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Is Richard Posner right about air travel and its problems?
Who better to ask than Air Genius Gary Leff:?
...the usually sober, sometimes brilliant, and certainly prolific judge and scholar offers up an unusually misguided rant on why he believes “airline service is so bad” over at the Becker-Posner Blog...
Here is Posner's charge, which I might add calls for air travel reregulation. Read Gary's whole response. I don't, as they say, have a horse in this race (noting that Gary and I work together at GMU). What I do know points to two major problems: badly run airports (rather than air travel deregulation per se) and too many flights clustered at peak hours. That puts me closer to Gary's analysis than Posner's. Congestion pricing and true markets for all airport services would solve many of the problems, in my view.
Posted by Tyler Cowen on April 24, 2008 at 11:31 AM in Economics | Permalink
Comments
No new taxes please. Not all of us are wealthy economists. Part of the problem is that the Feds won't allow anyone to build new airports. A new airport in Chicago has been held up held up for twenty years. That's because the Democrats in Chicago wan't control the new jobs. The are expanding Chicao O'Hare and Atlanta's airpports. They will be obsolete the day after they are completed.
Posted by: jorod at Apr 24, 2008 12:13:08 PM
Lets be honest, one of the biggest gripes people have about air travel is no secret: Its the TSA. It wastes significant amounts of time for every single passenger that passes through an airport.
Posted by: Grant at Apr 24, 2008 12:15:25 PM
I think it's pretty obvious why air travel bites. It is just really difficult to make it good under the constraint of running the business how it currently operates.
Partly, air travel sucks because air travel sucks. You know it is going to suck, so it's hard to pay up for something you don't know will be an improvement. It's regulated by government and by natural factors. The bottlenecks in the system force the same level of service on everyone at certain points. All airlines have to use the same security, airports, crappy coffee shops, etc. Maybe the in-flight is better, but I've never minded flying. I've always detested the parts on the ground. No amount of improvement by the airplane can make up for the pain on the ground. As a customer, I have no idea how to shop for quality, but I know how to shop for the best price.
Here is another case where studying success might be more fruitful than studying failure...NetJets.
After flying the corporate jet you understand what it is to approach ideality. When you pay for direct flights, you understand what is between common reality and ideality.
Standard commercial is like Greyhounds with wings.
Posted by: Andrew at Apr 24, 2008 12:17:22 PM
GMU has an operations research professor who is supposed to be THE expert on airport congestion.
I heard him talk a couple of years ago where he claimed that if you fixed the problems at LGA, DCA, ORD and I think, JFK, the congestion problem would disappear nationally.
His most important reform would be to force the airlines to bid for takeoff and landing slots during peak time.
A runway can handle a takeoff or landing every 90 seconds. That's 40/hour. Since stuff happens, the effective maximum is about 80% of that -- 36 flight operations/hour.
LGA is supposed to be the worst airport for the numbers of scheduled takeoffs/landing in excess of airport capacity. I seem to recall that scheduled takeoffs are something like 200% of runway capacity.
The airlines do such screwy scheduling because surveys of passengers indicate they want more flights at peak times. So the airlines accommodate.
They'll schedule a 6pm flight from LGA to Fort Wayne knowing full well that it not leave on time if it means delaying a 6pm flight to ORD full of full fare business travelers.
After all, United would rather get your money by advertising a 6pm flight to Fort Wayne that it knows will never takes off until 7:30 than have passengers book a seat on American's 7:30 flight to Fort Wayne.
And it's the airlines, by the way, not the FAA that decide which flights take off late. The FAA is supposed to really resent airlines telling passengers that it's the air traffic controllers who are delaying takeoffs.
If there's a weather delay, the FAA will give United a maximum number of flights it can takeoff in some period of time. It's up to United to choose between, say the ORD and Fort Wayne flights. To the FAA, a plane in the air is a plane in the air. It doesn't have any reason to prefer one destination over another, all things equal.
