Earth to Airlines: Raise the #@!$% Fares

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Former American Airlines CEO Robert Crandall once famously said the airline industry is always in the grip of its dumbest competitors. What he didn't add, however, is what if they're all dumb? Fortunately, they aren't, but the legacy carriers—chiefly American and United—seem incapable of facing the music on rising oil prices and are choosing instead to adopt customer unfriendly policies that beat up the very people they need to survive.

Specifically, American came up with the boneheaded idea to charge passengers for checking baggage and United followed suit. So did US Airways. Now United has returned to the much-hated fare structure that requires a minimum stay, as long as three days over a weekend in some cases. Passengers see these developments for what they are: punishing the customers for market forces beyond the control of anyone.

A friend of mine observed that it's almost as if they want to run themselves out of business. In any case, Southwest Airlines—I happen to be writing this from seat 6A on a Tampa-bound Southwest flight—has been circulating a funny ad that says "bags fly for free."

The legacy carriers whimper that Southwest and others of its ilk compete unfairly because they have lower seat mile costs and serve fewer cities. Well, duh. Southwest presciently negotiated long-term fuel price deals that give it a huge advantage over American and United who were, presumably, spending their management assets trying to figure out ways to whack passengers for more money for changing flight arrangements or checking that second bag.

Everyone knows that the price of oil is at record levels and likely to stay elevated for the foreseeable future. People who fly the airlines also realize that this inevitably must affect fares. Those of us who remember what airline travel was like before deregulation, discounting and service expansion also realize that the industry is going to have to retract to a route service model more like the 1970s than the 1990s. Bluntly, this is going to mean higher fares and less service to outlying markets, which translates to the airlines operating fewer but larger aircraft with—one hopes—higher load factors. The regional jets that now clog the major terminals are almost sure to be reduced in number. It will also mean that some people won't be able to afford to fly and those who can may fly less.

Is this a good thing? My view is that it's not entirely bad because it forces us as a civilization to use our resources more wisely and to price goods and services in sustainable ways that reflect their replacement costs. The MBAs at United who think they'll survive by forcing passengers to spend a weekend away from home may find themselves out of a job unless they adapt to this new reality. On the other hand, if you, as a passenger, think you'll continue to have the choice of six non-stop flights to anywhere for $250 coast-to-coast, you're living a dream. But then you already knew that. Customers have made this transitional understanding—airline management hasn't, with the exception perhaps of Southwest, who figured it out 20 years ago.

As for the service itself, the airlines aren't as bad as everyone seems to think, in my view. Bad service was Aeroflot circa 1975 ("Flight cancelled…you go Novosibirsk next week.") When flying the airlines these days, expect full airplanes with stuffed overheads. Yes, flights get delayed and cancelled, but not so often that you don't get where you're going. The security screening sucks, but it's not the living hell it's often made out to be. The TSA needs to overhaul the way they conduct screening and, for God's sake, stop having people remove their shoes. This is sheer idiocy and everyone knows it.

As for the airlines, one hopes if they charge realistic fares, they can provide service improvements such as non-abusive schedule-change options, counter agents who actually do their jobs as though they care and maybe a seat pitch expansion so you can walk rather than crawl to your seat. And my bag goes for free, please. What I'm saying is that I'm willing to pay the money for an incrementally improved service. I'm convinced that others are, too.

As the airlines raise fares—as they must—there's an opportunity for general aviation, too, especially for efficient, piston-engine airplanes flying trips under 1000 miles. Even in an age of $7 avgas, you can fly three people 500 miles in a single for under $400 in fuel costs. You can't match that in airline fares, not to mention the time savings. For the right trips, then, GA is still an efficient option. I think it always will be.

But general aviation owners and pilots have to confront an unpleasant reality whether they like it or not. In an oil-short world, the tilt is strongly toward mass transit and that's what airliners are. Even though you may pay more for a trip on the airliner than you would in your personal airplane, the airliner will frequently—although not always—represent more efficient use of fuel to deliver seat miles. And the economics of large airplanes are the same as they are for small airplanes—filling the seats makes for more efficient use of both fuel and dollars. As an aircraft owner, you now get to decide for yourself if you want to burn more fuel to avoid security lines or suck it up and burn a fraction of the fuel to get where you're going on an airliner. It's your call to make.

That's something we all need to think about.

Comments (17)

Although its always great to make fun of airline management, there's one thing they understand that Mr. Bertorelli apparently does not. That is, the exact shape of the supply demand curves in this situation. A 10% increase in basic fares is forecast to produce a 12% decrease in passengers. That is obviously a no-win situation for the airlines. The best they can do is keep the basic rate down and then charge for extras, hoping that the bottom tier of their customers will not go away at least until they proceed further with their cutbacks. If oil continues to increase at this rate through the end of the year it probably will not be a good enough plan to save the legacy carriers.

