Air travel today (part 2) – what are CEO’s thinking?

In my last post I lamented at the state of the airline industry today from a passenger perspective as compared to in years long past.

Perhaps someone can indulge me here, but what in the world are airline CEO’s thinking? As I stated before, today jets are sleeker, faster, quieter, more efficient, and more technologically advanced than ever before. It stands to reason that air travel should be getting better rather than worse. But the average traveler is concerned with one thing, and that is getting from point A to B as quickly and cheaply as possible. Why are the airlines so intent to oblige us on this?

Most people are quick to blame de-regulation. When the airlines were regulated the government controlled which airlines could fly certain routes. For instance, the government would only allow Delta and TWA to fly Atlanta-Boston, and only TWA and PanAm to fly New York-Los Angeles. The “legacy carriers” (American, Delta, United, Northwest, Continental and a few defunct ones) were formed under business models that presumed they could charge really high fares. The only way they could really compete was based on service. Offer a better experience than they next guy. (A trip through the TWA/Airline History museum at Kansas City downtown airport offers a neat step back in time to this era.) After de-regulation was introduced anyone could fly anywhere, so in come Southwest, AirTran, JetBlue, etc. who operate on a low(er) cost basis and thus charge lower fares. The legacies have aircraft leases, airport leases, and labor and fuel contracts which were negotiated under a higher revenue stream. They cut fares to compete, but still have high costs, thus bankruptcy is required to get out of those old contracts. This is grossly over-simplified, and there has been plenty of mis-management involved as well (the legacies were slow to adjust)… but that’s the short of it.

The problem is, it ain’t cheap to run an airline. Those airliners cost upwards of a hundred-million (maybe less for the regional jets), and suck thousands of dollars in gas just to get off the ground. Basic economics should tell you that you can’t make money if you’re charging a really low price for a product that has a really high cost basis. So what are CEO’s thinking? Losing money hand-over-foot, why are they still trying? I wonder if the legacy carriers had made the decision years ago to stick to their roots of providing excellent service rather than competing on price, would the discounters have gotten a foothold? For sure, the legacies would be in better financial shape today. Cheap air travel is an oxymoron, and the dirt-cheap fares are not sustainable.

What I really don’t understand is why the meals, blanket, pillows, and other in-flight amenities have been cut. Charging for extra checked bags I can understand. American Airlines did a study a few years back, and they figured if they could drop 100 pounds from each of their flights they’d save a million bucks a year in fuel. Those extra bags are heavy, so I can see trying to re-coup the cost of extra fuel.

But catering is cheap. It costs $125 or so every time a catering truck services a mainline airliner… that’s about a buck a passenger assuming a full flight. Those snack boxes costs less than a dollar a piece, maybe $5 for a full meal. Those pillows and blankets are cheaply made, and not everyone uses them anyways. For an extra $10 per ticket (per segment) you could easily cover the costs of providing those items.

Even worse, now we’re seeing the airlines alienate some of their best customers. Delta is closing several of their Crown rooms (private members-only lounges where elite travelers can rest between flight away from the chaos of the rest of the airport), and United just announced a significant change to the way frequent-flier miles are earned.

Perhaps I mis-understand the American travel market, but it seems to me that good service (this includes on-time performance), decent amenities, and immaculately clean and functional aircraft would go a long way towards building a loyal customer base. An airline that provided these things by selling tickets based on the actual operating cost of the flight and by hiring only the best people (there is a huge pool of quality people who are dying for flight attendant, pilot, and mechanic jobs). Wait a minute… that sounds a lot like United, TWA, and PanAm in the good old days.

Which again makes me wonder what the current airline CEO’s are thinking. If you want to salvage your airline, go back to basics. In the near future there is no question that the size of your operation would be drastically reduced as your lower-priced competitors gobble up your market share. That’s a tough cookie to swallow. Yet I really do think that such an airline (or any business for that matter) could hold it’s own. Over time, if you stuck to your commitment to competing on product and service, you’d build a loyal customer base. And as the airline industry shakes out, I think you’d be in a position to succeed.

I’m one of the many who would no longer be able to afford to fly as often if fares go through the roof. But if those fares were accompanied by an increase in service and quality, it would be worth it… to resurrect the prestige, respect, and wonder that is the marvel of flying.

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