Airlines and Cable Companies Race to the Bottom

The I.R.S. just got a rare piece of good P.R. news. It turns out that tax collectors are not the least popular guys in the room -- at least not according to first quarter updates to the American Customer Satisfaction Index. That dubious achievement belongs to the airlines and to the cable and satellite TV industry.

The cable and satellite industry scored 62 and the airlines 63 on a 100 point scale measuring customer satisfaction, trailing the Internal Revenue Service's 65 point score and placing them at the bottom of the heap of industries covered.

The University of Michigan survey asks 20,000 consumers a quarter to track the quality of products and services. The index uses a 0-100 scale and covers 10 economic sectors and 43 industries, including government agencies.

What exactly do you have to be doing wrong to stack up unfavorably against the experience of being taxed?

For airlines struggling to dig themselves out of fiscal ruin, poor satisfaction ratings are an unfortunate result of their dire financial straights. Cost-cutting creates embittered employees, high ticket prices result from rising fuel costs, and operational inefficiency causes flight delays and luggage snafus. All of these things mean cranky customers, and explain why the airline industry's rating fell two points from last year. The sector currently has its worst rating in seven years.

United Airlines brought up the rear of the pack with a score of 56, and Delta Air Lines was just above that at 59. Both airlines have recently exited Chapter 11 status, Delta just last month.

That carrier is undertaking a heroic branding effort in hopes of winning back consumer support, but both airlines face a significant challenge as their plans for cost-cutting stand at odds with improving customer satisfaction.

The cable and satellite sector has also witnessed a steady satisfaction erosion, according to the index. Cable companies Time Warner, Comcast, and Charter Communications all fare the worst with sub-60 scores for the first quarter of 2007.

The industry's main problems revolve around difficulties integrating newly acquired customers, as well as pricing and reliability issues, according to Claes Fornell, a business professor at the University of Michigan who provides commentary on the index.

But what's their excuse for customer discontent? Unlike airlines, cable companies aren't suffering from related financial trouble. Fornell singles out Comcast as an example -- it's one of the lowest scoring companies in the survey but shows no corresponding earnings issues.

The cable company's customer satisfaction eroded by seven percent over the past year, while revenue increased by 12 percent, net income went up by 175 percent and Comcast's stock price climbed nearly 50 percent. In the first quarter this year, Comcast added 75,000 new cable TV subscribers and posted an 80 percent rise in earnings over the previous first quarter.

Not what one would call a mandate for change. As with the I.R.S. -- which does not have to compete for its business -- frustration among customers has little impact on cable company earnings because they have very little competition at a local level.

Fornell characterizes cable industry pricing as "monopoly-like" and cites that basic cable service rose 93 percent over the past decade, nearly four times the rate of overall consumer prices during the period. Until profit is affected, though, there isn't much corporate incentive to win customer hearts.

In other words, the only sure things are death, taxes ... and wretched service from airlines and cable companies.

by Liz Gunnison