Monday, December 08, 2014

Deregulating Air Travel

Recent little bits here and there pushed me to drag this idea out of the bullpen. Deregulation killed the flying experience. It really is that simple. Free market, free market, free market. As an economics major, you get the free market talk, the incentives matter on indifference curves talk and the need for government regulation talk. No one ever really brings it together or else students would realize we live in a kleptocratic corporatocracy. Deregulation does have the promise of free competition that will lower the price for all consumers. There is the utopian promise of perfectly informed customers and producers. Deregulation (dereg) for the airline industry brought about boom and bust, a race to the bottom, commodification of the service and brought the bus station to the skies.

I can't believe they ever thought of this
Dereg had the great pitch of opening up the skies to everyone, cutting costs and helping the economy. Dereg actually put the legacy carriers at a disadvantage due to old labor agreements. They also had created an approach for a market of people who could afford air travel and business travelers. The other problem is that dereg allowed Southwest, a low cost provider, to dictate the market. Southwest's entire schtick was the low cost provider. Because the dereg lowered costs, it lowered the hurdle for type of customer. Business airfare is still ridiculous, but if you have a Saturday night stay over in between flights to and from your destination, you get a sweet deal on flights. The market changed entirely by type of customer.

Look at all the leg room
Air travel went from a luxury to a simple method of transportation that would take less time than driving. Once prices reached a certain level, anyone could fly. This is where sloppy behavior that online snobs note in airports and on flights enters the picture. People have become more informal, but the clientele that defaults to informal is the core customer now. It is no longer a country club and savers market. That market might dress and behave different. It brings different expectations. Low end customers want the cheapest flight to go from point A to point B. Competition for the low cost provider will not allow for ample leg room, in flight meals or hot stewardesses. Competition means need more revenue per square foot of plane so seats are spaced closer together. Competition means overbooking flights. Competition means trying to do oil hedges when that is not your strength, hurting your bottom line and causing your company to have to adjust seats. Competition means regional routes, so people with families can be flight attendants. Competition also means some carriers get in trouble, and mergers and acquisitions lead to consolidation so an airline oligopoly can possibly form looking like the market of old.

That is a party in the skies

This is relevant because it ties into so many other problems that government intervention and the push to democratize everything has created. Flying became a low cost competition because of the race to capture the new, less wealthy consumer. Similar to the problem of the lowest common denominator airlines chased after the newest potential buyer, not the club member who earned their way in. Democratizing goods and services forced an appeal to the marginal man, and the marginal man was just a loan away from buying. Sales volume became a focus, so "how do you get more in?" became the pressing question, not "how do you make the flying experience so wonderful for the limited pool of flyers?" This goes for education and home ownership, too. Get that marginal consumer with loans, just find a way to reach him, not the pool that reached the hurdle to consume. Who told us opening up the skies to all was better than keeping it a club? Our government mandarins.

Customers can still get leg room and even alcohol for free, but you have to pay first class. Join an airline linked credit card, and you can enjoy some benefits of old. It is not the same. Even the cache or exoticness of the mile high club is gone. Alvin Toffler wrote in Futureshock about the idea of selling experience modifiers as a wave of the future. Others like him expected the concept of making something special being a future for economic activity. It has not happened. Air travel would seem a perfect fit. People would love a sexy lounge feeling for flights and more leg room, but there just is no money to be made for a producer for those features. Say HIV never happens. In our hedonistic times, a singles airline like Plato's Retreat in the skies would have done well. The other weird effect is a security side. Lower the barrier to entry for consumers enough, and disgruntled Arab terrorists can blend in better. They will look no different than the annoyed, and most likely peeved, travelers streaming onto flights by the millions. Deregulation is another example where democratization helps homo economicus bare his soul, and it is a blank soul.

11 comments:

klaydiss said...

It was a much easier commodity to swallow when my nuts weren't getting scanned so Michael Chertoff could be a multi-millionaire and we could employ a bunch of 92 IQ types to stare at your mom's underwear on a screen all day.

Remember when saying goodbye at an airport happened at an airport gate?

The US govt has stuck it's nose in the tent and also ruined air travel by adding time to each flight for security theater. Let's not all blame SWA, which has made it easier for all to enjoy a service which saves hours in getting from point A to point B. The super rich now have charter planes, so the need to be completely separated from the rubes has lost customers for majors.

