Boston, March 7, 2023 --  

Public anger over airline industry practices in the United States have made consumer abuse a national issue.

When President Biden called out airlines in his State of the Union Address for charging "junk fees" and refusing to refund tickets¹, it signaled a watermark of consumer anger after many years of industry abuse. Just six weeks earlier, Southwest Airlines stranded tens of thousands of passengers during the peak holiday season as it cancelled 16,700 flights in a meltdown triggered by bad weather, but magnified many times over by inherent flaws in a fragile system.²

America's airline industry has long been heading toward its current disastrous state. After recovering from financial trauma in the wake of the hijackings in September 2001, airlines have been struggling to help their bottom lines by increasing financial efficiencies. They started by slashing flights and selling off less profitable airplanes. The cut out meals and started charging for snacks. They added new fees for checked bags, seat assignments and boarding priority.

Reconfigured aircraft cram more seats in the same space, making the flying experience increasingly unpleasant, and boosting the market for selling seat upgrades to help make the experience just a little bit more bearable.

More recently the major airlines have cut back on staff. Automated voice mail menus replaced human agents. "Unusually long" hold times to speak to agents are anything but unusual.

The newer and more complex fare structures with no-frills did come with multi-page legalese in the contract of carriage. These contracts absolve the airline companies from responsibility to deliver passengers to their destination in any reasonably timely manner.

All of these optimizations happened at the expense of the consumer. There is so little excess capacity in the system that any problem will cause cascading delays that make service suffer. Competitive pressure to be kind to customers largely doesn't exist, because the major airlines largely act the same way, and found a way to eliminate competition from upstarts. Despite major cutbacks in the early 2000s in the wake of September 11 and again in 2020 in the wake of the coronavirus pandemic, the major carriers strategically kept flights that allowed them to keep valuable gate assignments at overcrowded airports in major American cities. This makes it nearly impossible for new companies to compete with the big airlines because there aren't any free gates.

Exceptions to standard practices by major airlines are so rare that they are notable when they exist. Southwest Airlines is one of the few holdouts for not charging bag fees for passengers paying its lowest fares. But it has gladly joined its colleagues in selling priority boarding passes to get a decent seat at all.

What little innovation that exists in the industry has come from outside the industry with new airlines. In the past year, new airlines Connect and Breeze have been setting up routes across the United States, the latter (from the founder of JetBlue and Azul) targeting smaller airports to avoid the major carrier's gate lock-in³.

Breeze has also adopted the model of minimal legroom and no luggage included with the base fare. Not surprisingly, there is no shortage of customer complaints from its first months in operation. Like the major carriers, its business plan focusses on squeezing as much money out of customers as possible -- particularly by focussing on underserved airports -- regardless of whether it alienates customers along the way. And even if it did manage to treat customers better, its focus on underserved markets would have minimal impact on major carriers -- by design it operates only where there is minimal competition.

The simple truth is that the airline industry in the United States has settled into a dysfunctional state of standardization of customer abuse. There is no market pressure to change the system because the dominant carriers have agreed to operate the same way. A major shakeup of this status quo is long overdue.

It's unclear whether the rising public anger tapped by President Biden in his State of the Union Address will lead to any change. Biden mentioned one proposed bill, the Junk Fee Prevention Act, and two Democratic senators are pushing another in the Airline Bill of Rights.⁴ But the airlines will not stand without a fight. Southwest has hired a former Democratic congressman to lobby against these measures.⁵

If history is any judge, airline lobbyists will emerge victories and political proposals will go nowhere. Back in 2005, a similar holiday meltdown at Delta and US airways led to similar calls for a political solution⁶, but nothing was done. On the contrary, the federal government made $54 billion in pandemic-related bailout payments to the major carriers in 2020.⁷ Regardless of what politicians have in mind, if Southwest and its colleagues have their way, the America's abusive airline practices will go on for many years to come.

Notes:

1. The White House, Remarks of President Joe Biden – State of the Union Address as Prepared for Delivery, February 7, 2023

2. CNBC, Southwest CEO Maps Out a Recovery After Holiday Meltdown: ‘We Have Work to Do’, January 27, 2023

3. Skift, Airline Startups Connect and Breeze Share Early Survival Strategies, November 16, 2022

4. CNBC, Senators Push for Airline Passenger Protections after Holiday Travel Meltdown, January 31, 2023

5. Politico, Southwest Hires its First New Lobbyist in Years Amid Multi-Prong Controversies, January 30, 2023

6. Let Them Die, The Ultimate Bad Service Solution, January 4, 2005

7. Mercatus Center, The 2020 Bailouts Left Airlines, the Economy, and the Federal Budget in Worse Shape Than Before, September 8, 2022