I can't remember the professor's name but he knew more about the ins and outs of air travel and air traffic control than anybody in America. It was an amazing talk.
Posted by: Auto at Apr 24, 2008 12:24:40 PM
Why doesn't anyone consider the possibility that the airlines are just
poorly run? In such a massive economy, surely the law of large numbers
guarantees that one industry will, by pure chance, contain a concentration
of poorly-managed companies? Once the management is patched up, we'll be
back to competitive-like behavior.
Posted by: Person at Apr 24, 2008 12:25:26 PM
Why doesn't anyone consider the possibility that the airlines are just poorly run? In such a massive economy, surely the law of large numbers guarantees that one industry will, by pure chance, contain a concentration of poorly-managed companies? Once the management is patched up, we'll be back to competitive-like behavior.
Except that in a free-market, poorly run companies go out of business instead of receiving bailouts from the taxpayers. In a free market, there would be competition from foreign competitors. In a free market, there wouldn't be rent-seeking regulatory hurtles that are designed to protect existing airlines and keep new ones out of the market.
Clearly all the airlines are poorly run. No one is going to argue with you there. But how do poorly run airlines manage to survive, year after year? Clearly there is something that is protecting these poorly run airlines, and if you don't think it is the state, then who is it?
Posted by: Rex Rhino at Apr 24, 2008 12:48:52 PM
"Why doesn't anyone consider the possibility that the airlines are just
poorly run? In such a massive economy, surely the law of large numbers
guarantees that one industry will, by pure chance, contain a concentration of poorly-managed companies? Once the management is patched up, we'll be back to competitive-like behavior."
This is absurd. Airlines, by their hyper-competitive nature, are arguably LEAST likely to suffer from poor management as they would be quickly ousted.
Posted by: Colin at Apr 24, 2008 12:56:07 PM
As widely noted, the most dire shortage is of runways or from the perspective of profit seeking airlines or fare-indifferent customers, a dire surplus of airplane seats trying to land on them.
Delta's CEO just noted their need to reduce the supply of seats sufficiently to allow prices to rise at least 15% to reach breakeven at current fuel costs.
One also finds a bit of tragedy of the commons at highly competitive airports such as O'Hare vs. effective monopoly fields like Midway. At O'Hare, each airline seeks to maximize its own number of departures, so the schedule is the clear-skies maximum and weather delays are worst. Given that Southwest controls Midway, it knows it alone cannot fly 120% of runway capacity, and schedules accordingly.
Pace Jorod above, no major airline wants or would use a third airport in Chicago.
And pace Andrew, I'd note that the amenities in the FBOs Netjets flies out of are no great shakes either. The key is being able to arrive at the FBO 10 min before departure and avoid exposure to it. But if you're stuck by a thunderstorm, Teterboro's not a great place to be.
Posted by: misplaced trust co. at Apr 24, 2008 1:01:38 PM
My favorite solution for the Chicago airport mess is this old gem , from the original Mayor Daley in 1969:
Closer to approval, however, is a $1 billion dike-protected jetport 35 ft. to 55 ft. below the water level of Lake Michigan and connected to the Loop by six miles of causeway, tunnel and bridge. Says Chicago's Aviation Commissioner William Downes Jr.: "The main objection comes from the save-our-lakefront fraternity who don't realize that an airport six miles out wouldn't be visible from the shore except as a large shadow from high buildings."
Maybe it's a stupid, unworkable plan, I don't really know, but it's damn cool.
Posted by: Curunir at Apr 24, 2008 1:18:24 PM
I think Becker's right -- when the prices decline, the proles rule. Or they do in this particular case where it isn't feasible to fly the non-proles in different planes taking off from different airports on different schedules. So all you can really offer the non-proles are bigger, fancier seats and food service.
Posted by: Slocum at Apr 24, 2008 1:23:40 PM
Rex Rhino: "Clearly all the airlines are poorly run. No one is going to argue with you there."
