FlightCaster

July 29, 2010

Did Southwest just throw us under the plane? Sneaky fine-print changes explained

A little bit of news out of Dallas -- Southwest has been playing chicken with its Contract of Carriage. That's the 30+ page document that each airline has and you, as the traveler, agree to when you purchase a ticket. It's the fine print -- the rules and regulations about what they have to do for you and when. While it's rarely read, it is the source document for policies such as when you get compensated for a cancelled flight, when they put you up in a hotel, and the rules around baggage, to cite a few examples.

On July 14th, Southwest decided to add "mechanical failure" to its list of "force majeure" events. That's the list of things that are explicitly outside the airline's control and therefore outside their responsibility to provide any compensation when a passengers is impacted by such event. This was first reported by the Arizona Daily Star, and you can read the article here.

Then just yesterday (July 28), they edited it again (view the latest here), presumably based on feedback from the first edit from places like the Cranky Flyer. In the latest version, they clarified what they really meant -- not all mechanical failures are out of their control, only "mechanical difficulties by entities other than Carrier". What does that mean? It means Southwest will take responsibility for their own equipment, but not the equipment of airports, the FAA, or perhaps contractors. Interestingly enough, they made an additional edit -- they added "inability to obtain...airport gates" as an additional thing beyond their control. This I think is higher impact than it sounds, since a lack of gates is an often cited reason for delayed or canceled flights at the more congested airports. That being said, other airlines (e.g. Delta and Continental) have the generic term "availability of facilities" as something out of their control, so this might just put Southwest at par with the industry.

This second change will quell some of the rage, but it still raises some interesting questions about what exactly is the Carrier's fault vs. not. And how can they just quietly change the fine print which then can have a major impact on the traveler -- whether or not you are entitled to a hotel and meals, or even alternate transportation, when there is a major delay or cancellation?

Southwest has an answer to this: They're making no such changes to policy, only the fine print. In fact, Southwest claims nothing is changing on the customer service front. That would leave the Contract of Carriage change to be purely a legal one. They're trying to limit liability, but have no intentions of changing the customer experience unless that includes a lawsuit.

That's fair -- in today's litigious world an airline, like any other company or person, should protect themselves from frivolous lawsuits. Having someone sue because they missed a meeting due to a mechanical failure is a needless legal expense by the airline and clearly without merit. So assuming Southwest truly doesn't plan to change the policy, this is harmless, right?

Let me offer 3 reasons why these sort of changes are much more consequential than Southwest might think:

1) No policy protection: The Contract of Carriage, while not a customer service bill of rights, represents the foundation of customer service policy. Even though Southwest or any airline can choose to enact any policy that is more customer-friendly than the Contract, they're legally not bound to do so. As such, this is a slippery slope. How long before the Contract seeps into customer service? Even if it's years, they're setting a dangerous tone by making this change.

2) Other airline are armed and dangerous lemmings: No other major carrier in the US has mechanical failure of any sort as a force majeure event right now. But whenever an airline issues a customer-unfriendly change to anything in it's network (e.g. fees galore), the other airlines watch closely and usually follow-suit. So Southwest might have unwittingly set a precedent and I would bet the general counsel offices in other airlines are looking at this to see if they should do the same. If they do, it can quickly spiral from the Contract to policy. It also begs the question: What other ways can the airline tweak the Contract to make it more customer unfriendly?

3) The Law of Unintended Consequences: Why is it that major airlines can't seem to understand that the law of public opinion is not based on fact, but perception of fact? A quiet (aka secretive, devious) change to the Contract of Carriage to make mechanical failure out of the airline's control sure sounds like a very unfriendly action. How long until Senator Schumer (D-NY) starts convening panels to talk about this? In today's climate of DOT micromanaging, is this really the sort of move that inspires confidence in the airline industry? They should be doing whatever they can do present an image of customer-friendly innovation. That just maybe, they have this whole passenger-experience thing under control. That they can treat people with respect when things go well AND when things go poorly. I think Southwest picked the wrong year to be making quiet changes to their Contract. Despite this being benign in intent and (in all likelihood) implementation, it sure smells like a rat to the untrained nose.

All this being said, I applaud Southwest for so quickly editing the document. They have thus admitted it was a mistake and have softened it. Is it enough to avoid the public wrath? Perhaps. But let this be a warning to all airlines -- At this critical time, when the economy is starting to recover, the DOT is thinking about making life WAY more difficult for you, and passengers are fed up in a serious way: Think carefully about how the world might perceive your actions. Spare yourself the embarrassment and maybe, just maybe, one day you'll make the evening news for something good, not bad.

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Evan on Twitter

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July 26, 2010

How we buy plane tickets and why it's ruining air travel

If you want to place blame for tarmac delays, bad airline customer service, and nickel & diming fees -- look no further than how you yourself purchase plane tickets. As consumers, we choose to purchase services based on any number of criteria that are important to us. In return, suppliers of these services cater their strategies to try to meet our needs and win that business.

If we purchase things as a commodity, it will get sold as a commodity. Plain and simple.

So why is air travel, among the most differentiated experiences we have in the normal course of life, purchased by so many people as a commodity? I have a few ideas I'll share below, but some of you may even disagree with that premise to begin with, so let's start there.

If you go to an airline revenue management conference, you will see smart folks from industry and academia talk about complex consumer choice and yield management models. All of them have the same basic premise: Two things count when there is a customer "arrival" (e.g. someone checks a fare with intent to purchase): The first is price, the second is schedule. Everything else is a distant third.

Now the folks reading this are most likely frequent travelers like myself. We are counting our elite status qualification miles on a weekly basis and have flown so many airlines so many times, we know who we like. We also might optimize to catch a ride on a 777 transcontinental (hopefully not this one) or endure a layover in DFW instead of O'Hare because the view of the field is so great from that people mover. But even we are pulled by price. How much more am I willing to pay to fly one airline over another? $20? $50? $75?

But after a flight, even us frequent travelers are known to talk about the adventure. Was it bumpy? Did the captain tell a joke? Was the FA nice? Did the gate agent say something mean? Did you get a movie? And of course, how late was it? Your flight experience often outlives many other aspects of your trip, even when it wasn't particularly eventful.

Why, then, do we buy tickets based almost entirely on price? Here are some ideas:

1) Perishable experience: Flying is, when all is said and done, just getting from point A to point B. It is a small part (time-wise) of your travel experience. If you're going to a meeting, on vacation, or visiting family or friends -- those visits and meetings are what you're focused on. Getting there is just an enabler. So while you might rather a better experience (who wouldn't?), it's a relatively short-lived perishable experience. Once you land, you're there. Done and done. A hotel, on the other hand, lasts your entire visit. A shirt, a bike, a car, a smartphone -- all of those are non-perishable things you live with for months or years. A flight is a few hours, tops. So even though you know you want a good experience, it's hard to justify the spend.

2) Booking vs. Experiencing: You usually buy plane tickets weeks, sometimes months, before you travel. It's like making reservations for the theatre or a sporting event in advance. You are buying the service well before you are experiencing it, so it's hard to feel the value of different offerings in a tangible way. If you bought all your plane tickets walk-up to the ticket counter right before you fly, you might think differently about that purchase. Similarly, when you get off the plane, you aren't just then buying tickets for your next trip. When you are upgrading your smartphone, you are doing so while you're still using your old one. So if you're unhappy with it, you really want a better one and that's a tangible feeling. You may have had a rotten flying experience, but a month later when you go to buy your next ticket, it doesn't quite feel as raw.

3) Inconsistency of experience: People generally get a feel of the different experience between a Spirit and United trip (or do they?). But what about United vs. Delta? Or even Southwest vs. American? The reality is that the best flight in Spirit is far better than a bad flight on United. You may have a bad experience on one airline on the outbound trip, and then have magical experience on the return. Airlines, as large companies with tens of thousands of employees located all over the world (and many more contracted workers) do not provide a consistent experience. Even when it comes to planes, the same applies. Do I have inflight entertainment? Is my seat pitch 31" or 33"? Am I on a small regional jet or a wide-body? With the exception of some of the LCCs (namely Virgin America, JetBlue, airTran, Southwest, and Spirit in the US), your physical plane experience varies so much. And even then, the little policies (when can I pull out my iPod after taking off? when will the seat-belt sign come off? How are we boarding, by rows or by zone? Can I get an exit row seat for free?) seem to change even within the same carrier depending on station and staff. How can I be expected to pay more for an experience when I don't know what I'm going to get? The variability is WAY too high. Imagine if a Starbucks mocha tasted a little bit different in NYC as compared to SF? Would that impact your desire to pay $3.50 for a small drink when you're in a different city? You bet it would.

It turns out these together are very good reasons for purchasing based on price. Ironically, it was the airlines' own GDS technology that has fueled this since the 1980s. It used to be hard to get good price comparisons and travel agencies would affiliate with specific carriers. So part of your choice of carrier would depend on your travel agency -- and of course that was a differentiated experience and a local storefront. GDS fueled much easier price comparisons which made it simpler to choose based on price. Orbitz (owned by the airlines!) fueled the internet age in the same way. These tools made it easier for airlines to compete effectively against each other on price, but also made it MUCH easier for the consumer to choose based on price. Look at the difference between any flight search tool and hotel search tool? For flights, you get a listing of flights by price and time. For hotels, you get maps, photos, stats, etc. Can you imagine choosing just the cheapest hotel available, even if you had never heard of it? Yet everyday people buy tickets on Sun Country, Spirit, and USA 3000. I'm not saying these are bad airlines (they aren't at all! I've flown Sun Country and really enjoyed it), but people are choosing them even though they don't know them because they are the cheapest. That's as commodity as it gets!

The impact of this is near catastrophic for an industry with so many aspects of the "product." There is very little incentive for airlines to improve or invest in their product since people aren't choosing based on it. Yes, you don't want to get significantly behind others (because than people will see a difference despite variability), but aside from corporate contracts, it's hard to show a positive ROI.

Airlines still spend money also on marketing campaigns touting their new fleets, wi-fi on board, or on-time performance. Building that brand equity is a good thing for the long-term, but at the end of the day they are enticing people to fly with them over their competitors at the same price -- NOT enticing them to pay more to fly them. If you look at RASM (revenue per available seat mile) or RPM (revenue per passenger mile) -- the standard metrics for yield in the industry -- you'll see basically 3 tiers:

Tier 1: The discounted LCCs: e.g. Spirit, Allegiant. These guys are slimming down the product to save costs and traditionally only compete on price.

Tier 2: The product-oriented LCCs: JetBlue, Virgin America, Southwest. These guys have great products, but also low cost base, so they get a mid-level yield higher than that of the discounted LCCs, but not representative of their global reach or corporate contracts.

Tier 3: Network carriers: American, United, Delta, etc. They get a yield premium over the other tiers, but it's hard to establish a sustainable yield premium against each other.

