Charge Me More
VIEWPOINT
James McDonald
My $223 round trip airfare to Florida for a conference next month will thrill my CFO, but it worries me.
I know it costs the airline more than that to fly me there and back. So now that they already have squeezed in a few more rows of seats, laid off most of their nice people and charged me $8 for a stale bagel, what will they do next to try to make up the difference?
Maintain the airplanes a little less carefully? Train their crews a little less thoroughly?
Perhaps not yet, but they are bound to find ways to make the whole flying experience even more miserable and humiliating than it already is.
Just about every day, we read about the desperate shape this country’s airline industry is in. United Airlines has been in bankruptcy for more than two years; US Airways just filed for its second in three years. Delta is likely to be next. The airlines continue to hemorrhage money despite the billions in federal aid given to them after Sept. 11, 2001.
Most flying experiences these days are just as awful as the airlines’ finances. Lines are long, overworked agents are rude, seats are cramped and they now charge us to eat the inedible food.
“First class” is hardly distinguishable any more from “worst class,” and if you want to use your frequent flyer miles to fly anywhere besides Fresno, good luck.
The airlines cite the need to contain costs as the leading excuse for such poor treatment of their customers.
True, all airlines are burdened with high costs for things such as fuel, and the “legacy” airlines (older carriers such as United, American and Delta) are further burdened by high union wage rates and pension obligations born in the days of regulation. In spite of their high costs, these legacy carriers now are charging ridiculously low fares.
It should not be surprising that they are suffering massive losses as a result. It does not take a Nobel laureate to determine that a business with high costs and low prices soon will go bankrupt. The legacy airlines claim they are forced into this predicament by competition from low-cost carriers such as Southwest and JetBlue, but it’s not that simple.
Airlines used to do a decent job of yield management,segmenting the market and charging different prices for different segments. The classic market segmentation among airline passengers has been between business travelers, who will pay a higher fare for the flexibility of making and changing plans at the last minute, and leisure travelers, whose plans are set and who aggressively shop for the lowest fare.
The airlines seem to have lost their touch with even basic yield management of late, however.
Delta owns the nonstop market between Orange County and Atlanta, for example. It has several convenient flights for the business traveler, and the planes are almost always uncomfortably full. Yet, if I want to buy a ticket for next-day travel, it only costs about $500. Granted this is about $150 more than if I buy a ticket a week in advance, but it’s nothing like the nearly $1,500 difference I would have had to pay just a few years ago.
The airlines also are missing the boat (or rather, the plane) by not better differentiating fares based on convenience.
The fact that a flight with a change or two of planes at odd hours on a discount carrier is cheap does not mean that a nonstop flight arriving at a convenient time shouldn’t cost more. Inexplicably, the airlines now treat us as if we are all leisure travelers grubbing for the lowest fare. This is a mistake.
I would not buy the same car now that I drove in college, so don’t try to sell me the same airline seat I occupied then. I would rather pay a realistic market price for leaving a convenient airport and getting where I want to go, when I want to arrive, without having to stop or change planes.
And if my more expensive trip is less miserable, I might just stop looking for excuses not to fly and buy more higher-priced tickets in the future. I suspect most business travelers feel the same way.
So, to the “legacy” airlines: Stop blaming the discount carriers for your problems. Charge more for your better product.
Further market differentiation and better yield management will not solve all of the airlines’ problems. They still have to work on getting their costs under better control.
But if the airlines stopped leaving so much money on the table, they might be able to stay in business past the Christmas holidays.
And sell a fresher $8 bagel.
McDonald is a partner and manager of the Irvine office of law firm Fisher & Phillips.
