Our Krazy, Krazy Airline Industry--What Were They Thinking?


#1

Another airline consolidation period coming soon to an airport near you!!

I doubt if there is or ever was a more interesting/“screwed up” industry in America than this thing called the airline industry. I’ve always wondered, just what were these people thinking? Such characters! Such business models! There are enough case studies here to last until the end of time!

It just seems to me this industry has had the most unbelievable people and ideas, many of which you look back on and say "Wow!, and then others where you say, “How could anybody have been that stupid?” Did they have a death wish? Or, how could anyone possibly ever have come up with a more complicated/non-sensical air fare structure that this bunch of people has? What were these things called tariffs? Did people actually read them? Yet, today, the rules for deregulated air fares are as complicated as they were when the CAB controlled such things.

Wonderful people like Fred Smith, Freddie Laker, Bob Crandall, Alfred Kahn. Old organizations like the CAB, or the Airline Tariff Publishing Co. Things like a Local Service Airline, or the Chosen Instrument, or the Wright Amendment, the Fly America Act, or my favorite…yield management.! Or, People Express, New York Air, or what was Atlantic Coast Airlines/Independence Air managment thinking?

I see MIT has a program called the “MIT Global Airline Industry Program,” “…that represents a large-scale effort that provides the means for MIT and the academic community to make a ‘great leap forward’ in studying the airline industry and in educating its future leaders.”

Wow! Sounds really up there! Yet, there is so much that went into this industry that was just the funniest stuff I could imagine. Do people today have any idea what went on during the '50s and '60s, yet when deregulation came along in '78, things got even dumber and dumber, but without goverment interference!

Here we are 30 years after deregulation. Just wondering, surely there must be a set of books/the unabridged story of "The Airline Industry in America…Those Wonderful Folks and There Unbelievable Ideas. How Did They Think of That to Get Us So Screwed Up Today?


#2

I know! Right?


#3

Today’s airline industry doesn’t have the forward thinking, hard working, airlines-aren’t-just-a-business outlook of the great airline pioneers such as Juan Trippe (Pan Am - the original), Bob Six (Continental), Eddie Rickenbacker (Easter), or Pat Patterson (United).


#4

Believe me, if I knew how to run an airline, I wouldn’t be writing here. But, I find the industry just so fascinating.

It’s my guess that many of us on here who are discussing aviation have a few common traits. Many of us were/are dreamers. The idea of just getting away from the life we were born into. Seeing that old DC-3 flying over our place, and thinking what it would be like to get a ride on that big old bird and go somewhere else. Some of us became pilots; some just got into transportation or aviation as our life’s work. I, the latter.

Fred Smith, FedEx, is a hero of mine. He’s my age, less than a year younger. Probably could never have stood to work for him, but he’s the type of person the airline industry lacks, or is intent on never allowing to fully succeed.

Fred was a dreamer. Could see the big picture, yet understood the little details of the business. And, he knew a little [actually, a lot] about pricing his services.

Early in my government career, well before deregulation, Fred came to our office in DC to show us his idea of an airline he was planning to start. A package express company, he said, using some little French jets, and he was going to fly in some strange pattern called hub and spoke, based in Memphis. He was going to call it Federal Express.

He wanted to get government package business, but he told us he couldn’t make any money if our office insisted that he abide by all of our long-established procurement documentation and stone-age payment procedures. He said there was no way he could afford to pay $20, $30, $40 admin expense to haul the government’s packages to and fro for only a couple of bucks. He was sure the government would use, and really needed his transportation services.

As good bureaucrats, we said we would look at revising our regulations [which meant after a couple of years had passed, if ever] and we said we enjoyed his presentation [meaning, was this man nuts? Really, a hub and spoke operation! A bunch of little French jets.! Just crazy!]

Well, Fred never meant a challenge he didn’t think he could overtake. He got the damn thing going and we, the government, met his every procurement/payment demand.

I’m not sure a Fred Smith could survive starting something new today. There are few government protections to save anyone from idiotic industry predators. It seems no good idea will go unpunished by stupid competitors. Maybe there just any people with good ideas out there?

My main pet peeve is and always was pricing. Passenger air fares…how they are established, their structure, rules, routings, how they are published. People like me interested in these things probably have something missing in our lives, or maybe we’re just getting a little senile. I still find it fascinating that here today, 30 years after deregulation, we haven’t gotten a sane air fare pricing structure. It is and always should be like any other pricing system…“what the traffic will bear!” I buy most everything else under that system. No rules, no routes, no this, no that! Hello!