Brett Ruiz said...

You went to school for economics and this is the most thoughtful analysis you could come up with?

Anonymous said...

What is the point of this post?

Son of Brock Landers said...

This isnt a paper, but I had two profs who had opposing ideas on dereg. Old libertarian me was pro-dereg. More I talk to industry people the more I drift to anti-dereg.

Toddy Cat said...

"You went to school for economics and this is the most thoughtful analysis you could come up with?"

It's not a Ph.D dissertation, it's an internet blog post. SOBL is just saying that deregulation ruined the flying experience, and as someone who can remember the tail end of what might be called the "Pan-Am" era, he's right. There have certainly been benefits to deregulation, but there's no doubt that it's coarsened the company, and made the whole experience much more uncomfortable. I only fly these days when I absolutely have to.

Laguna Beach Fogey said...

Flying Pan Am in its peak in the early 1970s was certainly a luxury. We had wide seats, and entire tables to ourselves. The stewardess uniforms were smart, and the food was good. Passengers actually dressed like adults. Much has been lost since then.

peterike said...

I have mixed feelings on this. First, let me note that I fly a lot. I'm approaching 900,000 lifetime miles on my focus airline, and would easily be over 1 million if I added in the other airlines I've flown.

That said, politically I'm rather a populist at heart, so in general I like the idea of opening things up to non-elites. Deregulation certainly did that. But it also set off not just a race to the bottom, but an ever-increasing gap between airline classes. Airlines are increasingly focused on providing absurd luxuries to their wealthiest fliers, while continually tightening the screws on the rest.

Coach seating has gotten almost unimaginably bad. It's genuinely torture to sit through a long flight in a typical coach seat. It shouldn't even be legal. But the only thing that matters in selling those seats is the cost.

Meanwhile, a business class seat is crazily expensive on any airline, and if you can afford $1800 you can probably afford $2200, so a price differential becomes less important than a service differential (this versus a coach seat at $450 -- and remember that's always per person).

This is a tough nut to crack. Realistically, it might be solved by making things somewhat less affordable but nicer, while not so expensive that it's limited to the wealthy (of course, the super wealthy have long dispensed with commercial flying altogether).

I do think we over-indulge as consumers. Do you HAVE to take the family to Disney every year? What if you saved up and went every third year? But this is all part-and-parcel of this mentality across the business world. Oh, we have to outsource making t-shirts because people demand five dollar t-shirts!

Do they really? Doesn't basically every person in America have more t-shirts than they'll ever need? What if t-shirts cost more, were made better and were made in America? Wouldn't that be better in every way (even those bogus "carbon footprint" reasons)? Wouldn't everyone still have all the t-shirts they need?

Likewise, wouldn't it be better if there were half as many total flights as there are now?

Well, those horses left the stable a long time ago and I don't see how we'll ever change it back. Everything is increasingly separating between garbage for the hoi-polloi and super-quality for the wealthy.

Speaking of which, I'm going to a $195 a person 20+ course meal on Friday. Vive le Global Elite!

Portlander said...

Nice to see the haters and trolls coming out. Anyway...

deregulation ruined the flying experience

Was it deregulation, or partial deregulation? There is a laundry list of crap an airline must provide, but QOS is not on the list. But that is the less interesting point.

Airline travel is a microcosm, an extreme and easily recognizable microcosm, but a microcosm all the same of what a certain class of folks have done to the entire nation... From housing & healthcare even to food & clothing, all aesthetic sense, taste, refinement, good manners, and discretion has been sacrificed so the FIRE industry and big govt has a bigger pale from which to skim. They don't care that they are losing on quality they are quite happy -- indeed prefer -- to make it up on volume from 50 million illegals, liars, and refugees.

They use their power and wealth to maintain their own private enclaves and anyone that doesn't choose to play along and run on their treadmill gets swamped by the detritus. THAT is the point. Air travel is just another example.

Son of Brock Landers said...

Thank you all for commenting.

Portlander - Not trolls but this essay might come off as elitist if someone did not know me. Cant dent that once you open the floodgates to all, the product will suffer. True of anything.

Portlander said...

OK, hater is an exaggeration, but Anon sure as heck is a troll.

Cheers.

Ricky Vaughn said...

Something also seems to have happened with the flight attendant's union, which appears to have been taken over by an incestuous cabal of flaming homos and bull dykes.