Cigar Aficionado

We're Fed Up

Air travelers in America, especially businessmen, suffer high prices, delays, rude service, bad food and unfair restrictions.

Shortly before 10 o'clock on the morning of April 26, United Airlines Flight 1631 left Denver bound for San Diego. UA 1631 carried businessmen and vacationers; military men in uniform and in sports shirts; a girls' softball team; and a teacher flying west to join her husband at his best friend's wedding. More than a hundred passengers, from octogenarians to infants. Every seat was full.

A flight number in the first paragraph of a magazine story can't help but be disturbing these days. Few of us have the stomach, much less the heart, for more gloom. Fortunately, UA 1631 would not end in tragedy, nor with any display of heroism by a passenger or crew member. It would not be involved in an international incident, or be featured in the next day's newspapers.

By those standards, the standards of September 11, it was a success.

But while UA 1631 ably fulfilled the basic mission of air travel-that is, to get the passenger from point A to point B safely and in a relatively timely fashion-such low expectations are an indication of how unpleasant flying has become.

Over the past two decades, travel on commercial airliners has deteriorated from an enjoyable experience to an endurance test. Passengers are herded and prodded like cattle, harangued and humiliated, stuffed into too-small seats with little room overhead for the single, size-restricted carry-on bag they're now allowed to take onboard.

Often, they're forced to change planes at an airport hundreds of miles from their intended destination. They're fed only pretzels or peanuts and soft drinks-glorified prison fare-on all but the longest flights.

And unless they were able to solidify their travel plans weeks in advance, or if their trip doesn't happen to include a Saturday night stay (as most business travel doesn't), the privilege of submitting to such treatment can cost as much as $1,000 each way.

No wonder business travelers are angry.

Yet at the same time that America's three biggest airlines-Delta Airlines, United Airlines and American Airlines-are flying full planes and slicing service to the bone, they're managing to lose billions of dollars each year.

Delta, which lost $397 million last quarter alone, is considered to be the most stable of the three. It recently pioneered the imaginative cost-saving measure of denying travel agents sales commissions on all tickets, another example of the airlines undermining another passenger convenience.

United teeters on the brink of bankruptcy following a calamitous summer of union strife in 2000 and a failed merger attempt with US Airways last year. It has the highest cost structure of the big three. It spent 11.24 cents per mile in 2001 and lost $2.1 billion.

American paid chief executive officer Donald Carty $3.8 million in 2001. It recently tightened the rules for advance-purchase fares, hoping to add up to $200 per ticket in revenue and block its own nine-digit quarterly losses. In all, the U.S. airline industry bled $7 billion of red ink in 2001. Clearly some of those losses were related to September 11 but not all of them. It's expected to lose $11 billion this year.

Even the people who created the model for air travel as it exists today will tell you that it has gone badly wrong. Former American Airlines CEO Robert Crandall, who presided over the creation of frequent-flier programs, yield management and hubs during his 18-year tenure, recently told an air travel conference that an entirely new business paradigm was needed for the industry.

And Rono Dutta, the president of United's parent company, UAL, told The New York Times: "There is an overriding need to move to a simpler fare structure. People have a hard time making the purchase and feeling good about it."

Dutta needs to know that feeling good about the purchase is the least of it. What people really have a hard time feeling good about is the actual travel. That's because the economics of the industry, which equate profit with cost containment, have effectively eliminated service beyond the bare minimum. "Price is a more important factor than ever before," says Scott Kirby, the executive vice president for sales and marketing for America West. "When price becomes the most important issue, when you're selling a pure commodity, the company that wins is the lowest-cost producer. The most successful brand in the airline industry is Southwest, and the number one component of their brand is price."

Kirby's reference to a commodity is telling. What the airline industry is peddling now is essentially cargo transport for humans. Herd 'em in, move 'em out, dump 'em off. The airline experience has become generic. And since airlines match prices on most routes, what matters is merely which one flies the route you need.