(note a lot of this data is available for easy viewing at the MIT Airline Data Project). One thing to understand here is that despite there being three tiers, it doesn't necessarily represent a a differentiated environment. The network carriers have business class, allowing higher yields. Route mix is also a big factor in yields -- international routes vs. domestic, business vs. leisure, etc. So even these differences in yield can be explained by factors not related to airline brand choice.

So why is this bad for aviation and what do we do about it?

The commodity phenomenon has created a perverse incentive system for the airlines. It means the activities that drives their business the most is cost cutting and ancillary revenue generating. Neither of those are productive for the industry. Yes, keeping cost low is a critical discipline, but competing for how low you can go means a disgruntled workforce, an underinvestment in capital equipment, and an operation without the appropriate protective capacity. Generating revenue from ancillary sources creates hassle and inconvenience for the traveler, and an inability to understand the "total cost of the trip" until it's complete. This creates yet another incentive for the airline: Hide fees as much as possible. After all, when you purchase your next ticket, you are still likely to choose the cheapest option and forget the $25 you forked out on-board. By shifting revenue to the travel experience, you not only can earn more, you can lower your base fares to compete more effectively against others. This is a reinforcing cycle -- and is not likely to let up any time soon.

In summary, all the things we (and the DOT) complain about, are a result of these two phenomena: Increased delays (tarmac and otherwise), bumping passengers, accommodating passengers during disrupted operations are all the result of cost cutting. And of course the hidden fees, opaqueness of total cost of the trip, etc. are the result of finding ways to add ancillary revenue.

This is all a very rational response from an industry trying to make a buck off a commodity product.

Here are a few thoughts about what we can do about it:

1) Better shopping experiences: The consumer needs a better view of options so that they can, just maybe, have the ability to know what they are getting for their money. One guy is trying to do this -- Dave Pelter of Inside Trip. He understands this perfectly and senses the revolution coming where consumers may just make better choices about flights based on things other than just price and schedule. He has identified 12 other features and wants to provide this to GDS. Of course the big airlines and GDS are resistant to this because it's an unknown. But at some point (I hope), consumers will demand it. We also need better options for total cost of the trip, including potential fees. Several OTA's and meta-search sites are working on this (as is GDS). I haven't seen a good solution yet, but this space is new and my guess is we'll see some decent options in the coming months. These tools can help sway some of these commodity purchasing behaviors by at least allowing consumers the choice to think differently (turn air travel search results into more of the hotel view).

2) Fight DOT regulation: When the DOT micromanages the industry, it means all airlines sink to the bottom and stay there. It prevents differentiation, because it sets a standard (low OR high) for which all airlines meet. For example, without the 3 hour tarmac rule -- the DOT and others could have promoted massively who was keeping passengers on planes and who wasn't. That could have been a sustainable point of differentiation (e.g. JetBlue's Customer Bill of Rights predates DOT regulation and could have been a great point of differentiation -- arguable if they executed on it well). Instead, all airlines have to comply, destroying any point of comparison. Now the regulations around disclosure are better aimed, but still, it mandates airlines to have a certain level of customer service. Why not allow some airlines to do it and others not? The surface reason is because none will! That being said, DOT rules do not help establish point of differences between airlines, they only reinforce the concept that they're all the same -- doing just what they have to do and nothing more. If you take this logic to the extreme, you might argue even safety regulations shouldn't be required -- that would allow travelers to choose airlines based on safety. Would you pay $100 more knowing your plane had better maintenance? Or would you pay $100 less knowing your plane had less maintenance? There is good reason why the DOT shouldn't allow this, but at least hypothetically, one can see the value to allowing consumers to choose based on quality.

3) Embrace consolidation over code-sharing: This might be counter-intutive -- after all, fewer players means higher fares and fewer choices. But think of it this way: The 3 alliances now represent 3 choices of legacy carrier on any given route. Instead of 6, we now have 3 (okay, technically 4 with US Airways). It cuts down noise and confusion when purchasing tickets, especially since they were all selling tickets on each others planes anyways! Since LCCs have the best chance of differentiating themselves, it will be easier against a smaller crop of legacy carriers.

4) Promote LCC proliferation: Remember the tiers? Well the more LCC competition we have on routes, the more the legacy carriers (and LCCs) will try to differentiate themselves. That means better loyalty programs from the legacy carriers, and more perks from the LCCs. Yes, there will be price matching also, which is good. But what would be even better is if one of the legacy carriers figured out how to deliver a consistently good customer experience to try and win travelers vs. just price match.

I think there is room for one carrier (big or small) to make a real mark by creating a consistently better experience and thus gain a yield advantage. It's hard, for sure. But it has to do with more than surface things -- it has to do with protective capacity in the operation to reduce delays and cancellations, more staff at gates to create a better experience, and more consistent inflight experience. Taking the "hassle" out of flying has real value, and I'd love to see one airline spend money to make that happen in a consistent and sustainable way. Virgin America is probably doing this the best today and I look for their expansion as proof that this can work.

In the meantime -- it's up to us, consumers, to voice our issues with the industry. If we show that we're willing to pay according to product, we will see a drastically different environment open to us. But until we do, we're just promoting the cost cutting and ancillary revenue driving / hidden fee proliferation that airlines are engaging in. Don't place the blame on them, place it on us.

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July 14, 2010

Verdict on tarmac delay rule: No mass cancellations, but still too much impact?

With the full set of statistics about May now released, people have been doing some analysis on whether the tarmac delay rule that took effect on April 29 had an impact on cancellations. The DOT is happy to promote that the number of 3 hours+ tarmac delays in May was 5, a major reduction from the 34 on 2009. So clearly it worked, right?

No so fast, points out Brett Snyder in the Cranky Flier column. Cancellations are also way up, so that means many people people were inconvenienced to reduce the tarmac delays. So clearly it didn't work, right?

It's not easy comparing delay statistics month over month or year over year. Delays often start with weather, so how can you normalize for that? It's not fair to say that an increase in cancellations has anything to do with the tarmac rule. Just because airlines have threatened in the media to cancel flights more often doesn't mean they're actually doing it. It also doesn't mean that it's the wrong thing to do!

I took the analysis one step further to try and normalize the data. It turns out that May 2010 was a pretty bad month for on-time flying anyways, and May 2009 was a great month for flying. So any comparison between the two is inherently flawed (read: completely meaningless). Delays, cancellations, tarmac events etc. are all a function of the conditions at the time -- drawing conclusions from a direct comparison is like saying the 1998 Yankees were better than the 2010 Yankees based on their record, or even pitching and batting stats. It's speculative at best because their stats are entirely based on how they performed against other teams and players. So it's fun to discuss, but it's a meaningless analytical comparison (and sportswriters often rely on their detailed qualitative knowledge of players to make such comparisons, not pure statistics).

Now, what if you did a really detailed analysis that compared the two teams taking into account the batting and pitching stats of every other player they faced those years? While not conclusive per se, it at least would provide a sound analytical comparison. For example, was Jeter better in 1998 or 2010? A direct batting average comparison would be helpful and interesting, but not super meaningful except given the assumption that over the course of the seasons the quality of pitching he faced was equivalent in the comparison years. But what if you normalized his batting average to the stats of each individual pitcher he faced in both seasons? Now we're talking.

I had a few ideas of how to do that for the tarmac delay analysis. I normalized the number of cancellations to other delay-related stats -- Namely the number of diversions, number of delayed flights, avg. number of delay minutes per delay, and avg. number of delay minutes overall. That is to say that diversions, delays, delay minutes, and cancellations are all products of weather et al. We can assume that together they represent a view of how "good or bad" any given month is. Now in order to tell if a rule had an affect on cancellations, we can see if the ratio of cancellations to any of those figures changed. In other words -- if more flights were cancelled in 2010 given similar conditions, you'd expect the number of cancellations per diversion or per delay to go up. That would show the trade-off between canceling a flight and allowing it to be delayed. (Obviously there are many other pieces of analysis that can be done, but I figured given ease of data manipulation, this was the best place to start). Out of those ratios, I chose "number of cancellations per arrival delay" as the key one. It seems to be the most relevant, as diversions are not numerous enough to show good statistics and using delay minutes introduces other areas of noise. It isn't perfect, but it's a good place to start.

Now let's look at the results.

In summary: Nationwide, there seems to be small impact on cancellations. The high number of cancellations for May 2010 can be explained mostly from just being a bad month. There is little to suggest that it is a result of the tarmac rule except the comments we hear from airlines (note I've heard from some airlines internally that they are indeed being super-conservative as a result of the rule, so it is not just a media party line). But if we drill down, what sort of "negligible" impact does it take to affect travelers?

The figures: Overall, cancellations per arrival delay was 0.064 in May 2010, as compared to a 7-year average of 0.059 for May. 2010 represents the 2nd highest in that period, the highest was 2004 with a whopping 0.082.

(As an aside, cancellations per diversion was 4.17 in May 2010, below the 7-year average of 5.20, and higher than only the 2009 figures. Similarly, cancellations per arrival delay minute was 96.8 in May 2010, down from a the 7-year average of 105.2, and higher only than the 2009 figures)

So perhaps the ratio indicates a little something is going on, but it's not all that convincing.

So what's up? Is this whole thing overblown?

Well, if you dive into a handful of the big problem airports, you can see a bit of an up-tick.

Overall, at the 35 top airports, May 2010's cancellation to arrival delay ratio was above average for 19 airports, and below for 16 of them. It was the highest over the last 7-years at 5 of them: DEN, FLL, IAD, JFK, MIA, PDX, and TPA.

Does that mean anything? Hard to say. Only at JFK was the number really out of whack: 3x the next highest. That signifies a definite behavior change but might be the result of the runway construction, not the tarmac delay rule (although in April 2010, JFK's ratio was right in mid-range, suggesting something did change from April to May). Otherwise, only at TPA was 2010 a real outlier, with a ratio more than 2x the average, caused mostly but a sudden reduction in delayed flights, not an up-tick in cancellations (only 34). ATL would also fall into this category if it wasn't for 2005, where they had a seemingly ridiculous ratio of 0.222. Note by far the worst performing airport according to this metric is ORD, with an average of 0.234 -- More than 2x the overall average. Their peak in May was 2004 with a ratio of 0.355. That means they cancelled an obscene number of flights relative to delays experienced (note these airport-specific figures cannot be compared to overall figures since both arrival and departure cancellations are included for airport-specific analysis, whereas nationally cancellations are only counted once).

Are these differences any more than natural fluctuation? It's hard to say, frankly. But there is no discernible pattern except at JFK, with the aforementioned runway problem. Note that if the ratio in May 2010 was the 7-year average, that would have meant 442 fewer flight cancellations in May nationwide -- 130 of those can be directly attributed to JFK. How many tarmac delays did we avoid from those cancellations? We don't know, but almost certainly fewer than 130, let alone 442.

