Air travel passenger volume has returned with a vengeance. And airlines are reaping tremendous rewards as people take to the skies for business and leisure. But as they do, longstanding operational problems, and some new ones, have emerged to the detriment of many travelers.
Through March 19, 2023, over 160 million people were screened at airport security checkpoints, just 2 percent below the passenger screening numbers reported for 2019.
Yet, as airlines emerged from the worst of the COVID-19 pandemic, they reshaped themselves into leaner organizations, with fewer flights in an environment with higher demand for seats on these flights. The resulting supply-and-demand imbalance placed upward pressure on airfares, making it easier for airlines to raise ticket prices.
The net effect has been a pathway to profitability. The three legacy airlines, American, Delta and United, all began showing a trend toward profitability in 2022, in spite of surging fuel and labor costs, and lower seat capacity. For example, Delta reported a $1.4 billion profit in the December 2022 quarter alone. American Airlines and United Airlines also both operated with healthy earnings.
Yet, with much leaner operations, the tradeoff between profitability and robustness comes into play. This was on full display during the Southwest Airlines 2022 Christmas meltdown, effectively costing the airline hundreds of millions of dollars in revenue as passengers were stranded across their network. This apparently prompted their CEO Bob Jordan to institute draconian measures to ensure that such a meltdown would never occur again, investing hundreds of millions of dollars in upgraded IT systems and infrastructure that will buffer future disruptions.
Yet, with more passengers and fewer flight options, air travel becomes less reliable, making it riskier for passengers.
Delayed or canceled flights can lead to missed connections, with limited alternatives to get travelers to their final destination in a timely manner. Even when such flight options exist, packed planes mean that seats may not be available. This has had a significant impact on all travelers, particularly those flying out of smaller airports that rely on smaller regional jets to fly into hub airports.
Airlines understand the “special sauce” for profitability. They learned this lesson from the past, when they had excess capacity that got filled with highly discounted tickets. Their revenue per available seat mile was abysmal, making it difficult to maintain profitability.
The reverse situation has now occurred, with revenue per available seat mile above 2019 levels and load factor (percentage of available seats filled) over 80 percent. Adding capacity would effectively add passengers but at a marginally less profitable level. The net effect would be lower overall profitability.
Airlines are entitled to operate for profit. Yet, when they must also serve a national need for transportation, the line between profit and service must be traversed with care.
When the airlines were decimated by the COVID-19 pandemic shutdowns, the federal government provided funding to ensure that they would sustain their equipment and human capital infrastructures in anticipation of the day when air travel and profitability would return. That day has now arrived, and the payback can come in the form of higher levels of service.
This would impact the bottom line negatively. Yet, they would not be in the situation they are in today without the assistance from taxpayers, who are also bearing the inconvenience of lower levels of service.
Somewhere between maximizing profitability and maximizing service lies a happy medium. The Department of Transportation should not need to use a big stick to encourage such actions. Although adding capacity may not be a profitable business strategy, it is a wise service strategy, by improving relationships with flyers and the public.
If the airlines do not take any such actions, they may find themselves in the unenviable situation that Southwest Airlines found itself at the end of 2022 and the resulting negative public perception.
The airlines have a captive audience and can continue to focus on profits and satisfying shareholders. Yet, the price paid for ignoring passenger needs fosters an antagonistic relationship that helps no one.
As much as passengers must be patient with airlines when travel events deteriorate due to weather and force majeure, airlines must be sympathetic with passengers to fill their travel needs, even when no one is requiring them to do so, and with little benefit to their bottom line.
Sheldon H. Jacobson, Ph.D., is a professor in computer science at the University of Illinois Urbana-Champaign. A data scientist and operations researcher, he applies his expertise in data-driven risk-based decision-making to evaluate and inform public policy.
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