mktozd

Worst ever customer service horror stories +
greedy merger economics =
Airline Re-regulation

EA/AA/FA

Yep. I think it is coming.

mktozd

Actually, the Feds should let them merge, but also open up US routes to international carriers. Lufthansa or British Air could clean their clocks.

globalflight

How would they re-regulate the industry? Any thoughts?

mktozd

globalflight,

Interesting question and I imagine lots of different scenerios. There are clearly market forces pushing for further industry consolidation and the globalization of all airlines -- which is fine. It does not make sense to block mergers neccesarily. Rather the following should be done.

1. Open up US skies to imports

2. Create and publish airline scorecards to fairly and accuratly dismenate service level information to consumers.

3. Create a Customer Advocate Board to remedy serious issues.

4. Mandate and legislate key service requirements like comp for delays, baggage loses, etc.

5. Limit hub growth to levels where there is not extreme price hegemony

6. Re-incarnate the Civil Aviation Board and give it the ability to arbitrate airline -labor disputes.

Just my humble thoughts, but would like to hear what you think

drewman

Regulation is like legislating a minimum wage. When the government sets a minimum level for something, that is the level that something will stay at.

Minimum wage costs company some money which they pass on to the consumers and their partners which raises prices which once again makes the minimum wage unable to live upon. The government raises it again and the cycle repeats.

If we let the government regulate the airlines again, the rules will be followed and it won't make any difference what airline you fly on - they will all have a minimum level of service. Where's their incentive to do better?

De-regulation will have bumps in the road, but if we truly don't like an airline - leave your status behind and vote with your dollars instead of hijacking the government to do something it is poorly prepared to do.

The convienience of having the goverment try to correct the airlines short term will only degrade service long term.

drewman

mktozd

drewman,

I do agree with your beleif in free markets, when the markets are competitive. However, in the case of airlines, they are more a a collusive oligopoly that is taking advantage of their market position. It is only in this sort of market failure that I advocate government intervention if only to change the rules of play. What I suggest does not resemble regulation of the pre-1978 era, rather a new economy approach to regulation.

I dont know, maybe keeping things as they are is fine in the long term, but in the short run it is painful.

JSrombough

What is a "new economy" approach to re-regulation? Internet IPO's handing out route authorizations?

My two cents on this: if Congress re-regulates, it won't be like the pre-de-regulation days. The American public is used to very low fares (the leisure travellers out-vote the business travellers). As such, Congress will legislate low fares AND high service. The end result is one of the two:

1) bad service that satisfies the law, according to teams of airline lawyers

2) massive consolidation (a Big Three would be a best-case scenario), which allows the airlines to profitably charge low fares and give good service, albeit on 747's and A3XX's (not so good if you like frequency).

drewman

Name one government program that has functioned the way it was intended to.

Everyone here has a horror story, but I would hope most have a story of incredible service as well.

If the government gets involved, horror stories would become far more prevalent. Imagine the check-in process being taken over by the same people who run the DMV (shudder).

drewman

ron-val-ron

in case people missed it, professor kahn, godfather of deregulation, was on nightline tonight

ted's most interesting point - there have been times recently at ewr where there have been more flights scheduled to take off and land within a one hour period than the airport actually had capacity for - he seems to think the government should put a stop to this nonsense (kahn says the airlines can schedule however many flights per hour they want, airport capacity be ****ed)

kahn's most interesting points

first, that airlines need to do a better job of adjusting the fares according to time of day flied rather than how far in advance you booked - if people want to fly at peak hours, they should ALL pay peak prices - that way the price-sensitive leisure folks would get off of the 6pms, there would be fewer people wanting to take the 6pms, and therefore the airlines would offer fewer 6pms and the skies would unclog at peak hours

second, that the airlines all lie about on-time figures and it's not fair to compare southwest's figures with united's, given that southwest avoids delay-plagued airports while united hubs at a couple of the worst - it's apples to oranges and the government, he says, should step in to make better info available to the consumers

thoughts?

mktozd

JSrombough,

I share your thoughts on the possibilities of re-regulation and would hope that a some of the newer approaches to regulation would be more of a partnership between business and government much as many internet standards are currently being developed.

drewman,

I shudder at your DMV allusiion and indeed to not advocate anything of the likes of airlines pre-1978 -- that was just foolish and slowed the US economy.

ron-val-ron,

You make a great point about on and off peak pricing. I will never understand why the airlines have largely esqued this robust pricing tool.

As for what things should look like, i cant see a world where airline consolidation a big three if you will does not occur. Blocking such mergers would be foolish and hurt US airlines from competting with the likes of British Air, Lufthansa, Qantas, ect. There just need to be some ground rules for this new competition much as there are rules to play today in every industry. With the excpetion of turn of the last century Hong Kong there have seldom been any true free markets. I guess my point is that some abeit limited regulation is beneficial to consumers and eventually to the firms.

other thoughts, disagreement?

JSrombough

Things such as Internet standards need government help due to its nature (a standard!) The only government help/oversight needed for the airline industry is safety and ATC. Slots for airports operating at or close to capacity is part of ATC (the "control" part of the term).

If you have closely spaced slots (10-15 minutes), then it won't be possible for airlines to schedule more flights than can actually depart. As a result, airlines will either upgrade equipment or raise peak fares and lower off-peak fares (or some combination of the two).

The reason airlines don't charge higher fares just for peak flights is because another airline will undercut them. The average fare for a peak flight is higher, but that's because there are more business travellers. The actual fare one passenger pays is typically the same regardless of the time of day.

mktozd

"The reason airlines don't charge higher fares just for peak flights is because another airline will undercut
them."
-- I am not sure I understand this, if the airlines were competitive, would they this price out effieciently? It seems to me that there is so much collusion that the arilins even compete along the same lines of advance purchase, non-refundable, etc.

As for gates & ATC, i agree with you. However there are more than just operations concerns here. Varying levels of service need some bottom threshhold. (eg what if you delay my plane 10 hours?) Service above that would serve as a basis for non-price comptition which of course is where profits can be accrued.

Peak vs. off peak is an area of great opprotunity for airlines and one that could make a difference.

To the initial question, do you reccomend no changes in policy? If so, how do you see things working themselves out?


The average fare for a peak flight is higher, but that's because there are more business travellers.
The actual fare one passenger pays is typically the same regardless of the time of day.

JSrombough

If the airlines are colluding, why are prices so much lower on city pairs with competition, compared to "monopoly" routes?

If the plane is delayed 10 hours ... so what? Should we pass a law BANNING DELAYS? Come on, do you really think airlines like to delay their passengers? Right now, United Airlines is losing customers because of their delays (other airlines have delays too, but not as much).

My opinion is that the only way to solve the ever-increasing problem of delays is to have slots at airports that operate at or close to capacity (which means reducing slots handed out recently at ORD and LGA). Unfortunately, we've gone in the opposite direction. After 2007, there will be no more slots, except at DCA (I guess Congress doesn't want to be personally inconvenienced).

mktozd

No I'm not suggesting that UA likes being delayed. Rather that they have the market power to screw up and get away with it.

As for slots, they probably should be limited and auctioned off on a regular basis. In this way the market can decide who can use the spots most efficiently.