All these figures can change as airlines adjust their strategies for dealing with potential tarmac delays, but it just might be possible that simply by creating better plans and paying attention to it a whole lot more, airlines can avoid tarmac delays without canceling many more flights.

Yes, you can argue there was a slight up-tick in May 2010, but certainly not the mass-cancellation scenario some airlines predicted.

I still don't believe in DOT micromanagement of airlines and rules such as this, but if this conclusion is even half true, it certainly shows you not only the power of DOT intervention, but also the lack of attention that airlines truly paid to tarmac delays in the past. Their year after year claim of doing whatever they can to prevent them ("our hands are tied" "it's out of our control" etc. etc.) might have been perhaps a bit overstated. Never underestimate the power of good old enforcement to drive results. It's a sad lesson, but one hopefully the airlines learn sooner rather than later so they can proactively attack DOT concerns without having a ton of other rules pushed down their throats.

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July 9, 2010

Things the DOT actually should pay attention to: Cancel Down

I've repeatedly said that I don't agree with the DOT's micro-management of the airline industry through it's new list of proposed rules (My blog posts on the first round of rules here, and on the new rules here). But recently, a few things have come across my desk that I think might actually be ripe for DOT rule-making (or at least a little DOT reprimand).

I'll discuss one of those today -- what is being referred to as "Cancel Down". And I'd like to give a shout out to an Airliners.net message board post by enilria for stimulating this post and providing the schedule details below.

What is a Cancel Down? We've all had the experience where you book a trip well in advance, and sometime before the departure date, you get an e-mail or call from the airline saying your schedule has been changed. Usually, they change the time of your flight and/or give you a new flight number. Generally, this is in response to some schedule rationalization where an airline cancels some flights to combine two with low bookings or adjusts a schedule for some operational issue.

We all understand that this happens occasionally, and as long as it doesn't have a major impact on my trip, I usually don't care too much.

But let's think about this a little more critically. To an airline, the top two things (loyalty aside) that impact airline choice are 1) Fare and 2) Schedule. When you buy a ticket, you are expecting to fly at the price you paid at the time of your flight. You may have even chosen to pay more for a more convenient schedule (I do that all the time if I'm trying to choreograph flights into my schedule). By using the Cancel Down, the airline can effectively bait and switch me. They get me to buy my ticket for the right price and schedule, and then they change the schedule on me.

Notice when you get these messages, they generally don't say "click here for a refund if this doesn't work", they make you call and complain, or get a special exemption for a refund or fee-free fight change if it's a non-refundable ticket. Also, these changes usually occur within a month or two of the flight, meaning the prevailing fare for that route on other airlines might be significantly higher. Essentially -- you are often stuck.

Now things happen that make this necessary from time to time, and one can never assume evil motives. An airline should obviously be allowed some latitude to adjust their schedule as necessary when need be. But a ticket purchase is a contract, and even though the Contract of Carriage allows the airline to do this, it's a sheisty move when done en mass.

So that begs the question: How often are airlines doing this? If it's happening a lot, it would signify at best a poorly-planned network schedule, and at worst, a conspiracy to improve yield.

I've posted the data for US Airways and United and you can see for yourself below. It's not a small number.

Below are the routes that had flight schedules reduced in schedule updates on July 1st for flights that were scheduled to operate in September. So that's 2 months advanced notice. Anyone who was booked on those flights (which have been available for booking for months) will now incur a schedule change.

How many flights? For September, we've got ~2,850 flights for just US Airways and United alone (mind you this is a small percentage of their 7k+ flights per day, but still large when you think about the number of affected passengers).

The problem here is the airline has almost no incentive to NOT do this. It's a way to increase early bookings by offering a more flexible schedule, and then just bailing on those flights later. You've gotten the yield captive, and now you reduce costs by combining flights. Yes, there is a risk they'll lose that revenue, but the closer to departure they do this, the less chance the passenger has to take their business elsewhere.

So what can the DOT do about it? For starters, they can track this to assess how big a problem it is and who are the worst offenders. If they judge it is a problem, then perhaps there's a penalty carriers much pay to people affected. At the very least, they should be offered easy refunds and fee-free transfer to any other flight on the same route by the same airline. At the most, perhaps a $100 voucher, or some Frequent Flier bonus. In reality, airlines should do this on their own. They messed up and had to change the schedule, and they should apologize to their customers and offer some mild benefit as a way to keep them happy. It's just good business. But without that, there seems to be little incentive for airlines to do anything. And after all, this has the biggest impact on travelers who book early -- generally not their high value passengers. That makes it even more important for the DOT to help out passengers who are getting hurt by this practice.

Now my personal rant: This happened to me in May on a United flight from JFK to SFO. They changed the schedule on me, and didn't bother to tell me. I only noticed when my FlightCaster app synced with TripIt and I saw the time was off. I went to United.com and saw that the flight time did indeed change. It's funny -- United Easy-Update calls my cell-phone an average of 10x every time I fly to keep me abreast of non-issue flight status updates, but when they change the time of my flight by 90 minutes weeks in advance -- they don't even bother to let me know!

I'm not one to mandate DOT intervention in the airline industry. But in light of their needling ways of late, this is at least one way I think they could productively participate in the dialogue. It's pre-meditated anti-consumer activity, not the on-the-fly poor customer service issues that they are focusing on currently.

I would never encourage the DOT, but when the dog wants a bone, may as well give him a rawhide bone from the store than let him dig up a dead bird in the backyard and chew it on your kitchen floor, right?

CANCEL DOWN - OAG Schedule Update from July 1, 2010 for September Flights
(figures reflect average number of flights per week before and after schedule update).

