Skyway Robbery: 6 Ways the Out-of-Control Airline Industry Is Ripping Off America
High-fives are happening on Wall Street. Airlines are making giant profits again, record-breaking profits! The days of bankruptcies, which peaked between 2001 and 2008, may soon be a memory.
Have bold thinking, dramatic innovation and better service turned things around? Not exactly.
Sky-high profits are coming at the expense of the taxpayers, airline workers, and the traveling public, particularly in North America, where carriers like Spirit Airlines have been adding fees in a nickel-and-diming rampage. It’s ugly up there, and it’s likely to get uglier.
Let’s take a look at what is turning into a nightmare in the sky.
1. Serving Wall Street
The small Czech town where I taught school in 1994, just after the Velvet Revolution, had exactly two phones. Frequently neither of them worked. It was maddeningly inconvenient, but like the snowy winters, people just thought of it as a fact of life to be endured, rather than the outcome of a particular kind of social and economic system that prioritized social control and central authority over free two-way communication between citizens.
Americans complain about flying the way people in communist countries used to complain about telephone service. Rarely do we reflect that the bad and limited service we endure is a result of our unregulated market economy, where corporate profits and limited government are prioritized over citizens’ access to affordable and reliable air travel.
How did we get here?
Back in 1978, a group of policy-makers cooked up a plan they thought would drive down the cost of airline fares by encouraging competition among airlines. In practice, what it did was pretty much get rid of the Civil Aeronautics Board (CAB), which had overseen the industry. Phillip Longman and Lina Khan, in their eye-opening report, “Terminal Sickness,” explained that the effect “was to shift control of the airline industry from experts answerable to the public to corporate boardrooms and Wall Street.”
For a long time, defenders of deregulation have claimed that it brought us lower prices for airline tickets (though nobody has argued that it brought better service). Turns out that recent research delivers a serious blow to that claim. The reality may be that deregulation actually slowed a decline in ticket prices that was already underway.
Unfortunately, we have found that increased competition without adequate regulation is not much better than monopoly conditions.
John Kay, one of Britain’s leading economists, has discussed how competitive markets often fail, especially when the state doesn’t intervene to make sure that things are fair (like enforcing contracts) and that businesses are properly run. All kinds of things can go wrong, like fraud, capture of the political system, and so on. Kay describes how an especially destructive form of competition can develop in which companies battle with each other through sneaky practices, like charging low prices, but then extracting money through invisible and unavoidable additional fees. What you end up with is a scam-alicious race to the bottom where customers get screwed, thuggish executives get rich and public trust in business dissolves. Sound familiar?
When an industry as essential to life as air travel is cut loose from any public responsibility, not only individuals, but whole cities can be left economically stranded. Cincinnati, for example, has lost key businesses (like Chiquita, which moved to Charlotte) because carriers decided to hike fares and abandon service. Before deregulation, regulators working in the public interest could assign routes and set fares. Afterward, airlines were free to do pretty much whatever would bring short term-profits, often at the expense of whole communities.
Recently, the industry has moved back to playing Monopoly. United Airlines merged with Continental. Southwest purchased AirTran. Delta and Northwest are one. In early 2013, US Airways and American Airlines announced plans to merge and create the largest airline in the world. The Justice Department, five states, and the District of Columbia tried to stop the plan, warning that higher prices would hit consumers. But the airlines are looking to settle the lawsuit, and the merger appears to be moving forward (the Obama adminstration seems to be focusing on other things). Consolidation will create its own nasty profit dynamic, as every child who has played Monopoly is aware.
Whether there’s less competition or more, the absence of regulation just about guarantees that things will not work out well for anybody except executives and financiers.
2. Mind-blowing fees
To illustrate a bit more what John Kay meant when he talked about destructive competition, we have Spirit Airlines.
CEO Ben Baldanza is one of America’s most thuggish corporateers, a libertarian on steroids who runs the Florida-based discount airline. Under his guidance, Spirit has perfected the art of luring unsuspecting customers with come-on fares, and then whacking them upside the head with unanticipated fees.
