Mark Gerchick, former chief counsel of the Federal Aviation Administration and Transportation Department and the author of Full Upright and Locked Position: Not So Comfortable Truths About Air Travel Today (W. W. Norton & Company, 2013), shares his insights into the airline industry, including why service is getting better for the few and worse for the rest.
Excerpt: Full Upright and Locked Position: Not So Comfortable Truths About Air Travel Today
How We Fly Now
Not many of today’s fliers remember what air travel used to be like at the dawn of the “jet age” a half century ago. Crossing the Atlantic then was really something to tell the neighbors about. Gracious, smiling stewardesses took your coat, stowed your bags and, of course, offered a sip of Champagne. On some flights, there were only two classes of service—First and Deluxe—and only one (albeit unofficial) US “flag” airline, Pan Am. Meals catered by Maxim’s of Paris were served on china, fine wine in glass goblets. “Guests” were offered crisp pillows and cozy blankets, often small gifts; they were practically tucked in. And the captain tried to stop by for a personal greeting.
Veteran road warriors wax nostalgic about this distant, lyrical past, some of it true only in the imagination. We forget about the bouncing, bumpy rides, the engine noise in the cabin, the less-than-ergonomic seats, the boredom. Onboard movies—fuzzy projections on pull-down screens—began only in 1961, when TWA showed Lana Turner in By Love Possessed on a cross-country Boeing 707. We forget about the hassles, like buying and changing paper tickets only at the local travel agent or ticket office during business hours. And we tend to forget about the price. The cheapest government-approved “tourist class” jet fare from New York to London in 1958 was more than $2,000 in today’s dollars.
Even if long-ago air travel wasn’t as great as we remember it, it was also nothing like today’s experience. Industry veterans talk about how everything changed after Congress deregulated the US airlines in 1978, freeing them to compete on fares and service, but the changes that have swept the industry in the decade since September 11 have been nearly as profound. When it comes to the experience of ordinary air travelers, flying today is almost as different from 1998 as from 1968.
Even ten years ago, nobody paid to check a suitcase, pillows were on every seat, empty seats were common, and airlines were still serving meals and free drinks in coach. But forget the little things. The humans in the back—whom pilots tend to call “the people”—were more than just transitory sources of revenue. And if air travel wasn’t always something they looked forward to, at least it wasn’t a source of dread. In the decade after 9/11, the mix of economic near-catastrophe, the gnawing threat of airborne terrorism, and leaps in automation and information technology have changed forever the way most of us fly, and the way we think about air travel.
The Decade That Changed Everything
It was almost as though premonitions of millennial doom were aimed at a single industry. Within weeks of the last celebratory firework, the dot-com bust was upon us. The NASDAQ index of technology stocks, which had soared 600 percent in the five years before, suddenly plummeted, half its value lost in the year 2000 alone. The broader stock market—having nearly tripled in five years—abruptly halted its ascent and turned down, taking with it many of the go-go entrepreneurs, road warriors, and multinational firms whom airlines counted on to buy the expensive, wide seats up front.
Demand for the price-be-damned, last-minute airline seats was about to crater, but not before the infamous Summer from Hell in 2000. For air travelers, it was a grueling season of record delays and cancellations and bad weather and packed terminals, compounded by labor strife at United Airlines that virtually defined the term “gridlock.” Unhappy pilots denied they were engaged in a collective slowdown, but plenty of flights ready to taxi out to take off suffered mysterious last-minute maintenance delays. With more than one in every four US commercial flights cancelled or delayed, one harried senior federal official put it succinctly: “The tolerable pain threshold was crossed this summer.”
The airline industry is famous for its up-and-down financial cycles, and the “up” cycle of expansion—new routes, new airplanes, new investment—-was hitting its apex during the late 1990s. From 1995 to 2000, US airline net profits averaged $3.5 billion a year. More people had been flying and fares had risen. Airlines in turn ordered new planes, hired new workers, and expanded their schedules; airports started building new terminals and pushed for new runways. Congestion generated frustrating delays so routinely that the Federal Aviation Administration (FAA) warned that the entire US system—from crowded runways to overstressed air traffic control—could not handle the hundreds of millions of expected fliers.
By early 2001, though, the cycle had reversed. As the dot-com bubble burst, the bottom started to fall out of air-travel demand. Average fares dropped, but even worse for airlines, there was a massive drop in “premium” air travel—the front-of-the-plane business travelers who accounted for a disproportionate share of profits. Revenue from business-type airfares dropped almost 30 percent, even as fuel and labor costs kept rising.