United's September Cancel Down
ABE-IAD 3.7>3.1
ABE-ORD 4.0>3.8
ABQ-DEN 6.1>5.9
ABQ-LAX 3.0>2.6
ACV-CEC 1.0>0.9
ACV-SFO 7.3>7.1
ACV-SMF 2.0>1.7
ALB-ORD 5.0>4.8
AOO-IAD 0.9>0.7
AOO-JST 1.7>1.9
ASE-DEN 7.9>7.7
ATL-DEN 2.9>2.8
ATL-ORD 7.0>6.8
ATW-DEN 1.0>0.8
ATW-ORD 6.0>5.5
AUS-DEN 3.9>3.8
AUS-ORD 4.0>3.9
BDL-IAD 5.0>4.9
BDL-ORD 5.1>5.1
BFL-LAX 2.0>1.9
BGM-IAD 3.8>4.0
BHM-DEN 1.0>1.0
BHM-ORD 3.0>3.0
BIL-DEN 5.0>4.9
BIL-ORD 0.0>0.0
BIS-DEN 3.9>3.7
BNA-DEN 2.0>2.0
BNA-ORD 5.0>5.0
BOI-DEN 5.9>5.7
BOI-LAX 2.0>1.8
BOI-SFO 4.0>4.0
BOS-DEN 3.9>3.8
BOS-IAD 7.0>7.0
BOS-ORD 10.0>9.5
BOS-SFO 5.0>5.0
BTV-ORD 4.0>4.1
BUF-ORD 6.0>5.8
BUR-SFO 6.0>5.6
BWI-DEN 3.9>3.8
BWI-LAX 2.0>2.0
BWI-ORD 7.0>6.5
BZN-DEN 4.9>4.8
CAE-IAD 4.0>3.9
CAK-ORD 3.0>2.8
CEC-ACV 1.0>0.9
CHO-IAD 4.0>3.9
CIC-SFO 4.0>3.9
CID-DEN 3.9>3.8
CID-ORD 6.0>5.8
CLD-LAX 6.0>5.3
CLE-IAD 4.0>4.0
CLE-ORD 8.0>7.8
CLT-ORD 5.0>4.8
CMH-DEN 2.9>2.8
CMH-ORD 6.1>6.1
COS-DEN 11.0>10.9
COS-LAX 3.0>2.7
COS-ORD 5.0>4.9
CPR-DEN 3.9>3.8
CRW-IAD 3.7>3.9
CVG-DEN 2.0>1.9
CVG-IAD 2.0>1.9
CVG-ORD 8.0>7.5
CWA-ORD 3.9>3.7
DAY-IAD 4.0>3.8
DAY-ORD 7.0>6.8
DCA-ORD 14.6>13.3
DEN-ABQ 6.0>5.9
DEN-ASE 7.9>7.7
DEN-ATL 3.0>2.8
DEN-ATW 1.0>0.8
DEN-AUS 3.9>3.8
DEN-BIL 5.0>4.9
DEN-BIS 3.9>3.7
DEN-BNA 2.0>2.0
DEN-BOI 5.9>5.6
DEN-BOS 4.0>4.0
DEN-BWI 3.9>3.8
DEN-BZN 4.9>4.8
DEN-CID 2.9>2.8
DEN-CMH 3.0>2.8
DEN-COD 1.9>1.9
DEN-COS 11.0>10.8
DEN-CPR 3.9>3.8
DEN-CVG 2.0>1.9
DEN-DFW 5.9>5.6
DEN-DRO 6.7>6.6
DEN-DSM 3.9>3.8
DEN-DTW 3.0>2.8
DEN-EGE 3.0>2.9
DEN-ELP 2.9>2.8
DEN-EWR 2.9>2.8
DEN-FAR 3.9>3.8
DEN-FAT 3.0>3.0
DEN-FSD 3.9>3.8
DEN-GEG 3.0>3.0
DEN-GJT 7.7>7.6
DEN-GRR 2.0>1.9
DEN-GTF 3.0>2.8
DEN-IAD 9.0>8.8
DEN-IAH 4.9>4.8
DEN-ICT 4.9>4.7
DEN-IDA 2.9>2.8
DEN-JAC 4.3>4.2
DEN-LAS 7.9>7.6
DEN-LAX 9.9>9.4
DEN-LGA 4.9>4.8
DEN-LIT 2.9>2.8
DEN-LNK 2.9>2.8
DEN-MCI 5.7>5.6
DEN-MCO 3.0>3.0
DEN-MKE 2.0>2.0
DEN-MLI 2.9>2.8
DEN-MSN 2.9>2.8
DEN-MSO 4.9>4.8
DEN-MSP 4.9>4.8
DEN-MSY 2.9>2.8
DEN-MTJ 5.0>4.8
DEN-OAK 1.9>1.8
DEN-OKC 4.9>4.8
DEN-OMA 5.9>5.5
DEN-ONT 3.9>3.8
DEN-ORD 11.1>10.9
DEN-PDX 4.9>4.8
DEN-PHX 6.0>5.9
DEN-PIT 2.9>2.8
DEN-PSC 2.9>2.8
DEN-RAP 7.9>7.6
DEN-RNO 3.0>3.0
DEN-SAN 4.9>4.8
DEN-SAT 3.9>3.8
DEN-SBA 2.9>2.8
DEN-SEA 5.1>5.1
DEN-SFO 8.9>8.7
DEN-SGF 2.9>2.8
DEN-SJC 4.9>4.4
DEN-SLC 6.7>6.5
DEN-SMF 4.9>4.8
DEN-SNA 4.9>4.7
DEN-STL 5.0>4.9
DEN-TUL 3.9>3.8
DEN-TUS 5.0>5.0
DEN-XNA 2.0>1.9
DEN-YEG 3.0>3.0
DEN-YVR 3.0>3.0
DEN-YWG 3.9>3.8
DEN-YYC 4.9>4.8
DEN-YYZ 2.9>2.8
DFW-DEN 4.9>4.8
DFW-ORD 7.0>6.6
DFW-SFO 2.0>2.0
DRO-DEN 6.7>6.6
DSM-DEN 4.9>4.8
DSM-ORD 6.3>6.0
DTW-DEN 3.0>2.8
DTW-ORD 6.4>6.3
EGE-DEN 3.0>2.9
ELP-DEN 2.9>2.8
ELP-ORD 2.0>1.9
EUG-DEN 2.1>2.1
EUG-PDX 4.0>3.9
EUG-SFO 6.0>5.9
EWR-DEN 2.9>2.8
EWR-ORD 9.0>8.6
FAR-DEN 3.9>3.8
FAR-ORD 4.0>3.8
FAT-DEN 3.0>3.0
FAT-LAS 4.0>3.9
FAT-LAX 6.0>5.9
FAT-SFO 6.0>5.9
FSD-DEN 3.9>3.8
FSD-ORD 5.0>4.6
FWA-ORD 3.0>2.8
GEG-DEN 3.0>3.0
GJT-DEN 7.7>7.6
GRB-ORD 6.0>5.7
GRR-DEN 2.0>1.9
GRR-ORD 6.1>5.9
GSO-ORD 5.0>4.7
GSP-ORD 3.0>2.7
GTF-DEN 3.0>2.8
HNL-SFO 4.0>3.8
HPN-IAD 3.0>3.0
HPN-ORD 5.0>4.3
HSV-IAD 2.0>1.9
IAD-ABE 3.7>3.1
IAD-BDL 5.0>4.9
IAD-BGM 3.8>4.0
IAD-BOS 7.0>6.9
IAD-CHO 4.0>3.9
IAD-CRW 3.7>3.9
IAD-CVG 2.0>1.9
IAD-DAY 4.0>3.8
IAD-DEN 8.9>8.6
IAD-HPN 3.0>3.0
IAD-HSV 2.0>1.9
IAD-LAS 3.3>3.4
IAD-LAX 8.0>7.9
IAD-LGA 5.0>4.7
IAD-MAD 1.0>1.0
IAD-MCI 3.0>2.9
IAD-MDT 4.0>3.8
IAD-MHT 3.3>3.1
IAD-MSY 2.3>2.2
IAD-ORD 7.0>6.7
IAD-PHL 4.0>4.0
IAD-PIT 5.1>5.1
IAD-PVD 5.0>4.9
IAD-RDU 5.0>4.9
IAD-SAN 3.6>3.5
IAD-SCE 4.0>4.0
IAD-SFO 9.1>8.9
IAD-STL 5.0>4.7
IAD-TYS 3.0>3.1
IAD-YQB 1.0>1.0
IAD-YYZ 6.0>5.7
IAH-DEN 4.9>4.8
IAH-ORD 4.0>4.0
ICT-DEN 4.9>4.7
ICT-ORD 5.0>4.9
IDA-DEN 2.9>2.8
IND-ORD 10.0>10.0
IYK-LAX 3.0>2.8
JAC-DEN 4.4>4.3
JAX-IAD 3.0>3.0
JAX-ORD 3.0>3.0
JFK-LAX 6.0>5.9
JFK-SFO 7.0>6.9
KOA-SFO 1.0>1.0
LAN-ORD 4.0>3.6
LAS-DEN 7.9>7.7
LAS-FAT 4.0>3.9
LAS-IAD 3.0>3.1
LAS-ORD 7.1>7.1
LAS-SFO 7.3>6.9
LAX-ABQ 3.0>2.6
LAX-BFL 2.0>1.9
LAX-BOI 2.0>1.8
LAX-CLD 6.0>5.3
LAX-COS 3.0>2.7
LAX-DEN 8.9>8.7
LAX-FAT 7.0>6.9
LAX-IAD 7.0>7.0
LAX-IYK 3.0>2.8
LAX-JFK 6.0>5.9
LAX-LAS 5.7>5.4
LAX-OKC 2.0>1.7
LAX-ORD 12.1>12.0
LAX-PDX 4.0>3.8
LAX-PHL 2.0>1.8
LAX-PHX 4.1>4.1
LAX-PSP 6.0>5.9
LAX-RNO 3.0>3.0
LAX-SAN 13.0>12.9
LAX-SAT 3.0>2.8
LAX-SBA 8.0>7.7
LAX-SBP 6.0>5.6
LAX-SEA 4.0>3.9
LAX-SFO 16.0>15.4
LAX-SJC 3.0>3.0
LAX-SLC 2.0>1.8
LAX-SMF 4.0>3.9
LAX-SMX 4.0>3.9
LAX-TUL 1.0>0.8
LAX-TUS 4.5>4.4
LAX-YUM 4.0>3.9
LAX-YVR 2.0>1.9
LEX-ORD 4.0>3.8
LGA-DEN 4.0>4.0
LGA-IAD 5.0>4.8
LGA-ORD 17.9>15.4
LIT-DEN 2.9>2.8
LIT-ORD 3.0>3.0
LNK-DEN 2.9>2.8
LNK-ORD 4.0>3.9
MBS-ORD 3.0>2.8
MCI-DEN 5.9>5.7
MCI-ORD 7.0>6.8
MCO-DEN 3.3>3.1
MCO-LAX 1.0>1.0
MCO-ORD 4.7>4.6
MDT-IAD 4.0>3.8
MDT-ORD 6.0>5.5
MEM-ORD 4.0>3.8
MFR-SFO 6.0>5.9
MHT-IAD 3.3>3.1
MHT-ORD 3.3>3.3
MKE-DEN 2.0>2.0
MKE-ORD 7.4>7.4
MKG-ORD 2.2>2.1
MLI-DEN 2.9>2.8
MLI-ORD 6.0>5.7
MOD-SFO 5.0>4.9
MSN-DEN 3.9>3.7
MSN-ORD 8.0>7.8
MSO-DEN 5.0>4.8
MSO-ORD 0.3>0.3
MSP-DEN 4.9>4.8
MSP-ORD 12.1>11.2
MSY-DEN 2.9>2.8
MSY-IAD 2.3>2.3
MSY-LAX 1.0>1.0
MSY-ORD 3.3>3.2
MTJ-DEN 5.0>4.8
OAK-DEN 1.9>1.8
OKC-DEN 4.9>4.8
OKC-LAX 2.0>1.7
OKC-ORD 5.0>4.9
OMA-DEN 5.9>5.5
OMA-ORD 7.0>6.8
ONT-DEN 3.9>3.8
ORD-ABE 4.0>3.8
ORD-ALB 5.0>4.8
ORD-ATL 7.0>6.8
ORD-ATW 6.0>5.5
ORD-AUS 4.0>3.9
ORD-BDL 5.1>5.1
ORD-BHM 3.0>3.0
ORD-BIL 0.0>0.0
ORD-BNA 5.0>5.0
ORD-BOS 10.0>9.4
ORD-BTV 4.1>4.2
ORD-BUF 6.0>5.8
ORD-BWI 7.0>6.5
ORD-BZN 2.0>2.0
ORD-CAE 3.0>2.9
ORD-CAK 3.0>2.8
ORD-CID 7.0>6.8
ORD-CLE 8.0>7.8
ORD-CLT 6.0>5.8
ORD-CMH 6.1>6.1
ORD-CVG 8.0>7.5
ORD-CWA 3.9>3.7
ORD-DAY 7.0>6.8
ORD-DCA 14.3>13.3
ORD-DEN 10.0>9.7
ORD-DFW 6.0>5.8
ORD-DSM 7.3>7.0
ORD-DTW 6.4>6.3
ORD-ELP 2.0>1.9
ORD-EWR 8.0>7.6
ORD-FAR 4.0>3.8
ORD-FSD 5.0>4.6
ORD-FWA 3.0>2.8
ORD-GRB 6.0>5.7
ORD-GRR 6.1>5.9
ORD-GSO 5.0>4.7
ORD-GSP 3.0>2.7
ORD-HPN 5.0>4.3
ORD-IAD 7.0>6.8
ORD-IAH 4.0>4.0
ORD-ICT 5.0>4.9
ORD-IND 10.1>9.9
ORD-LAN 4.0>3.6
ORD-LAS 7.0>7.1
ORD-LAX 11.3>11.0
ORD-LEX 4.0>3.8
ORD-LGA 17.1>14.7
ORD-LIT 3.0>3.0
ORD-LNK 4.0>3.9
ORD-MBS 3.0>2.8
ORD-MCI 7.0>6.9
ORD-MCO 4.8>4.7
ORD-MDT 6.0>5.5
ORD-MEM 4.0>3.8
ORD-MHT 3.3>3.3
ORD-MKE 7.4>7.4
ORD-MKG 2.2>2.1
ORD-MLI 6.0>5.7
ORD-MSN 9.0>8.7
ORD-MSO 0.3>0.3
ORD-MSP 12.1>11.2
ORD-MSY 3.3>3.2
ORD-OKC 5.0>4.9
ORD-OMA 7.0>6.8
ORD-ORF 6.3>5.9
ORD-PDX 5.0>4.9
ORD-PHL 7.0>6.6
ORD-PHX 3.4>3.3
ORD-PIA 4.0>3.9
ORD-PIT 6.0>5.8
ORD-PWM 4.1>4.1
ORD-RDU 4.1>4.1
ORD-RIC 6.0>5.7
ORD-ROA 3.0>2.8
ORD-ROC 6.0>5.6
ORD-SAN 5.0>5.0
ORD-SAT 4.0>3.9
ORD-SBN 6.0>6.0
ORD-SDF 6.0>5.9
ORD-SEA 6.1>6.1
ORD-SFO 10.0>9.7
ORD-SGF 4.0>3.8
ORD-SLC 4.0>4.0
ORD-SMF 2.1>2.1
ORD-SNA 3.0>2.9
ORD-SPI 3.9>3.8
ORD-STL 10.1>9.6
ORD-SYR 6.0>5.8
ORD-TPA 3.3>3.1
ORD-TUL 5.0>4.8
ORD-TVC 3.0>3.0
ORD-TYS 5.0>4.6
ORD-XNA 3.0>2.9
ORD-YEG 3.0>2.7
ORD-YOW 5.0>4.8
ORD-YUL 4.0>4.0
ORD-YVR 4.0>3.7
ORD-YWG 5.0>4.8
ORD-YXU 1.9>1.8
ORD-YYC 3.0>2.9
ORD-YYZ 7.0>6.5
ORF-IAD 6.0>5.9
ORF-ORD 5.3>5.0
OTH-PDX 2.0>2.0
PDX-DEN 4.9>4.7
PDX-EUG 4.0>3.9
PDX-LAX 4.0>3.8
PDX-ORD 5.0>4.9
PDX-OTH 2.0>2.0
PDX-RDM 4.0>3.0
PDX-SEA 12.0>11.1
PHL-IAD 4.0>4.0
PHL-LAX 2.0>1.8
PHL-ORD 8.0>7.6
PHX-DEN 6.0>5.9
PHX-ORD 3.4>3.2
PIA-ORD 4.0>3.9
PIT-DEN 2.9>2.8
PIT-IAD 5.1>5.1
PIT-ORD 6.0>5.8
PSC-DEN 2.9>2.8
PSP-LAX 6.0>5.9
PSP-SFO 2.0>2.0
PVD-IAD 5.0>4.9
PWM-ORD 4.1>4.1
RAP-DEN 7.9>7.6
RDM-PDX 4.0>3.0
RDU-IAD 5.0>4.9
RDU-ORD 4.1>4.1
RIC-ORD 6.0>5.7
RNO-DEN 4.0>3.8
ROA-ORD 3.0>2.8
ROC-ORD 6.0>5.6
SAN-DEN 4.9>4.6
SAN-IAD 3.6>3.5
SAN-LAX 13.0>12.9
SAN-ORD 4.0>4.0
SAN-SFO 8.3>8.0
SAT-DEN 3.9>3.8
SAT-LAX 3.0>2.8
SAT-ORD 4.0>3.9
SBA-DEN 2.9>2.8
SBA-LAX 8.0>7.7
SBA-SFO 7.0>6.9
SBN-ORD 6.0>6.0
SBP-LAX 6.0>5.6
SBP-SFO 5.0>4.9
SCE-IAD 4.0>4.0
SDF-ORD 6.0>5.9
SEA-DEN 5.1>5.1
SEA-LAX 4.0>3.9
SEA-ORD 5.1>5.1
SEA-PDX 12.0>11.1
SFO-ACV 7.3>7.1
SFO-BOS 5.0>5.0
SFO-BUR 6.0>5.6
SFO-CIC 4.0>3.9
SFO-DEN 8.9>8.7
SFO-DFW 2.0>2.0
SFO-EUG 6.1>6.0
SFO-FAT 5.0>4.9
SFO-HNL 4.0>3.8
SFO-IAD 8.1>7.8
SFO-KOA 1.0>1.0
SFO-LAS 7.3>6.9
SFO-LAX 15.3>14.6
SFO-MFR 6.0>5.9
SFO-MOD 5.0>4.9
SFO-ORD 11.0>10.7
SFO-PDX 6.0>6.0
SFO-PSP 2.0>2.0
SFO-SAN 7.0>6.8
SFO-SBA 7.0>6.9
SFO-SBP 5.0>4.9
SFO-SEA 6.3>6.2
SFO-SNA 6.7>6.5
SFO-YVR 4.0>3.9
SGF-DEN 2.9>2.8
SGF-ORD 4.0>3.8
SJC-DEN 4.9>4.4
SLC-DEN 7.7>7.6
SLC-LAX 2.0>1.8
SLC-ORD 4.0>4.0
SMF-ACV 2.0>1.7
SMF-DEN 4.9>4.8
SMF-LAX 4.0>3.9
SMF-ORD 2.1>2.1
SMX-LAX 4.0>3.9
SNA-DEN 4.7>4.5
SNA-ORD 3.0>2.9
SNA-SFO 6.9>6.6
SPI-ORD 3.9>3.8
STL-DEN 5.0>4.9
STL-IAD 4.0>3.7
STL-ORD 11.1>10.6
SYR-ORD 6.0>5.8
TPA-ORD 3.3>3.1
TUL-DEN 3.9>3.8
TUL-LAX 1.0>0.8
TUL-ORD 5.0>4.8
TUS-DEN 4.1>4.1
TUS-LAX 5.4>5.3
TVC-ORD 3.1>3.0
TYS-IAD 3.0>3.1
TYS-ORD 5.0>4.6
XNA-DEN 2.0>1.9
XNA-ORD 3.0>2.9
YUM-LAX 4.0>3.9

