Many of us have seen dozens of corporate crises hit in our careers; it actually seems like we’re getting two or more major ones a week recently, from Wells Fargo’s scandal to VW’s diesel dupe to the infamous United passenger drag-off.
We’re also pretty familiar with the typical cycle on these situations:
- Company commits a customer-facing mistake
- Company deals with it internally or hires a consultant
- Company makes a public show of contrition (often too late from critics’ perspective)
- Customers deflect or don’t
- Think pieces are written about what happened by “crisis experts” in the name of content marketing
- Eventually we forget about it except in the ubiquitous Crises of the Year wrap-up piece
Here’s the missing piece: while it’s possible someone at the junior executive level is out of a job or the communication function gets reorganized internally when these gaffes happen, what actually happens to the bottom line?
Answer: not much.
The United bottom line after the passenger drag-off
United reported a profit of $818 million for the quarter immediately after the drag-off, which is up — yes, up — 39% over the same period last year. The airline has served 71 million passengers in the first half of 2017, which is a 4.2% increase over 2016. So, despite all the breathless threats of passenger boycott, the company is actually doing financially better after its biggest PR mess in probably over a decade. In general airlines seem to be doing fine – Violent ejections, technology glitches, and scuffles aboard planes don’t fly on social media, but a new study suggests online furor has a limited impact.
That’s crazy. What gives?
In the case of United, they introduced a new basic economy class product offering during the same period post-dragging of passenger. The airline business is very different than some standard business models. There’s no repeatable, scaleable way to get from A to B in time for a meeting or life event other than plane transportation, so most consumers are choosing primarily on price. There’s essentially not even time to be phased by scandals. You might have been horrified at the passenger video, but if you live in Houston and need to get to New York that next Thursday, well, chances are your company (or you) wants the cheapest flight option possible.
In the case of corporate travel departments not wanting to use United because of the reputational perception, the bottom line is that price drives that purchase choice.
As a result of this unique aspect of the aviation business model, airlines can either:
- Care less; or
- Respond less compassionately to these types of situations and still see better fiscal results
Granted, what happened to Dr. Dao on that plane was terrible, and United should and has fixed it. That’s a good thing, but I am not sure it really matters.
What other business model can do that?
This is something we often don’t discuss: aviation and surgery are two of the biggest industries where the end customer (or patient) has no role in the delivery of the service. Run through other business models in your mind. In most of those (accountant, plumber, auto mechanic, whatever else you can think of), the customer has a some element of control.
Not really in medicine or flying a plane. You get on a plane or lay on an operating table and just hope it works out because you don’t have any control in the outcome. As a result, those industries can think about customer experience a bit less.
Now, I know you might say, “But doctors must have a great bedside manner!”
Sure. But now ask yourself: how many actually do? And when you leave a doctor or casually discuss the medical profession with friends, what’s the No. 1 negative word you’ll hear?
For me and almost everyone I know, it’s “arrogance.”
The bottom line
In specific industries, PR nightmares mean a lot less to the profit side of things, because customers in the industry are making choices on price or insurance in-market/co-pay. There are tons of doctors in the world (less so aviation providers), but it’s different than buying widgets. With widgets, there might be 200+ options on Amazon alone. If the CEO of one of those widget companies punches a journalist in the face, bye bye sales. When United “re-accommodates” a 60-something doctor, they profit.
You need to understand the intersection of business model and customer thinking to see how big a crisis will get in a specific space.
And, in fact, I think we need more research on the short- and long-term implications of crisis situations on stock price. My guess would be short-term dip, long-term steadying as the market normalizes back around sales.
What would you guess?
