Recently I took one of the longest airline flights now operating: a 13-hour slog from Los Angeles to Auckland on Air New Zealand. Here's the shock: getting there was half the fun.
My business-class seat was on the upper deck of a 747, which has that intimate, private-jet feel. Not many people were traveling, so the crucial lines—to get through security, to herd onto the plane, to clear customs on the other side—were short. The flight crew was glamorous; the seat was comfortable; the food was good. When I saw a young family on the plane with children dressed up as if for church, I realized that I was witnessing a throwback to the early, innocent days of jet travel, when everything about the experience was treated as special by the handful of people lucky enough to take part in it.
For better and for worse, those retro days are gone, apart from the occasional flashback such as my trip on Air New Zealand. Things are better because average fares are much lower than they were a generation ago, and so much more of the public can travel by air. And they're worse for exactly the same reason. While nothing can bring back the elegant touches of elite jet-set travel, a surprising number of authorities on the business of flight are convinced that the industry's brightest era lies ahead. If they are right, within a few years passengers can look forward to an air travel system in which fares are rational, planes are safer and more comfortable, and even the dreaded airport experience is improved. "Compared with what we've been through," says Richard Aboulafia, an aircraft-industry analyst with the Teal Group, in Washington, D.C., "the future looks good, not bad." On the 100th anniversary of flight, here's an overview of the changes on the horizon.
You Get What You Pay For
Every traveler has a story about the insanity of ticket pricing. My latest: recently I booked a round-trip ticket, on United, from Washington-Dulles to San Francisco. The outbound trip was on Wednesday. If I returned that Friday, it would cost more than $2,200. If I stayed one extra day, tickets on the same flights with the same nonstop routing would cost $426. (Obviously, I stayed.) The vagaries of such "yield management" pricing are a familiar joke, but their effects are surprisingly serious—and reversing them is at the heart of a new business structure for airlines.
Fundamentally, what airlines are selling is cubic inches inside their planes. The Boeing Co. has even created a "personal space model" designed to calculate exactly how many cubic inches of leg, rear-end, and shoulder space it takes to create a tolerable experience in the air. The answer: Less than you would like. The typical coach-class seat is 17.2 inches wide, versus about 20 inches in movie theaters. Boeing's model suggests a "pitch," or distance between rows to allow for legroom, of 32 inches in coach, versus 38 inches and upward in theaters. Additional answer: The most important variable in the sense of crowding is whether there's a passenger in the middle seat. Bonus answer: Discount-fare passengers will put up with less horizontal separation between seats than business travelers will. That's not simply because the seats are cheaper but also because steerage passengers are more likely to be traveling as families or groups, and don't have typical road-warriors' horror of touching their neighbors. By the ruthless logic of space, first-class or business seats must on average cost more than coach, since you can fit fewer of them into a given aircraft.
When airlines were nudged into active price competition a quarter-century ago, they set fares according to class of service—but with a twist. Since each empty seat on a departing airplane meant that much lost revenue, airline companies (led by American) began creating the now-familiar, though still-incomprehensible, thicket of special fares. Advance-booking discounts; the hated Saturday-night rule; cheaper seats on popular long hauls than on shorter trips; free upgrades or seats for frequent fliers. All were designed to steer as much traffic as possible into higher fare brackets by making discounted travel inconvenient—and then to pack the rest of the plane with people who would play by the discount rules, rather than leave the seats empty.
By its own logic, the plan was—for a while—a total success. At the high end, enough business travelers were willing to pay "full" (i.e., premium) fare to bring airlines 60 percent of their total revenue from 15 to 20 percent of their passengers. At the low end, competition and convoluted discounts cut the average per-mile fare by almost half. This allowed more people to go more places (as you may have noticed at the airports). The "load factor," or percentage of seats that were filled, went up steadily throughout the 1980's and 90's, so in terms of fuel, pollution, manpower, and so on, travel was more efficient than ever before. Yield management worked brilliantly—as long as passengers didn't know what was happening.
It was the Internet that changed everything. Indeed, the big airline companies were arguably the first real casualties of widespread Net use, because the day when customers could easily compare fares, free of the hocus-pocus of the travel agent, was the day when yield-management pricing began to fall apart. Herb Kelleher, the founder of Southwest Airlines, says that millions of customers sitting at their computers brought about the "denouement of deregulation," in a way that took the big carriers by surprise. "Once it became painfully obvious, thanks to the Web, that there were thousand-dollar seats and hundred-fifty-dollar seats in the same market on the same planes at the same time, business travelers wouldn't accept it anymore," Kelleher says. "The high-fare, last-minute, walk-up business customer"—that is, the cash cow of the industry—"that person is gone forever." Southwest, of course, offers straightforward, comparatively low fares. This year it overtook Delta Air Lines to carry more domestic passengers than any other U.S. company, and together with its fellow "low-cost carriers," including JetBlue, Frontier, and ATA, accounted for more than one-quarter of all U.S. traffic.
Two decades ago, when Donald Burr founded the pioneering low-cost carrier People Express, it and Southwest together were responsible for about 2 percent of all U.S. air traffic. Less than 20 years from now, according to Burr's son Cameron, who is developing iFly, a new air-taxi company using small jets, discount airlines will carry 70 to 80 percent of all traffic. Does this mean that tomorrow's travel experience is encapsulated in today's Southwest—with its peppy flight crews but no seat reservations, no meals, no hub-based networks, and operations based largely atlow-cost airports like BWI and Oakland?
Not exactly. Any airline that wants to stay in business will have to do something to match the operating efficiencies of the low-cost carriers, either by cutting prices or by convincing customers they have a product worth paying a premium to get. But for the passenger, the most noticeable coming change in the business of air travel is that its pricing will be normal. The medieval complexity of today's rules will seem, well, medieval. "In our research, we've found a tremendous level of dissatisfaction that's summed up as 'I don't know what I paid for,'" says Klaus Brauer, director of passenger revenue development at Boeing and, unofficially, the industry's authority on precisely what people do and do not like about flying. "I get on a plane, I'm offered one kind of service—and I get on a different plane and maybe receive worse service, though I pay five times as much," he says. "In the customer's mind, we've broken the connection between product and price."
Learning from Ritz-Carlton and the Gap
"I like using the analogy of retail," says iFly's Cameron Burr. "Sears Roebuck in the seventies was the equivalent of United Airlines today. You can find everything you want"—in the airline's case, you can eventually get anywhere—"but it's all marginal." In retail, Burr says, customers gravitated toward specialized outlets: the Gap, Foot Locker, Circuit City. "That's the segmentation that's going to happen in the airline industry."
John Katzman, the founder and CEO of the Princeton Review and an investor in Burr's company, uses the analogy of hotels. "As a customer, you know what the 'Hyatt' brand means, versus Holiday Inn or Four Seasons, and you associate each with a price and service level," he says. "But most airline 'brands' and service levels are the same, and with each you might be paying five times as much as the person you're sitting next to."