The coup de grace, of course, was September 11, 2001. Overnight, the world of commercial aviation changed profoundly and permanently. Aircrews were scared of passengers, and passengers were just plain scared. Airports became armed camps. It was a world of duct tape and anthrax and shoe bombs and snipers. Fearful business travelers blamed the “hassle factor” and uncertainty about long security lines, but nobody flew unless it was really necessary. In the immediate aftermath, business travel demand dropped an estimated 30 percent.
Already facing economic slowdown, belt-tightening corporations seized the opportunity to cut their own travel spending. As the demand for their seats plummeted, airlines rushed to cut payrolls and curtail schedules. Within three months of the attacks, US airlines had laid off some 80,000 workers and grounded 20 percent of the seats they had been flying. Not until three years later would US air travel regain the record levels of August 2001. And for the four years after September 11, there was only red ink—by 2009, net losses added up to a mind-boggling $55 billion. By the middle of the dismal decade, the situation was dire. Passenger travel stayed down, and so did airline revenue. Business fliers refused to pony up four or five times—sometimes as much as ten times—the cost of a coach ticket to ride in First Class on a three-hour flight they didn’t even want to take. Selling cheap seats to families, tourists, and backpackers couldn’t pay the rent.
Even more ominous, the airlines that had ruled the nation’s skies for decades faced a growing threat from such well-financed, low-fare competitors as Southwest, JetBlue, and AirTran, now more stable than their bigger rivals. These low-cost airlines had stayed on the fringes, trying to keep out of the way of the big guys. Not anymore. By mid-decade, they accounted for a quarter of the whole US domestic air-travel market. With more efficient operations, newer planes, and more productive labor forces than their old-line rivals, plus a “no frills” product that let them offer lower fares and still profit, the low-cost “upstarts” kept gaining market share.
The traditional US airlines were in trouble. As their access to credit dried up, assets were hocked, capitalization plummeted, and bankruptcy became all but inevitable. Between 2001 and 2005, all but two of the big airlines succumbed. Bankruptcy reorganization gave the airlines breathing space—to void existing costly labor contracts, stiff vendors, zero-out investors, and cut salaries—and they used it. Nearly a quarter of full-time jobs at the major US airlines—more than 100,000 of them—were eliminated in five years, and average wage rates dropped dramatically.
It wasn’t enough. The traditional airline industry urgently needed to redefine itself, to find a sustainable operating model that would run cheaper, faster, and more profitably. Emulating their successful low-cost tormentors, the Old Guard found ways to leverage new technology and build efficiencies, substitute automation for humans, cut “frills,” fly smarter to reduce fuel burn, and extract every last dollar passengers would pay. Time-honored assumptions about the very nature of the flying experience were questioned, then rejected. Where was the God-given right to a meal, a checked bag, a free magazine, a refund, a paper ticket, or even a smile?
With an improving economy, the industry began to emerge from its financial ditch. In 2006, US passenger airlines as a whole earned their first profit of the decade—$3 billion. Air travel started to pick up, and profits grew slightly in 2007 amid tentative signs of an economic recovery. The respite was short-lived, however.
The hammer came down again in 2008—in the form of an unprecedented explosion in the price of jet fuel, the indispensable commodity that accounts for 35 to 40 percent of the cost of operating an airline. Until mid-2004, the price per gallon had never risen above $1; by the Fourth of July, 2008, it had jolted to $4.02—and every penny’s rise cost US airlines another $175 million annually. Though the price of jet fuel soon receded, the industry’s acute vulnerability to fuel prices was etched on the traumatized psyches of fearful airline managers. And there was more pain to come as a recession—and even the prospect of a wholesale collapse of the US financial system—chilled business travel in 2009.
By the end of the punishing decade—with deep-red ink in seven of the ten years—three dozen large and small passenger airlines had been forced to seek bankruptcy protection; another eight or nine stopped flying altogether. Two big airline mergers married United with Continental and Delta with Northwest. In their wake, just four traditional US carriers were left standing—United, Delta, American, and US Airways—along with Southwest, JetBlue, Alaska, and a few other low-fare competitors. The survivors emerged tougher, leaner, and focused squarely on profitability. In the airline boardrooms, outlooks and priorities had evolved too. Forced to grow up fast during the decade that changed everything, the airlines became just another service industry trying to make a profit—albeit one with an amazing product that moved people from point to point with breathtaking speed and safety.