US Airways September Cancel Down
BUF-CLT 5.0>4.9
CAE-CLT 6.8>6.6
CAE-PHL 2.5>2.4
CAK-CLT 4.9>4.8
CHA-CLT 5.6>5.5
CLT-BUF 4.9>4.8
CLT-CAE 6.8>6.6
CLT-CAK 4.9>4.8
CLT-CHA 5.6>5.5
CLT-DAB 3.0>2.9
CLT-DCA 11.3>11.2
CLT-DFW 7.8>7.7
CLT-EWN 6.9>7.0
CLT-IND 8.8>8.7
CLT-LEX 5.8>5.7
CLT-MEM 5.8>5.7
CLT-MGM 2.6>2.7
CLT-MIA 6.0>5.9
CLT-MSP 2.8>2.8
CLT-PHX 7.7>7.8
CLT-ROA 7.8>7.7
CLT-SRQ 3.0>2.9
CLT-SYR 3.0>3.0
DAB-CLT 3.0>2.9
DAY-PHL 4.1>4.0
DFW-CLT 7.8>7.7
DFW-PHL 4.9>4.8
ELM-PHL 4.8>4.6
EWN-CLT 6.9>7.0
GJT-PHX 2.7>2.5
HVN-PHL 4.3>4.2
ILM-PHL 3.4>3.3
IND-CLT 8.8>8.7
IPT-PHL 2.8>2.6
ITH-PHL 4.1>4.0
LAX-PHL 5.1>5.1
LEX-CLT 5.8>5.7
MCI-PHL 2.8>2.6
MEM-CLT 5.8>5.7
MGM-CLT 2.6>2.7
MSP-CLT 2.8>2.8
MSP-PHL 3.9>3.7
PHL-CAE 2.6>2.5
PHL-DAY 4.1>4.0
PHL-DFW 4.9>4.8
PHL-DUB 1.0>1.0
PHL-ELM 4.8>4.6
PHL-HVN 4.3>4.2
PHL-ILM 3.4>3.3
PHL-IPT 2.8>2.6
PHL-ITH 3.9>3.8
PHL-MCI 2.9>2.7
PHL-MSP 3.9>3.7
PHL-PWM 5.8>5.7
PHL-ROC 5.7>5.6
PHL-RSW 1.2>1.2
PHL-SAV 1.4>1.5
PHL-SDF 2.9>2.8
PHL-STL 3.9>3.7
PHX-DEN 5.1>5.1
PHX-FLL 1.0>1.0
PHX-GJT 2.7>2.5
PHX-MBJ 0.0>0.0
PHX-MCO 1.1>1.1
PIT-STL 2.5>2.2
PWM-PHL 5.8>5.7
ROA-CLT 7.8>7.7
ROC-PHL 4.7>4.6
SAV-PHL 1.4>1.5
SDF-PHL 3.1>3.0
SRQ-CLT 3.0>2.9
STL-PHL 3.9>3.7
STL-PIT 2.5>2.2
SYR-CLT 3.0>3.0

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Posted by Evan

Comments [0]

July 6, 2010

NY Times says upstart carriers are underdogs. So how are they all winning?

The NY Times published a piece yesterday on the battle between start-up and network carriers that I didn't quite agree with. The premise is that start-up and small carriers have a tough time succeeding in the US because of lots of unfair government and institutional disadvantages.

You can read it here: Start-Up Airlines in a Struggle to Survive

It reads like a PR piece from Virgin America or JetBlue, sobbing softly about their inability to get into airports like O'Hare and LaGuardia. It suggests that the network carriers, with their evil lobbyists and corporate power, have forced the playing field to be so mountainous that there's no way for small carriers to effectively to compete. If only this were true, the network carriers would be in much better shape than they currently are!

First of all, let's review some basic principles of capitalism. Larger, more scaled companies in nearly every industry known have a market benefit over the smaller, newer players. This is not unique to airlines -- It's ubiquitous. The large players are obliged to treat the consumer well, otherwise they will incentivize new entrants to come in and compete against them. Ironically, in most industries the entrenched players have a massive cost advantage, since scale is often critical to keeping costs low -- But in the airline industry, new players have a massive cost advantage since labor is so much cheaper and that is the biggest non-fuel cost bucket for airlines.

In summary, the playing field for new entrants in the airline industry is actually flatter than it is for nearly every other industry. That doesn't mean that barriers to entry are small, it just means that once they enter, they have a real competitive advantage to combat the lack of marketing or scope. In fact, in an industry where tickets are purchased as commodities, this is a real advantage. People buy on Spirit despite a weak (or negative) brand because it's cheaper. For their target market, it doesn't matter that someone belongs to AAdvantage. One also can't credibly argue that barriers to entry are high in the US. Capital alone is not a significant barrier to entry, and that's all you really need -- to buy an old operating certificate or a small carrier and start growing it. Sure, it takes some time, but a few years and some money is not generally considered a high barrier to entry. Once you have an airline, the barrier to entry for a given route is very very small -- that's what keeps each route competitive as a microcosm of the industry overall (Of course this is different for a few select airports -- to be addressed shortly).

So what is this article talking about? There is a list of disadvantages to smaller carriers, such as: "takeoff slots and gates at desirable airports, restrictions on foreign investment...and rules preventing foreign carriers from flying in the United States."

Wait a second, so because it is hard (not impossible, just hard and costly) to obtain flying rights into ~4 airports out of the 383 commercial airports in the US (representing ~10% of US enplanements), new carriers cannot be successful? That's weak, if you ask me.

Restrictions on foreign investment and rules preventing foreign carriers from operating in the US are irrelevant since network carriers face the same hurdles. Virgin America's hoop-jumping is solely the result of the fact that Richard Branson is the patriarch there. It has nothing to do with the dynamic of airline competition. It is completely arbitrary to apply Virgin's hurdles to new and small carriers in general.

What else does the article cite? "Global networks, government policies that favor them and the marketing advantage that comes with size."

Let's take these in turn:

1) Global networks: Yes, flying globally makes it hard for a domestic airline to compete against global flying. How is this relevant? Okay, connecting global passengers help subsidize domestic routes, that's true. But how is that an unfair advantage? It's a strategic advantage earned by growing internationally and aligning with carriers overseas. This is like saying the independent hotel can't compete against the Hilton because Hilton owns hotels around the world. True? Sorta maybe in some ways. Unfair? No. You must compete on some other value proposition. If the Hilton hotel is perfect in every way AND it has hotels around the world, well then maybe the customer is happy and you shouldn't be trying to compete. Odds are that's not the case -- but in airlines alike, a new entrant must find the right way to compete. It's not going to be global reach, but maybe it's price, product, schedule, airport selection, etc.

