[OverRevLimiter]

The American consumer needs to rise up and complain in the millions to the DOT and the airline association that change fees of $200 is outragious. How do we get the message out to the consumer to write and overwhelm the American public with this rape of the consumer?

[The_Judge]

Stop buying tickets.

[OverRevLimiter]

I believe this is a consumer abuse issue. They have us by the short hair and it would take a major concerted effort of us to change this policy. Government intervention to limit fees is needed. Sure I will do my best to not use anyone except Southwest Airlines as their policy is most appropriate.

[Burgers]

I don't work for an airline but run a company and given the monetary scale of airlines, I think $200 is reasonable. Southwest Airlines recently changed their ticket policy that is also revenue positive for them as well.
If you advocate government intervention limiting their revenue streams be prepared to provide funds to help keep airlines solvent as they are over the long term hardly profitable ventures. Personally, I like free markets as free as possible.

[jimworcs]

There is no requirement to subsidise airlines if you increase regulation. The airlines abuse their local hub monopolies and there is more than a century of experience of regulating abuse of monopoly positions.

The airlines want it both ways. The demand and get anti-trust immunity to allow mega mergers and to secure monopoly positions in major markets but seek to resist the quid pro quo which is regulation of those markets. All companies seek to abuse their monopolies, it is normal corporate behaviour because companies exist to maximise revenue for their shareholders... providing customer satisfaction is only a by product of this. In properly functioning markets, they will not win the business if they don't provide a good service. However, the airlines have won anti-trust immunity and occupy local monopoly positions and the market does not work properly pricisely because they are inadequately regulated. We saw the result of this in banking and it was a disaster.

The power of the airlines in the US is extraordinary and the lack of regulators with real teeth is shocking. Only political action will change this. Judge suggests that you don't buy tickets... which in normal market conditions would work. In this distorted market, it simply won't work. If you live in Charlotte, NC and boycott US Airways, you will find you are spending far too much time in the Greyhound Bus Station waiting room.

One of the changes recently made in the UK in the financial services sector, which has a similar domination of the market by 4 very large banks, the regulator introduced a requirement that the charges levied by the banks must be based on actual costs of delivering the service and must be fair. This avoids the minefield of regulating prices, but prevents abusive gouging, which is what the change fee represents.

[azstar]

A solution would be to make nonrefundable/nonchangeable airline tickets nonrefundable and nonchangeable, similar to theatre tickets. If you don't use the ticket for the intended flight, you would have to purchase a new ticket. However, no one would be satisfied with that solution either.

[OverRevLimiter]

To the person that feels it appropriate for the consumer to purchase a service for $220, then request a change which costs them $200 and in net effect never receiving that service - I call that total abuse of the consumer and if you run your business that way - I would hope you fail. The airline industry is government protected and a monopoly. The government only responds when the masses rise up and complain. I would hope this abuse rises to such a fervor that a more reasonable change fee system is implemented.

[Burgers]

Nice response OP, so if someone doesn't agree with your position you want their business to fail.... stay classy...
Fortunately for me, my business is in no danger of failing and in fact I've just purchased 2 more franchises for my company portfolio of 13. Perhaps if you listen to differing views you might learn a thing or two, its certainly served me well.

Let's look at your "wise" post... "airlines are a monopoly" Mono means one, thus there is no monopoly. "government protected" Hardly, but it is the most regulated industry, even more so then the pharmaceutical industry.

Jimworcs, citing your example of CLT (I have a couple of stores near there so very familiar with the airport) Indeed 90% of the traffic is driven by one carrier but why is that? Slot and gates aren't an issue but the O&D traffic numbers suggest that the market doesn't warrant a lot of service. WN is just begining service in 2013 this after previously expanding to many smaller markets, with much higher O&D.
Persistent historical losses demonstrate that the consumer is getting incredible value. Adjusted for inflation, air travel has never been cheaper post deregulation.
I'm all for consumers getting good value but I also want healthy companies that can pay employees and suppliers and return value for shareholders. Currently, the consumer is certainly getting the bulk of the value. Don't believe it? Look at the stock performance and the bankruptcy cycles airlines experience.