I'll argue with you on that point. Southwest Airlines has been profitable for 35 consucutive years. It consistently leads all the major carriers in on-time arrivals. Despite being the most unionized of all the major carriers, it offers the lowest prices and the friendliest service. And for now, at least until the merger of Delta and Northwest, it serves more customers on U.S. routes than anyone else.
Posted by: John Dewey at Apr 24, 2008 1:37:24 PM
On time arrivals in the U.S. have dropped sharply over the past ten years. But I think it is important to note that the decline is much worse for some airlines than for others:
From the DOT's Bureau of Transportation Statistics
On time Arrival Performance
Carrier .............. 1997 .....2007
Alaska ............... 75.3% ..... 72.4%
American ............. 79.3% ..... 68.7%
Continental .......... 78.3% ..... 74.3%
Delta ................ 74.4% ..... 76.9%
Northwest ............ 75.0% ..... 69.6%
Southwest ............ 82.0% ..... 80.1%
United ............... 76.1% ..... 70.3%
US Airways ........... 79.6% ..... 68.7%
Note: US Airways pre-merger 1997 stats are combined US Airways and America West
Posted by: John Dewey at Apr 24, 2008 1:51:32 PM
Rex Rhino: "But how do poorly run airlines manage to survive, year after year?"
Perhaps the worst run airlines have not survived. Eastern, Pan Am, Braniff, People's Express, and the original Midway Airlines have bitten the dust since deregulation. Other large carriers have disappeared after being acquired by stronger airlines, including the original Continental (acquired by Texas Air, which was renamed Continental), the original U.S. Airways (acquired by America West, whhich was renamed U.S. Airways), Republic (acquired by Northwest), and TWA (acquired by American).
Several airline brands should be eliminated in 2008, including Northwest, ATA, and Aloha.
Southwest, JetBlue, and Virgin America continue to take share from the other major carriers. So even if poorly-run airlines do not immediately go out of business, they are doing so gradually.
Rex Rhino: "Clearly there is something that is protecting these poorly run airlines, and if you don't think it is the state, then who is it?"
I agree that federal government interevention in normal market functions delayed earlier consolidation. The post 9/1 loans to America West and U.S. Airways allowed them to survive when they should have died. Further, the federal government's antitrust restrictions placed on the United-US Airways merger prevented the earlier elimination of the original US Airways.
Posted by: John Dewey at Apr 24, 2008 2:42:41 PM
Maybe we just haven't built enough new airports? Or at least not in the right places.
Posted by: PJ at Apr 24, 2008 2:55:01 PM
From the Becker Blog: "no intrinsic structural reason why the airline industry should be less profitable than the hotel industry."
I'll have to disagree with this, but the comparison analysis might give some clues. For one thing, the more people travel on airplanes, the more hotel rooms are needed. Also, there is brand identity with hotels. My in-laws prefer Hampton Inn. You know what you are going to get. Also, when something is profitable, it is easy to copy for the hotel. Easy for the competition, but also easy for the current leader to replicate. Variable costs are higher for hotels. If a room isn't used, I doubt it gets the same cleaning service. If an airplane seat isn't filled, that's money lost. Worry about customer satisfaction tomorrow.
Posted by: Andrew at Apr 24, 2008 3:08:56 PM
"...take (market) share from the other..." This is the kind of statement that tells me you are talking about a bad business. Bad businesses don't respond well to good management. The market for air travel (as it is) is small and people like me want to make it smaller. However, the market for nice air travel would be near infinite.
Posted by: Andrew at Apr 24, 2008 3:13:10 PM
From Posner: "for example, in general large planes would be taxed less heavily per passenger than small ones, because for a given number of passengers there are fewer big planes to clog the airways and runways than there would be small ones"
No, no, no! We need smaller airplanes and more direct routes. It is because we have big airplanes that the business is run for the convenience of the capital and not the customer. Air and ground is ubiquitous! We are nowhere near those being a bottleneck.
