Why the No-Frills, Cattle-Herding, Fee-Crazy Airline Business of Today Is Here to Stay

  • Share
  • Read Later

At airline-industry conferences, you can pretty confidently bet that some luncheon speaker will sagely intone something along the lines of: “In the world of aviation, the only constant is change.” Well, not anymore. Love it or hate it (polls say more folks hate it), the way we fly today, our air-travel experience, isn’t likely to change fundamentally for years to come. Whether this “new normal” will improve the lot of everyday air travelers, though, remains up in the air.

After a decade of incredible industry turbulence — an era when most major U.S. airlines, overwhelmed by soaring fuel prices, recession or both, bit the bankruptcy bullet — the business of commercial air travel is “finally on the brink of stability,” as US Airways’ president Scott Kirby recently put it. That’s not just because fuel prices are leveling or the economy is improving. At least as important is that the airline business is becoming an actual business.

Even in an industry long accustomed to poor-mouthing about its horrific finances, officials now dare to envision, however tentatively, some real, sustained profitability. Airlines are “heading in the right direction,” says the trade association’s chief economist; United Airlines’ CEO Jeff Smisek even admits to harboring hopes that the industry is “becoming consistently profitable,” the Chicago Tribune reported. Air travel is up, expected this summer to start closing in on the all-time record levels set before the Great Recession, and U.S. airlines overall made money for the third year in a row in 2012. Losses in this year’s first quarter — typically the industry’s worst — were less than a third of last year’s first-quarter losses. Even the killer jet-fuel costs that once pushed carriers over the bankruptcy cliff are seen now as only a threat to earnings, not to airlines’ corporate survival.

(MORE: Why Hotels Aren’t Making a Killing on Fees Like the Airlines)

Wall Street is cheering — the index of airline stocks nearly doubled in the past two years and tripled in the past four. Airline workers may cheer too after years of layoffs and pay cuts. So should aircraft manufacturers and thousands of other businesses large and small that benefit from a healthy airline sector. But everyday air travelers also have a right to ask what’s in it for them. After all, plenty of what it’s taken to achieve the industry’s newfound stability and profitability comes out of air travelers’ comfort, pocketbooks and elevated stress levels.

Most obvious is crowding — part and parcel of the industry’s new focus on efficiency and the bottom line. It costs just about the same to hurl that massive aluminum tube into the air when it’s filled with paying passengers as when it’s half-empty, perhaps minus the cost of carrying the extra weight, the additional sodas and all those tiny pretzels. So the more folks you can cram aboard, the better, financially speaking. Any empty seat, however rare now, is a lost revenue opportunity.

Then there’s the array of nickel-and-dime fees that passengers have come to loathe and airlines love as a key component of profitability. Hefty charges for all those “unbundled” services — such as having an assigned seat or enough legroom to avoid crushed knees — once quaintly known collectively as “a flight,” have meant billions in new revenue, over $6 billion just in bag fees and ticket-change fees for the U.S. airlines in 2012. Rising basic fares also undergird the industry’s successful new business model. The handful of merged airlines that survived the decade’s financial storms rediscovered the law of supply and demand, so forget about scoring cheap seats given away in hopes of grabbing market share. Airlines have tilted the balance by cutting the supply of seats and fares have risen for the past four years, though they’re still close to where they were a decade ago, adjusted for inflation.

Maybe most fundamental, the industry’s new normal seems to rest on a whole new frame of reference when it comes to customer service. “Sit back and relax” has largely become “you get what you pay for” — no-frills basic transportation. “We’re a service business,” Smisek said of United, presently the nation’s largest carrier by revenue. “We need to get you where you want to go, on time, with your underwear.” It may be unrealistic today to expect a great deal more than that. But even putting aside antiquated expectations of flying as a pleasant sojourn through the friendly skies, can’t passengers expect their air-travel experience to regain a little of the civility and humanity lost during the dark days of the past decade’s financial panic, now that the industry is back on its feet and seems to have found a way to stay there?

They should. U.S. airlines and their trade association have argued eloquently that a more stable, profitable industry — one that produces a decent return on investment over a sustained period — will let them reinvest in customer service and operational efficiency, build better airport facilities and improve in-flight services.

(MORE: One Airline That Stubbornly Refuses to Pile On Fees — at Least for Now)

Understandably, profit-focused carriers are likely to channel much of that investment to better airport lounges and flatter seat-beds for their higher-profit premium travelers up front, but there’s plenty to be done for the many more folks in back too. That includes expanding onboard wi-fi access and seat-back entertainment options, modernizing and enlarging aging terminals, and investing in sophisticated new aircraft that enhance the comfort of everyone aboard. (New planes like the Boeing 787 and the Airbus A350, for instance, promise more humidity in the cabin to reduce the uncomfortable Death Valley dryness, and their new fuselage materials allow higher cabin pressurization, letting fliers, in a sense, breathe easier.)