How would you like to go to the airport and be held up by a criminal who demands $100 before you can board your flight? That’s what happens to customers every day when they unwittingly buy a Spirit airline ticket without having read the sneaky fine print about carry-on fees (on Travelocity you would have to click through several pages as you book your ticket to realize what fees were in store for you).
You might arrive at the airport happy that you had avoided checked baggage fees by stuffing your belongings into a small rollaway. But Spirit has other plans for you. Just before you board, you are stopped and given a choice: fork over a Benjamin on the spot or see if you have time to run back down to the check-in counter to pay a fee of $45. Want to complain? The company will actually charge you to call the “customer service” number.
Twitter is constantly abuzz with travelers gobsmacked by this airport mugging. A recent sampling:
@phillihpz #spiritairlines …makes your bag cost more than the ticket ow.ly/qnJRN #rt #retweet"
Its not that I hate traveling, I hate the traveling process. Even more so when #spiritairlines has overcharge on carryon bags. #Worstairline"
You guys will go out of business #SpiritAirlines. With the schemes you guys pull? How can you possibly expect any customer loyalty. Fuck you"
With such constant fury directed toward the airline, you might think Spirit would indeed go out of business. In a normal, well-regulated business environment, it would. Instead, profits are soaring. Spirit does not care a fig if customers are pissed off, because it can jump around from city to city, luring in new victims with cheap tickets to tourist destinations like the Caribbean and Myrtle Beach. Some of the customers, particularly the poor ones, will learn how to navigate around the high fees. Maybe they’ll mail their clothes ahead to avoid the carry-on fee, chug water before boarding, and print out their ticket at home. Many simply won’t travel with Spirit again, but that’s okay, because there’s always another sucker.
These dirty practices have spawned multiple Spirit-hating Facebook pages, websites decrying the airline’s abuse, and even an Onion parody of an FAA report:
"The FAA has come to the determination that Spirit Airlines treats its customers like pieces of shit and that everyone should boycott this airline," the report read in part, adding that there are so many hidden fucking fees that it makes customers want to blow their brains out. "The airline touts its low fares, but it costs $45 to check your bag at the airport, and if you don’t check the bag when you get your ticket, it costs a mandatory $100 at the gate. So the flight could end up costing over $300 anyway.
"You’ve got to be fucking kidding with this bullshit," the report added."
Spirit Airlines is not kidding. In fact, the company is now mulling a plan to jack up fees even higher on peak travel days. Spirit now makes 41 percent of its revenues in fees. Shares have doubled since Spirit went public two years ago and Wall Street is jumping for joy.
How can all this be legal? Congress has been asking the same thing. Senator Barbara Boxer has slammed the airline for hustling customers, and Senator Chuck Schumer has called their practices “skyway robbery.” There have been harsh words and legislation proposed, but Spirit just continues to shove its middle finger in America’s face. Last year it added a $2 fee in direct defiance of new Department of Transportation consumer regulations. Spirit has been hit with record fines, such as a $375,000 fine in 2009, for failing to comply with DOT regulations, and $100,000 for screwing disabled passengers, but what does that matter when you’re hauling in $61 million in profits in the last quarter alone?
When Wall Street is winning, it matters little that the public is losing.
Spirit Airlines is the grand-champion of price-gouging (there are 70 different fees so far), but it certainly isn’t alone. Other airlines, eyeing Spirit’s profits enviously, are stumbling over themselves to get in the game. Hawaiian Airlines will ream you for $200 if you dare to change your flight. Allegiant Travel demands up to $25 for a pillow and blanket. Lufthansa will hit you with up to $800 in fees for an oversized bag. Ireland-based Ryanair has even considered charging passengers to use the toilet!
Fines socked on helpless consumers make oodles of money for executives. Baggage fees alone now account for 25 percent of the ancillary revenue generated by airlines, up 5 percent from last year.
3. Terrible service
With all that money you're forking over, you might expect decent service. Mwa-ha-ha! laughs the airline executive.
In the U.S., the Department of Transportation is currently responsible for the airline industry and even has a specific division called the Aviation Consumer Protection Service that deals airline complaints (hint: always register your complaint with the DOT — airlines at least have to respond, and it costs them time and money). The number of complaints consumers filed with the DOT overall skyrocketed by one-fifth last year to 11,445 complaints, up from 9,414 in 2011.
