A Stitch in Haste

For those of you who don't read the business pages: as third quarter earnings season winds down, one observation is becoming painfully clear:

The airlines are in deep, deep trouble!

No surprise there, or course. Higher oil prices mean higher airplane fuel prices in the first moment, and in the second moment drag down the economy generally, so less air travel overall, both business and leisure. Add in higher travel taxes for security and airport improvements, very powerful unions, seriously underfunded pensions, and a long-term secular shift in corporate culture away from business travel -- and you have the recipe for a very sickly industry.

Need specifics? (Some of these links are from the Wall Street Journal -- subscription only.)

Delta: Still facing bankruptcy.

United: Ditto.

Independence Air: Reported a deep loss and disclosed serious liquidity issues.

USAir: Already bankrupt; liquidation a very real possibility.

ATA: Already bankrupt, liquidation almost certain.

AirTran: Reported a third-quarter net loss of $9.8 million. Continued survival depends on being able to diversify away from its single hub in Atlanta.

America West: Las Vegas' dominant airline "swung to a loss of $47.1 million, or $1.30 a share, from a year-earlier profit of $32.9 million, or 60 cents a share. Revenue fell 2.3% to $578.6 million. It said it expects to post a loss in the current quarter and is scaling back its growth plans for next year."

JetBlue: "third-quarter earnings plunged 71 percent, missing analysts' lowered estimates, as it struggled with skyrocketing fuel prices, storm disruptions and competition."

Southwest: Having trouble filling transcontinental flights, so it may have to -- gasp! -- assign seats.

Now, a libertarian-capitalist would say something like "Well, if a company can't survive, then it should go under. No subsidies, no protectionism, no bailouts. Let the free market do its thing." And when it comes to any one airline, such a posture is absolutely the correct position.

But what happened the last time our dominant transportation industry collectively went belly-up? We got ConRail and, more importantly, Amtrak!

Meanwhile, we're already seeing the rumblings of re-regulation:

Exhibit A: A jackhole senator's proposal to require airlines to offer deep discount bereavement fares.

Exhibit B: Bailouts, and even nationalization proposals, for the airline industry's ailing pension plans.

Exhibit C: "Congress is close to passing a bill intended to protect consumers if an airline shuts down. ...[T]he bill would extend for one year a requirement that airlines honor tickets of defunct carriers on a standby basis for nothing more than a minimal fee -- $25 each way, up to a $50 maximum."

Exhibit D: Bankruptcy judges playing central planner with planes and routes.

Refuse to believe the government might consider nationalizing domestic air travel in the face of failing private firms? Consider this 1971 press release from the government agency that brought Amtrak into existence:

Today it is increasingly evident that the United States cannot rely solely upon further massive construction of highways and airports to meet its transportation needs. The strangulation of our central cities together with such environmental problems as air and noise pollution, excessive land use and dislocation of people make unrestricted expansion of these facilities impractical and hazardous.
...
To revitalize rail service, two things must happen: (1) Present downward trends of ridership and revenue must be reversed; and (2) Uneconomic services must be curtailed.
...
For the first time in history, a unified, centrally-managed, nationwide rail passenger network will provide uniform and rising standards of service for all United States citizens.

The only viable means of insuring the survival and eventual expansion of intercity passenger service is to start out with a lean and muscular basic rail network, free of the duplicate services and hopelessly uneconomic routes, and the inevitable financial burdens they generate.
...
To capture its share of the travel market, AMTRAK aims at gradual restoration of public confidence in rail passenger service by clearly demonstrating its concern for passenger needs and by making service improvements wherever feasible.
...
In these beginning months, there is a need for public patience and understanding so that with public support, AMTRAK can develop a passenger service that is responsive to the traveler's needs and expectations.

Substitute the word "air" for "rail" or "intercity" throughout that press release, mix in some grandstanding politicians, not to mention activists of every stripe (environmentalists, urban planners, anti-sprawl groups, NIMBY groups, etc.), labor unions, and socialists of every flavor. Is "Air Amtrak" really such an impossibility?

Some more hasty stitches:

1. Unlike the railroad track network pre-Amtrak, government already owns the nation's airports and has granted itself control of commercial airspace. It could arguably be less of a cognitive leap to argue that the airplanes and air routes should be controlled by the government than it was to argue that the government should run passenger rail service.

2. Take a second look at that 1971 press release. Passenger rail was considered too important to fail in the face of the alternative of air travel. By that standard, commercial air travel today would arguably be even more "too important to fail," since there is no alternative. All the more reason, would-be nationalizers would argue, for the government to step in and "stabilize" the industry.

3. The commercial airline industry has, in total over it entire existence, lost money (although individual carriers can and do earn profits over certain periods). Meanwhile, Amtrak loses almost one billion dollars per year. Again, to a politician this coincidence would become a selling point: "You see, the market couldn't provide rail travel, and now we're seeing that it can't provide air travel, either. We did it once with Amtrak...we can do it again for air travel!"