"Clearly there is something that is protecting these poorly run airlines, and if you don't think it is the state, then who is it?"
Much as I love to jump on the state, I think what is protecting airlines is the nature of the business. It is really hard for competitors to absorb enough customers to put a company out of business. Noone can make a profit, but check out the on-time performance range from best to worst cited by John Dewey, a whopping 6%. Southwest is recognized as well run, but hardly domination on that quality indicator. So, they all just limp along.
I agree with John. They are going out of business gradually. Economics strikes me as similar to thermodynamics. They both describe equilibriums but not rates. Finance is maybe more like kinetics.
Posted by: Andrew at Apr 24, 2008 3:33:16 PM
Andrew: ""...take (market) share from the other..." This is the kind of statement that tells me you are talking about a bad business."
Andrew, I think you're reading way too much into my single sentence. I was explaining how Southwest is slowing driving poorly-run airlines out of business - by taking their customers.
Southwest Airlines has greatly expanded air travel by forcing prices lower - which is exactly what potential passengers desired. Southwest Airlines not only took market share from its competitors, it also expanded the market for its entire 35 year history.
Andrew: "However, the market for nice air travel would be near infinite."
If you mean nicer, but higher-priced air travel, I disagree, and the history of the airline industry backs me up. Airlines have tried to offer more services throughout the past three decades. They consistently found that passengers would not pay more for higher quality services. That's why all airlines have scrapped food service in coach class and why American retreated from its "More Room in Coach" strategy.
On the other hand, if your definition of "nice air travel" means friendlier service, then I think you are correct. Southwest Airlines has demonstrated that genuine care for its employees leads to better customer service. Airline passengers have responded by continuing to choose Southwest.
Posted by: John Dewey at Apr 24, 2008 3:35:57 PM
I just find it extremely amusing that Posner is all for free markets and letting the chips fall where they may until he happens to be on the losing side of the market results.
Once the market made him into one of the losers he sure changed his tune fast.
But we wouldn't want to accuse him of being two-faced, would we?
Posted by: spencer at Apr 24, 2008 3:52:18 PM
Andrew: "check out the on-time performance range from best to worst cited by John Dewey, a whopping 6%"
Thanks for the response. I apologize for making my chart cofusing. The range of on time performance was 7.6% in 1997. In 2007, though, it had grown to 11.4%. An even better way to look at those stats is the reverse number - the percent of late arrivals. The range of late arrivals is 19.9% (for Southwest) to 31.3% (for American).
Remember, also, that a late arrival is 15 minutes or more later than its schedule. If the definition were 30 minutes or more late, I'm confident that Southwest's arrival success would be much higher. By trying to achieve a 20 minute gate turn time with its schedule, Southwest sets a very high bar for itself for departures and, thus, for the subsequent arrival. By contrast, American's schedule - and those of most other large airlines - allow for a 45 minute turn time at most gates. As a result, all the other airlines have a larger cushion in their schedules than does Southwest. Yet Southwest still performs better.
Posted by: John Dewey at Apr 24, 2008 3:53:46 PM
"I think you're reading way too much into my single sentence."
I don't think so.
"If you mean nicer, but higher-priced air travel, I disagree, and the history of the airline industry backs me up. Airlines have tried to offer more services throughout the past three decades."
But they can only change what happens once in the air. This is the part of air travel I like. What keeps me from flying is everything else, where everyone's quality is basically the same.
Posted by: Andrew at Apr 24, 2008 3:58:44 PM
BTW, by "nicer," I mean an overall nicer experience. But it's got to be dramatically nicer because it's so bad now.
