Seven Thoughts on the Airline Industry


Here are seven assorted thoughts on one of my main side interests: the airline industry.

1. Free market needed. Imagine if Americans could only drive cars in America that were designed/made in America. Horrible! The Japanese are the best carmakers. Now imagine if Americans could only fly domestically on airlines run by Americans. Horrible! Yet that's what we have today. The single best way to improve the domestic U.S. flying experience would be to open up the market to competition and allow foreign carriers to service domestic routes. Here's my previous post on making the Open Skies Agreement truly global.

2. Three hour tarmac rule. The new three hour tarmac rule means the government can fine airlines that keep passengers on the tarmac for more than three hours. Generally, when it comes to these kinds of consumer protection laws, I would rather the market determine real need — let consumers vote with their dollars in favor of companies that offer certain protections. Apply this philosophy to airlines: if a certain airline felt consumers would value this "feature" (a guarantee that they would be able to access the gate area after three hours), they would offer it, and consumers would pay a premium for it. But this case is more complicated.

Let's review a typical flight delay situation. Before a plane departs, as passengers wait in the gate area, everybody's priorities are aligned: passengers and airlines want to get to the destination as quickly as possible. Remember, airlines lose money when flights are delayed or canceled. Before boarding, if the consumer wants to go to the bathroom, buy food, meander, or even choose not to board the flight, he can do so.

Once he boards the plane and the plane doors close, he becomes captive to the airline. He has no freedom until he's out at the gate area at his destination. As the plane readies for departure and taxis on the runway, passenger and airline priorities are still aligned: fly to destination as quickly as possible. Now suppose there's a delay on the runway. The plane has pushed back from the gate, but can't take off. The airlines at this point still want to get the plane off the ground as quickly as possible. Some passengers, however, no longer care about making it to their destination. After three stinkin' hours on a cramped plane, they want to stretch their legs, buy food, go to a full-size bathroom, etc. So their priorities have changed but they cannot act on them. This lack of freedom and the discomfort that can result (most recently a full night on a regional jet in Minnesota with no food and a broken bathroom) makes me reluctantly support the three hour tarmac rule.

3. Government subsidizing unprofitable routes. Someone who's keen on stimulating entrepreneurship in Chile told me, "We should lobby airlines to get them to start a San Francisco-Santiago non-stop flight." Make it easier for Silicon Valley folks to go to Chile. I replied, "If the route were profitable, it would already exist." He replied, "What kind of entrepreneur are you? Do you know how many things would never have been built if the attitude was, 'If it were good it would already exist'?"

The difference in the airline industry is that airlines can mine hoards of data around passenger traffic. For example, American Airlines can easily see how many of its passengers who leave SFO are bound for SCL (Santiago). I'm not sure but I presume it's also possible to see aggregated passenger traffic from other airlines. If the airlines saw a tremendous number of passengers departing San Francisco and connecting via Atlanta, Dallas, Los Angeles, or Miami (the four non-stop gateways) to Santiago, they would introduce the route.

By the way, I think this is an easy way for a government to increase possible entrepreneurship: subsidize airlines to service an unprofitable route to the Bay Area.

4. Environmentalists and runways. Efforts to protect the environment ought to be subjected to a cost-benefit test. It's not always easy to do this, of course. (How to calculate the benefit of a pristine national park or clean air?) Generally, I am pro-environment and pro-conservation. I love the outdoors. But I think the environmental movement has gone too far in their effort to protect endangered plants and animals around airports and limit carbon emissions from more planes. A third runway in Heathrow would allow an extra 140 million trips a year by 2050.

5. Why not use the regional airline model in the whole industry? For regional flights, a brand airline like Delta will outsource the operation of the aircraft to a regional carrier like SkyWest. The plane says Delta, the ticket is booked on, and the pricing / scheduling is run by Delta. But another company operates the aircraft and hires/fires the ground and flight personnel. It seems bizarre that a single company handles front-end marketing, reservations, customer service, aircraft operation, ground operations, baggage, maintenance, etc. Delta outsources food service to Gate Gourmet, for example. Why doesn't it outsource other aspects of its overall operation?

6. Eight hour workday too long for pilots? I recently spoke with the head of a major pilots union who told me management is trying to force pilots to fly more than eight hours a day and that this constitutes a serious safety risk. The union is lobbying congress. Should lawmakers force airlines to cap pilot workdays at eight hours? How many hours do pilots actually spend flying? My understanding is that 98% of the time the plane runs on auto-pilot. We should let one of the two pilots nap during the flight. Then allow them to fly up to 10-12 hours a day — just like the rest of us — or simply let management and pilots negotiate a fair work day with corresponding compensation.

7. Consolidation such as Delta-Northwest and United-Continental is good for the airlines, bad for consumers (less competition = higher prices), but perhaps long-run good for price insensitive consumers inasmuch as these companies will be able to offer better service, joint facilities / lounges, etc.

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