[jimworcs]

Burgers,

The US Airline industry is in chaos. Every single one of the major carriers has filed bankruptcy and had to restructure. In the process, they shafted their suppliers, ripped up employee contracts, messed with staff pensions and walked away from many of their other obligations. Meanwhile, their management walked away with huge "performance-related" bonuses and massive unjustified salary and incentives. They were then rewarded with anti-trust immunity, protection from competition, protection from foreign ownership and allowed to form anti-competitive "hubs", which control the markets. Persistent historical losses indicate a failing market, not incredible "consumer value". There are many international airlines which compete on price and quality of service and are profitable. If you look at skytrax, you can track the decline of the services of US based airlines and their reputation internationally.

You are clearly a successful businessman... it is surprising to me that you would consider the market for air travel to be working in the US given the barriers to entry for new airlines, the strength of the hubs and their anti-competitive impact and the decline in service standards. These things are not inevitable, but it seems US airlines and their costly and extensive lobbyists appear to have convinced the public it is.

[AADFW]

Originally Posted by jimworcs

Burgers,

The US Airline industry is in chaos. Every single one of the major carriers has filed bankruptcy and had to restructure. In the process, they shafted their suppliers, ripped up employee contracts, messed with staff pensions and walked away from many of their other obligations. Meanwhile, their management walked away with huge "performance-related" bonuses and massive unjustified salary and incentives. They were then rewarded with anti-trust immunity, protection from competition, protection from foreign ownership and allowed to form anti-competitive "hubs", which control the markets. Persistent historical losses indicate a failing market, not incredible "consumer value". There are many international airlines which compete on price and quality of service and are profitable. If you look at skytrax, you can track the decline of the services of US based airlines and their reputation internationally.

You are clearly a successful businessman... it is surprising to me that you would consider the market for air travel to be working in the US given the barriers to entry for new airlines, the strength of the hubs and their anti-competitive impact and the decline in service standards. These things are not inevitable, but it seems US airlines and their costly and extensive lobbyists appear to have convinced the public it is.

Jim, I fully agree with everything in your post except the first sentence. The US airline industry is most definitely not in chaos. US carriers are expected to generate around $3.6 billion in profits in 2013, much higher than $2.3 billion earned last year. North American airlines have achieved this robust growth potential through the end of 2013 by virtue of disciplined capacity, rising travel demand and all of these annoying fees or "ancillary revenues" in airline vernacular. U.S. carriers are performing quite well in terms of the DOT customer service parameters including on-time arrivals, lost luggage, customer complaints to the government, rates of cancellation and overbooking of flights. But we all know the service totally sucks on the human level, and the "gotcha" fee-based revenue model borders on dishonest. Economists argue that airlines are only meeting the desires of US consumers who over and over again have voted with their wallets en masse. Most Americans would pay $5 for a ticket from NY to LA if it meant cramming themselves into the cargo hold, yet complain bitterly about the legroom and lack of service throughout. Domestic US airline seats have tragically become a commodity and the US airlines are well aware of this. The bottom feeding American airline consumers have destroyed the quality of domestic service even for those of us willing to pay for it. Sadly, the current earnings approach by the airlines is actually working very well, serving to turn a nice profit after years of loss. Service-based attempts at differentiation during the earlier post-deregulation period failed miserably. The average airline consumer has, in effect, become his own worst enemy.

[jimworcs]

AADFW (Sorry, I don't know your name!)..

There are different ways of analyzing the current situation; it is true that US based carriers have achieved profitability over the last couple of years...but the question is how was this achieved?

They have "achieved" this by eliminating competitors... reducing capacity and in doing so eliminating or downgrading secondary hubs. In the last 10 years, we have seen TWA, NorthWest, Continental, America West and soon, US Airways disappear. We now have 3 mega carriers who have further consolidated their dominance and control of the market.

The reduction in competition is extremely unhealthy for the future of the market. Three carriers acting "in concert" can effectively control the overall market. For example, if Delta decided to charge for carry on bags, and United and the new American followed suit, there is little the consumer can do to influence this. The choices and the capacity of the system simply does not allow for consumers to switch in meaningful numbers.

