By: Julia Manso
How many changes will airlines make in the name of efficiency before they alienate consumers? This question is floated by American Airlines executives as they continue to modify their fleet of 737s to have narrower (but more) seats, less legroom, and fewer seat-back screens, therein causing headaches for their passengers. Modern airlines attempt profit maximization, striving for ever-increasing efficiency at the cost of consumer satisfaction, and interestingly, the impetus for this trend lies in the economic movement of airline deregulation in the late 1970s.
Prior government-regulated airline travel was expensive and inefficient: the Civil Aeronautics Board only permitted one to two airlines to fly a given route, allowing airlines to charge absurdly high prices, fly half-empty planes, and reap enormous profits. Lacking price competition, carriers weren’t incentivized to maximize efficiency or charge consumers lower prices, and the system effectively created a series of price monopolies for each route. Thus, with air travel beyond the reach of the millions who couldn’t afford such inflated prices, the market for flights was highly inefficient.
To remedy this inefficiency, the U.S. government turned to a market-based regulatory approach, which uses the power of market forces to make airlines account for the costs and benefits of their actions. Deregulation necessitated a change in company practices, as the so-called “invisible hand”—the market “force” that arises from individuals making decisions out of self-interest and leads markets towards efficient outcomes—enters the market. Each individual consumer wants to make the best decision for himself, seeking the lowest price, and the collective force of these consumers (the “invisible hand”) forced companies to adapt in response to demand.
No longer having price monopolies, some airlines over-expanded and went bankrupt, while others failed to adapt, hemorrhaging money until they too went bankrupt. As the market brought increased competition and the internet accelerated fare transparency and benefit comparison, only airlines that developed new policies, priced competitively, and reacted to consumer demands succeeded; one critical innovation was the hub-and-spoke network, where smaller flights arrive at larger city “hubs,” enabling passengers to change flights and therein reach further destinations at lower cost to the airline as well.
Yet, now, the airline industry’s drive to maximize efficiency comes at the cost of the consumer’s comfort; as carriers like American squeeze people onto flights, adding seats to do so, they reduce consumer satisfaction. The consumer’s path of response is not clear or universal: each will have to assess how much he/she values comfort. Is a higher fare worth an extra inch of legroom and a seat-back television, and how valuable are these formerly free benefits?
And of course, Covid-19 has further complicated these dynamics, with flight cancellations limiting consumer options, rising oil prices pushing up fares, and airlines retiring older, more spacious (and less fuel efficient) jets. In the face of these changes, has comfort permanently taken a backseat to price and route offerings? Or could a new modestly priced, comfort-focused airline be a major market disruptor, shifting the tide back? Ultimately, only time will tell, but in the interim, consumers will have to buckle up for the ride—in their increasingly small seats.