The New Business of Air Travel
Today’s air-travel experience reflects the new business ethos. Forget the romance of flight in the Golden Age. Forget the magic and wonder of soaring above the clouds. Forget the “friendly skies.” You want elegance and grace? You pay for it.
The death of the baked-on-board chocolate-chip cookie neatly captures the zeitgeist shift: Midwest Airlines (“the best care in the air”) baked them on board for a quarter century. Everybody got two of the warm goodies free, the fragrance improving immensely the stuffy cabin air. When Midwest was bought and merged with Frontier in 2010, the new CEO pledged to make the new entity an ultra-low-cost carrier, and the cookie was no more. After a “review,” the company spokesman said, “it was determined that the cookie did not align with either the perception or the financial reality of a low-cost carrier.” Plus, said the spokesman, “we were the only [similar] airline offering a free perishable snack.” And so, “it was determined” the airline would end the tasty, “non-aligning” cookie. Now they will sell you a bag of animal crackers—for a buck in Economy.
The industry’s best creative minds set about discovering new streams of revenue, new “products” that offered a modicum of peace and comfort to the journey, but starting with airfares. Average inflation-adjusted fares actually are considerably lower than they were thirty years ago, but that’s hardly the end of the story. They’ve risen steadily since 2009, and hardly anybody pays the “average” anyway. With super-sophisticated computers and vast data systems, airlines learned to pinpoint the absolute top dollar each type of passenger could be forced to shell out before he or she smashes the computer screen in frustration and calls Greyhound.
Fares alone weren’t enough, though. Air travel is largely a commodity-—like a pound of sugar or a gallon of gas. Raise the price (or basic fare) too much and buyers turn elsewhere—to a competitor that starts service on the overpriced route or that offers to save a bundle for fliers willing to take an indirect connecting flight. So how do you make money in the airline business if you can’t charge more for your product—a flight?
The Eureka moment came when somebody “discovered” that what airlines were selling wasn’t really just a flight at all. Airlines were selling a bundle of separable, flight-related services—transportation of luggage, making a reservation, having a seat assigned, snacks and drinks, legroom, even jet fuel—all divisible extras, or “ancillary” (to use a more impressive, if less well-understood, term) services, each priced separately. Fees for these services can easily mean the difference between profit and loss; checked-bag and ticket-change fees alone generated close to $6 billion for US airlines in both 2010 and 2011—more than all of the industry’s net profit.
There were also more subtle, even creative, ways to shift burdens to passengers. Innovator JetBlue, for instance, came up with the breathtakingly simple concept of making customers do some of the work. Passengers were asked to pick up their own trash and toss it in a plastic bag passed through the cabin before landing, saving a couple of precious minutes of the “turn time” it takes to ready an arriving plane for its next flight. New checked-bag fees that incentivized passengers to carry and load their own luggage in overhead bins reduced the airlines’ cost of unionized baggage handlers. It also created a valuable new product to sell—“early boarding privileges” that ensure you get on board early enough to find overhead space available to load your own luggage into. Brilliant. Passengers also paid indirectly, by bearing the cost of leaner and meaner staffing levels. Staffing airport customer service desks with just enough people to handle normal passenger demand for re-booking cancelled flights or changing seat assignments on a cloudless midweek afternoon can mean utter bedlam when afternoon thunderstorms hit on Labor Day weekend.
Conspiracy theorists might wonder if it wasn’t all part of some grand market segmentation strategy conjured up in airline revenue departments: Make the stripped-down mass-travel experience so downright unpleasant that passengers will gladly pay more to buy their way out of the hassles—either actually purchasing a First or Business Class ticket or more likely earning their salvation (and a few extra inches of legroom) through “loyalty” to the airline. As pack-’em-in coach travel got ever grimmer, those lie-flat seats and designer-chef meals and personal attention for the “elite” passengers up front started to look more and more worth the extra dough. And this is America. Anyone can be elite—all it takes is cash.
A cliché that regularly passes for sagacity among self-described aviation experts is that change is the only constant in the airline world. It’s a beloved truism that is becoming less true all the time. Some 35 years since the upheaval of airline deregulation, commercial aviation in the United States is today actually reaching toward unaccustomed stability-—a modestly profitable, generally competitive, “rationalized” business that can weather the perennial, almost inevitable, external upsets: Three or four traditional airlines, each paired off in a stable global airline grouping, plus a small handful of low-cost carriers that, as they’ve become more established, are more likely to think like their traditional rivals. There’s a new business equilibrium that feels more stable than it has in years.
