This week’s featured link:
Records: Former Newport News airport execs spent big on travel – The Daily Press
If you haven’t been following the saga of Newport News airport’s spending spree, then I highly recommend you grab some popcorn and pull up a seat. After Southwest pulled AirTran out of the airport several years ago, it seems the people running the airport panicked and decided to throw money at anything that moves. You may remember the failed restart of People Express. Well, the airport was so desperate for new flights that it agreed to pay off that company’s debts if it defaulted. Spoiler alert: it defaulted.
But it’s not just that kind of thing that has hurt the airport. It’s all the fraud and mismanagement. The airport director, already handsomely paid at over $220,000 a year, was fired for reimbursing himself for personal expenses. And now the local paper has started investigating the huge travel budget that was theoretically supposed to be spent in support of new service at the airport. But what you’ll see is a ton of travel to events that would never have resulted in new air service (including a trip to the Paris Air Show). It’s no wonder Allegiant pulled out a couple years ago. All of this lavish expenditure goes right to airline charges.
Delta CFO: Loyalty ‘Took Off’ When the Airline Switched to a Revenue-Based Model – Skift
I don’t even know where to start with this. I suppose I can just point to the fact that the Chief FINANCIAL Officer is the one lecturing on loyalty and not someone in marketing. *sigh*
There Was No ‘Golden Age’ of Air Travel – The New York Times
The Times picked a provocative headline, but the gist of the article is something I of course agree with. No matter how often this comes up, however, it never sways people. Patrick had some follow up thoughts on his site as well.
25 comments on “3 Links I Love: Airport Mismanagement in Virginia, A Strange Belief on Loyalty, No Golden Age of Travel”
I really question the need for much traffic out of Newport News.
Sure, the bridges and tunnels are a pain, but ORF (Norfolk airport) is right across the bay from Newport News (and seemed to be more dominant in local traffic than Newport News when I lived in the area years ago), and Richmond is an option for travelers who are willing to drive a bit more.
At the end of the day, I suspect that most civilian air traffic to the Chesapeake/Va Beach/Norfolk area should (and will) long term run through ORF, with Newport News picking up some leftovers.
It makes a lot of sense that loyalty improves under a revenue based model. Delta is rewarding the people who most contribute to Delta’s bottom line; everyone wants to be part of a more elite club. Frequent flyer programs that are based on mileage do not reward the people that spend the most while a dollar based program does.
It is not a surprise that there were people who lost out when not just Delta but also United and then American converted to revenue based FFPs.
As for the golden age of air travel, of course it is safer and more accessible – but it was more exclusive. No one ever talks about the golden age on the New York City subway. Even route 66 is illusory because it involved far fewer cars. Life with millions of other people is not exclusive. The golden age of travel was because it wasn’t mass transportation.
Tim – I disagree that the revenue model is better. It just replaces one issue with another. Before if someone flew LA to New York and paid $200 they were rewarded the same as someone who paid $1000. That doesn’t make sense. But now someone who pays $200 flying LA to New York gets rewarded the same as someone who pays $200 to fly from LA to San Francisco. Revenue is not a proxy for profit or value to the company. It’s just a different way of looking at it and trading one problem for another.
I think what Delta is talking about has nothing to do with how many miles are awarded for flights — where Delta has actually made a bigger move is in how many miles a free flight costs. And while partner international business class costs have gone up, the vast majority of customers don’t care — they want to redeem for family vacations to Orlando in coach, and by pegging those redemptions more closely to the price of revenue tickets, Delta has in many cases brought prices down.
Check nearly any domestic coach redemption and Delta almost always requires fewer miles than AA these days, which would have been unthinkable a few years ago. (It’s not that Delta has a lot of “saver” availability, but AA seems to have even less, and Delta’s many price levels mean a non-saver ticket can still be 35K or 40K miles, whereas AA jumps right to 50K.) If you’re reducing prices on the tickets the vast majority of customers want to redeem for, I bet a lot of customers are happier — and in particular a lot of credit card customers are happier (and the same customers who want to redeem for coach to Orlando don’t know that there are more lucrative credit cards than Delta’s, either).
I completely get what you’re saying… if one can reliably get a domestic reward seat for under 25,000 miles round trip, it looks much better than the strict region based award chart. And these types of redemption schemes have merit — the hardcore loyalty program users will certainly acknowledge British Airways’ role in a diverse mileage portfolio. (They do tiered distance based rewards, which are desirable for short routes, but undesirable for long routes.)
But IMHO, revenue based programs, particularly where a dollar and a mile are equivalent, miss the mark. If the two are completely interchangeable, there is no need for me to go out of my way to earn that mile, where I will if I’m saving up for an aspirational award that is *only* obtainable (to me) through miles. I *need* to collect miles to get that $8k business class ticket to Asia, because I will never pay for that out of pocket. I do not *need* to collect miles for that coach $200 coach ticket to MCO.