2) Government policies that favor network carriers: The article cites none, so I can't refute a claim when there isn't any. Maybe they're referring to allowing the network carriers to merge? Maybe to the slot situation at Newark, O'Hare or LaGuardia? I don't know. To be fair, the DOT tried to help small carriers when US Airways and Delta wanted to swap slots -- the DOT said only if you give some to the small carriers. And the network carriers balked. But the DOT has no leverage to force them to divest otherwise, so at least it was a shot.

3) Marketing advantage that comes with size: Yes, like every other large company on the planet. In fact, this is likely far less for airlines than in most other industries since the purchasing channel has allowed an upstart airline instant and free access to the consumer by simply displaying a competitive price (e.g. Kayak & Expedia, don't discriminate network carrier vs. low cost start-up). Do you know how many start-up marketing managers in thousands of industries all over the world would give their left arm for that kind of access??

Another mentioned advantage: Frequent flier programs. Again, this is a legitimate strategic investment by network carriers to build loyalty. Even the new carriers have programs. It takes time to build up membership in your niche markets to start, just like any new company in any market. You can say that by not taxing them, you are helping the large programs maintain an advantage, but as long as the tax playing field is level, it'd be hard to make that argument sound plausible.

But here's the final, devastating argument against the article's thesis: Results.

In FY 2009, JetBlue, Southwest, AirTran, and Spirit ALL OUTPERFORMED EVERY NETWORK CARRIER. Virgin did not, but it is brand new and still working off its early years (like every other capital-intensive start-up in history).

Similarly, the smaller and newer carriers have DRAMATICALLY OUTPACED NETWORK CARRIERS in capacity growth over the last 10 years.

Consultant Hubert Horan states in the article: "King Solomon couldn't start a U.S. domestic airline these days". Well, I guess David Neeleman and Richard Branson (et al) are smarter than King Solomon. They have both started U.S. domestic airlines in the 2000s and so far so good. Spirit and Airtran have also built scale and grown profitably "these days". In fact, only ill-conceived Skybus and Independence Air -- poorly capitalized tries -- have failed in any high-profile way (Go! also, but Hawaii is a unique market).

Mr. Horan also states: "...these well-run efficient airlines - people like them, they have low costs - but they can't get the badly run inefficient airlines to go away...In a competitive market, the people with the better-run companies ought to drive the high-cost companies out of business"

Seriously? Can you name one other industry where the tiny player, over the course of several years, drove the large entrenched player out of business? United is an order of magnitude bigger than Frontier, they don't just disappear even if Frontier kicks butt at their hub. And over the long-haul, that does happen in the airline industry. Southwest takes major share from the big carriers, and forces America West and US Airways to merge to survive (in part). Northwest is now gone in part because of start-up competition, and the same will be true of the old Continental and United. Just because they don't liquidate -- they get bought/merge, doesn't mean the small carriers aren't impacting the large ones. We're not mass producing widgets here -- JetBlue can't take over AA's JFK operation because they're more efficient. And finally -- the people speak. The government is not propping up AA -- people are choosing, day in and day out, to fly them. And even choosing them over other "more efficient" carriers.

New entrants are not supposed to automatically kill the network carriers. They are supposed to force them to do better, compete against them, steal share, and keep them honest. That is exactly what they have done.

If you think Virgin America is going to put AA and UA out of business on SFO and LAX to JFK routes because it has a better inflight product, you are very mistaken. They aren't meant to. They are meant to get some share, thereby forcing AA and UA to make their product better, improve their frequent flier benefits, and lower their fares. And guess what? After only a few years flying, they are expecting to do it profitably this year. Right on schedule.

If that's not proof that the landscape for small and new carriers in this country is alive and well, I don't know what is. It's not supposed to be easy to start and grow airline. It seems all carriers, big and small alike, should turn their attention away from the government and perhaps towards their customers. I'd argue that is the clear path to success, regardless how many people you can convince you're being treated unfairly. Call me crazy, but I just don't see many people feeling much pity for the airlines nowadays.

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June 30, 2010

Airline mergers are all about market power, silly. But that's not necessarily a bad thing.

The way people are talking about airline mergers has been bothering me lately.

The traditional MBA rule for justifying mergers is based on synergies that impact both cost and revenue. The general theory is that mergers are extremely challenging and costly to work out and in a vast majority of cases, lead to value destruction. It's also generally assumed that the actual synergy gained from a merger is only a fraction of whatever the analysts and consultants believe at the outset. As such, when two companies decide to merge, there has got to be a boatload of synergy. Either that, or certain bankruptcy for one or both of the un-merged companies.

When America West and US Airways merged in 2005, it was clearly that last case. US Airways was headed into likely it's final bankruptcy, with liquidation soon to follow. The deal allowed US Airways to survive, and turned America West from a regional LCC into a national competitor. In general, that merger is deemed a success if only because US Airways survived. It saved value from being destroyed even more, if it didn't also create incremental value (debatable). The fatal flaw of that merger was the pilots contracts, which remain contentious even today, 5-years later.

When Northwest and Delta merged, they got permission from their pilots before they closed the deal. This was both a choice and a necessity, as the pilots could have thwarted a deal (I say a choice because I'm sure NWA and DAL could have found some creative ways to dupe the pilots if they so wished). This deal was predicated on lots of top line and bottom-line synergy and is widely considered a success, if not from long-term value creation standards, than at least from disruption standards. The integration has been nearly seamless to the traveling public, and has set the new bar for how to integrate such large and complex companies (note: integration continues, although the bulk of it is complete). The actual cost benefit has yet to be seen (people tout numbers, but it's too early to tell for sure), but consensus is that there has at least been a revenue benefit.

Now enter United and Continental. The PR web-site for the merger looks eerily like the Northwest / Delta one from a few years back (the NWA/DAL one: newglobalairline.com, no longer exists. The UAL/CAL one is here: Let's Fly Together).

If you go straight to the heart of it -- you've got the investor benefits as both cost and revenue. In the Continental + United investor presentation, they cited $800mm to $900mm in revenue synergies and $200mm to $300mm in cost synergies. That sounds reasonable -- 3x more revenue synergies than cost synergies for this kind of merger.

So why does everyone sound so surprised when it becomes clear that the primary thesis for the merger is revenue synergy, and that comes primarily from increased market power? How else do you get revenue synergy? Does the merger suddenly allow such route optimization that allows you to magically find higher-yielding routes than one airline's individual network? Sure, there is some network benefit argument there with increasing scope and flexibility, but you need some market power increase also.

Let me settle this once and for all: It's about reducing competition, gaining more market power, and allowing the merged entity (and other airlines) to raise fares -- That's the main benefit of consolidation!

You want proof it's not about cost? Well, let's look at the cost of pre and post-merged airlines. Using MIT's Airline Data Project, we can look at Cost per Available Seat Mile (CASM), excluding fuel and adjusted for stage-length, known as the ex-fuel CESM (or Cost per Equivalent Seat Mile). This is the industry standard way of comparing costs between carriers (The data can be seen here.)

In their last year of independent operations (2005), US Airways was at 9.5 cents ex-fuel CESM, America West was at 10.4 cents, compared to a legacy carrier average of 10.4 cents. Not bad (although remember they consider themselves LCCs, who have an average of 5 cents!). Post merger, they were at 10.5 cents in 2006, rising to 11.7 cents in 2009 -- right at average.

So merging effectively took the unit costs of the lower (America West) and made it go to the higher (US Airways). Does that surprise anyone? It shouldn't. Mergers rarely allow airlines to find the lower cost of two operations, but rather the higher.

The verdict is still out on this for Northwest and Delta, but we know that Northwest had lower costs than Delta pre-merger. Will the combined carrier have costs more reflective of Delta or Northwest? Well, we know that labor generally reverts to the higher cost, since employees generally consolidate contracts towards the most beneficial (hard to get concessions during a merger). Sure, HQ costs might go down, but that takes time as employment ranks are shrunk and offices closed. HQ costs are also relatively small relative to others in the scheme of an airline (and not closing down Northwest's MSP offices or Continental's Houston offices will likely erase much of that benefit anyways).

In conclusion, it's not about costs. It's about revenue. This is why a group of "concerned citizens" are suing to prevent the United and Continental merger (see article here). A similar group also sued to prevent Northwest and Delta and ultimately failed as it was thrown out of court before getting very far. I can't imagine a different outcome here, especially since the DOJ and DOT are likely to approve the merger relatively quickly.

A report from the Government Accountability Office (GAO, found here) analyzed the competitive position of the combined carrier and found that out of 1,135 route pairs affected, only 10 would be reduced to 1 player. Meaning United and Continental are alone competing on only 10 routes. But guess what? United and Continental are both in Star Alliance, meaning they are de facto colluding on selling tickets for those routes already. In other words, combining two carriers that already have significant domestic code-sharing limits the impact of the merger. Even if they aren't allowed to code-share on those specific routes, it's a token gesture as they are already "colluding" on so many.

This is why I find the testimony of airline expert Hubert Horan so irrelevant (See Brett Snyder's analysis of that and a link to the document here). His argument that consolidation is allowing airlines to usurp consumer cash is hollow for 2 main reasons:

1) His argument is against the alliances, not against this particular merger. To argue you should stop this merger because it is one small thing in a long progression of consolidation moves is weak. The DOT/DOJ either need to debase the legitimacy of the alliance and code-sharing that goes along with it, or they let this pass. This particular merger has a negligible impact on the overall conspiracy that he exposes in his testimony (he literally calls it a "well-planned, ongoing process").

2) The industry is hemorrhaging cash. Sure, 2010 is supposed to come up about even by the end, but it's hard to argue an industry is gouging the public when it's losing billions of dollars each year! It's fact that overall, airlines are still selling tickets to consumers for cheaper than it costs them to fly those passengers. Now you can assess cost bloat and managerial incompetence all you want, but nobody can argue that airlines are reaping major rewards at the public's expense. I'm a firm believer that in cyclical industries, companies must make major profit in the up years to protect their sustainability in the down years. So even if airlines make healthy profits in 2011, I think that's a great thing for the industry and well deserved. Think of it like pharmaceuticals. They charge hefty prices for new drugs and protect that via patent for two reasons: a) The risk of drug development needs to be hedged by reaping major profits during the patent period (applied to airlines: They need to make good money in the up years to protect the down ones), and b) Profits create incentives to keep taking risks and creating new drugs (applied to airlines: Rising prices create incentives to keep flying routes, creating transport options for the public). Airlines try to do this without patent-like regulation. The last thing they need is governmental intervention to shut off the profits at the peak.

At the end of the day, it's a price vs. demand equation that the industry balances on its own. Barriers to entry are low except at slot constrained airports, so let them compete and in the end, the consumer will win.