"The consumer is primarily driven by price and schedule, and attempts to brand yourself differently are doomed to fail," Kirby says. "Who knows the difference between United, American and Delta? Move around their advertising tag lines, and no one would even notice."

In that sense, as in so many others, September 11 was the worst thing that could have happened to the business traveler.

Never mind the new security measures, the hour wait to get your carry-on examined, the inconsistent guidelines that force travelers to remove belts and shoes in one airport but let them sail through with a laptop packed away in another. The horror of that day significantly lowered the bar for travel in the United States and beyond.

Amenities had been declining for years, but September 11 gave airlines an excuse to do away with more of them and justify their actions as necessary. How else to explain a flight attendant who tells a Delta passenger that she should be thrilled with a two-hour wait on the tarmac in Atlanta because "at least the plane didn't crash"?

How else to explain the United ticketing agent who brusquely pushes aside a consumer inquiry about the suitability of a portable bassinet for a toddler by saying, "We can't worry about things like that anymore"?

Those are extreme cases, but the same attitude, a sort of institutional brusqueness, is easy to spot. You want food on a three-hour flight to Miami? You want the last passenger's garbage cleared away from your seat pocket? Hey, we're fighting terrorism here.

If you're over 40 and remember travel as it used to be, try to forget it. "I remember flights to California where you'd just eat your way through the entire flight," says Maureen Brady, the managing director for the Delta Shuttle and Delta Express, and formerly the head of customer service. "Those days are gone forever."

Cuts in service are bad enough for the leisure traveler, who liked to say that his vacation began the moment the plane left the ground. Now he's more likely to use the vacation to decompress from the stress of the trip there. But the business traveler, who might have to fly several times every week, finds his entire quality of life affected.

That aisle seat near the front of coach class is his place of business, an office he probably spends more time in than the one with his diploma on the wall. The lunch that used to be served but isn't anymore on the New YorkñChicago flight might be the only meal he'd get before sunset on Mondays-and on Tuesdays and Thursdays, too.

The rudeness he encounters from a flight attendant when he tries to make one last call while the plane is still on the ground reminds him of how little his status as one of his airline's best customers really means. And the flights that are invariably full now because so many others have been eliminated only serve to ratchet up his stress, even as they put wear on the interiors of planes that airlines no longer have the money to refurbish.

"I think we have about as much room as in the Space Shuttle," says UA 1631 passenger in seat 10C. He's a Navy SEAL, flying home to his family after a training session in the Midwest. Not even the claustrophobia of a reclined seat in front of him can dim his smile. The woman in 10B doesn't really mind, either. She's wearing a tank top and sandals, carrying nothing but a paperback, traveling light on a supersaver fare.

But the businessman in 10A isn't happy. He has his computer out because his boss is expecting him to work during the flight. But how? With the seat in front of him reclined, the keyboard is pushed into his chest.

He only found out about this trip two days ago, so he couldn't get any of the advance-purchase fares. Without a Saturday night stay, he wouldn't have qualified for the cheapest of them, anyway. As the plane bumps over the Rockies, he grapples with a quandary. Is it worth staying alone in a hotel for two nights in a strange city, missing Friday night with his wife, Saturday morning with his kids and the hockey game Saturday night with his buddies, just to be able to hand his boss a travel invoice that won't make him turn blue with rage?

This time, fortune smiled on him. He was able to buy a round-trip seat for $684, which isn't bad in today's marketplace. (It's a good thing he didn't have to fly to Los Angeles instead, because he'd be paying $922 each way.)

And he can also fly back to Denver that evening. United still offers a range of flights on that route, unlike other carriers. Living in the middle of the country, he used to be able to access Dallas, St. Louis, Seattle and a dozen other major cities with one-day trips. But now that so many flights have been cut, he often finds himself finished by 5 o'clock but with no possibility of getting home until the morning.

He fingers his United Airlines Premier Executive card, the prize he earns for flying more than 50,000 paid miles on the carrier each year. He's one of the airline's most valued customers, he's told, yet he's paying three times more for this trip than the woman beside him, who has never been on a United flight in her life.