I challenge the idea that the stripped down pricing model, with massively reduced levels of service and the so called "menu" of "optional fees" is "consumer driven" or that the average airline consumer "has become his own worst enemy". This is not how consumers behave. Look at other markets. In a healthy market, consumers will make a choice based on a variety of factors, including service, price, quality, comfort, convenience and utility. Low cost fast food restaurants did not kill the market for high end and high price, fine dining. Low cost, mid market and fine dining restaurants sit alongside each other comfortably, because a range of choice is provided. This applies in all healthy markets, consumers will behave rationally where meaningful choice is provided.

Meanwhile, US based carriers work hard to block competition. They fought to block any meaningful involvement by Virgin Group in the new Virgin America start up, so that by the time this was approved, the only involvement by Virgin was licensing the name. Why do they oppose so vigorously the involvement in the US market of foreign carriers? They oppose this even where there are reciprocal access arrangements. The reason is that these profitable foreign carriers offer models which challenge their orthodoxy and control. Imagine what Singapore Airlines, Lufthansa, BA or Emirates could bring to a US based subsidiary.

The reason they block this is because they know that these foreign carriers have the access to capital to purchase a carrier or invest in a start up which would present meaningful competition. There is no reason why you should not be able to fly to New York on a German owned airline, when you are going to see a show put on by Sony Corporation, travelling to the airport in a Toyota. It is protectionism and it protects their monopoly. The truth is, these mega hubs create barriers to entry to competitors and the big 3 know this.

The improvement in revenues and profitability and the severe decline in service standards are what you get when there is monopoly. *This lesson has been learned over many decades, why should it not apply to airlines?*

[compareandfly]

Originally Posted by AADFW

Jim, I fully agree with everything in your post except the first sentence. The US airline industry is most definitely not in chaos. US carriers are expected to generate around $3.6 billion in profits in 2013, much higher than $2.3 billion earned last year. North American airlines have achieved this robust growth potential through the end of 2013 by virtue of disciplined capacity, rising travel demand and all of these annoying fees or "ancillary revenues" in airline vernacular. U.S. carriers are performing quite well in terms of the DOT customer service parameters including on-time arrivals, lost luggage, customer complaints to the government, rates of cancellation and overbooking of flights. But we all know the service totally sucks on the human level, and the "gotcha" fee-based revenue model borders on dishonest. Economists argue that airlines are only meeting the desires of US consumers who over and over again have voted with their wallets en masse. Most Americans would pay $5 for a ticket from NY to LA if it meant cramming themselves into the cargo hold, yet complain bitterly about the legroom and lack of service throughout. Domestic US airline seats have tragically become a commodity and the US airlines are well aware of this. The bottom feeding American airline consumers have destroyed the quality of domestic service even for those of us willing to pay for it. Sadly, the current earnings approach by the airlines is actually working very well, serving to turn a nice profit after years of loss. Service-based attempts at differentiation during the earlier post-deregulation period failed miserably. The average airline consumer has, in effect, become his own worst enemy.

Nice post. Thanks for share your information with us.

[AADFW]

Originally Posted by jimworcs

AADFW (Sorry, I don't know your name!)..

You can call me Kelly.

Originally Posted by jimworcs

There are different ways of analyzing the current situation; it is true that US based carriers have achieved profitability over the last couple of years...but the question is how was this achieved?

They have "achieved" this by eliminating competitors... reducing capacity and in doing so eliminating or downgrading secondary hubs. In the last 10 years, we have seen TWA, NorthWest, Continental, America West and soon, US Airways disappear. We now have 3 mega carriers who have further consolidated their dominance and control of the market.

The reduction in competition is extremely unhealthy for the future of the market. Three carriers acting "in concert" can effectively control the overall market. For example, if Delta decided to charge for carry on bags, and United and the new American followed suit, there is little the consumer can do to influence this. The choices and the capacity of the system simply does not allow for consumers to switch in meaningful numbers.

Agreed.

Originally Posted by jimworcs

I challenge the idea that the stripped down pricing model, with massively reduced levels of service and the so called "menu" of "optional fees" is "consumer driven" or that the average airline consumer "has become his own worst enemy". This is not how consumers behave.