As a real example, WN is the sole non-stop operator in a market I fly in once a year over the holidays. I do not fly WN because of their frequent flyer program, and I do not fly extra WN trips to get those free tickets to see my mom and dad. In fact, WN wastes money on me, because they are giving me those points for something I would do anyway. UA an AA offer connecting routes in that market, but with the shift toward revenue based earning, I’m not taking a connection through ORD in the winter for a measily 300 miles.
AFAIK the loyalty programs are revenue and mileage based. Looking at my DL app right now I’ve got ~6,000 miles to go for Silver Elite next year and I’m already about $2k over on the required dollar spend of $3k. On average odds are much higher that I won’t hit the miles because I don’t fly long distance cheap fares. If I don’t meet both thresholds DL says SOL. They don’t have a “you paid us a ton of bucks for 10k miles so we’ll just give you status” waiver. For me I wish they did because when I miss gold it’s miles, not dollars. Overall status doesn’t mean much for anyone who isn’t Platinum or Diamond but I like the revenue based approach better because it does even things out a bit for mid-west based travels that aren’t doing transcons every week and when I buy a walk-up last minute fare for insane price to fly 500 miles I think that should be worth something.
Given that airline costs are fairly similar among the legacy airlines, revenue does indeed have a far greater correlation to what impacts the bottom line of a company than how much of a company’s production a customer uses. An airline wants to generate its revenues in the most efficient manner possible and it is willing to reward its customers who do so. The days of flying thru 3 hubs to get across the country was hugely inefficient. Customers that gained status by flying lots of cheap long flights didn’t achieve the rewards an efficient airline wanted. Delta flies fewer RPMs to generate more revenue than its peers; every company wants to reward the highest revenue customers before the ones that require the most work for the company.
Tim,
I think you’re probably right, and likely are especially when it comes to “elite” status. Back in the day, it was very, very easy to be an elite travel and generate little revenue for the company. Flying coast to coast round trip five times was enough to get you the base level of elite status, and 15 times was enough to get you top tier. Yes, NW was upgrading me on every flight just because I flew them a bit more than once a month. I never understood how that made sense. At the very least, institute a revenue requirement as well! I think that was the first step, was instituting revenue requirements at each tier.
I do think you can more accurately make blanket statements about a customer’s profitability based on collective revenue spend than you can collective RPMs flown.
remember also that the era of electronic tickets is fairly new. It is now possible to know how much revenue a passenger generates as soon as they book a flight. Airlines had no choice but to use a crude, post-event measurement such as mileage “back in the day” but I’m not sure they wanted that kind of system even then…. it was just all they could support.
My guess is that back before de-reg, when fares had some correlation to distance, mileage-based programs would have made sense. I’m not enough of a student of history to know how long it took to get to today’s system where fares are completely supply and demand based, and bare little correlation with cost.
Yeah, it’s easy to track revenue now, but I do think it’s a PITA to track cost. Even CASM is just an approximation, and good for aggregate measurement. I think we all know that two five hundred mile flights don’t “cost” the same as a 1,000 mile flight, and for that matter, the same LAX-JFK flight has a different actual cost in the summer when the winds are lighter than it does in the winter, when the tailwinds are stronger. Not to mention flights that are lightly loaded… if a particular passenger is traveling on an empty flight, does it really matter that he pays Full Y and the flight lost money? Trying to determine *true* profitability is *hard*.
It’s why I think these things are better done in the aggregate. I mention below that if a passenger is bringing in enough money, that’s all that matters. My guess is that the airlines are thrilled to have passengers who bring in $10k of revenue in a year; it doesn’t matter terribly much if one is flying paid business class on one flight, and the other is a frequent domestic hopper. That J passenger might be more “profitable”, but the airline may not actually care about that metric.
Put differently, the costs are sunk and probably don’t matter.
Dan
good discussion and I think you are on the right path. However, airlines match capacity to demand very well throughout the year. Delta has become a master at it and WN is now able to do it far better after their IT conversion. In addition, with e-tickets, it is very able to accurately predict the profitability of a flight weeks in advance given as long as the flight follows historical booking patterns – and the revenue mgmt. systems are good enough they can indicate that. Evidence of that is that Delta reports its traffic for the preceding month by the 2nd business day after the month closes and provides a RASM update. Other carriers take a few days longer but US airlines rarely have to correct their RASM guidance unless there is an unforeseen event.
Also strong winds in the winter usually mean faster flights in one direction and slower in the other.
Costs are adjusted and also forecast with a fair degree of accuracy so that most US carriers provide profit margin guidance for the current quarter when they announce financial results for the previous quarter (and that announcement is typically 2-3 weeks into the current quarter), There is usually only one adjustment to forecast margin for most US airlines during the quarter.
