When airlines debuted in the early 20th century, flying was considered a rare and expensive luxury that only a few could afford. Those fortunate enough to fly would treat each trip like a special occasion by dressing to the nines. After all, you never knew who you would meet when flying.
As aviation advanced, aircraft improved allowing airlines to carry more passengers farther distances. During the 1950s and the early 1960s, the industry experienced tremendous growth despite being regulated by the government. By the mid-1960s, airlines were carrying nearly 100 million American passengers each year. By the mid-1970s this number had doubled resulting in a regulatory nightmare. The government simply could not allocate enough resources to keep up with such a rapidly growing sector.
United Airlines flight Attendants photo credit travelsnitch.org
In 1978, the government declared that they would deregulate the industry removing controls over fares and routes, exposing the industry to market forces. This deregulation also made it possible for airline startups to more easily enter the space and compete with the major airlines also known as the ’majors’ or ‘legacy carriers.’ To hinder the growth of startups in the industry, the majors used a loss leader strategy which meant airlines would lower airfares on specific routes to below their operating costs making it impossible to compete with the majors.
Since deregulation, average airfares have dropped by 40% making air transportation affordable to the average family, which effectively tripled the amount of annual passenger miles. Airfare reductions not only had a significant impact on the airlines’ budgets for ancillary services, but it also reduced their budgets for employee benefits (most notably taking back pensions). While this strategy prevented the emersion of new players, it also led to constant battles between the majors and their unions, which resulted in many publicized strikes. This created a sour culture amongst airline employees. Its effects trickled down the ranks and the airlines’ acceptance of it had a significant effect on customer service.
With the majors’ introduction of the loss leader strategy, one of the most viable business models for the remaining competition was to be a budget airline or a low cost carrier. While budget airlines’ models vary, they all follow similar practices tailored to reduce traditionally included services and amenities to reduce ticket costs. The low cost model was pioneered by Southwest and has had a significant impact on the industry as it is now dominated by price.
Due to massive losses, many US airlines used Chapter 11 bankruptcy as a crutch to keep flying. In the past five years, airline headlines have been dominated by bankruptcies, union strikes, mergers and acquisitions. Most notably, the consolidation amongst major airlines over the past few years has changed the experience of flying forever due to lesser flights and higher prices. The most recent merger was approved this month by a federal judge allowing American Airlines who emerged from bankruptcy protection and US Airways who culminated its long pursuit of a merger partner to create the world’s largest airline.
Taking a nap on a layover photo credit air treks
While many view this as a win for customers, it is very tough to grasp whether or not this is true because of the recent history of mergers. Although airfares are more affordable and accessible in today’s economy, more than ever you can almost expect overbooked, late, or cancelled flights; surly flight attendants; terrible in-flight food service; and ridiculous fees for baggage. If the past repeats itself, this recent merger will only make these things worse. Remember the days when choosing an airline was easy? My parents and grandparents probably do, but all I’ve known is the same nightmare it is today – it’s all about perception and price.
The real debate is, are you willing to pay for service? While many are content with below-average service, there is an increasing number of travelers who have discovered that flying private is a more viable solution than ever. Want to see what all of the hype around private aviation is all about? Check it out for yourself here.
This article was written by Johnny Sengelmann, co-founder and COO of Fresh Jets. Fresh Jets aggregates private jet schedule and pricing information in real-time matching inventory to the travel needs of businesses and individuals instantly.