4. Still not worried? Don't forget Amtrak's terrifying record of accidents, including one just last week.

Keep your eyes and ears open, and whenever you hear any politician or commentator call for more government entanglement with the airlines, ask yourself:

"Would this be one step closer to 'Air Amtrak'?"

If the answer is "yes," or even "maybe," then fight it will all your strength.

Related Posts:

(Airlines)
Fly the Friendly Skies, Damnit!
US Airways Declares Bankruptcy
Airline Pensions, Part 2
Airline Pensions and Social Security

(Amtrak)
"Give In, Give Out, Give Up, It's Over..."
Runaway Train
Republican Train Conductor Gets Railroaded
Amtrak Update

(Cross-linked at Outside the Beltway.)

"Continental does not require you to call and reconfirm your domestic or international flights."
--Continental Magazine, May 2006 issue, Page 132

Dear Continental Airlines:

First, please note that I am a member of your OnePass frequent flier program.

On May 26, 2006, I was a ticketed First Class passenger on a flight from Newark Liberty International Airport to West Palm Beach, Florida. I had paid for the First Class ticket several weeks in advance directly from the Continental website. I had seat 2E pre-assigned from the time I purchased the ticket.

As late as 11:30p.m. the evening before my flight, the Continental website indicated no issues or concerns with either the flight or my seat assignment.

Upon my timely arrival at the airport, but not until after I checked in using one of your automated kiosks and passed through security, I was informed at the gate that in fact First Class had been overbooked and that I had forfeited my seat because I "was the last to check in" — even though I had in fact checked in more than 90 minutes in advance.

Neither I nor anyone I have asked has ever encountered such a phenomenon. The response has been unanimous: Since when does an airline overbook First Class?

Let me reiterate: I was not flying standby, not redeeming OnePass miles and used no third-party intermediary. I bought the ticket several weeks in advance and paid cash, and checked in on time. At no time was I notified, by either email or voicemail, that First Class was overbooked and that there was now some sort of "race to the check-in line."

The agent at the gate brought new meaning to the term "unprofessional." I was given no explanation and no options, but simply told to wait and that she would "get to me." Her demeanor left no room for doubt: I was not to be treated as a valued First Class passenger or OnePass member, or even as the victim of your breach of contract, but rather as a nuisance to be deflected from her easier tasks as long as possible.

More than thirty minutes passed with not so much as an acknowledgement of my existence, let alone any indication that my situation was in the process of being resolved or even on anyone's agenda. Courtesy, attentiveness and professionalism were nowhere to be found.

I must emphasize that at no time whatsoever did I use any obscenities or profanities, nor did I ever raise my voice. Any impatience or brusqueness on my part was the direct result of the agent's seemingly limitless apathy toward my situation.

Although I did in the end receive an alternative First Class seat from another agent (but only after even the coach passengers had already been boarded), what I did not receive at any point from any Continental employee was an explanation or an apology.

Flying First Class is not simply about a wider seat and free cocktails. It is, or at least should be, about providing comfort and courtesy throughout the entire flying experience.

How does the saying go? Oh yes: "You know that I have a choice in airlines." (As a resident of New York City, that is especially true for me.)

Although I fly at least six times per year, often more, to both domestic and foreign destinations, I rarely fly Continental. After this inexcusable incident, that is highly unlikely to change. Unless, of course, Continental is willing to demonstrate, monetarily, its willingness to make up for its mistakes.

Please let me know what compensation I should expect and when it will arrive.

Sincerely,

KipEsquire

P.S. Please note that this letter will be posted on my blog and indexed to all major search engines, along with any response (or lack thereof) that I receive from you.

cc: Scott McCartney, "The Middle Seat," The Wall Street Journal

The core lesson of the Broken Window Fallacy is that benefits are often more visible than costs.

But when the costs aren't particularly invisible, then whom do you blame for your failure to comprehend?

Airline passengers willing to put up with aggressive new airport security measures are enjoying the unexpected serenity that comes from boarding flights with considerably less carry-on luggage.

Travelers and flight crew report faster boarding, less competition for overhead storage and frictionless deplaning in the seven weeks since a foiled terror plot in Britain prompted the U.S. government to crack down on carry-on items.

Many travelers responded by checking all their bags. ... The result has been that 20 percent more bags are checked and boarding times are five to 10 minutes faster[.]

This is, of course, utter nonsense.

Serenity? A flight with no infants is serenity. Enough space to open my laptop and play a DVD is serenity. Pretzels instead of trail mix is serenity. Diet Dr. Pepper on the beverage cart is serenity.

Five fewer minutes of boarding time is not serenity.

And besides, that's just the visible benefit — what about the (equally visible) cost?

