Crash Landing

By Nomadic Matt | Published April 16th, 2008

airlines crashing cartoonAmerican airline carriers have certainly been in the news lately. Over the last few weeks, numerous airlines, most notably American Airlines, have canceled thousands of flights due to safety issues. Aloha, ATA, and Frontier airlines have all gone bankrupt while Delta and Northwest recently announced they were going to merge.

All this turmoil makes you wonder: what’s going on with the airline business in America? It seems pretty grim, but I’m not at all surprised. I’ve flown in many different parts of the world, and flying in America is by far the worst experience I can think of. It makes those long dusty bus rides in Cambodia seem like a luxury tour. Flights in America are expensive and inconvenient. Service is practically nonexistent (no peanuts, no pillows, no drinks!), and trying to navigate the airport is even worse—long lines, delays, inane security checks, and rude guards. When I came back to America from Australia, I had to go through THREE security screenings just because the flight went to America. What was wrong with the first two?

American passengers put up with a lot of crap. I may not get many perks on flights around the world, but when I’m paying $60, I don’t expect any. When I’m paying $300, I expect something for the money (how about some peanuts, at least?) All the recent turmoil in the industry highlights just how bad things have gotten, and, sadly, things are only going to get worse before they get better. There are a number of reasons why:

For starters, America lacks real competition. There aren’t that many choices when flying the friendly skies. Foreign carriers aren’t allowed to fly “within” the States and, as the recent bankruptcies show, very few low-cost carriers actually survive. With all the mergers, consumers in the US will soon have even fewer choices, and when you’re the only game in town, why would you charge less?

Secondly, the US uses a spoke-and-hub system that routes flights through a major hub from the smaller spokes (minor airports) and back out again. So unless you’re flying between major cities, it’s hard to go direct. Hubs are also in silly places like Cincinnati or Memphis or Dallas. To get from point A to point B, you need to fly through point C. In a different age, this made sense, but with higher costs today, I think direct flights would reduce costs and make flying more convenient. Moreover, since spokes are also very unprofitable, many airlines are cutting back or abolishing the routes altogether, making the system even less useful.

Additionally, American workers are pretty expensive for two reasons: health care and pensions. Pretty much every other country in the world has universal health care, so companies don’t have to pay for it. Many governments also pay retirement benefits, while American carriers are still paying out pensions for employees from 20 years ago. This adds a lot of cost onto the airlines and doesn’t allow them to be as price competitive as they could. This is also why new airlines such as Jetblue can undercut older carriers. No pension obligations!
So as airlines pay higher costs, face little competition, and use an inefficient airline model, they raise ticket prices while slashing services. I don’t know what will happen in ten years, but for the immediate future, I see more headaches and higher prices.

With all the problems in the industry, I suspect more consolidation ahead. Additionally, until airlines shed their high labor costs and get rid of the hub-and-spoke system in favor of more direct flights, consumers won’t see a reduction in airfare. For the foreseeable future, flying in America will remain unpleasant, a hassle, and expensive.

comments One Comment

The Flying Critic

Interesting analysis. Your observations about the low levels of service are right on.

Although I’m not so sure it’s a fair comparison between the US carriers and foreign airlines. There are just so many differences in their fleets, operations, pension and labor obligations, and customer demographics etc.

The fares that we see are not so much because of low levels of competition but a combination of of many factors including the huge labor costs in America and high oil prices.

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