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A memo to airline passengers
If you don't want to pay what it's worth, then stop whining about air travel.But it's been ringing in my ears ever since.
Because let's face it: we're not paying enough for commercial air travel. Airlines have cut costs to the bone, slashing pay, eliminating services, deferring new planes, hedging jet fuel purchases, and all the rest. And yet they're still losing billions.
But while the cost of most everything else we buy, in inflation-adjusted dollars, has gone up (notable exceptions being things like TVs and phone service), the price of air travel has gone down over the last several decades.
Back in the early 1960's, when a gallon of gas cost 29 cents, a flight from New York to LA could be bought for as little as $250 round-trip. Today, you can fly that route for as little as $178 round-trip when there's a cutthroat sale going on, but that gallon of gas costs 10 times as much. A brand new Ford Pinto cost $1999 in 1972. And that $250 flight, in 1960 dollars, works out to about $2200 in 2009 greenbacks.
For some odd reason, and I've never heard a rational explanation for this, North America's airlines can't seem to price their product at what it actually costs them to deliver it.Experience has shown them that when they raise fares to profitable levels, people simply reduce their flying, and that impacts the entire travel industry-hotels, rental cars, attractions. Because, let's face it, most air travel is discretionary. Few people have to fly to Hawaii unless it's to a funeral or to attend college.
And so instead of raising prices, airlines have cut costs, wages, seat pitch, and perks such as meals and pillows. And that's resulted in cramped and dirty planes, cancelled routes, and grumpy employees and passengers. But what, exactly, do you expect when you pay more for the round-trip taxi ride to the airport than for your flight to Chicago?
Look, I've built a career and an award-winning airfare web site on telling people about insanely low airfares. And I love my work. But honestly, when I see a $98 round-trip fare from New York to Denver, I shake my head, and I feel a little guilty. Am I helping the situation by telling folks about how desperate the airlines can get sometimes? It's like stealing candy from a baby, not that I've ever done that. Or at least I don't think I have.
One way that the airlines are trying to achieve pricing power, frankly, is by reeling consumers in with ridiculously unprofitable fares and then hitting them with all these new fees for checked bags, pets, itinerary changes, and frequent flyer ticket redemptions. But even that hasn't returned them to profitability. All it's done is generate thousands of newspaper headlines. Speaking of which, enough about those holiday surcharges already! So the airlines are trying to lose a little less money. Give them a break!
Eventually, and who knows when, the party has to end. Fares need to go up, or we'll see more airline mergers and Chapter 7 filings. And then fares really will go up. But meanwhile, perhaps it's time to face reality. Sure, air travel isn't fun anymore. Sure, it's a PITA. But just as surely, as crappy as it is sometimes, this is what you and I told the airlines we wanted by voting with our wallets. So maybe we should all just stop whining or get used to paying a fair price for airfare.
George Hobica is the founder of Airfarewatchdog™, the most inclusive source of airfare deals that have been researched and verified by experts. Airfarewatchdog compares fares from all airlines and includes the increasing number of airline-site-only and promo code fares.
Filed under: Business, Airlines, Budget Travel, News, Consumer Activism
Reader Comments (Page 2 of 2)
georgehobica Dec 2nd 2009 1:51PM
John, first of all I am in no way an apologist for the airlines. And I absolutely agree that if you and I ran a business like the airlines do, we'd be out of business...in fact, read my previous post on Gadling.com which is all about that.
And I agree that if you provide better service, people will come. That's why Southwest and JetBlue were the only two US airlines to have traffic jumps in October.
And I agree that many people have stopped flying because it's a PITA. I don't like flying much either. I visit Boston from NYC about once a month and even if JetBlue has a great fare, I take Acela. No TSA, no change fees, no 3 hour ground holds (unless someone jumps under the train, which happened a while back).
What I don't agree with is that airline passengers don't have control over what the airlines can charge. That simply is not true. When airlines increase fares, consumers exercise this control in a very simple way: they stay home, they take the bus, they drive. It is a very difficult business.
Burton Jay Rubin Dec 2nd 2009 2:27PM
"If you don't want to pay what it's worth, then stop whining about air travel?" On the contrary, if you don't want to run your airline in accordance with minimum American business standards and with decent respect for the traveling public, including not stranding people without food, water, ventilation and access to sanitary facilities, you can stop flying over our houses and using publicly supported infrastructure.
Contrary to what industry apologists claim, the deregulated airline industry isn't like other businesses. It benefits enormously from existing laws that restrict entry, limit competition, and shield it from accountability, and they still can't make a go of it. You can't always find an alternate flight to Cleveland, like you can find another dry cleaner. They have abused their position and kept the public captive while they and their apologists whine "that's what the public wants." Deregulation has worked out well for a handful of senior executives and failed everyone else, including its employees and the public. Air transportation is an essential public utility that must be regulated both to prevent abuse of the public and to assure it operates on a self-sustaining basis, which its management has failed to achieve in the absence of regulation.
Anyone who regards deregulated air travel as a success is a good candidate for recruitment by the Flat Earth Society.
Burton Jay Rubin
airlineboo-hoos Dec 3rd 2009 7:12AM
"airlines have cut costs"?....In what universe? Charging money for checking bags is HARDLY cutting costs. The airline industry is responsible for it's own damn problems....high fares, crappy service, dangerous and poorly maintained planes, drunk pilots playing with laptops...
georgehobica Dec 3rd 2009 4:34AM
Airlines have indeed cut their costs....checking bags is YOUR cost. But the reality is that adjusted for inflation, airfares have come down since deregulation. Heck, even NOT adjusted for inflation they've come down.