[D]elays during boarding have moved to baggage claim and check-in. "It's taken the stress to a different section of the travel experience," [a flight attendant] said.

My experience is that baggage claim adds a minimum of 20 minutes to the total travel time; at a major airport like JFK 30-40 minutes is more typical. And it comes at the absolute worst point of the trip — the end, when all you want is to get to your hotel, or home. And baggage claim is the closest law-abiding equivalent to prison: no amenities, no civilities, usually no seats, typically no vending machines, often no restrooms — and no escape, until your sentence has been served.

Five minutes less boarding time in exchange for that? No thanks.

And by the way, how long do you think the (unionized) baggage handlers are going to tolerate this increase in workload without a corresponding increase in their wages? Which, of course, will be passed on to flyers (since most airlines have no profits to eat into)? That cost will become all too visible all too soon.

Buh-Bye.

Some minor items:

Fortunately I wasn't flying to Atlanta:

Seems that international arrivals get their bags in Concourse E — Hartsfield-Atlanta's international concourse — go through customs, and then have their bags sent to the main baggage retrieval area. But since there's no way to leave the airport from Concourse E without getting on the train or walkway that takes you past all the other concourses and passengers who got access to their packed luggage[,] all international passengers — whether connecting to a flight or headed to their destination in Atlanta — have to go through a TSA screening.

Going through security to leave the airport? Because if we don't, then the terrorists win.

---

On the other hand, you don't need to visit Atlanta to experience TSA nonsense:

1. Remove my backpack; 2. Remove my jacket; 3. Remove my shoes; 4. Remove my iBook from the backpack, and from its case; 5. Remove my approved, one-quart sized Ziploc bag containing its legal allotment of three-ounce containers of liquids and gels from the backpack. Item 4 must be placed in separate tray, alone; Item 5 goes in a round plastic dish, also by itself; Items 1, 2, and 3 are piled together in a third tray. But not so fast, as a guard warns me not bury my shoes beneath the other items. He recommends I place them separately on the belt, or in yet another tray. So there I am, one person with four separate trays of belongings. And after those belongings are x-rayed, it's time to:

1. put my coat back on; 2. put my shoes back on; 3. re-pack the computer; 4. re-pack the approved, one-quart sized Ziploc bag; 5. Strap on my backpack. All of this with no chair or table, elbow to elbow with a dozen other people all doing the same thing.

It seems to me that the low-hanging fruit here is removing laptops from bags: most other countries not only don't require but actually frown upon the practice, and the cost-benefit analysis certainly strikes most reasonable people as a losing proposition. But I guess if we don't do it, then the terrorists win.

Next up would be freedom baggies — that simply must be scrapped eventually. I refuse to participate at all, and opt instead for buying trial size toiletries upon arrival. Finally, one would-be shoe-bomber should not automatically condemn the entire United States commercial air travel sector to perpetual de-shoeing forevermore. It's time to return to something remotely resembling normalcy on that front.

---

Of course, not only do we endure this nonsense, we also pay for it:

The airfare you paid on this itinerary totals: XXX.XX USD

The taxes you paid on this itinerary total: yy.yy USD
That's how Continental Airlines formats its receipts, complete with putting the taxes paid in bold. I like that. I wish more merchants would do that. It reminds me of a story I once heard years ago (sorry, no links) that some jurisdiction, probably New York City, had contemplated enacting a law that would have prohibited hotels from breaking out taxes on its receipts (a significant line item considering New York City's 13.375% + $4/night hotel tax). The idea was that convention planners might reconsider bringing conventions to the city if they realized that participants weren't paying for four-star luxuries but for politicians' profligacy.

Continental is still on my naughty list, but I liked that gesture. Bravo.

Now available — the Stitch in Haste Podcast, Episode #003.

This week: Reflections on my recent flight to Las Vegas —

• A good old-fashioned overbooking!


• Is anyone old enough to remember the Civil Aeronautics Board?


• In defense of fee-based banking.


• How another gay podcasting New Yorker caused my midair seizure.

---

About the Podcast:

The idea will be to record a quick commentary, no more than weekly (and typically less than weekly) and never longer than 20 minutes, either about something I don't feel like covering in a full-blown blogpost, or something that I have already covered in the blog and don't feel like revisiting. Eventually I might include responses to comments, interviews, roundtable discussions, etc.

Here's a quick litmus test to see whether someone subscribes to a reality-based theory of economics or languishes in a wishful-thinking la-la land.

Which is better:

A. An airline that "oppresses" its passengers by imposing service-specific fees (second checked bag, curbside check-in, forward economy seat, child flying alone, etc.), clearly identified surcharges (most notably for fuel), fewer flights and more crowded planes, or

B. An airline that "oppresses" no one — because it's bankrupt.

If you chose Option A, then you are a reality-based capitalist — congratulations. If you sit around kvetching about how there ought to be an Option C, then you are a La-La Lander. Good luck — you'll need it. (If you chose Option B, then you're just a pathetic sociopath who warrants no further consideration.)