Think about that. He'll eat the same pretzels, struggle with the same tray table, fidget for the same elbow room, land at the same airport with the same chance of retrieving his checked luggage. Yet instead of $2 per minute, he'll be paying $6 per minute.

He calculates how long it would take to drive from Denver to San Diego, and for a few moments he entertains a fantasy involving Amtrak. And then, somewhere over western Colorado, he gives up. He has no real options. His schedule involves too much travel. Trains, cars and buses will never do.

The airlines have him.

 

Until airline deregulation in 1978, the government fixed prices. And they were fixed high. A study released in 1998 by the Air Transport Association to coincide with the 20th anniversary of deregulation showed that prices, adjusted for inflation, had declined by 40 percent, even taking exorbitant walk-up fares into account.

Most of today's cheaper fares require Saturday night stays. American Airlines invented that clever restriction in the early 1980s, and other carriers speedily adopted it because it appeared to help business in two ways.

By making the necessary overnight a Saturday night, they denied access to low fares to all but the hardiest and most footloose of businessmen, those who were working over the weekend or had nowhere else to go. That meant airlines could now simultaneously lure new passengers with bargain fares yet soak the business traveler for all they could get.

It was a brilliant strategy, except that it sowed the seeds of their own demise.

In a sense, prices are still fixed. If one carrier cuts its fare from Chicago to Minneapolis, you can bet the rest will, too. In most consumer categories, this is called price-fixing or collusion, and it is illegal. The airlines use sophisticated machinery to make hundreds of price changes each day, so they never actually have to communicate with each other. But isn't it an extraordinary coincidence that the three airlines that sell tickets on the same route have chosen exactly the same price?

What this de facto collusion does is prevent carriers from offering significantly different service from their competitors. The economics mandate it. Imagine if a Hyatt had to respond to every price cut made by the Holiday Inn across the street. Either the Hyatt level of service would soon come to resemble that of Holiday Inn, or the hotel would go out of business.

Hyatt doesn't have to do that because it doesn't compete with Holiday Inn. The businessman who wants a clean room with cable television and a direct-dial phone can pay the Holiday Inn rate and get that. For more-a stylish lobby, say, with a full-service restaurant, minibar and designer soap in a cellophane wrapper-you pay more. Nobody expects Hyatt amenities at a Holiday Inn rate.

But the airline industry has no Hyatts or Holiday Inns, not among the major carriers. They compete for the full-fare business, and for the discount business, too. "We aim at all of them, at everyone," says Northwest spokesman Kurt Ebenhoch.

Ebenhoch is proud of what he considers some very real differences between Northwest's service and that of its competitors on the Chicago-Minneapolis route. The flight involves a hub for all three carriers, Chicago for United and American, and Minneapolis for Northwest. "It is the most lucrative route out of the Twin Cities, because of the high percentage of business travelers," Ebenhoch says.

Notice that it is a high percentage of full-fare customers that makes a route profitable, not necessarily a full plane. We'll get back to that in a minute. But first, let's let Ebenhoch enumerate some of the aspects that make Northwest's service better.

Not only does his airline offer more flights between the cities than any other carrier, he says, but also it has configured its planes so they have more first-class seats. That plays into Northwest's strategy of offering top customers unlimited upgrades, which United and American's elite passengers don't get.

Northwest has also introduced new check-in options, the most exciting of which is the ability to choose a seat and print out a boarding pass over the Internet. "What we're trying to do is attract the high-yield business traveler, who is time-sensitive and wants to be able to walk out of his meeting, know that a flight is leaving soon, and upgrade as often as possible," Ebenhoch says.

Sounds as if Northwest is doing a good job. But if so, why can't it charge $20 more per ticket to defray the additional cost of such services? Surely reconfiguring the airplane and offering unlimited upgrades can't be done for free. The same businessman who chooses the new Chicago Park Hyatt over the Holiday Inn, and pays an extra $7 a day for a Pontiac Grand Am rather than a Geo Metro, would be willing to pay a little more for such additional services. Wouldn't he?