Heather Poole Dec 3rd 2009 1:12AM
Well said, George! Love your post.
georgehobica Dec 4th 2009 12:25PM
Thanks Heather!! although I see a certain naughty airfare blogger someone has decided to misinterpret what I'm suggesting here.
Johnny Jet Dec 3rd 2009 2:50AM
George,
Thanks for this post. And Rick - thanks for the comments. Great job all around.
Clint V Dec 3rd 2009 8:26PM
Your article was interesting, as were many of the comments. I was a pilot for Northwest Airlines from 1965-1998, so I observed the airline industry in its successful days and in its decline.
Two thoughts:
In the early '90s a senior executive made a presentation at our crew hotel in Narita. One of the crew members asked why we couldn't raise fares. His answer: The public has told us they won't pay higher fares. My response: No, they won't because you have trained them to believe they don't have to (eg: fare sales, frequent flier programs, etc.).
Second thought: Prior to the mid- '80s with deregulation, leveraged buy-outs, airline acquisitions, etc., the Feds regulated not only fares but access to markets. This helped control excess capacity. In addition, no one seems to have mentioned one of the largest line items on today's airline balance sheets: interest. Those leveraged buyouts and acquisitions were accomplished by adding huge amounts of debt. The "smart guys" who figured out how to make money for themselves with an airline left corpses in place of the marginally healthy airlines they acquired.
georgehobica Dec 4th 2009 11:59AM
Clint, Very good point about the debt. CEO's all get paid too much in our humble opinion. And I'm not advocating a return to airline fare or route regulation, although I do think we need some rules in place to protect passengers and that these rules would encourage more people to travel. Also, I'm not suggesting that we need to return to the fare levels 1960's when flying was a luxury, contrary to a surprisingly unfair and regrettable comment I read posted yesterday by a well-respected airfare blogger. Nothing in my original post suggests that.
And it's pretty ironic for this blogger to state that I was just trying to be "provocative" in writing this post. As a seasoned journalist with over 20 years of experience writing for major travel magazines such as Travel and Leisure, Budget Travel, and National Geographic Traveler, writing an article just to be provocative is not how I roll.
But the fact remains that the US commercial airline industry, taken from its inception to the present day, has not been profitable. The world wide airline industry is in crisis. And, whoever is to blame, there's something wrong about that. And it's resulted in a pretty unpleasant experience for many travelers, judging by the emails I get every day.
What prompted my original post is that many people I talk to or email with complain about poor service, dirty planes, flights canceled due to poor maintenance, etc. AND they complain that airfares are too expensive. And that just seems weird to me.
cblock2 Dec 4th 2009 4:55PM
Just a couple of observations:
First off, "what it's worth" and "how much it costs to provide" are two completely unrelated events - this is just Econ 101. A consumer bases his view of something's "value" on its perceived utility - in the case of business travelers, the value of the trip to the business' profitability, in the case of leisure travelers, the subjective value of the experience. If the price is too high. The only "correct" price of anything is what someone is willing to pay.
And a lot of the talk around airline employees taking pay cuts starts from the presumption that the pre-cut wages were the "correct" wages - wages are just a price for labour. There's a presumption, particularly in the union mentality, that there's only one correct direction for wages - up, that wages can never come down. In economics, it's sometimes called the "ratchet" theory, just as a ratchet wrench moves freely in one direction but doesn't move in another, so should wages. In the real world, if wages can't come down, what usually happens is the employer simply finds a way to live without the employee (outsourcing to lower-cost countries, etc.) and the employee takes a pay cut...to zero.
The inflation analogy isn't quite true - one also has to consider that many products have had prices that have kept pace with inflation, but the product has qualitatively changed...a 1979 Pinto can't be compared to a modern economy car, which is built to a higher standard (that's how Hyundai can offer a 100,000 mile warranty, while the warranty on a Pinto was for what, 12,000?), pollutes much less, is more comfortable, has more amenities as standard equipment, and is far safer in a collision.
As for CEO pay, I'm not sure if Mr. Hobica's statement was that airline CEOs are paid too much, or CEOs in our society are paid too much in general. If the latter, a fair point, but if the former...compared to CEOs in comparable firms (based on revenue, assets, employees, etc.) most airline executives are paid less than average.
All that said, though, I do agree with your point that given all these realities there is a disconnect between expectation and reality - to use a retail analogy, the public sometimes expects Nordstrom service and Walmart prices. Air travel is largely a commodity these days - there isn't really that much difference between a seat on one or another.
The frustrating part is that no one seems to be able to come up with a solution for the airlines - consumers are very resistant to price increases. Attempts to offer a higher level of service to differentiate the coach product (MRTC on American, for example) or offer a service level somewhere between coach and first class at a premium (the original Signature Service on Midwest) have failed.
What's the answer? I have no idea. All I can do is give my business to the airlines that give me the best experience, but keep my expectations reasonable, and thus the whinging to a minimum.
georgehobica Dec 4th 2009 5:00PM
Very well said. I was referring to CEO's in general, not necessarily airline CEOs. That's a good way of putting it--there's a disconnect between expectations and the reality of the airline industry today.