Airlines, A La Carte Pricing, Deregulation and Executive Pay – A Hodge Podge

by cactus

Recently the ex-GF and I were traveling, and we ended up flying on United. I haven’t flown on United in recent years, as it hasn’t been a major carrier in a number of the places I’ve lived recently. Now maybe things have changed since the previous time I was in a plane (a month earlier, Delta Airlines) but it seems to me that United is taking a la carte pricing a bit further than other airlines.

When we went through automatic check-in, we were offered two different choices for upgraded leg-room. We were also charged $20 buck for checking one bag. It wasn’t overweight, it is just that now there is a charge for luggage.

It seems most people on that flight were aware of the $20 charge; overhead compartments were filled up completely, mostly with “carry-on” bags significantly larger than the one piece of luggage we had checked. As a result, a number of people had to check bags at the gate. Now here is the interesting thing… because so many people had to check bags at the gate, and those bags had to be available upon deplaning, none of us were allowed to exit the aircraft until after the bags that had been gate checked were brought up. Because so many people were trying to avoid a) waiting at the baggage carousel and b) paying twenty bucks for a piece of luggage, everyone had to wait longer. Perverse incentives lead to undesirable outcomes.

I don’t think the a la carte pricing is working so well in other ways either. See, on the flight back, I had the seat with the most leg room in the entire plane – I was sitting in the emergency row. And I wasn’t charged extra for it either. See, we had the opportunity to leave early, which means we flew standby. We were literally assigned the last two seats on the entire plane… and nobody who had the opportunity to do so had paid for the upgrade, so the emergency row was all that was available.

My guess is that the perennial problems of the airline industry are self-inflicted, and date back to the period when the industry was deregulated. Until deregulation occurred, prices were set by government fiat, and airlines could only differentiate themselves on quality. After deregulation, they began competing on price. Companies that had previously trained their passengers to believe that flying was a special occasion that merited wearing formal attire retrained their passengers to think about price alone. When you make your product or service into a commodity, prices drop to marginal cost and that means if you have the kind of fixed costs the airline industry does, profits have to go negative.

So… if you were an executive at an airline, what would you do to change the passenger mindset? What can you convince the cattle passengers to pay for, and how? For what it is worth, I can’t imagine how any airline executive should earn more than minimum wage if they can’t come up with a credible answer to those questions. Slowly taking their companies bankrupt is something anyone can do.
by cactus

(Rdan here…leaving for Chicago this week, and Southwest has an option for $10/person to upgrade to the A line so to speak from B and C lines, which determines when you can board. There is no limit to who can purchase the upgrade to the A line, so there is no guarantee the A line won’t include everyone if everyone upgrades, which is allowed to date. It presents an interesting pricing dilemma as well.)