Thursday, May 11, 2017

Airline seats and the market

A story about airline seats caught my eye, because it tells us something about markets. CNN Money reports:

American Airlines is planning to decrease the front-to-back space between some of its economy class seats by another two inches.
The airline says it plans to add more seats on its coming Boeing 737 Max jetliners. To do that, it will shrink the distance between seats, also known as pitch, from 31 inches to 29 inches on three rows of the airplane, and down to 30-inches in the rest of its main economy cabin.
With the change, American will become the first large U.S. carrier to offer legroom with a pitch that's nearly on par with ultra-low cost carriers Spirit Airlines and Frontier Airlines. Those seats are an industry minimum 28-inches apart.
By comparison, economy class pitch on Delta Air Lines and United ranges between 30 and 31 inches, while JetBlue Airways, Southwest Airlines and Alaska Airlines have between 31 and 33 inches.
As the big airlines match each other move for move, the risk is that 29 inches becomes the standard for flying economy in the United States. American has been a bellwether before for the airlines. For instance, it was the first big U.S. airline to introduce bag fees in 2008.
Airlines have enjoyed strong profits and low fuel fuel prices after a decade of consolidation. They're adding seats now to help offset rising employee wages.
"This is one of the best economic environments the U.S. airline industry has seen in decades," said Harteveldt. "There is no need to race to the bottom."
But a race to the bottom is indeed what we have. Interestingly, because humans are really just animals, one way you can see we are getting to "the bottom" is the increasing number of cases of violence that have been breaking out, in airplanes and at airports, as humans are increasingly stressed out by the travel conditions (see recent cases of Dr. Tao, a fight on a Southwest Airlines flight caught on video, fights due to frustration with Spirit Airlines' cancellations, and of course the infamous case of Dr. Dao, about which United Airlines has apologized (and paid compensation).

Airline violence has been a problem in China in recent years, too. According to the SCMP in 2013, Hong Kong Airlines reported that they had incidents of violence on flights between Hong Kong and China an average of three times per week, and so started teaching their flight crew martial arts. 
In China, passenger violence is usually blamed on the "low quality" of Chinese tourists.  Certainly, manners and "education" are important in preventing people from fighting all the time, but the stress of being in crowded spaces, of not having control, and being among strangers, all lower any person's trigger point for overreacting and even violence. (BTW, on the strong reaction to the Dr. Dao United incident in China, see this very insightful commentary).

In the US, there is a religious faith in the power of the market to solve everything. And indeed, market forces have reduced airfares and really created a much larger and more efficient industry. Where flights need to be negotiated by international agreements (e.g. between the US and China), prices are often inflated by the lack of competition. But what we see with airline seats is a market failure. American Airlines discovered many years ago that while consumers overwhelmingly say they want wider seats and more leg room, they are not willing to pay for it. They tried to meet customers' demand, but found that when they went to buy tickets, consumers preferred to save the money. This is especially true now with the internet, where it is very easy to compare prices. Expedia and Kayak and other travel sites all list fights by price; they do not list leg room (known as seat pitch). 

So airlines start charging separately for baggage, and for choosing your seat, so the ticket can actually look cheaper when the customer goes to buy it. To some extent this is the way the market should work: people pay for what they want, and poor people (and students) take the middle seats. 

But the pressure to reduce costs also gradually makes the airlines stuff as many passengers as they can in an airplane. Customers gradually get used to the newly crowded conditions--except those that lash out. Only some sort of industry standard will prevent airlines from continuing to reduce seat space. (I can foresee extra charges if you are fat, wide, or "excessively" tall; that is the natural next step). Congress told the airlines that either they come up with rules or congress will do it for them. 

The problem is that since so many people "believe" in the free market and do not understand that in some cases markets can fail, I don't see this being solved any time soon. A Red State columnist even criticized congress holding hearings on the United incident, predictably claiming any government interference would just raise prices for consumers and not improve service. Congress did hold hearings, and both Republicans and Democrats criticized the airlines, but it seems even this issue will be political, with Democrats calling for regulations and Republicans against regulations. The possibility of a free market with some regulations to set minimum standards is impossible to achieve. American Airlines reducing their seat size right after the hearings in Congress seems to prove that this market failure will not be solved or even addressed any time soon.

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