It’s not hard to figure out why. There are the basic aggravations of higher ticket prices, stuffing more people into each flight and reducing service staff. Then there are the horror stories — almost everybody has one. Like United Airlines running out of toilet paper on a long flight and making passengers use napkins. Or U.S. Airways forcing passengers to stand for hours because their seats are unavailable. On it goes.
Perversely, Virgin America, the U.S. company that has the lowest number of customer service complaints according to an annual ranking done by Wichita State University and Perdue, is having trouble turning a profit. If anything illustrates the insanity of what unregulated capitalism has wrought, this would be it. In the airline industry, you can’t succeed by making customers happy.
4. Pushing credit cards
Another popular way for companies to bait the hook is to entice customers with credit cards. Passengers on Spirit Airlines are treated to flight attendants walking up and down the aisles barraging them with credit card pitches and distributing brochures. The airline knows that it can generate revenue when you use the card and that you’ll be more likely to get locked into the airline.
The game is to offer big sign-up rewards, then stick it to customers with credit cards that feature sky-high fees, overly complicated cash-back systems, and points that expire unknowingly. Kevin Hunt of the Hartford Courant reports that “almost three-quarters of Americans who collect frequent-flyer miles or credit-card rewards points don’t know how many they have.” Princeton Survey Research Associates International, which conducted the study, also found that only 41 percent of Americans even understand how frequent-flyer programs work.
That's just fine with the airlines. What you don't know lines their pockets.
5. Screwing taxpayers
The airlines are subsidized by taxpayers nine ways to Sunday. The industry would not exist in the first place unless taxpayers, through the government, had not funded the massive research effort needed to produce the first passenger airlines, or forked over the money to build the country’s airports (New York’s La Guardia was a New Deal project).
As Stephanus Surjaputra of Consumer Traveler points out:
“From the first days of flight up until the 1970s, taxpayers, through the federal government, provided more than $155 billion in direct support for the aviation industry. Even after deregulation, federal and local governments have continued to provide infrastructure support, tax exemptions and low-cost financing. For example, the government has provided $4.64 billion in taxpayer funds for cash grants and $1.65 billion in loan guarantees in case the airline loan defaults.
After September 11, the industry received approximately $8 billion in federal assistance that continued even after most airlines returned to profitability. Furthermore, the federal pension reform legislation that was passed in 2004 and 2006 provided relief to the airlines valued at more than $3 billion.”
What return are taxpayers getting on that gargantuan investment? An industry hellbent on destroying middle-class jobs, privatizing contracts and crushing unions. One that is rife with consumer abuse and poor safety standards. Companies that strip worker health benefits and retirement plans, throwing the burden back on society as impoverished employees and former workers are forced to rely on government assistance. And so on.
Here’s a radical idea: If you take money from the taxpayers, you should actually do something to benefit the public in return. Just sayin’!
6. Screwing workers
Airline workers have been hit with enormous wage and benefit reductions since 2001. As Carl Finamore has written:
“In the last few years, bankruptcy courts ripped apart the wages and benefits of hundreds of thousands of employees. Based on long experience, veteran airline employees realize that good times returning to the carriers does not automatically mean good wages and benefits returning to them.”
Consolidation is not likely to improve things.
Take the American Airlines merger. American’s bankruptcy already triggered layoffs and pay cuts for flight attendants. Airport staff who do their jobs on the ground for things like wheelchair service are currently paid substandard wages (like $8 per hour). The proposed merger includes $86 million in executive compensation but no reforms to subcontracting practices related to ground staff.
In addition to reaming consumers and taxpayers, the airline industry is clearly bent on making profits by maintaining insecure, impoverished conditions for the people who do the work. It plans to send maintenance jobs overseas, ditch contracts, walk away from retirees and dump the costs on the rest of us.
How that for friendly skies? Like the old communist telephone service, it doesn’t have to be like this. But we have to decide once again that corporate America exists not just to make short-term profits that enrich executives, but for the benefit of the taxpayers, workers, and citizens that allow it to exist.