In summary -- mergers are about revenue, derived mostly from market power. That's not necessarily a bad thing, as natural competition will always keep that in check so long as competition exists. The point is to find the balance between hyper-competition where nobody makes money (airlines today) and monopoly power where consumers gets gouged (the fear). Today in the airline industry, we're closer to hyper-competition for most routes.

So stop all the fuss about market power increases being such a bad thing. This is what happens when competition is unsustainable, and it should be allowed to happen. If it swings too far the other way, Spirit Air Lines will take over the world. Then we'll have much bigger problems, like how to afford their carry-on fees.

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June 25, 2010

What will happen to AA and US Airways?

With the Continental + United merger looking likely by years end, many people have speculated what that means for US Airways and American. US Airways now becomes an outlier in Star Alliance -- the mini-US airline working with the "new" United, the world's largest carrier. There's no reason why they can't remain that way, but when a formerly 3-way North American partnership reduces to two through consolidation, it means US Airways's leverage just got destroyed (much as it did during the merger negotiations).

American, on the other hand, will be a distant third carrier behind Delta and United. Does that matter?

Some analysts seem to think the answer is yes. The consolidation trend might mean American is facing a brave new world of competition where they won't stand a chance against the other two big carriers. I don't see this happening. If anything, American will sink itself with its own labor costs, not because of yield deterioration thanks to competition. Remember, the whole point of the mergers are to keep or rise fares -- NOT to cut fares. Sure, mergers often leave room for LCCs to get in, but that's always a threat. And given the low route overlap and slot controlled airports, I don't see that happening.

So it was with much surprise that I read the report from Avondale Partners analyst Bob McAdoo a few weeks back.

(see here: TheStreet.com - American Needs US Air Merger: Analyst)

His thesis is several-fold -- here are his key points (paraphrased):

1) American needs a partner to bulk up feed for international service (and more int'l service).

2) US Airways' Philadelphia hub is the "most effective collector of traffic out of the north and eastern U.S. to Europe"

3) American's network is not well suited to int'l travel with it's mid-continent hubs in DFW and ORD

4) More consolidation is inevitable and required

I've already mentioned that I feel more consolidation is NOT inevitable or even required, so I'll leave that point be.

What I really want to talk about is Philadelphia and Bob's interpretation of its value. Philadelphia is one of the worst airports to fly into or out of in the U.S. Aside from the new wing of the A terminal, it's not pretty or nice. Immigration and customs are ordeals with convoluted mazes and paths. Runway configuration is poor leading to delay problems. Now many of these same things apply at other international hubs, although I'd argue none to the degree of Philadelphia.

But let's leave all that aside. Let's assume for the moment that passengers don't choose based on those issues (even for a second time around?), which is a fair assumption for the most part.

Bob's comments are two fold about Philadelphia's grandeur:

- First, that it is more revenue generating from European flights than AA at JFK or ORD. Well, yes, it is a larger hub. More flights = more revenue. On a yield basis? My guess is it would be far worse performing. In fact, I think that's a very safe assumptions. So is AA interested in lower yielding international leisure passengers, even with a larger scale? Maybe, maybe not.

-Second, that it connects more passengers. Yes, this is true because PHL is a smaller market. JFK and ORD are both larger O&D markets for Europe. It's not entirely clear to me that this is a bad thing. Newark's Continental hub thrives because it has a huge O&D market and can supplement that with connections. Connecting passengers generally produce less yield since you have to pay to fly them on two flights and generally they don't pay the revenue to make up for that. A strong O&D market is more valuable, and loyal since any connecting passenger can choose between a myriad of connecting cities, but an O&D passenger can choose only between the ones flying those routes.

In summary, neither of these cited statistics make US Airways PHL hub attractive. In fact, they show how in many ways it is inferior. If AA wanted to boost European connecting traffic, it would expand its feed into JFK and boost European traffic out of it. It's feed into DFW and ORD is already large enough to pull traffic from the west coast and midwest. My guess is AA is relatively happy with its size to Europe and can feed it profitably with O&D and some limited connecting traffic. Building a connecting network to feed low yield passengers (and compete against CO, DL, UA, and US to boot) sounds like a losing proposition, especially at AA's cost base which is significantly higher than US thanks to its two bankruptcies.

In addition to this, US Airways makes an awful merger partner thanks to its old fleet, labor strife, and low yielding network focused on high LCC competition areas and leisure routes. That should be a non-starter for AA.

Now if US Airways ends up nearing another bankruptcy, there is a way where it's pieces become helpful elsewhere. American could acquire some of its eastern traffic, notably its DCA and CLT ops. Perhaps some of PHL as well. That could help with traffic flow to its hubs and an expanded footprint. Its western network could be attractive to some other folks (maybe Frontier, JetBlue, or airTran?).

In the meantime, if US Airways starts getting squeezed by the new United (which no longer really needs it for domestic or international feed) one thing it could do is switch to the One World alliance. It would give One World much more of a domestic footprint to rival the other two alliances and help feed AA and its partners flights to Europe and Asia. US could align some more traffic to JFK and join AA in its massive and beautiful Terminal 9 if it could get some slots. This is not unlike what Continental did when Delta and Northwest merged. It had previously been a happy 3-way SkyTeam group that suddenly was off balance. Continental too its leave and has reaped major benefits from it, not the least of which is positioning it well for its merger with United (if you believe that's a good thing, of course).

Now, I'm not sold that even this move would be helpful to either US Airways or AA, but I think it's worth exploring. But if AA knows what's best for it, it should stay far away from US Airways merger talk. That can only land them in serious trouble. AA should just stand-up and fight! They have a leading loyalty program, large presence in large markets, and a small but powerful international network. I'd easily take several flights a day to London Heathrow over one each to Venice, Rome, Madrid, and Dublin.

So go out and compete, US and AA! One to two years of merger integration at United and Continental give you plenty of time to get a head-start. Look how United has thrived in the year since Delta and Northwest merged?

After all, the end-game is profitability and growth, not world domination.

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June 14, 2010

The regulatory difference between airlines and big oil, your lobbying dollars at work

Let us compare:

The oil industry gets to build oil wells in US waters carrying huge risk, without so much as a plan to stop oil spills in the event of an mistake or error in their system.

--At stake: Potentially hundreds of years of environmental stability, irreplaceable damage to the livelihood of millions of people, the destruction of entire ecosystems (need i go on?).

The airline industry, however, must produce and document a detailed plan for how to deal with a 3-hour tarmac delay and can get fined a mind-blowingly disproportionate amount of money (relative to the problem) for violating the rule.

--At stake: Several hours of (admittedly) poor conditions sitting aboard a modern aircraft at a modern airport

Perhaps this is the difference between industries with lots of money, and those without lots of money. The oil industry gets to pay lobbyists to craft laws that benefit them and prevent inconvenient regulation. The airline industry can't even prevent the government from micromanaging customer service! (yes, folks, we're talking about customer service, NOT safety, security, environment, etc.)

In the airline industry, the FAA heavily regulates aircraft operations from a safety standpoint. While there has been some bad press about this in the last couple of years regarding some of the coziness between regulators and airlines such as AA and Southwest, this generally works inasmuch as airlines fly safely and the regulations ensure standards.

This works so well that the FAA/DOT is free to expand their attention to customer service. In oil, it's as if they haven't even gotten the first part right.

As you might be able to tell, I find this pattern egregious. Regulators want to regulate, so it's a constant balance between them trying to tighten control of private industry vs. lobbying groups to prevent it. Somewhere in the middle is the ideal balance for the consumer, sometimes we strike it, sometimes we don't. But it seems which way we swing on that balance is determined by the lobbying dollars the industry can funnel to Washington. In what way does that help the consumer?

With that as the lens, let's discuss how the DOT is significantly upping its regulation of the US airline industries with these so-called "Consumer Protection" laws. I posit that we've moved from the low hanging fruit, to expanding into micro-management by leveraging precedent. Airline screw-ups from 2009 gave the DOT a mandate to begin adding rules. But does that mandate extend into other rules?

I think not, but I'm sure we'll see many different viewpoints on the matter.

Here's the story:

Late in 2009, the DOT issued it's now infamous proclamation mandating certain levels of customer service. The most notable of those mandates is the "3-hour tarmac rule", which fines airlines that keep passengers on planes for more then 3-hours without going anywhere. There were also other parts to that rule, like forcing airlines to display historical delay average data on their shopping screens, fining airlines for flying "chronically delayed flights", and requiring customer service accountability and protocols.

Those rules took effect on April 29 of this year. So far, not much seems to have changed. At first glance, in May of 2010 (it's first month of action), only 3 flights violated the 3-hour tarmac rule (according to the FAA's Aviation System Performance Metrics system for taxi-out times). Two of those flights had 3+ hours taxi-out times at Atlanta, and 1 at LaGuardia. No word from the DOT whether those airlines have been fined.

It didn't take long for the DOT to issue it's next set of rules -- just weeks after the first set took affect. This time, they expand on the first set and add some new ones. We are now in public comment period, so stakeholders have 60 days to submit comments and the DOT will then consider feedback for a final ruling.

Rules:

-Expanding tarmac rule to non-US carriers, and small / non-hub airports

-Requiring airlines to tell pax every 30 min update during tarmac delay

-Customer service plan enhancements

-Contract of carriage must include contingency plans and customer service plans

-Oversales, increase in compensation to 650/1300

-Better airline disclosure of fees for ancillary services on web and through GDS (for ticket agents also?)

-No post-purhcase price increases

-Airlines must notify of delays of 30+ minutes within 30 minutes

-Peanut-free or peanut-buffer zones for nut-allgergic travelers upon request

Fine the full doc here: Regulations.gov Doc: DOT-OST-2010-0140-0002

These rules are currently under a 180 day comment period, and subject to the results of those comments, would take affect on the 180th day from initial posting (June 2). In general, these rules are verging on government micro-management of a private industry.

The last set of rules that recently took effect addressed some very specific concerns about airline customer service -- namely lengthy tarmac delays. Despite public outcry, airlines had demonstrated an inability to fix the problem on their own. It made sense for the DOT to step-in with a program to help them get there and penalties for failing to comply.

This rule set, however, does not reflect any real issue or pent-up demand by the traveling public with some minor exceptions. Sure, expanding the tarmac rule to international fights and carriers makes sense, although perhaps they'd be better off waiting a few months to assess the impact of the first rule before expanding it.

Customer service plans, notifications of delays, ancillary fee disclosure, etc. are all things that either the airlines do well, or aren't mission critical enough for the DOT to get involved (next they're going to mandate that customer service agents "be nice"??)

One exception to that is the peanut rule. The DOT cites US equality law as justification for this mandate. That might be true, but then isn't it up to airlines to comply with an existing law (rather than force another down their throat), and if they're not, wouldn't a lawsuit solve that?