US airlines today are very good at forecasting both revenue and costs and in making adjustments to ensure they meet those forecasts.
Thus, it is not a surprise that they are fairly accurately able to target the best customer rewards.
CF —
Precise airline accounting is actually really difficult. For example, you can’t measure the actual cost of a flight simply by taking the airline’s reported CASM and multiplying it by the number of miles flown. Longer flights actually have a lower CASM than shorter flights. Not to mention that costs are driven by time more than they are distance. The same flight with a strong tail wind will be cheaper than the same flight when the winds are lighter.
Assuming you can actually build a precise model to determine actual flight cost, there’s no way you can present that to the customers in a non-confusing manner. Simple miles flown is understandable. Simple dollars spent is understandable. Some sort of miles and dollars combination is probably the furthest they can go before things get too confusing.
But to the overall point about whether either system is equivalent, I’m going to have to side with the revenue. The airline has already committed to operating a specific schedule. They will incur those costs regardless of which passengers book whatever itineraries at whatever price point. Since the marginal cost for actually carrying a passenger is quite low, it matters far more how much revenue is generated than the itineraries that they fly.
Besides, in the end, the airlines aren’t trying to decide if a passenger who spends $2000 and flies 10,000 miles (potentially on one round trip flight a year) is more profitable than a passenger who spends $3000 but flies 50,000 miles. It’s the collective revenue that matters — they’re happy to get the money no matter the itineraries the passengers fly.
I guess my point is that revenue is a better proxy for customer profitability than miles flown. Your position is that they are equivalent; I’m not sure they are. There are two reasons for this: 1) Costs are really hard to measure, and 2) Fares are not a function of cost, they’re a measure of supply and demand.
In the end, this is a game of aggregations and approximations.
Each of the big 4 US airlines is able to pretty accurately forecast costs by equipment, city, season etc. down to the flight level but you are right that they don’t match customer spend to those internal costs.
Remember when the “in-flight movie” was projected onto a blurry bulkhead screen, and you listened through one of those stethoscope-style headsets with jagged plastic cups that scratched into your ear?
I do remember thoes. What the hell were thoes things and how did they work?
I would gladly return to the days of stethoscope-style headsets if it comes with honest fares and no nickel and diming. The “golden age” of air travel wasn’t that long ago, back in the mid-1990s. Nobody wants to go back to the bloated, regulated industry of the early 1970s.
I think that’s the point, you can pay more for the privilege not being nickel and dimming. For a few of us that don’t mind working harder to save a few nickel and dime for other purpose in our life, now there are options for our kind. At the end, there are more choices to cater to different group of demographics.
Taking into account all of the add-ons and fees, we’re still paying at least as much as before. The only beneficiaries are airlines, because excise tax percentages are only calculated on the base fare, not the fees
Actually, no, we’re not paying “at least as much as before”, at least not for anyone who doesn’t pay full walk-up fares.
I’ll use a personal example: in 1971 my grandparents paid $299 for me to fly round-trip from San Francisco to Albany. Using the Bureau of Labor Statistics CPI inflation calculator (https://data.bls.gov/cgi-bin/cpicalc.pl) that equates to $1,779 in 2017 dollars.
I just priced out a comparable itinerary on Kayak with a purchase two months in advance (my grandparents probably had to buy further in advance, but I wanted to keep the comparison in the summer travel season.) Base fare was $542, with another $120 for two round-trip checked bags, $300 for round-trip unaccompanied minor fees, an estimate of $40 for a combination of meals/BOB snacks, and another $60 each way estimate so I could pick window seats, and we get a total of $1,122, for a savings of 36.9%.
And that’s stacking the deck in favour of 1971 by using an UAM and choosing departures between 8am and noon both ways (to be more nine-year-old compatible.) Take that fee off and the savings goes up to 53.7% – yes, half of the pre-deregulation fare, with the only difference being possibly buying a meal at the connecting airport rather than eating onboard meals (the meals that were the lifeblood of every hack comedian in America for decades.) And if I could save even more by taking a 6AM or evening flight, living with less than two checked bags, and/or being a little less picky on seat selection.
I could even upgrade to Economy Plus (I’m using UA in this example, they camp up lowest in the initial search), have a refundable fare, a checked bag, more legroom, and STILL be 15% cheaper than the “super-APEX” fare was in 1971.
Now could we find walk-up fares that, corrected for inflation, are higher today than they were in 1971? There’s probably a few here and there. And business travelers are also impacted by change fees unless they buy full-freight fares, but they’re also the main beneficiaries of frequent flyer programmes, which didn’t exist in the pre-deregulation world.
But the vast majority of travelers pay less today than they did before deregulation, even after the fees, and debundling gives people the flexibility to save even more.
