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Lousy Service in the Airline Industry

Why can't airlines get their planes off the ground and keep their passengers from waiting?

Written by johnleemk on 1:51:04 pm Jul 10, 2007.

One universal pasttime in the middle classes around the world appears to be complaining about the quality of service doled out by airlines.

One of the developed nations, however, that is best-placed to complain appears to be the United States, where in a series of well-publicised incidents, passengers have frequently been stranded in planes on the tarmac, or forced to wait for hours for a delayed flight.

The problems have worsened so much that a recent New York Times article I was reading even quoted pilots suggesting that the government should regulate airlines' treatment of passengers — something pilots are often reluctant to do because they get paid whether or not their passengers like how they fly.

Being an amateur economist, however, I tend to grimace at the thought of greater regulation without compelling evidence of market failure; there does not seem to be such evidence in this case. It heartened me, though, that the pilot quoted by the NYT displayed a command of the economics of the airline industry — he pointed out that if the government put such regulations in place, the price of an air ticket would go up.

I am inclined to think, actually, that if not for the behaviour of governments, the price of flying would be even higher. This is not necessarily a bad thing.

In economics, if the price system is not being applied correctly — if, say, the price is set too low — then goods and services are rationed out not according to price alone, but by other methods.

If the market was working, then the number of people purchasing the good would be at just the right amount to prevent a queue — one common non-price method of rationing — from forming.

If you look at people stranded on the tarmac as being stuck in the queue to take off, then the problem becomes clear — there is either an inadequate supply of airports, or airports are charging airlines too little to use their services. It is entirely possible that both factors are at work.

This is likely because in many countries — and America is probably no exception — governments construct and run airports. Since governments do not have to respond to the market, they don't have to build enough airports to satisfy demand; since they want to act in the supposed best interest of the consumer, they don't charge enough to clear the market for space on the tarmac.

Of course, these are simply possible supply-side factors. There is an equal chance that the poor service may be arising because there just isn't a demand for good service.

This sounds surprising, since there are obviously a large number of people griping about the poor service of airlines. But ask them to put their money where their mouth is, and they still fly using the same airlines that abuse them. Obviously things are not so bad that they would switch to an alternative form of transport, causing the airlines to either shape up or shut down.

It sounds a bit silly, but it makes sense. There are an immense number of complaints about budget airlines all over the world — RyanAir in Europe and AirAsia in Southeast Asia are two examples. Nevertheless, these airlines survive, because it seems consumers of air travel prefer to run the risk of poor service but getting to their destination quickly for a low price, rather than paying more for better service.

Another alternative may be that the airline industry is overregulated, or that there are barriers to entry to the airline industry, preventing competitive firms with good service from entering the market. This requires more study, but at first glance, I can see no suggestion that this is true — at least in the United States.

If we want better service from airlines, the best and perhaps only way to do it is to put our money where our mouth is and fly with airlines that give us the service we demand. If we continue to fly with the airlines that abuse us because we like their cheaper prices, then we cannot blame them for their poor service.