Posted by: Andrew at Apr 24, 2008 4:00:47 PM
"But they can only change what happens once in the air. This is the part of air travel I like. What keeps me from flying is everything else, where everyone's quality is basically the same. "
Not sure I understand what you mean by "everything else, where everyone's quality is basically the same.". Southwest Airlines reduced flight delays - and also aircraft taxi time delays, customer parking delays, and customer in-terminal delays - by using smaller airports. Even at larger airports such as St Louis, airlines such as Southwest have forced expansion of airport services. Other on the ground services controlled by airlines at most airports include baggage handling, check-in (especially automated check-in), gate design, and airport lounges. Airlines websites are another area where carriers differentiate themselves.
What do you mean by "everyone's quality is basically the same"?
Posted by: John Dewey at Apr 24, 2008 4:39:01 PM
auto,
Ken Button perhaps?
Posted by: Barkley Rosser at Apr 24, 2008 4:47:07 PM
Okay, I generalize. It's my curse.
By "everything else, where everyone's quality is basically the same." I basically mean this. Take cars. They all have to drive on the same roads and have similar safety and performance features. However, a cursory glance at the Initial Quality Study indicator shows that there is a range of about 50 problems per 100 cars to over 600. That's a factor of 12. Your chart shows a 7.3% difference in on-time arrivals. That doesn't really move the needle. Now, I assume the differences for other quality indicators between airlines are somewhere in the range of the 7%. I don't really notice marginally better quality when the overall quality is so bad. I don't care much about airlines, and I don't travel enough to want to think about it. They haven't differentiated themselves to me.
Posted by: Andrew at Apr 24, 2008 5:03:44 PM
Andrew: "Your chart shows a 7.3% difference in on-time arrivals."
Again, my apologies for making the chart confusing, but it shows a difference of 11.4% in on-time arrivals for 2007. (Southwest's 80.1% and American's 68.7%).
Andrew: "Now, I assume the differences for other quality indicators between airlines are somewhere in the range of the 7%."
Why? How do you make the leap from on-time arrivals - which are subject to numerous factors outside the control of an airline - to quality factors such as friendliness of staff, ease of use of reservations systems, cleanliness of aircraft and boarding area, baggage misrouting, etc?
I guarantee you that if Southwest Airlines on time arrivals dropped to American's levels, there would be a needle moving in CEO Gary Kelly's office. A "failure" rate of 19.1% is not at all the same as a "failure" rate of 31.3%. Furthermore, the arbitrary use of 15 minutes for measuring delays masks the true difference between Southwest and American.
Posted by: John Dewey at Apr 24, 2008 5:39:38 PM
"subject to numerous factors outside the control of an airline"
This sums up my whole premise. Even an amazingly well-run company like Southwest can't be an amazing business because its fundamentals are outside of its control. Nobody sits around the water cooler talking about how bad soft drinks are.
"Why? How do you make the leap..."
I don't make a leap, I make an assumption. When I look at a 5 hour drive, and the time from point A to B to go by air is 5 hours, I am not thinking to myself, well, Southwest is ~10% better on-time arrival, so I can estimate I'll be done travelling 10 minutes sooner. I'm thinking about that TSA patdown.
Posted by: Andrew at Apr 24, 2008 6:30:55 PM
"""This is absurd. Airlines, by their hyper-competitive nature, are arguably LEAST likely to suffer from poor management as they would be quickly ousted."""
Hyper-competitive? The state keeps propping them up with chapter 11 protection.
Posted by: luispedro at Apr 24, 2008 7:05:40 PM
I love (so to speak) Southwest Airlines. For many years now whenever I fly I try really hard to fly Southwest, and they keep getting better in my opinion. For example, their (relatively) new boarding system is an improvement from my point of view that allows me to sit in the bar longer than otherwise. :o None of the staff has ever been unprofessional towards me. Ever. The opposite is also a factor, they are also the friendliest flight crews out there, in the US anyway.
My advice for potential SWA passengers (in addition to packing a sandwich) is to simply avoid any flight that connects into Chicago. Midway isn't as bad as O'hare, but the whole location seems a disaster waiting to happen. Most of my significant delayed planes have been there.