Obviously, fares were higher in 1971, that was before deregulation. A better comparison is now vs. 1990-2005. Total fares paid would be about the same, just without the annoying nickle-and-diming.`
I remember flying ORD – LHR on BA in J back in 1989 and it was just like flying in a domestic F seat. Now, you would be lying flat. First class wasn’t even flat back then. Being able to lie flat and sleep while flying over the ocean is much better. That doesn’t even include the fact that you now have screens where you can select from a large list of movies and watch one of them whenever you want.
Yeah, it’s true that you used to have more legroom in coach and were fed meals as well. But, the food was the butt of jokes for being so terrible. The only time I miss meals is on routes that are greater than 2000 miles and now DL and AA are bringing them back on some of those longer routes. At least now if you want extra legroom, you have the option to pay for it.
Most of what I hate in traveling is dealing with the TSA.
With regard to the “golden age of air travel”, it’s hard to say. I see some comments referencing the 80’s or 90’s, but I flew quite a bit as a kid in the 60’s and 70’s and can tell you that the seats were roomier and the meals fancier (even – or especially – in economy) way back then than they were by 1985. I recall an IAD-SAN flight on AA back in 1969, where we received a menu with multiple dinner choices….in coach! And yes, everyone dressed up to fly. There were no overhead bins, only a shelf for hats and pillows/blankets. Which were far more generous than now. And, you’d get a nice airline route map to take home – I wish I’d kept those!
Was it better than today? This is debatable. Flying back in 1970 was VERY expensive and few people could afford it. Yes, there were lots of intermediate stops back then – though that flight I referred to was non-stop. And flying was riskier back then than it is today. Of course, most things were and people didn’t think of it that way. However, a crash was more of a possibility back then. Have any of you read the story of the DJ “Charlie Tuna” who was saved from a crash by a quirk of fate? That crash is described here: https://en.wikipedia.org/wiki/TWA_Flight_128
Yes, there would be major plane crashes a few times per year in the US – and so many overseas that they often didn’t make the news. Planes were noisier, though they were also a little faster – IIRC. And there was the smoking! It took until the early 1980s before there was a “smoking section” – which was a joke because the gases from the cigarette smoke traveled throughout the cabin. It gave me a headache. Though I do recall that pipes and cigars were always verboten, so there’s that. And hijackings were pretty common. We lived near IAD and I recall one hijacking where people in my neighborhood drove out to the airport to stare at the jet sitting out on the far corner of the field….for hours.
Flying now is annoying. The TSA is a bad joke, security lines awful and impossible to plan for. People are incredibly boorish now (but now everyone can fly too, so you have more exposure to society’s problems. All that said, there are more good flight options than ever. Flying is a LOT safer. And we even have wifi on most longer flights now. Premium class seats are nicer than even, though economy is much worse. But at least you can get from A to B now – even 25 years ago, you often couldn’t afford to do that. So, overall we’re probably quite a bit better off now – even with the jokers at security groping you.
For me personally there WAS a golden age of air travel, the 1970’s until deregulation. As a former airline brat I am biased of course, air travel was NOT for the masses back then. We non-revved around the world. We had dress codes. Never ever make a fuss about ANYTHING.
But once on the plane we were wined and dined like VIP’s. In coach! I could bore you all with my trips to Europe as a kid in the 70’s but I wont. Yes, fares are cheaper. Yes there are thousands of more options. But it WAS a golden age, for those lucky enough to experience it.
There certainly was a Golden Age of Air Travel. I flew as a director of customer service on TWA’s 747s and L-1011s from 1970-1974. We had roomy coach lounges on both (domestic routes only). I’ve never heard of a piano lounge on the upper deck of the 747 as the article writer states (I believe AA had one for a short time on their main deck 747 coach lounges). Seats were much roomier in coach, with TWA providing a generous 35″ pitch to the DC-9s coming into the fleet in the late sixties (compared to AA’s present 29″). A hot meal was provided in coach on a 90-minute flight from CVG to LGA. Except for an occasional air traffic controllers slowdown, few planes waited in line for takeoff more than twenty minutes, plus there was usually a gate available upon arrival. Passengers then actually looked forward to the experience of flying. You younger folks who were not adults in those days will have to read my upcoming memoir “Up, Up and Astray,” to see what you missed. These were the days of “If it feels good, do it!” and believe me, we did it!
It’s called “nostalgia.” People remember the good things, not the bad. I’ve flown millions of millions since the ’80s and, objectively, I can say air travel has never been better. That said, if I were currently sitting in the middle seat on a transcon 737/A320 after being in boarding group 8 and waited in line for twenty minutes at the TSA check only to get randomly selected for additional screening, I would think it’s never been worse.
I f you’re not a first/business class flyer, check out this before you think coach flying is better than in the “Golden Age” https://www.nytimes.com/2017/06/09/business/what-its-like-to-fly-for-a-week-straight.html?smid=tw-nytimes&smtyp=cur