Ebenhoch wouldn't answer that question. Its premise undermined his industry's basic approach to its business, which is that air travelers don't really care about service no matter what they say. To admit the possibility that consumers perceive the airline category in the same way that they perceive every other category is to send the entire house of cards tumbling down.

"It's a complicated business," was all he'd say.

"But here's the more important question," says America West's Kirby. "If Northwest isn't going to charge passengers more for such services, then how can it justify offering them?"

The long-term answer: it can't.

And that's what happened to your choice of entrée, the second olive in your salad (or a salad at all), and the newspapers that used to be passed out on board. That's why the major carriers won't offer satellite television service and why they don't serve better wines. If the way to profitability is through cutting costs, as they believe it is, then all of that is superfluous.

And if it isn't, well, a lot of people have been very wrong for a long time.

"We all struggle with the brand differentiation theme," says Delta's Brady. "We have whole departments set up to define what brand identity is. In the end, we hearken back to something that our founder said back in 1929 that has become a mantra for us. 'All airlines are the same, only the people are different.' What you don't want is to be identified as 'That's the one with the satellite TV,' or 'That's the one with the Mexican food.'"

Instead, they settle for the alternative: "That's the one that canceled my flight."

As opposed to "That's the one that lost my bags."

 

For leisure travelers, airline travel is a terrific deal. Find newspaper ads from a generation ago and you'll see coast-to-coast flights for $400. If you shop around today, you can usually do better than $250. The Internet has done that, and travel agents with fast computers, and consolidators that fill seats that otherwise would go unfilled.

The business traveler subsidizes those cheap fares by paying exorbitantly for the exact same service. "Consumer advocates would describe the industry model as gouging," said Kirby. "Force business travelers to pay as much as possible, because that's where you make your money."

The supersaver fares are so low that airlines can't turn a profit with them. That's where the full planes that operate at a loss come in. "It's a function of the mix," says Ebenhoch. "A plane can fly half full and make money, or fly full and lose money. It depends on how many full-fare travelers there are, as opposed to discount travelers. Ultimately, what matters is that the total receipts exceed the cost of flying the plane."

Airlines see no problem charging seat 10A three times as much, or even 12 times as much in some cases, as 10B. They've convinced themselves that they're selling different products, and perhaps they are. The right to change a ticket without paying a penalty, or to get there and back without sacrificing your weekend, should cost more than the alternatives. Eat before 6 p.m. on an early bird special, and you get the same calamari rings for half price. Visit Phoenix in July, and the rooms cost a fraction of what they do during Super Bowl week.

But the airlines have taken this concept, called yield management, to its illogical extreme. The computer models know the state of the marketplace so intimately that they raise and lower prices hundreds of times every day. The mathematics dictate it, and who's to argue with the mathematics?

In another industry, this would result in proprietors getting punched in the face. Sir, that beer you're drinking now cost $4, but if you want a refill it'll be $10.50. Wait around a few minutes, though, because the bar across the street just cut its prices to $6.99. I'm sure we'll be matching it.

During the heady 1990s, as volume boomed, airlines ignored the mounting consumer complaints. They were serving more people than ever before, and doing a decent job of getting them from place to place. They had presided over the democratization of airline travel, which removed much of the romance from flying but opened it up to a vastly wider audience. "Flying used to be something that was a very elitist activity," Kirby says. "Only the wealthy flew. Today, most kids don't reach college age without flying somewhere first."

Yet even with this new universe of passengers, the airlines weren't making money. They couldn't, not with supersaver prices so low, and the supersavers were fueling the boom. During fare wars, such as the one that United and Continental waged out of Denver for years, tickets occasionally cost so little that the airlines were losing money with each one sold, the same inside-out business paradigm that holds the plot together in the Mel Brooks film The Producers. They could only hope they were building brand loyalty for the next time a passenger had to travel for work.

The airlines were stuck with that economic model because of an astonishing lack of creativity. Beyond subordinate businesses such as American's SABRE reservation system, and the minimal income provided by cargo flights and the sale of frequent-flier miles to credit-card companies, the industry had no revenue streams other than tickets. So when ticket sales went soft with the recession, the losses mounted.