Until this is straightened out, I see no future, forever, in this industry for anyone, even a Fred Smith. Am I too pessimistic?

Thanks for listening!


#5


Where it all began…


#6

Nice find Robb…I hadn’t seen that before.
From little French jets to BIG French jets…and big Seattle jets…and big Long Beach jets…And little Kansas turboprops.
All from a guy whose college professor flunked his paper regarding his overnight package idea. (or so I’ve heard)
And then there was Independence Air…how long did they last?
And now Skybus. THIS ought to be interesting!


#7

Didn’t flunk - got a “C”.


#8

Click Here How I Delivered the Goods, Fred Smith.


#9

I work 20 years in FEDEX (SJUA-SIGA) and there wasnt a better company that treated its employees better than FEDEX… I,m sure we had lowpoints but I was treated fairly and it always puts its non-mgr employees first along with its customers …PURPLE BLOOD ALWAYS


#10

Why criticize “yield management” without yield management half the routes you see out there wouldn’t exist or would be on significantly smaller aircraft. Yield management leads to route profitability which leads to more and better service. Airlines who don’t properly manage their yield go under.

There is the problem with skybus. Their yield is less than half that of Southwest (who is certainly no yieldmaster in their own right). You simply can’t run an airline on no cashflow. Their blanket and soda selling simply can’t make up for such a large yield disadvantage. They’re going to have to start flying REAL routes that have a chance of attracting some significant paying passengers (like MCI-FLL) if they ever want to survive.


#11

Skybus’ model is based more on the model of Ryan Air (Europe) and Easyjet than Southwest’s model.

They airline just started. They have a huge capitalization ($160 millions, by contrast, JetBlue had $120 million). I can see them surviving as long as they extend their routes rationally and slowly.

I feel there is a need for service on lower passenger routes that Skybus is doing.


#12

Just saying “we are based on Ryanair” is not a golden ticket to profitability. The United States is not Europe. Columbus is not London. Greensboro is not Dublin. Just saying you’re based on some other business model doesn’t mean you will replicate its results.

Skybus pays the same for fuel as everyone else. There’s no way around that, and you can’t pay the fuel bill with their pathetically low yields.


#13

I don’t disagree with you, drdisque.

When I found out what they were doing, I was thinking the same thing: this is the USA, not Europe. While Americans have gotten use to no meals on airlines, I’m not sure if they are ready to be nickled-and-dimed on board.

I think the low yields are to be expected for any airline that is starting out. With their capitalization they do have a big cushion to fall back on while building up their system and, hopefully, increasing the yield.


#14

Yield Management…of course, any business has to try to price its services in some coherent way so it knows it can, or is likely to make some money, or at least cover some costs.

If you are old enough, you may remember how airlines went before the Civil Aeronautics Board to justify any new fare. The CAB reviewed it for weeks, if not months, even years. Then the carrier had to have it published, typically using some company like ATPCO, which had anti-trust immunity, so as to make collusion legal. Due Notice, so any jerk company could stop the new fare simply on the basis: “We don’t like it!” It was a joke, because the gov’t had to try to protect every stupid carrier, no matter how inefficient they were operating.

Now comes deregulation, 1978. Brilliant airline pricing people decided to use their new-found freedom replicating much of the worst that had existed earlier. They decided that they would sitll have every fare justified on some basis, even though no one, other than themselves cared. Rules, rules, rules…advance reservation and purchase, minimum stays, routing, and all matter of things which mean absolutely nothing to people buying the tickets. Somehow they never [even today] got over the idea that no one cares why any fare is what it is, other than does it get me from here to there and it makes sense for me to pay that amount.

And then, this industry decides it’s going to tell you how to live your life. No buying cheap round trip tickets, if we find out you only flew one-way! No using your ticket in any manner that defeats our minimum stay rulesl We’re watching you! Oh please! Spend your time watching whether the flight is on time or not, not what I’m doing with the stupid ticket I bought from you!

Has a person in pricing ever had to face a passenger one on one? I doubt it. [You see, we have “buckets” of seats. We code them with alphabet letters from A to Z…I know we only have 2 classes of service on that flight, but trust us, we know what we are doing. Besides, didn’t you see our ad…“guaranteed lowest fare!” You, dear customer have a “V” fare. Now that fare only applies to our “V” inventory. Now if you had a “B:”, “M”, "“Q” or any of our many, other wonderful fares, you would be authorized that fare, assuming you met all of the 29 conditions that applies to the specific fare in question, and it’s not a full moon!]

