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You Get What You Pay For Rant: Why Economy Class Is What It Is

Airline Reporter, 25 April 2014

When I was studying in Australia on the minutiae of airline management, it was drilled into me that airlines had three levers they could adjust to control their relative profitability: price, product, and capacity. It makes sense. Do not get me wrong, this is true – but even then I knew it was a gross over-complication. It only really made sense in the premium cabin, where passengers made their airline selection on a factor other than pricing. Airlines don’t actually deal in seats; a seat is kind of a nebulous thing that cannot be quantified easily. Airlines deal in unit cost and unit revenue.

You’ve all probably heard the term CASM (Cost per available seat mile) thrown around, same with RASM (Revenue per available seat mile). Well, when you buy a seat, you are buying capacity on the flight at a specific fare.

It gets worse, because the available seat mile is extremely perishable. It’s gone, forever, once you close the door. There are a good deal of complex price discrimination strategies employed by airlines to ensure that their customers never pay less than they ought to – but before I hurt your heads with complex math and graphs, allow me to completely change the tone of my argument.

Gordon Bethune (the best CEO Continental Airlines ever had) once said, “You can make a pizza so cheap that no one wants to eat it.” I was naive – I thought that was true. It turns out Gordon was wrong, and not just with airlines.

Spirit Airlines was right in stating that their target market is the “hate flyer” because that’s what many passengers have become. The hate flyer has decided that they despise flying, the airport experience, and have resigned themselves to the belief that flying in economy class will be so miserable, they do not want to pay even a penny more for the displeasure than necessary.

Stepping back for a moment, why do we even have a situation where (in economy class) the price has become the product? As high as the barriers to entry are for the airline market, and as high as the operating costs are, the airline business operates in an almost idealistically-perfect competition situation. The customer knows exactly what they are going to get and they can see thousands of price options in seconds.

Consumers can see what they will get, what food they can buy on board, etc. Sure, they’ve found airlines are all the same, but that is probably just a case of Hotelling’s rule. In a case of businesses selling the same thing in an environment with intense competition and informed consumers, there is an incentive for every business to offer the exact same options.

Sites like Expedia, Travelocity, and Hotwire have ensured that customers can prove even more that the price is now the product.

If you have three options on four airlines to fly from A to B and only fly once a year, with no loyalty or pressing need, all you would care about is the price (and maybe schedule, but likely as a secondary consideration).

That’d be fine, if the only passengers in the world that didn’t care about nebulous concepts like product and service were the infrequent flyers – we wouldn’t be in a situation where cabins are getting denser, seat-backs are not reclining, and food is buy-on-board.

The thing is that businesses have, for right or wrong, started adhering to the concept of “everything only exists for the point of maximizing shareholder value” so hard that they’ve changed the way their “human capital” is allowed to fly.

This is bad news for airlines; everything outside of leisure routing is done for the mythical business traveler. Even though the market segmentation is now vastly more complicated than that, the gist of it is that the business traveler wants options; they would fly another airline if they had another flight fifteen minutes earlier. Worse, they’d pay them way more. Worse still, they’d pay them even more for the ability to add some flexibility to his fare rule.

That worked when companies had travel accounts and were loyal in establishing relationships with airlines and their employees.

Now, even major corporations demand that their employees select the deepest discount, inflexible (sometimes even non-upgradable) economy fare. They do not care that their employee is a million miler with legacy B – they have to go Southwest! It’s two dollars cheaper — their travel tool demands it!

It’s a zero-tolerance, classically-benign technocratic tyranny. The company saved two dollars! Why if they saved two dollars for every travel booking, they could make n dollars more profit per interval! Don’t get me wrong, greed can be good- but loyalty is a two-way street. Companies used to treat their employees as more than a liability.

This is terrible for those in the airline business, though. If they can’t depend on loyal, high-bucket, economy flyers traveling on business, they can’t depend on anyone to pay for anything. So why bother?

There are some airlines that do bother. Etihad (which is 10Y, but service focused), Singapore, Qatar – they are bucking the trend and instead of making Economy economy “minus” and adding a premium economy (or as I call it, Economy class from the 1990s). They value their economy customers and offer value for money – and can charge a premium for it. It is no wonder that these airlines with a differentiated product are meeting their key performance indications in entirely different ways than the rest of the pack.

What is the point of offering more than the basic economy “minus” product with no shoulder room? No one is going to pay for more legroom any more. Everyone says they’d pay for it, but then a mitigating factor comes up. Once that happens, it’s back to Travelocity and the little gnome telling them they could save three dollars if they took a two-stop connection on the competition!

Airlines are not in the business of necessarily making you happy- they are there to get you from point A to B without killing you, maiming you, or otherwise rendering you incapacitated. They are there to ensure your safety on the journey. That’s it – everything else is just gravy. You have to pay for gravy.

If you want to have an economy experience that isn’t an eleven-across A380 (something my professors told me I was sadistic for arguing in favor of, but now could be a reality), show us. If that wasn’t enough, airlines asked Airbus to match the 189 seat capacity of the 737-800 on their A320. How are they doing this? By making all the aft economy rows at 28-inch pitch. Much like the ten-abreast A350s coming to an airline near you soon, these were not Airbus’ idea. Don’t complain, then pay us nothing for nothing. Vote with your dollars. If you knew their metrics, you’d understand why they think you’re asking the moon and complaining you got green cheese.

You want economy class to not be terrible? Then you need to pay for it. You want to save five dollars? Well, airlines still have to make money. Why is it okay in every other business to deliver exactly what they say they do on the package, but we have to go above and beyond? Those businesses are higher margin, too.

So in conclusion… businesses, stop making your high-value employee travelers hate themselves (and then complain to us about changes in frequent flyer programs and economy class). Everyone else, think really hard about what actually matters to you.

Airlines have to make money, and you are the source. At the same time, there are some airlines that call these serious downgrades in economy class product “enhancements”. To the point where “enhancement” is a dirty word among frequent flyers.

Airlines, just be honest – don’t ever say some new super-slimline seat with no padding, less knee room, and slide-forward recline is more comfortable, or is being fitted on a plane for environmental reasons. Call it like it is – the illusion of service and comfort in economy is gone.

You get what you pay for.

Why does that surprise you at all?

http://www.airlinereporter.com/2014/04/get-pay-rant-economy-class

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