I'd love it if airlines were rated on more than just the 15 minutes late stat. How about 15 minutes, 30 minutes, and 1 hour or more late stats? I agree with John Dewey that SWA would shine even more compared to the competition if those stats were kept. Or perhaps they could give the mean average late time? Or both.
Posted by: happyjuggler0 at Apr 24, 2008 8:07:32 PM
I also agree that it would be a systemwide air traffic improvement if NYC and Chicago both added new airports. I understand why they don't, but they still screw things up for everybody by not doing so, and it is going to keep getting worse.
Anywhere there is a "shortage" of takeoff slots there definitely ought to be bidding for them. Surely that ought to be uncontroversial, yes? If it becomes "too" expensive to fly in and out of those cities then behavior will change. If the residents don't like the higher prices they can call their elected officials and demand an airport in their backyard. Or they can move.
As far as the whole issue of "too many airlines", I say that is a crock. The more the merrier in my opinion, and if SWA is the only one that can make money thanks to idiotic lenders and shareholders, so be it. If lenders would stop lending to airlines that are destined to go out of business then the better managed ones (besides SWA, which is leaps and bounds better managed) would be able to make money because then when they ran out of money they'd go into liquidation bankruptcy instead.
Nobody is forcing anyone to buy airline stocks or bonds, and the system ought not be reregulated so that they can make money while being stupid. The competitive system, and its seemingly permanent airline surplus, serves passengers just fine. It is the airport shortage (ding ding ding) in certain key cities that is mucking things up.
Posted by: happyjuggler0 at Apr 24, 2008 8:23:43 PM
Some quick stock price research from Google, with market caps in billions of US $:
Southwest 9.29
JetBlue 1.10
USAir 0.65
American 1.90
Delta 2.12
Northwest 1.86
United 1.83
Continental 1.74
Clearly one of them is much better managed than the others, even if it just had a bad quarter that barely made money.
Posted by: happyjuggler0 at Apr 24, 2008 8:41:46 PM
Southwest runs a good airline, but a gigantic chunk of their profits came from their commodities trading division. Now that they are paying the same rates for jet fuel as everyone else, they are hurting.
Posted by: Jake at Apr 25, 2008 12:06:41 AM
happyjuggler0, have a look at flightstats.com, or download from the BTS and do your own number-crunching. Or have a look at delaycast.
Bottom line is yes, the detailed information is there for those times when it does matter.
Posted by: jonm at Apr 25, 2008 12:36:22 AM
Go back and compare Southwest to Marriot (MAR).
I LUV SWA's ticker symbol. Look at their stock price over the last 20 years or so.
Which company do you think is better run? Do you think it is easier to run an airline than a hotel business? In which business do you think your fate is more under your control? Which business would you rather be in?
"I'd love it if airlines were rated on more than just the 15 minutes late stat. How about 15 minutes, 30 minutes, and 1 hour or more late stats?"
Another thought. If a company needs customer advocates who champion tweaking the indicators, that tells me that the quality difference doesn't jump out at the average customer.
Posted by: Andrew at Apr 25, 2008 6:00:41 AM
Jake: "Southwest runs a good airline, but a gigantic chunk of their profits came from their commodities trading division. Now that they are paying the same rates for jet fuel as everyone else, they are hurting."
It is true that Southwest's recent profitability has been somewhat dependent on fuel hedges. But the reason they could purchase those hedges - and the other airlines could not - is the huge cash flow advantage they've realized over the past decade. Southwest is not as profitable as in years past, but fuel hedges still reduce their expenses. 70 percent of Southwest's expected 2008 fuel consumption and 55 percent of 2009 consumption is hedged at $51 a barrel.
Even if they had no fuel hedges, Southwest would still enjoy considerable competitive advantage. Operations employee productivity is unmatched among all the large carriers. Though it is the most unionized of all U.S. carriers, its relations with its labor force remain extremely positive, due to an unswerving focus on respect for all employees. Unlike its hub-and-spoke competitors, Southwest is able to maximize utilization of its fixed assets through its legendary aircraft turn times. Southwest Airlines aircraft are simply in the air earning revenue for more hours of the day. Finally, now that Southwest is as large as any of its competitors and still growing, the airline enjoys the same economies of scale with vendors as any top tier airline.
