Passengers Scowl as Airlines Smile
July 30, 2009
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    August 4, 2007

    THE nation’s airlines are beginning to right themselves, but for passengers, air travel is becoming much worse. The two things are not unrelated, according to Knowledge@Wharton, the online journal of the Wharton School of Business.

    Overcapacity was a major reason for the industry’s recent troubles, sending several airlines into bankruptcy and causing huge layoffs.

    Now that airlines have reduced capacity, according to Knowledge@Wharton’s unsigned article, “there are not enough seats to go around, particularly when weather or other problems disrupt schedules.”

    For the first five months of this year, the on-time arrival rate of the big airlines was 73.5 percent, the lowest in seven years. Complaints about service were up 49 percent from May 2006. This summer, flights are booked at average levels of about 90 percent, a historic high. That means that if a flight is delayed, it is much more difficult for a passenger to get a seat on a later flight.

    Airlines make a simple calculation, comparing the loss from flying with an empty seat against the risk of bumping passengers, to whom airlines have to pay $200 or $400, depending on how quickly they can be rebooked.

    “Previously, airlines worried about dissatisfied customers,” said a Wharton professor, Serguei Netessine. “Now I don’t think they worry about it because the customer service at all airlines is so horrible.”

    At the core of the problem is the industry’s hub-and-spoke system, said Todd Sinai, another Wharton professor. “It is all predicated on driving traffic to and from key airports and doing it at a particular time,” he said. “That makes the system very sensitive to hiccups.”

    There are a number of proposed solutions floating around, including increasing the airlines’ penalties for bumping passengers; reducing the number of flights while flying larger airplanes; and creating a federal “passenger’s bill of rights.” None of them will help passengers this summer.

    But from the airlines’ perspective, “having a lot of rankled customers beats having a handful of happy ones,” wrote Tom Van Riper of

    Source: NEW YORK TIMES
    Date: 2007-08-04