A more investment-capable industry could also continue improving baggage-delivery systems, more rapidly implement expensive delay-reducing air-traffic technologies, and work more cooperatively with regulators on sensible consumer-protection rules. Air travelers can even reasonably hope that a more stable, optimistic industry will support a happier, more satisfied front-line workforce ready to treat ordinary passengers with a little more generosity and grace.

All that would make aviation’s new normal something for the roughly 750 million annual U.S. fliers to cheer about too.

Mark Gerchick is a former Chief Counsel of the Federal Aviation Administration and former Acting Assistant Secretary of Transportation for Aviation and International Affairs. His book Full Upright and Locked Position: Not-So-Comfortable Truths About Air Travel Today was published in June.

12 comments
andersonruth3
andersonruth3

Anybody working for the airline industry has sold their soul to the devil. The airlines absolutely hate the customer. You must give up your rights as a human to fly.

alicewalker771
alicewalker771

The American airlines have some pretty horrible service. It's a shame when you hear the CEO of the largest airline in the country say their only concern is getting you from A to B on time with your underwear. Is there really not a way to do it better and still make a profit? You have to think there is a trick to it. How can these guys have not been able to make a profit for so long? Now, all of a sudden, there is less competition, they're charging ridiculous fees, and suddenly the profits are rolling in. We'll never get the money back that we didn't spend before, and the barrier to entry in this market means it will likely turn into an oligopoly. America had so much potential at one time. It wasn't too long ago when we were the envy of the world. Well, at least I'll be able to tell my kids stories about the good ol' days.

MikeLand
MikeLand

I've done 47 days of rentals this year that in previous years would have been short flights to cities 400 miles or less.  I hadn't flown with American since 1981 and in April of this year, they were the cheaper of a flight to LAX.  I usually do Frontier or Delta.  But now that American says they will charge for carry on bags, that puts a fly in their ointment until Delta does the same.  I did realize why American was so cheap to LAX.  They flew us out there in a puddle hopper.  It didn't have jack.  I remember time being so spoiled by Delta on the same leg and they had Direct Tv in the seat, free radio channels on the audio, wifi, and decent snack service.  I now carry my own snacks and you better be sure to have a "NO PEANUT" label on your seat because I will pack my mixed nuts and PBJ sandwich.

EricPederson
EricPederson

The 4 biggest carriers in the U.S. are terrible.  This is the end of the discussion.  Other countries national airlines have succumbed to the realities of higher fuel costs and what not, but still manage to give you some value for what you paid for your fare.  American carriers don't care about this because they have been deregulated...now, the only thing they have to worry about is increasing EPS for their shareholders, and not much else.  Regulation wouldn't have prevented many fees from being assessed or helped curb fuel/operating costs, but it WOULD have ensured there was competition--something American industry hates.  When they deregulated the airlines (and other industries) back in the day this is the kind of thing everyone who was against deregulation was warning everyone about.  Deregulation kills competition and limits consumer choice.

BelialPelegrim
BelialPelegrim

The very fact that we're able to defy gravity and fly around the world at our whim is astounding. Anything else said about it is irrelevant to me.

jd998bb
jd998bb

The airlines are just like their brethren in the oil industry...jacking prices and reducing quality in an endless cycle for the last 30 years. And, in my opinion, its pretty much down to the same reason...the people running the show are exploiting everybody at every turn. Not just the paying public, but the employees and sub industries that support it. Fly a different International carrier if you ever have the opportunity...most of which...BTW...have been making money all along...and you'll come away with even more misgivings about US carries than you already have. Go figure..."they" can staff to appropriate levels for good customer service, serve decent meals on the aircraft with friendly attentive cabin crew and do it for the same prices if not less, and actually have pillows and blankets on board! And they get you there on time...I never fly internationally on a American carrier anymore. Also, pass through security in just about any other place in the world...and witness common sense and efficiency at work. Makes you wonder...

formerlyjames
formerlyjames

If the passenger rail service of old were restored, or bus services innovated, the airlines would go down for their miserable service.  They can also rejoice over 9/11 because the consequent security reduces the possibility of people going completely postal over horrific flying experiences.  We pay for much of the costs of this incredibly shoddy industry.  

BorisIII
BorisIII

And if you book a long flight early its cheaper than Grayhound with a better view.  Worth it to me.

EricPederson
EricPederson

@BorisIII Cheaper, but the only thing you're paying for IS the view.  You're treated the same by the airlines as you are by a bus line.  Flying used to be for people who could afford it...you paid more but certain things were included in that price, namely, being considered valued regardless of whether you purchased a coach or first class ticket.  100% of airlines don't value economy passengers because they don't make any money off them...they view them as cargo.  If you don't believe me, call any of the major airlines and ask them to make an accommodation for you if you aren't a first class ticket holder.  They'll tell you to piss off.