The success of Southwest Airlines is much more than just smart fuel purchases. Everyone in the industry knows that.
Posted by: John Dewey at Apr 25, 2008 6:14:18 AM
andrew: "If a company needs customer advocates who champion tweaking the indicators, that tells me that the quality difference doesn't jump out at the average customer."
Well, that's a good thought, but why do you assume any airline needs such advocates?
The airline industry is not so simple that one can jump to conclusions based on quick analysis of a few sentences.
Andrew, do you know anything about how a couple of north Texas carriers have driven this industry for the past three decades? Ever wonder what genius initiated frequent flier programs, passenger revenuie yield management, and computerized reservations systems? That's the person the Wall Street Journal described as "the man who changed the way the world flies."
Do you know what governemnt officials and industry analysts mean when they refer to the Southwest Effect?
Airline passengers and airline industry analysts are well aware of the quality differences among the airlines since deregulation. It's not by sheer luck that American Airlines and Southwest Airlines have grown to be the largest worldwide and U.S. airlines, respectively.
Posted by: John Dewey at Apr 25, 2008 6:48:02 AM
For a possible look into the future read James Fallow's piece in this month's Atlantic on DayJet
http://www.theatlantic.com/doc/200805/dayjet
Posted by: james B. at Apr 25, 2008 7:32:05 AM
How can you possibly compare the airline business to the hotel business? They are completely different models. Take conventions. If a group is holding a convention in a city, the attendees will fly numnerous airlines to get there, often based on the hub they live closest to. But they will often stay at a handful of hotels that struck a deal with the convention's organizers. Therefore, you have tremendous competition for getting there, but limited competition once you arrive.
The too few runways argument seems sound to me. Here in Detroit we've been reduced to one airport and it's dominated by Northwest. We have the potential for two other airports, but one is unusable because of NIMBY (Detroit City) and the other is a National Guard base (which is critical for protecting us from the imminent attack by Canada).
It should also be noted that another reason for congestion is Amazon.com. The increase in shipping brought on by the Internet and just-in-time industrial production means companies like Fed Ex need more flights. In some areas, there are dedicated freight airports (we have one here, Willow Run). But in other cities, cargo planes and commercial planes share the same airport.
Posted by: Ted Craig at Apr 25, 2008 9:02:20 AM
"How can you possibly compare the airline business to the hotel business? They are completely different models."
I agree. Barriers to market entry for hotels are fairly low. For airlines, gate space is limited, and fortress hubs in most large cities are formidable economic disincentives.
"But they will often stay at a handful of hotels that struck a deal with the convention's organizers. Therefore, you have tremendous competition for getting there, but limited competition once you arrive."
Do you think those hotels compete fiercely to gain the convention deal in the first place? Not sure about everywhere else, but here in Dallas several large hotels were built around each of the convention locations.
"The increase in shipping brought on by the Internet and just-in-time industrial production means companies like Fed Ex need more flights."
That's true, but the impact may be limited to daytime traffic at FedEx and UPS hub cities. When I planned aircraft and package routing for FedEx - admittedly over a decade ago - we only added significant daytime congestion at Memphis, Indianapolis, Newark, and Oakland. Fort Worth's Alliance airport is a Fedex hub, but that airport has no passenger traffic. Miami is also now a large Fedex sorting location, but I'm not familiar with how many aircraft move through there. A few other cities have daytime arrivals and departures, but only a couple of aircraft at each one. Fedex's U.S. overnight package volume has grown modestly since I left the company, and that growth has been handled through expansion of those hubs I listed. The 2-day and 4-day products, plus the LTL freight segments, have added billions to FedEx's revenues, but these require few flights.