Despite what the DOT might like to think, the US airline industry is unregulated and private. Unlike the oil industry, they do have plans and back-up plans for when things go awry -- and are capable of handling irregular operations on a daily basis. Sure, sometimes they need to step-in and right a listing ship as they did last fall (much to the chagrin of airline executives, but to nobody's surprise). But now they're reaching, trying to make lots of new rules of dubious value for seemingly little other reason than taking advantage of the precedent they recently set.

It's a slippery slope, as they say, and the DOT is sliding down it with reckless abandon. My hunch is that this public comment phase turns out some interesting reflections that hopefully will guide the DOT to nix some, refine others, and implement a softer set of guidelines.

But if the mandate still exists for the DOT to hand down rules -- the damage is done regardless of the details of the text. Perhaps this is what the oil industry can look forward to post-Deepwater Horizon. Funny, I don't feel the least bit remorseful about that.

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June 1, 2010

Improving on-time performance: When the airline and its hub both make strides

The Tacoma, Washington-based newspaper, the News Tribune, did a great piece on how Alaska Airlines fixed its reliability issue over the last several years. In short, Alaska used to be pretty bad in on-time performance, ranking towards the bottom of the list of large US carriers. For 2009 and into 2010, Alaska has turned it around dramatically. Those of you who follow these rankings would see Alaska near the top of the list -- generally just behind Hawaiian.

Here's a link to the article:

The News Tribune: How Alaska beats the clock

The article raises an interesting chicken and egg question. Did Seattle become a great on-time airport because of Alaska's efforts? Or did Alaska benefit in part from something at Seattle?

From 2005 to 2010, Alaska's on-time performance went from 71% departure / 70% arrival to 88% departure / 86% departure, ranking #2 in 2010 YTD. A very impressive climb highlighted in this article.

However, Seattle as an airport had its on-time performance go from 77% / 75% to 88% / 84%, also ranking 2nd in departure performance (and 3rd in arrival performance).

Strangely enough, the article neglects to mention that Seattle opened a third runway in November, 2008. According to the Port of Seattle press release here, the runway was intended to cut average delay minutes in half, with a starting point of 10 minutes (actually more like 11 in 2008 total). The runway did help, average delay minutes went down to 7 minutes in 2009, and less than 6 minutes in the first quarter of 2010.

So who is taking credit for this -- Alaska Airlines, or the third runway? Both, obviously. But who cares, as long as the on-time performance improvement is there!

Alaska's improvements does outpace Seattle, but Alaska has enjoyed a ~30-40% market share at Seattle during this time, meaning it's hard to know for sure which one is driving the other. One stat we can look at to try and understand better is the percent of delays by cause. If you look at this stat for Seattle going back to 2005, you see the percent of delays that are caused by the airline have remained between 29% and 36%, hitting 33% in 2009 and 36% in 1Q10. But since overall delays are plummeting at Seattle, the percent of overall flights delayed because of the airline has also fallen, from nearly 8% in 2005 to under 4% in 2010 so far. Notably, this percentage has also dropped in half for NAS delays (6% to 3%) and Late Arriving Aircraft (9% to 4%), the other two big buckets of delay causes, leading credence that perhaps the runway has been a major contributor to lowering delays across the board.

In conclusion, it's hard to tease out Alaska-driven improvements, although you can't argue with results, and Alaska's on-time performance surely allows us to credit them with some major positive changes in the last 5-years.

Aside from highlighting the outcome of a better operation, the article is a great case study in airline management and how it can achieve desirable results by focusing resources on an initiative.

Here are some of what I think are the key take-aways:

1) Despite my general argument that an airline's on-time performance is dependent more on the airports they fly into and the flight time than anything else, this does show the amount of power an airline has to help their operation. There is a theoretical limit to on-time performance driven by weather, congestion, etc. But how close an airline gets to that limit is clearly dependent on doing the things that Alaska is talking about here. These actions also help significantly when delays are caused by other things since the procedures are in place to handle them most efficiently.

2) Being on-time costs money. Not only did Alaska talk about investing in big screens (several per gate), they are also talking about choreographing their crews in a way that makes them subservient to the plane. In other words, the aircraft is the constrained resource so you should manage your work crew such that it is always ready to service the aircraft (never have an aircraft waiting for crew). In an ideal world, this is the proper procedure since your planes generally cost more than the incremental people-time.

3) The state of operations is both more and less sophisticated than you might think. On one hand, Alaska talks about all these systems, tools, procedures, and technology to keep its hub running smoothly. On the other hand, just a few years ago ramp workers might not have had good or consistent info on when an inbound aircraft was going to arrive! And if you think Alaska is being innovative here for a relatively small hub operation, you can imagine what some other airlines might be doing.

This is a great lesson in the power of having a team work towards a focused goal. They set out to do something, were willing to spend a bit of money along the way, and came out with a system that works better, makes employees and passengers lives easier, and contributes to the company bottom line.

Large and complex companies have tough problems that require innovative solutions -- but they also stand to reap the large benefit of those solutions. Kudos to Alaska for allowing the public a view into what they did, and here's hoping more airlines will aim for the "theoretical" limit of on-time performance, weather and traffic delays aside.

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May 25, 2010

Why is air travel so annoying?

Last week I asked on Facebook for friends to provide what was on their minds regarding air travel.

It turns out (unsurprisingly), there was plenty of input. And this is from a primarily US-based crowd where ash and strikes weren't even on the list (except from my friend Melissa who has spent the last several months on an around-the-world trip, so really no need to pity her or listen to any of her complaints).

Top complaints were security, delays, customer-service, carry-on bags, overbooking, electronic devices / connectivity, and well, airplane bathrooms.

What surprises me most about the list is what's not on there --- baggage fees. This hot topic in the aviation world - the nickel and diming of the traveling public - was barely mentioned. What was mentioned was the hassle of bringing carry-on bags which there never seems to be any room for anymore (likely due to the baggage fees).

I can't comment much on security and bathrooms -- both topics clearly out of my purview. What I want to write about today is the "hassle" component of traveling, which covers the general sentiment of my friends and what I hear from coast to coast. Perhaps it's not the $25 for bags that annoys us, it's the hassle of paying and the hassle associated with too many carry-on bags as a result of people trying to avoid fees.

A USA Today/Gallup poll from earlier this year said that 27% of people who flew at least twice during the last year are now more likely to drive than fly. Not surprising, especially since the poll was taken in the days following the busy holiday travel season and the would-be Christmas bomber on the plane in Detroit (see full article below).

My general philosophy on these types of complaints is that they are standard and consistent. In other words, if you did the same poll at pretty much any time over the last 25 years, you'd get the same response. Security always seems to be intrusive, delays are always rampant, and service always bad (and always just a little bit worse today than yesterday). Statistics of things like delays, cancellations, and security show that they come and go with the volume of air travel and the economy -- they aren't actually getting step function-wise worse (except immediately post 9-11 and other major security events, but generally only for a handful of days).

But I do think there is a salient point here regarding how airlines design their products. Today, airlines are convinced that people choose between flights based on fare first and schedule second. Things like brand, loyalty, and product, are always a distant third and onward. Sure this varies between the type of traveler, but they believe this to be generally true. Customer behavior and purchasing patterns seem to confirm this, at least directionally.

Some airlines have tried really hard to produce a superior product that would reduce this element of "hassle". JetBlue, for example, has always prided itself on great customer service. But it's never been able to command a yield premium over any of the network carriers with generally inferior products. So if things like more legroom, and liveTV onboard can't command a price premium, what can?

Well, based on what I hear from the traveling public -- maybe a hassle-free travel experience would. How would an airline do that? It would have to include elements of:

- Free bags

- Easier boarding procedure

- Many more customer service reps

- Extra TSA personnel for shorter lines

- Consistent friendliness

- Better communication

Much of that (although not all of it) can be done with money. It essentially comes down to more people supporting each flight and longer turn-times for a more smooth boarding process and fewer delays.

But the hard part is making it consistent. And at the end of the day, it's the lack of consistent service (good or otherwise) that prevents travelers from wanting to pay more for a specific airline. There's no guarantee that it will actually be a better experience. Bad service on JetBlue is worst than good service on United, etc.

Why is that? You learn in the study of operations that there are 4 things companies can focus on: Cost, Quality, Delivery, and Flexibility. They must always choose one to be their highest priority, and only the best companies get to do well in any of the others. For airlines, Delivery is always #1. In other words -- the planes fly safely. Safety and Operations is so crucial in air travel that there is no room for another priority. When JetBlue was founded, it was a customer service company that flew planes (NOT an airline that excelled at customer service). The result was amazing: Spectacular customer service, top quality employees, happy travelers.

What happened? February 2007, the Valentine's Day Blizzard killed their operation. Passengers and planes were left stranded for hours, even days. While other airlines cancelled flights and reset in 24-hours, it took JetBlue a week before things were running smoothly again. Why? Flying planes, it turns out, was just as they promised -- the 2nd priority of the company. Unsurprising to the rest of the industry, you can't prioritize customer service over operations at the company level --- it just doesn't work.

Since then, JetBlue has been human. They still provide what I'd argue is best-in-cass service, but it's no longer enough to consistently differentiate them.

To add insult to injury, airlines have had no choice but to make "Cost" #2 priority to survive the down economy. So now Delivery is #1, Cost #2. You can't prioritize both Cost and Quality -- it just doesn't work. The result is inconsistent quality, which doesn't allow your product to get a reputation, thereby negating your investment.

My argument here is that since Delivery is always #1, airlines are always at least slightly hampered in providing revolutionary customer service. However, it's really the 2nd choice, choosing Cost or Quality where the rubber hits the road. Singapore Airlines clearly chooses Quality, and it shows (people pay more to fly them). But in today's competitive and economic environment in the US, it's nearly impossible for a carrier to choose Quality. Passenger choice models don't support it, since, after all, passengers choose based on fare, right?

Well I'd argue no US airline has really tried it in a meaningful way. No airline has said: I'm going to make Quality my primary goal after Delivery, Cost will not be a factor. If they did that, could they get a price premium that would more than justify the costs? Hard to say. Internationally, that's been proven. In the US? It'd be a tough battle. But you can't ever know until you try it. And if you did, I'd suggest starting on the "hassle" factor. We've proven LiveTV isn't enough, but perhaps hassle-free flying would be. It's a different kind of differentiated product, but I believe some travelers would gladly pay more for it.

Until someone does tries it -- here's my one recommendation for hassle-free flying: It's all about the airport. Choose small, less busy airports, and you will have room to breathe, fewer delays, nicer people. Fly into LaGuardia all the time, and it doesn't matter what you do -- hassle will find you.

As for Smarter Travel's 10 Rules for Hassle-Free Flying (link below) -- #1: If it's not that far a flight, drive instead.

Wait, didn't they know that highway traffic is at an all time high? It's so bad that 27% of Americans say they'd rather fly than drive this Memorial Day....

CNN: Air travel frustration spikes with fees, security

USA Today: For some, hassles dim the appeal of air travel

Smarter Travel: Ten Rules for Hassle-Free Flying

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Posted by Evan

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