It's as if each of these major carriers was a sports team that needed to sell out its stadium or arena for every game to merely have a chance of breaking even. The difference is that sports teams get a percentage of their income from television and radio rights, souvenir sales, signage, luxury suites and playoff games; if they didn't, ticket prices would be even higher than they already are. Airlines are attempting to survive almost exclusively on paying passengers, and charging many of those far less than logic would dictate.

It's a shortsighted approach, any marketing consultant would tell you. It isn't validated by anything the airline executives learned in business school, or anywhere else. But when you're fully leveraged and fighting for financial survival, it's hard to see further down the road than the next summer travel season-and the income spike that will keep shareholders happy and the airline solvent, at least for the moment.

Perhaps Pan Am tried to look down the road, or Eastern. Maybe Braniff took the long view, and Ozark had a brilliant 20-year plan, and People Express was ready to turn the corner. Maybe National or PSA had all the answers, if only they'd had time to implement them.

Instead, they're all gone, victims of the same business strategies that are pushing United, Delta and American over the edge, and their customers with them.

 

Ten-forty a.m. somewhere over Southern California. The peanuts and drinks have come and gone. Tray tables and seatbacks are in the upright position.

San Diego isn't a hub, so it's likely to be the final destination for the vast majority of the passengers on UA 1631. That's unusual. Most planes flying in the United States are carrying a high percentage of travelers who are headed somewhere very different from where their plane is going, or else just came from there.

The hub-and-spoke model, invented by Federal Express for use with inanimate objects, has taught America's air travelers that the shortest distance between two points is via Atlanta. Or Chicago, Dallas, Denver or Memphis, depending on your airline of choice.

At long last, there are signs that the hub-and-spoke system may be an anachronism. It's no coincidence that the most profitable brand in the industry has no hubs. Instead, Southwest operates like a bus line, picking up and discharging passengers at one stop and moving on to the next. It offers no amenities, but the big carriers are offering fewer and fewer of them anyway. The meal you don't get on Southwest is exactly the same as the one you don't get on American. This decline in services on commercial airlines has led many business travelers to buy shares in private aircrafts.

More than any other airline, Delta relies on its hubs, primarily Atlanta and Dallas. "Now we have to prove that the system works," Brady says. "Right now, where we are in terms of a company is back at the drawing board."

That's refreshing talk. And Delta has even started to think in terms of creating additional revenue streams through sponsorships. Recently, the airline gave out New York Mets schedules, caps and even a few tickets on its New Yorkñbound Delta Shuttle flights. One day, if Delta works its marketing correctly, the Mets may be paying substantial money for the privilege. "This is the time to think creatively," Brady says. "There are so many great ideas out there, so many opportunities for marketers. I think it's going to lead to a whole new travel experience."

Delta isn't alone. It's likely that the coming years will see the reinvention of the airline industry, for the simple reason that the industry as it exists today isn't working. Consumers can take solace in the fact that this is the way the free market operates. Companies figure out a way to stop losing money, or they don't stay around for long.

That's the future. For the passengers on UA 1631 on this April morning, it's small consolation. They file out of the plane with cricks in their necks and growls in their bellies, relieved that another travel experience is over. Friendly skies? Not for a long time, they haven't been.

Not when record numbers of consumers are fed up with air travel. Not when a week doesn't pass without a major newspaper describing the precarious condition of the industry. Not when corporate jets and niche airlines are thriving as alternatives to the major carriers. Not when airlines such as United and American are so defensive about their plight that they refuse to comment in articles like these.

"Sounds like a negative story," says a United spokesman. As if there was any other story to tell.

It's not enough anymore for passengers to ask if this is any way to run an airline. The real question is one that the airlines have only just started asking themselves: "Is this any way to run an industry?"

A quarter-century after deregulation, with record losses continuing to mount, most will find that they already know the answer.

 

Bruce Schoenfeld is a frequent contributor to Cigar Aficionado.