This new status quo is welcome to airlines exhausted by the last decade’s drama and turbulence, but what does it mean for air travelers? The “product” remains an amazing gift. We can be on the other side of our globe in a single day, hurtling near the speed of sound to land safely in near-zero visibility, all the while engaged in earthly business via “live” TV and Wi-Fi as though we were sitting at home. It’s still fairly cheap, too—what else costs less today than it did in the 1980s? And major US airline flying has reached an extraordinary plateau of safety. Think of commercial aviation as the “physical Internet” of the modern global economy. Just ask the late Osama Bin Laden. As the Washington Post reported in April 2012, he bragged to a would-be shoe-bomber that another 9/11 “will ruin the aviation industry and in turn the whole [US] economy will come down.”
That said, air travelers have lost a lot in the decade since 9/11—and it’s more than just some sentimental, semi-mythic vision of the Golden Age of aviation. We’re angry about a broken bargain we imagine we have with the airlines. Legally, air carriers owe us only what DOT regulations require, plus whatever they say they do. (It’s laid out in “contracts of carriage” drafted by airline lawyers that typically run dozens of pages long and are rarely read by anyone except those same airline lawyers.) But for years, passengers struck their own personal, unspoken, bargain with their airline: If I agree to go way up there in that infernal machine, against all my primeval human instincts, you in turn will take care of me, make sure of my welfare, make me comfortable.
Is that expectation so exceptionable? After all, as air travelers we are dependents. In flight, an experience that sets off all sorts of limbic alarms, we relinquish control. We’re told when to buckle up, when to get up, when to ask for liquids, even when to pee. We are scolded: Unless we sit down, the plane will not leave. When the captain emerges briefly from the cockpit, we’re watched suspiciously to assure we don’t rush the flight deck. At least in the back, we largely cease to be individuals. Everyone gets five seconds of conversation with the harried flight attendant: “Drink?” “Coke, please.” And as the cart lurches down the aisle, it’s “Watch yer knees!”
Even simple dignity and civility can be hard to find in a system now so furiously driven by efficiency and the incessant push for revenues. I imagine my 80-year-old aunt on her way to visit from her London home, pressing the Call button to summon “the stewardess” to please bring a cup of tea. Why does that modest request now seem so impossibly optimistic and out of time?
The gap between our expectations of care and service and the reality of our air-travel experience has become a chasm. We want the cheapest discount fare and, even though we know in our heads it won’t come with chilled Champagne and a lie-flat seat, we harbor the long-marketed fantasy. In the last decade, air travel has changed, for good and for ill. As passengers, we stand at arm’s length with our airline. There are still plenty of regulations, but essentially, flying is a commercial relationship between a buyer (passenger) and seller (airline)—not what lawyers call a fiduciary bond of trust and confidence. Chairman Crandall’s “nasty, rotten business” is, really, just a business. And that’s the way entrepreneurial airlines want it. When United’s CEO warned employees of job cuts after a “disappointing” 2012, he put it this way, as reported by the Wall Street Journal’s Corporate Intelligence blog: “In the past, we were just an airline, and not a real business, and we all suffered for it.”
That doesn’t mean, though, that airlines are “just the same” as every other business. They’re not. For one, their product—soaring above the clouds—is unique. We depend entirely on the provider for the quality and safety and value of the service; we have no real way, no expertise, to evaluate or compare it. It’s a special business, surrounded by a wonder and fear that seizes the public imagination. When was the last time some aspect of air travel didn’t make the evening news? When it comes to the commercial airline industry, “just like any other business” just won’t—pardon the pun—fly.
Where does that leave air travelers facing the emergent new business of aviation—as self-loading freight, fungible targets of revenue? Can’t we reasonably expect a little humanity and even, yes, dignity—maybe even a little bit beyond what the marketplace and the laws of commerce strictly require? Maybe, but we also need to grow up and recognize what has changed. Commercial aviation is a business trying to make a buck, to finally find a model that’s economically sustainable. Flying today, concludes a longtime industry analyst, “is what it is.” A decade past 9/11, it’s often unpleasant, occasionally downright miserable, and there are plenty of uncomfortable truths about it that neither the industry nor regulators like to talk about. But mystery breeds passenger anxiety, discomfort, and even paranoia. We sometimes see demons where there are only capitalists and engineers.
Copyright © 2013 by Mark Gerchick