USPS overnight packages add little congestion to airports, by the way. Those packages are moved on FedEx planes.
Posted by: John Dewey at Apr 25, 2008 9:43:27 AM
On vaction this summer, 4 of us will fly from JAX to Denver CO for about $1,200. I think that is incredible, so I think that they are doing a great job.
Posted by: Floccina at Apr 25, 2008 10:15:55 AM
Southwest is successful for the same reasons that Wal Mart is successful: nobody went broke catering to the frugal, the drunk, the morbidly obese, those with many children.
Yeah, sorry, I'm a snob. I miss Pan Am.
Posted by: jiim at Apr 25, 2008 10:26:35 AM
jiim: "nobody went broke catering to the frugal, the drunk, the morbidly obese, those with many children."
I flew American Airlines for about eight years. I saw quite a few obese folks on their flights. As that airline regularly matches Southwest's fares, I suspect the frugal fly with American also.
You can still be a snob, but it will cost you first-class airfare.
By the way, the WalMart parking lots in upper middle class north Texas neighborhoods include a good share of cars with names such as Lexus, BMW, Cadillac, Navigator, Infiniti, and Mercedes. Incredible as it may seem, even us well-off, childless, and slender people appreciate low prices for toilet paper, dog food, and golf balls.
Posted by: John Dewey at Apr 25, 2008 11:09:34 AM
"How can you possibly compare the airline business to the hotel business? They are completely different models."
I guess you mean I must be contrasting them, then? Hey, I didn't start it, the guy who wrote the blog post that this blog is in response to did.
From the Becker Blog: "no intrinsic structural reason why the airline industry should be less profitable than the hotel industry."
Posted by: Andrew at Apr 25, 2008 12:53:24 PM
From Gary Leff "Skybus may have ceased operations,..."
When I first heard about this, I thought to myself, what would I want to name my air travel business if I wanted to make sure it would go bust as quickly as possible? I couldn't think of anything better than Skybus without getting silly.
Posted by: Andrew at Apr 25, 2008 1:01:14 PM
On the other hand, to differentiate yourself, maybe think along the lines of....
Mile High Airlines: What happens at 10,000 feet, stays at 10,000 feet.
Posted by: Andrew at Apr 25, 2008 1:03:05 PM
Andrew at Apr 25, 2008 1:01:14 PM has a point. A much better name would be something like Air Cruise Lines, or LuxAir, or even ValueAir.
Airlines in the US are little more than busses that you can't get off of until you arrive at your destination. But you don't need to remind people of that fact with your brand name.
Posted by: happyjuggler0 at Apr 25, 2008 2:32:02 PM
happyjuggler: "Airlines in the US are little more than busses that you can't get off of until you arrive at your destination"
True, but these "busses" travel 550 mph about 30,000 feet off the ground. They defy not only air resistance but also gravity. Just as automobiles were an order of magnitude faster than horses, airplanes are an order of magnitude faster than automobiles. But automobiles weren't designed to intentionally lift off the ground. That's the part that makes the task so complicated, and so expensive.
Posted by: John Dewey at Apr 25, 2008 4:53:53 PM
Basically, most consumers value arriving at their destination (they really don't care about much else--even in the era of $50 upgrages and $250 vouchers first class is still 4-8 seats on a 50+ person plane).
Hotels offer a longer stay and their location becomes an important competitive factor. Would anyone stay at the Plaza if it transplanted to South Orange, NJ? Since most airlines end up serving the same few airports with similar airplanes it's almost impossible to differentiate on the two services consumers value (getting there and being close to their destination). I suspect the latter is most of where hotel's profits arise (relative to airlines). Note the ads for service based offerings on the Heathrow service when only a few airlines flew trans-atlantic routes.
Perhaps there is room for a differentiated airline but they'd probably have to find a way to bypass TSA entirely (as charters can).
Posted by: nelsonal at Apr 29, 2008 9:47:07 AM