I know the young airlines are trying to get over all this rules business. One-way fares…Wow! What an idea! But, why anyone buys an airline ticket at any given price, for whatever reason, is one of life’s mystery. We do hope to get value for what we pay, yet value changes from second to second, and is different for every person or traveler depending on why they want to travel. The price of company’s shares vary from second to second. Value of travel varies likewise.

I urge airlines to price their services in a manner that reconizes the dynamics of the marketplace. The fact that an air fare changes every second, though it may seem difficult and even strange, maybe, but doesn’t the price of gasoline change from minute to minute, too?


#15

Fares are too low in the airline industry. I know it is great for the consumer but the fares really have to be higher. We are paying 1990’s fares in 2008. Maybe that is why the airlines had to get rid of meals, and other perks. Of course a lot of the problem is that a person’s loyalty is their wallet, not better service…so when the WN’s come around and drop fares, the legacies have to respond.


#16

People don’t know nor care why a fare is priced the way it is. Minimum stay and weekend stay requirements (which are often now not hard “rules” but just a factor incorporated into dynamic yield management - you can now often get low fares without a saturday night stay if the flight is to a leisure market or it is booking lightly) are extremely effective ways to discriminate between business and non-business passengers. In addition, carriers are reducing the number of fare letters they use, because as you describe, fares are adjusted dynamically and there’s no longer the need for so many different fare classes (it used to be they sold 20 K’s, 20 Y’s, 20 Q’s, etc - each fare class was a different fare and once it sold out you had to buy the next more expensive class - this was very simple as the CRS didn’t have to constantly adjust fares, just inventory. It was also a remnant of the “discount fares” offered towards the end of regulation. Now they just sell say 10 Y’s (fully refundable) and 60 K’s and adjust the price for K dynamically as it sells down.

If people were able to take advantage of the system by buying legs they didn’t intend to use, then they are simply taking away those seats from people intending to use them.

It seems most of your complaints were mostly relevant in the mid-late 90’s before Dynamic yield management and rapid LCC expansion.

You also seem to contradict yourself. First you criticize airlines for having “death wishes” and doing stupid things that you claim everyone knew wouldn’t work. Then you criticize them for doing things that DO work and DO make them money. What do you want?


#17

You also seem to contradict yourself. First you criticize airlines for having “death wishes” and doing stupid things that you claim everyone knew wouldn’t work. Then you criticize them for doing things that DO work and DO make them money. What do you want?

I would love to know where I have contradicted myself. The problem with the airline industry is that there are too many carries competiting in too many markets. Now don’t get me wrong, I love all the airlines and their low fares, but from a business standpoint, the fares are too low. There are only a few airlines (really just Southwest) that can offer these low fares and succeed in the industry. I think yield management has done a great job of maximizing profits and I applaud them for that. But the carries need to find those places to raise fares. Sure, there will always be the cheap fares to Orlando and Las Vegas, but it has to end somewhere (ie: MSP, CVG, DFW).


#18

I’m giving skybus a try this weekend. I go to Maine a lot and usually fly into Boston. It’s more convenient to get into Portsmouth, but so far I’ve been gun-shy because I don’t have a lot of time to waste on hiccups. This is a leisure/business mix trip and I have more time so I’ll give them a go. I just bought the ticket saturday so it wasn’t significantly cheaper than anyone else. But it saves me the hassle of going into Boston. I just wonder how many people really find these “out of the way” locations actually more convenient? If I was hanging out in Boston, there’s no way I’d bother with Skybus. But it would appear to be perfect for my situation. Their flight times also suck but it’s not a big deal for this trip. I think I can handle an hour or so without food/drinks!


#19

sorry jgona, the way you responded made me think that you were the first person who posted in the thread responding. No, you don’t contradict yourself.


#20

To me, the pricing of air transportation is simply far too complex, and the industry is 99 percent to blame for that. And for what benefit? Is anyone in this industry truly in good financial shape? I think not. Then change it!

Is is really necessary to have more than one fare at any given moment for any specific trip from point A to Point B? Law of supply and demand. Should it make a difference if the trip is for business, for pleasure, to attend your mother’s funeral? And, what you want to do with that ticket once you bought it?

Look. A business figures out a price to make money, or at least cover some costs. Why the airline industry thinks it needs to price its services on the basis of who the traveler is, why the trip is being taken, or what he
/she is going to do with the ticket is just wacko. None their business.

A fare is neither too high or too low. Does it move traffic? Does it keep the company in business.? Don’t tell me the fare is $198, then in small print indicate that the fare is contingent on buying a round trip. These are rules and sales methods that show, at least to me, a startling lack of honesty and good business sense!