Published Mar 3, 2005
My Management Accounting Prof once told us this great story about how TWA went out of business because they didn’t listen to the Marketers. It may be a bunch of baloney, but when I hear the Accounting people say “up with Marketing!” then I figure it’s time to listen. Also, it’s funny.
Some of my older readers may may remember TWA, one of America’s most famous, and most red-painted, airlines; my younger audience may have been introduced to TWA when they saw The Aviator. Leo DiCaprio notwithstanding, TWA was a great American airline for many years, but it fell into some disrepute during the late ’80s and early ’90s.
The specific problem that TWA had was its on-time performance: its planes were horribly late. Naturally, nobody wanted to fly TWA, and its planes were often only about 50% full. This is a real problem for an airline, because it costs a certain amount at minimum to run a plane, fill it with fuel, put in a cockpit crew, etc. — in fact, it costs about the same amount of money to fly one passenger as it does to fly 200. Naturally, your profits are higher if you have 200 passengers in that 737 than they are if you have just 1.
So TWA was in trouble. But the Marketing department came up with a good idea: they took out a bunch of those empty seats — about 20% of the seats in the entire plane. That meant a lot more legroom for all the passengers. And customers loved it! Lots of tourists, who didn’t care if they were a half hour late, opted to spend on the comfy, spacious seats, and TWA’s load factors (% full) skyrocketed.
In fact, the load factors got so high that the planes were full. And then management started thinking “suppose we put in more seats, then we can make more money!” And Marketing was aghast. The only reason TWA was making money was that they had so much legroom! But management was intransigent: those new rows had to go in!
So they did, and people noticed they didn’t have the legroom, plus the flights were still late, so they stopped flying TWA. Then American bought TWA, and now the red and white is gone forever. The moral of the story? Always listen to Marketing.