"A la carte" fees for air travel are a perfectly sensible and hardly oppressive pricing system. Why should every passenger pay for a service that only a fraction use? How is forcing some passengers to subsidize others not itself the "oppressive system"? If you disagree, then why not take the next logical step and charge people (perhaps via taxes) for not flying at all, in order to subsidize those who do? (Oops — never mind.)

---

As for the FAA-AMR debacle, let's keep some hasty stitches in mind:

(a) This is not a case of "fixing faulty wiring" on hundreds of "unsafe" planes. American insists (and there is no reason to doubt them) that there is no cognizable safety risk whatsoever. The company is merely capitulating to FAA (and media) paranoia in the wake of a scandal at the bureaucracy itself, catalyzed by a notoriously activist politician, Representative Jim Oberstar, seeking gratuitous headlines to look impressive to his ignoranti constituents.

(b) Speaking of which, the last time I checked the FAA was the government. To call this national headache a "market failure" due to "greedy capitalists" is the height of self-delusional policy hysteria.

---

*Regarding the bankruptcies, it's worth noting that ATA avoided shutting down as long as it did only by sucking at the military's teat. Skybus, meanwhile, was run by a gaggle of incompetent jackasses who thought they could make money by selling tickets for $10 (and $57 million in taxpayer money — how Amtrak of them). Good bye and good riddance.

But large, well-run companies can go under too, if they become unwilling — or unable — to run their businesses rationally. "Kick'em when they're down" is a federal air travel policy that could only make sense to a moron like Jim "airports to nowhere" Oberstar.

UPDATE: More on Oberstar from the Wall Street Journal.

Airline has-been Robert Crandall pens a remarkably schizophrenic op-ed on the ills afflicting, and his proposed cures for, American commercial air travel:

Although the system could conceivably be operated by a single efficient carrier, consumers clearly benefit from the existence of multiple airlines. The absence of competition never fosters better customer service.

No argument there (unless you're a health care socialist, in which case multiple insurers and providers competing for autonomous customers is, somehow, the worst free-market idea since the Edsel).

Market-based approaches alone have not and will not produce the aviation system our country needs.

So "competition" is good, but "the market" is bad? Don't worry — I don't understand it either.

The first steps toward achieving these goals should be to improve our outdated air traffic control system, to build much-needed new runways and airport facilities, and to lower the heavy taxes and fees now imposed on airlines and their customers.

"Air traffic control," "runways and airport facilities" and "heavy taxes and fees" are, for those who might be unclear on this, "the government," "the government" and "the government." Which somehow equates to "market failure." Go figure.

The financial standards for new airlines also need to be made more stringent. In the years since deregulation, nearly 200 airlines have come and gone. These inadequately financed carriers — whose principal goal has often seemed to be merely to exist long enough to reap the rewards of an initial public offering — have consistently cut prices to attract passengers. This downward pressure on prices has hurt airlines that seek long-term success.

Offering lower prices is bad? Competition is good, except when it works?

When Crandall writes, "the absence of competition never fosters better customer service," he seems to mean only the "right" kind of competition (but not price competition — that "hurts" the industry) and only the "right" kind of competitor (meaning his kind of competitor — people who, again, think price competition is "hurtful").

We should also revisit the basis on which we negotiate international aviation agreements. Since the 1980s, our government has too often agreed to "consumer friendly" pacts whose sole apparent purpose has been to try to lower prices for travelers.

Again, "competition = good" — but "price competition = bad." Somehow.

I suppose Crandall would have us return to the pre-deregulation, Civil Aeronautics Board, "jet set" days when "competition" only meant who offered the tastiest meals served by the sexiest flight attendants. But all at a price that most Americans could never afford, of course — wouldn't want to "hurt" the industry by lowering prices, remember.

(And note that Crandall says nothing whatsoever about our protectionist, even xenophobic rules about foreign ownership of U.S. airlines and our ban on foreign airlines running strictly domestic routes. File that under "competition, but not really" as well.)

Finally, we need to restore balance to the relationship between management and labor in the airline industry. Revising our bankruptcy laws to prevent failed airlines from continuing to operate would focus management and labor on the virtues of cooperation rather than confrontation. Similarly, binding arbitration of labor disputes would encourage both sides to avoid unreasonable positions and would free the nation's transportation system from the threat of work stoppages.

Government coercion in labor relations, government coercion in bankruptcy law, government coercion in the ability to litigate. Again, all so only the "right" kind of people — meaning only Robert Crandall and people who think exactly like him — are able to faux-compete for the government-spawned privilege of charging higher ticket prices.

Rate regulation of airlines is dead — long live rate regulation of airlines!

More thoughts from Windypundit.