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The Best of Flights, the Worst of FlightsFlying is worse than ever for consumers—but more lucrative than ever for airlines.

By Daniel Gross
Posted Saturday, Aug. 4, 2007, at 7:52 AM ET

Flying today is a Dickensian affair. Flight diaries read like production notes for Oliver: endless lines, screaming children, basic necessities confiscated, uncomfortable physical inspections, cramped conditions, and food of dubious quality.

For frequent fliers, it is clearly the worst of times. In the first quarter of 2007, only 71.4 percent of flights arrived on time, and 19,260 passengers were involuntarily bumped—up 13 percent from the year before. In July, 16,988 flights were canceled, up 54 percent from July 2006, according to FlightStats.com.

And yet for airline companies, these are the best of times. The industry was laid low by 9/11 and the 2001 recession, as giants like United, US Airways, and Delta filed for Chapter 11. But the airlines' winter of despair has given way to a spring of hope. In a recent conference call, American Airlines CEO Gerard Arpey crowed about "the largest quarterly profit [$317 million] since we launched the turnaround plan more than four years ago." Last week Northwest Airlines, tanned and rested after its sojourn in Club Bankruptcy, reported a healthy pretax quarterly profit of $273 million, despite rising fuel costs. The Amex Airline stock index is up 79 percent since March 2003.

What explains this dichotomy? After all, if workers at a restaurant chain routinely spat in customers' food, took three hours to deliver an appetizer, lost checked coats, and, every so often, grabbed diners by the lapels and kicked them out the door, the chain would quickly go bust.

This Tale of Two Airline Industries can be explained by a few basic macroeconomic factors and by one highly unexpected microeconomic development—airline managers are doing a much better job running their unwieldy empires.

Customers cut airlines slack in part because they can blame other forces for their misery. The Federal Aviation Administration's creaky, vintage system causes many delays. The Transportation Security Administration oversees the Soviet-like security lines. Weather-related problems can be attributed to a higher power.

The overwhelming majority of Americans lack an efficient alternative to the unfriendly skies. Even if a six-hour flight from New York to Los Angeles turns into an 11-hour Hieronymus Bosch-like ordeal, it's still light-years faster than a cross-country train or car ride. For all the hype surrounding corporate jets and the advent of air-taxi services, they constitute only a tiny sliver of the market.

Meanwhile, five-plus years of economic growth has boosted demand. Between April 2003 and April 2007, the number of domestic passengers rose 21 percent—while the number of flights rose only 4 percent.

Therein lies the secret to the airlines' success. Given the high fixed costs—planes, fuel, and labor—an unsold seat represents a damaging loss of revenue. As recently as the mid-1990s, the industry's load factor—the percentage of seats occupied—stood at 66 percent: In essence, the commercial aviation industry routinely threw out about one-third of its product. But thanks to rising demand, improved use of information technology, and savvier marketing, airlines have dramatically boosted their load factors. The industrywide figure rose from 72.3 percent in 2000 to 78.8 percent last year, according to the Airline Monitor. United Airlines in June filled 89.1 percent of its seats.

Alas, fewer empty seats translate into longer security lines, more overbooked flights (and hence more bumped passengers), and more baggage on every flight. (The frequency of mishandled baggage rose nearly 20 percent from May 2006 to May 2007, according to the Department of Transportation.) It also means less comfort once the plane is aloft. The chances of being stuck in a middle seat, sandwiched between frequent visitors to the Golden Corral all-you-can-eat buffet, in a row opposite the bathroom, have vastly increased. (In my case, they seem to be about 84 percent.)

Ironically, these Dickensian conditions are providing yet another opportunity for airlines to pad their chronically thin margins. For in recent years, they have developed low-ticket, high-margin options that alleviate some of the pain associated with flying. US Airways now charges a modest $2-per-bag fee for curbside check-in at some airports. For an extra $15, Northwest offers aisle, exit-row, or window seats. United's Economy Plus program lets fliers buy seats in a special coach section that offers 5 extra inches of legroom. The average cost: $25.

The balance of supply and demand doesn't show much sign of shifting. So, when you head for the airport, bring a copy of A Tale of Two Cities. There's nothing like a 371-page classic to make a four-hour delay pass quickly.

This column also appears in Newsweek.