This is where I think our opinion differs rather significantly. Consumer behavior rather than consolidation (or anything else for that matter) has been the #1 catalyst of the move towards the entire ancillary revenue model. Every value-based attempt airlines have made to woo consumers towards higher base fares in the deregulation era has failed unilaterally. Take, just as one example, the "more legroom in coach" effort launched by American Airlines back in 2000. It wasn't long until AA had to bolt back in the seats because folks just couldn't stomach paying an extra $35 or $50 not to have their legs crushed.

The historic pricing data bear this out quite clearly. In spite of all the ongoing mergers and consolidation, the average domestic ticket price rose 1.8% a year from 2004 to 2011. Adjusted for inflation, US domestic base airfares have actually risen very little since deregulation. So from a strictly "base fare" perspective, airfares have remained one of the great economic values available to consumers because consumer behavior (and in turn, discount carrier activity) has kept it this way. A vast majority of American airline consumers will ALWAYS go for the lower, unbundled base fare no matter how unpleasant the consequences of doing so are later. Since the market has clearly shown that travelers are willing to sacrifice comfort for lower fares, airlines have responded in kind to this consumer will by keeping the fares artificially low and then sticking it to passengers with fees.

Originally Posted by jimworcs

Look at other markets. In a healthy market, consumers will make a choice based on a variety of factors, including service, price, quality, comfort, convenience and utility. Low cost fast food restaurants did not kill the market for high end and high price, fine dining. Low cost, mid market and fine dining restaurants sit alongside each other comfortably, because a range of choice is provided. This applies in all healthy markets, consumers will behave rationally where meaningful choice is provided.

The airline industry is somewhat unique because of certain factors -- high barriers to entry, real or regulatory limits on capacity in some markets, and a variety of other conditions. I would point out that the tendency of deregulated industries to go through a period of fragmentation followed by reconsolidation and a quest to regain pricing power is hardly revolutionary. Fully agreed that it's not good for consumers!

Originally Posted by jimworcs

Meanwhile, US based carriers work hard to block competition. They fought to block any meaningful involvement by Virgin Group in the new Virgin America start up, so that by the time this was approved, the only involvement by Virgin was licensing the name. Why do they oppose so vigorously the involvement in the US market of foreign carriers? They oppose this even where there are reciprocal access arrangements. The reason is that these profitable foreign carriers offer models which challenge their orthodoxy and control. Imagine what Singapore Airlines, Lufthansa, BA or Emirates could bring to a US based subsidiary.

The reason they block this is because they know that these foreign carriers have the access to capital to purchase a carrier or invest in a start up which would present meaningful competition. There is no reason why you should not be able to fly to New York on a German owned airline, when you are going to see a show put on by Sony Corporation, travelling to the airport in a Toyota. It is protectionism and it protects their monopoly. The truth is, these mega hubs create barriers to entry to competitors and the big 3 know this.

Now I'm pretty much back in your corner. The U.S. government should work to remove barriers to competition by expanding airport capacity enough to allow new competitors to operate on routes. They should also seek to mitigate or eliminate preferential pricing and other agreements between hub-dominating carriers and their hub airports. And they should stop hiding behind the ridiculous excuse of protecting national security in preventing foreign airlines to compete for domestic traffic, either directly or by investing substantially in existing U.S. carriers. But of course, none of this will ever happen because we Americans are far too fat and lazy to take any meaningful action and pressure our legislators, other than to protect our guns and whatnot. (Half kidding.)

Originally Posted by jimworcs

The improvement in revenues and profitability and the severe decline in service standards are what you get when there is monopoly. *This lesson has been learned over many decades, why should it not apply to airlines?*

The antitrust division of the U.S. Justice Department will ultimately decide what constitutes a monopoly as the term relates to any violation of federal law. If any action is taken, my suspicion is that it will happen years from now. Unfortunately as with other industries (and as was once the case with U.S. telecommunication), the status quo will likely be taken for granted over a long period of time as increasing anti-consumer practices are phased in slowly. Eventually the monopolization will go too far and some bright young economist at the DOJ will come along and break it all up. And the airline industry's "regulatory cycle of life," so to speak, will in some form or fashion start anew.

[AADFW]

Interesting and timely where this thread is concerned:

http://www.nbcnews.com/travel/still-...tter-1C9922372

[richardH]

and the issue gets on and on and on....