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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