Posted by: Christopher Marks | June 29, 2008 6:19 PM    Report this comment

Your statement about civilization and its use of resources is striking. Looking forward to your next column exploring that idea further.

Posted by: Peter De Ceulaer | June 30, 2008 4:48 AM    Report this comment

As one who flew regularly in the 1970s, these are my thoughts exactly!

Posted by: Orv Knarr | June 30, 2008 6:09 AM    Report this comment

Mr. Marks you're wrong. They don't understand that, they fear that.

Management in the airline industry, according to Wall Street and pollsters, is "third tier". They refuse to make decisions, the hard ones, because they might be wrong.
I have watched scheduling squander resources, send pilots out on a deadhead, deadhead them home (no, repeat, no flying) paying them two duty periods. I watched a manager buy gas at the expensive places and tanker it to the cheap places and earn a vice presidency for the 10 million dollar (in one month alone) screw up.
And yet they want me, as a pilot, to take a pay cut while recieving millions in bonuses because they are doing such a great job in these hard times. I wouldn't mind the cut if it was shared, if the risks that I take with my certificates where applied to taking risk with corporate profit.
Years ago, when my wife was working for another airline, the pilots were in negotiations and she came home to tell me they were going to run the company out of business.
I explained that the cost per seat mile was 13 cents, the revenue per seat mile was 11 cents and the new contract was barely going to change those numbers -- so how was management going to "save" the airline from the pilots; volume?

Posted by: John Hyle | June 30, 2008 7:33 AM    Report this comment

Mr Bertorelli is spot-on, but didn't give the idiot MBA's who are running the legacy carriers quite enough blame. Laying off 950 pilots and still giving million-dollar bonuses to the suits in the corner offices?
I can't comprehend this level of stupidity outside of government.
Bill Hill

Posted by: Bill Hill | June 30, 2008 8:15 AM    Report this comment

Lots of good points here. And indeed, the legacy carriers fear the fact that the new supply demand curves clear at higher prices and lower volume. That means less business go around. The pie gets smaller and the ones that survive keep a larger portion of the pie because they know how to compete. These folks are fighting the inevitable; economic forces. Like trying to fight gravity. And we the consumers fight this "creative" price increase enactec by charging us to carry bags, or eat or drink while on long flights. Next you know they will be wanting a dollar to use the lav. OK, I'm joking, but only just a little bit. This is the antithesis of customer service and it will also lead to their demise.

Oh, and let's not blame "MBA" for this. MBA's end up having to do what the top tier of management wants, in spite of them knowing full well it's a bad idea, and in spite of trying to explain that to top management. Many times they too just have to go along for the ride. Just because you know it isn't the right approach, doesn't mean you have the power to do anything about it.

Posted by: Robert Callaway | June 30, 2008 9:34 AM    Report this comment

I am not sure that a GA airplane need burn more fuel per person mile. Most personal GA plans are probably flying pilot only most of the time . In the 1950s I flew a Mooney Mite between Canada and Costa Rica and would get 35 mpg. On occasion I used MOGAS (it flew the same). I only cruised about 115 MPH (the gear didn't fully retract) and I didn't appreciate the fuel savings with altitude. How about running some numbers for a similar plane with 100 HP, fuel injection, running LOP at 13,500 feet. I wouldn't be surprised if it could get 40 mpg at 150+ mph. That's 50 mpg in a road bound car. Eat your heart out Prius!

Posted by: ARTHUR THOMPSON | June 30, 2008 9:52 AM    Report this comment

I sort of agree with you Paul - there is a subset of 'coach' fare paying passengers who would pay for 'coach plus'. Trouble is, the airlines want to segment the market into coach (no profit), business ($$ profit) and first ($$$$$ profit). They see 'coach plus' as cannibalizing their business fares. I disagree, but sadly they won't let me run an airline. The coach/business/first model inevitably creates a 'race for the bottom' in coach fares, with a predictable loss of service, legroom, civility.

There's also the issue that the time spent in the air may not be as significant as the misery while on the ground - why pay for TSA nonsense and terrible terminal waiting facilities as standard 'coach'.

It's also crazy that airlines are permitted to post schedules that are fictions based on hubs having infinite capacity. One of the reasons for downward pressure on fares is the apparent abundance of available flights between destinations on any given day.

