The views expressed in this column are those of the author and not SVB Financial Group.
The next time you're in line waiting to board a commercial airliner, turn around and take a look at the faces of those behind you. Look at their expressions. Are they excited? Are they expecting a magical journey through time and space at 600 miles an hour? (Maybe, if you are heading to Hawaii.) So what is that expression? I've been doing this recently and deep in my memory I finally found the answer. In 1986, I was walking down Atlantic Avenue approaching the Brooklyn House of Detention. Suddenly a bus pulled up and guards jumped out and blocked the sidewalk. Then they led the chained and handcuffed prisoners into the jail. Recalling that scene, it became clear: the expressions of the people lined up to take their assigned economy class seats were the same as those prisoners back in 1986. These people looked like they were checking into the county jail for five hours of detention.
It wasn't always like this. When the airlines were regulated by the government, flying was a special experience. People dressed up for the event. I remember my first flight at the age of seven on a DC-4 from Cheyenne to Denver connecting on a Boeing 707 to San Diego. I was wearing the same clothes I wore to church, including the clip-on tie. Of course, if General Dynamics hadn't paid to move my family, we wouldn't be anywhere near an airliner. Flying was so expensive it was not an option for the lower classes. I can't remember any friends who ever took a family vacation in any vehicle other than a car.
With deregulation came new entrants, competition, and lower prices. Since 1978 nine major airlines and 100 smaller regional carriers have filed for bankruptcy. The aggregate profits of the entire industry since inception are less than zero. They have focused with intensity on productivity and efficiency. The revenue per employee at United, for example, has increased from $127,000 in 1988 to over $347,000 last year. Still, profits are elusive.
Cutting staff in a service industry normally means worse service unless it is offset by technological innovations. Although the advances in aircraft have been nothing short of amazing over this period, the service side of the business was very slow to embrace new technologies. The automated ticket machine was introduced about 20 years after ATMs were in common use everywhere. Even now, the machines are not networked, so you need to use a machine specific to the airline you are traveling on. There is no way to pay a small fee at a terminal to change flights to another airline in the case of delays or cancellations, the way you can get money from the another bank's ATM. Bypassing the mind-numbing voice recognition software to change a reservation will lead you to a service representative outside the U.S. whose accent may or may not be comprehensible. Some airlines have introduced an online chat features so that two apparent English speakers can communicate more effectively in writing.
Air travel is one of the few service industries where the success of the service provider means the customers are miserable. Flights are full and the passengers are jammed together. Lately it seems the airlines have thrown in the towel on service quality and are now attempting to make bad service into a business opportunity. Admitting that expecting your checked bags to arrive at the destination on time is like anticipating a winner with every lotto ticket purchase, many carriers offer easy access to FedEx or UPS to ship your luggage with confidence. People complained about the free food, so why not charge those poor souls who forgot to pack a sandwich in advance? It has been a boon to airport delicatessens, where lines of people are preparing provisions for that three-hour flight that could easily turn into a five-or-more-hour experience. When I see people queuing up to fill water bottles at the drinking fountain, it is as if they are off for some arduous journey through the desert.
Last week a Jet Blue flight steward resigned in spectacular fashion. When I first heard on the radio the account of his profanity-laced tirade over the PA system followed by the leap with a beer in each hand onto the emergency escape chute, I could not stop laughing. Steve Slater got his 15 minutes of fame and more (along with the possibility of jail time). The post mortem analysis points to rude passengers interacting with equally rude flight attendants. I think the jailhouse metaphor is a better fit. In that situation, neither the guards nor the prisoners really want to be there. The exhilaration road warriors felt upon first hearing of Slater's joyful departure was simply recognition that someone had escaped.
End Note (or maybe just a beginning) "Big Sums on Offer to Wall Street Informants," screamed the front page headline in the Financial Times. The new pay rules for whistle-blowers call for payments of 10 to 30 percent for any sanctions over $1 million. The recent $550 million settlement with Goldman Sachs, for example, might have netted the stoolie a cool $165 million. We can't help but wonder how Congress and the new federal pay czar would react to that one. We are, however, glad the SEC has finally decided how to combat the culture of greed on Wall Street. If you can't beat them...well, you know the rest.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.