied than the leisure traveler (ACSI score of 72 compared to 77). More disturbing is the fact that while guest satisfaction is stable for vacationers, it continues to decline for business travelers.
Among individual hotel chains, there is very little movement for the top brands. Upscale hotels—where prices are higher but quality is better—tend to have higher levels of customer satisfaction. Hilton has had at least a share of the lead for the past five years and is now alone at the top with an unchanged ACSI score of 80. Marriott follows at 78 (-1%), while InterContinental (+1%) ties the aggregate of all other smaller chains and individual hotels (such as casinos and bed and breakfasts) at 77. Three hotels follow close behind with scores of 76: Hyatt (-1%), Best Western (unchanged), and Choice Hotels (+3%). Starwood is next at 75 after a 5% drop. Only Wyndham Worldwide, which operates several budget brands such as Ramada and Days Inn, lags the field following its 4% downturn to an industry low score of 70. The loss reverses a gain from a year ago.
Fast Food and Restaurants
Dining out remains popular and gratifying for most consumers. ACSI data show that the average household dined out about 3 times per week in 2011 and most don’t plan to change their dining habits this year. Fast food has only a slight edge in frequency of visits over full-service restaurants (6 times per month compared to 5).
Customer satisfaction is moving in opposite directions for the two types of dining, with fast food gaining 1.3% and full-service restaurants falling 2.4% to tie at 80. This bodes well for fast food and should be a warning signal for full service—this is the first time that the two are equal in ACSI. The quality of the fast food experience is improving, according to diners. Add to that the industry’s ability to price low in a weak economy, and it seems a safe bet that fast food will make further inroads into the traditional restaurant business.
Among the largest fast food companies, pizza is king again. Reasonable food quality, good variety of selection, low price, and fast delivery keep customers happy with pizza. Papa John’s is on top of the fast food category after a 5% gain to an ACSI score of 83. Little Caesar also does well, up 2% to 82 and tying both sandwich-maker Subway and the aggregate of all other smaller fast food operators. Pizza Hut falls 4% to 78, but the brand maintains a spot among the top five and beats or ties all burger establishments. Domino’s is unchanged at 77, tied with Taco Bell (+1%) and just behind Wendy’s (+1%) at 78.
In addition to Subway, which is covered in the ACSI for the first time this year, another new entrant is Dunkin’ Donuts. The coffee and doughnut chain comes in with a score of 79, besting Starbucks, whose ACSI score drops 5% to 76. Customers remain very loyal to Starbucks, but higher prices are dampening their satisfaction.
The big burger outfits dominate the low end of the category. Wendy’s is an exception, outperforming rivals Burger King and McDonald’s. Burger King is unchanged at 75 and ties chicken chain KFC, while McDonald’s is up 1% to 73. McDonald’s has made fairly steady improvement for quite some time—a little more than a decade ago, McDonald’s earned a customer satisfaction score of 59, which was one of the lowest in the ACSI. Expanded menu offerings, upgraded stores, and good coffee have boosted customer satisfaction for McDonald’s to an all-time high.
Full-service restaurants used to be able to insulate themselves somewhat from the impact of higher prices, as long as they were better than fast food in customer satisfaction. This is no longer the case. Differentiation will be a key—not only with respect to fast food, but among the chains within the category itself. Some separation from top to bottom does seem to be emerging, with Red Lobster firmly in the lead, up 1% to an ACSI score of 83. Outback Steakhouse is unchanged at 81 and tied with the aggregate of all other full-service chains, while Olive Garden follows close behind at 80 (-2%). Next, there is a drop-off that should be cause for concern for Applebee’s, which debuts in the ACSI at 77, and Chili’s Grill & Bar, which declines 4% to 76. Chili’s has been at the bottom of the full-service category for a long time, but now its gap to the other brands (except Applebee’s) has grown.
Consumer Shipping and Mail Services
Customer satisfaction with consumer shipping services (including both sending and receiving packages) drops 2.4% to an ACSI score of 82. Rising prices due to increasing fuel costs are behind much of the decline. Both FedEx and UPS face deteriorating customer satisfaction, with FedEx sliding 1% to 82 and UPS tumbling 5% to 81. For UPS, the decline wipes out last year’s gain and the company loses the lead it held for the first time in more than a decade. The aggregate of all other private sector shippers also falls, down 2% to tie UPS at 81.
Only the U.S. Postal Service (USPS) shows any improvement, up 3% to an all-time high of 81 for its express delivery business. This marks the fourth straight year of customer satisfaction gains for the USPS, reflecting an increasingly smaller, yet loyal, customer base, as well as successful partnerships with both FedEx and UPS for much of the long-haul portion of USPS’s express shipping. Customer satisfaction with USPS’s regular mail delivery also improves, inching up 1% to 75—also an all-time high—but this too seems to be partly caused by shrinking business, where only the most loyal and most satisfied customers remain.