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.
Photograph of an airplane on Slate's home page by John Foxx/Stockbyte.
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Remarks from the Fray:

Gross may be correct that because coast to coast flights save so much time their customers are willing to put up with the countless indignities and time wasting shoe searches. But many are choosing to avoid the shorter and mid range flights.

Next week I will leave from the St. Louis area to the Detroit area for several days worth of business. Its about 1 1/2 hours by plane give or take a few minutes. If I travel by plane my expenses will be paid.

I am driving my own vehicle because I simply refuse to subject myself to the indignity of the stupid preflight rules that now exist in this country, in fact I refuse now to fly anywhere that can be reached by land. Yes the airlines are making more money, good for them. They will not get any of mine.

Yes it will be approx. a ten hour drive, compared to two hours of being treated like a criminal, sequestered in an area where service and food is at highway robbery prices, packed like sardines in tiny aircraft and then forced to sit or taxi at both ends for at least 1/2 hour, or more if the weather is bad, a 1 1/2 hr flight, then wait for another 1 or maybe two hours for my bags at the other end, add another hour or so for the rental car hassles and then still have to drive to my hotel its just not worth it.

--NickD

(To reply, click here.)

What Gross ought have focused on is not general deterioration of the flying experience, but rather how it, like many other things, is becoming increasingly segmented. In this case, the "haves" are the high revenue, frequent fliers. The "have-nots" are those who fly occasionally.

Gross is clearly right that load management is key. But there's also something else that is related to the statistical data--better customer segmentation. Specifically, airlines seem to be getting much better at managing their high value customers (i.e., frequent business travelers). Why are there so many cancellations? Because there are so many flights. That's designed to respond to schedule-sensitive business travelers. For the destinations I go to most, looking only to 3-4 carriers, there's usually a flight leaving every 30 minutes or so. It's great, but it also means that the system is very sensitive to schedule disruptions. One might think that a hassle for business travelers, but:

1) Frequent fliers are rarely, if ever, involuntarily denied boarding. It's never happened to me

2) Delays and cancellations are annoying, but generally when one occurs, there are almost always other flight options. High-revenue passengers are rebooked or fly standby. If the 8 is delayed until 11, usually the 5 is delayed until 8--so I take the 5 that leaves at 8.

3) The "premium economy" Gross refers to is partially an independent revenue generator, but is mostly a way to offer high revenue passengers in an intermediate class of service on a regular basis.

My wife, who only flies a handful of times a year, recently had a very difficult experience. After describing it to me, she asked "how can you do this every week?" I could only muster an honest answer: "I don't."

--LuxLawyer

(To reply, click here.)

This summer has not only been bad for the passengers, but for flight attendants as well. I have had only one trip in the past two months that has not been delayed for some reason. The secret that most of you do not know is that some of this aggravation has been intentionally caused by the air traffic controllers who are in the process of trying to get a better contract than the one the FAA imposed last year when their negotiations broke down. ATC is now working 'by the book', which means that due to FAA regulations they can cause longer delays with a myriad of archaic rules due to the antiquated system. As an example, on a recent flight from LAX-(lets say the New York area), ATC started slowing us down in Nevada!!! We were barely out of LAX airspace! The flight, which generally takes 4.5 hrs, took 6.

In June I was working a Chicago turn (there and back) out of the NYC area; we were due to leave at 5:30pm; we departed at 12:30am. Gee, where were the passengers and crew during these FIVE hours? We were all boarded up and in line with the other million or so delayed aircraft. I know passengers get testy during the delay, well I do too! I don't want to be out there any more than you guys do; I'm trapped too. I did not personally cause the delay. Oh, and by the way, I also have to work the flight back. We arrived back in NYC around 5:30am; I was still legal to work my 2pm departure to LAX that afternoon.

--flygirlpam

(To reply, click here.)

For reasons I've never understood, people seem to always "vote" for low fares no matter what. A number of high quality service alternatives have been tried, and all have failed so far.

The airport access by planes is a big deal but progress toward rationalization of flight access has been mostly nonexistent. A policy consistent with airline dereg would be auctioning off landing and takeoff slots would allow our existing facilities to handle more passengers on more big planes, rather than have commuter and corporate planes take up these slots at nominal cost. Unless things have changed recently, the FAA allocates slots to small planes contrary to economic good sense.

These smaller planes, unless willing to compete with these big guys on slots fees, would then be relegated to smaller airports at no great loss to anyone.

--Breaker

(To reply, click here.)

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