Posted by: Ceri Reid | June 30, 2008 10:29 AM    Report this comment

I agree with Paul completely, the airlines seem willing to charge more and more for everything BUT won't raise the fare. So, now that we have Skycap services closing (you didn't mention that one) at many airports as well as all the fees you spoke of, I want to share some predictions:

Fee for seat selection - you will be charged extra to reserve and aisle or window seat.

Fee for carry-on baggage - to counter the sudden (surprise!) completely-full overhead bins, any bag placed there will cost extra. They will conveniently sell tags in the departure lounge, perhaps via vending machine.

Fee for Laptop Power - prevoiusly free on American Airlines, they will start requiring those passengers that use this amenity to pay.

Fee for headset purchase - Already common.

Fee for bringing your own headset - charged if you plug into the airline's entertainment system.

Agent Fee - if you don't use the Self-Service Kiosk or Online check-in. Just like Teller Fees at banks.

Do you agree?

Posted by: Jack Burton | June 30, 2008 10:42 AM    Report this comment

Airlines most definitely need to raise their fares; I say this as a blue collar wage worker and GA pilot/renter.

On my recent trip to visit relatives in Canada I was able to purchase a round trip ticket from Tampa, Fl to Winnipeg, MB and back for $437.00 out the door including all taxes and service charges. If you ask me, that is insanely cheap for moving myself and my baggage 1,700 miles each way.

One thing I do like is the policy of charging extra for exit row seats in coach. Of the 4 legs of my round trip Canada flight I was able to get free exit row seating all to myself on three of the four legs. Yeah, after everyone is seated in their assigned seats I'll get up and move to the exit row and I have more leg room than first class. I guess it seems that coach passengers, myself included are unwilling to pay extra for the premium exit row seats and I'm one of the few who will take advantage of the situation.

Posted by: Sam Mendelson | June 30, 2008 11:10 AM    Report this comment

My Mooney Ovation doesn't use more fuel per passenger than a 737. With a single passenger, I am almost even with Southwest on a fuel/passenger/mile. I then get to take off and land near where I am going rather than use a car to get to the middle of nowhere airport they fly from, to the middle of somewhere I don't want to be where they will land me.

Nope. Even without hub and spoke, the airlines can't get you where you want to be. The only thing helping them out is NIMBY's and developers colluding with governments trying to destroy GA airports in their downtime from trying to simply destroy GA outright.

Posted by: Eric Warren | June 30, 2008 11:51 AM    Report this comment

I have been saying for year, "Flying is not cheap". When you pay less to fly than riding Grayhound what do you expect? The airline need to raise their fares to a level that they actually make maney and service their customer with respect, not treat them like baggage.

Posted by: Tim Pippert | June 30, 2008 9:53 PM    Report this comment

I have been saying for year, "Flying is not cheap". When you pay less to fly than riding Grayhound what do you expect? The airline need to raise their fares to a level that they actually make maney and service their customer with respect, not treat them like baggage.

Posted by: Tim Pippert | June 30, 2008 9:53 PM    Report this comment

I've recently gotten notices from several airlines informing me of baggage charges for the FIRST checked bag, as well as other fees like ones for using your FREE?? Frequent Flyer Miles.

Now I'm hoping to get one of those mass linked emails in my Inbox so I can help inundate those airlines with protest, as well as pass it on to my friends so they can help inundate those airlines with protest too. And I'll follow through by flying any airline I can that doesn't have such fees, even if it's a bit inconvenient to my schedule.

Posted by: Susan Simmons | July 1, 2008 10:32 AM    Report this comment

If you make and sell widgets, and the cost of making and selling widgets suddenly climbs 50% but demand remains relatively steady, do you balance your budget by making and selling less widgets?

I'm not and MBA, and this may be a little oversimplified, but come on!!

Posted by: eric nelson | July 1, 2008 1:24 PM    Report this comment

One thing that I would like to mention regarding the increase in operating costs is the way that Qantas has responded by putting a freeze on corparate wages for all executives including the CEO as well as increasing the departure tax and putting a cap of 3% on all wage increases.

At least Qantas has a skilled mangement team that are prepared to make tough decisions to ensure that Qantas will continue to survive the current fuel crisis.

Posted by: Michael King | July 1, 2008 11:00 PM    Report this comment

In order to make an economic decision on widgets you must distinguish between fixed and variable costs. If you can make a profit considering just variable costs then this profit is applied to fixed costs so increasing volume decreases total loss (and perhaps turns a profit). But, if you can't even make a profit considering only variable costs then pull the plug on that operation because the situation is hopeless. Then make a better widget that you can sell at a higher price or one that costs less to make or punt.

Posted by: ARTHUR THOMPSON | July 2, 2008 12:25 AM    Report this comment

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