Notes from a satisfied (former) customer of Northwest Airlines
I'm writing this article from 30,000 feet, on board a flight which will eventually take me to San Francisco for a trade show the remainder of the week. To my own surprise, and the disappointment of Northwest Airlines, the plane I'm on bears not the red tail of Northwest, but one of the many wildlife photos Frontier uses.
Since 1996, I've been a business traveller based in Minneapolis, which practically defines the concept of a "fortress hub." Northwest controls something like 80% of the flights and 90% of the gates in Minneapolis, making it a challenge to fly any other airline. For four years in a row, I was a Platinum Elite flier with Northwest, and I've held a Lifetime Membership in Northwest's Worldclub since 1997. I've never had (much) reason to complain about the service Northwest provides. Nevertheless, over the past six months, most of the travel my company purchases has been on airlines other than Northwest.
Fundamentally, it comes down to price and service. Since deregulation over two decades ago, the major airlines have been forced into a competitive box, with upstart airlines offering what is often a higher level of service for a lower cost, and with far fewer restrictions. For example, the flight I'm currently on has no first class section, but the service is at least as good as Northwest's coach, and there's a good two inches of extra legroom (on a Northwest flight, I could never open my laptop in coach).
Even better, Frontier (along with most of the low-cost upstarts) doesn't have any advance-purchase requirements, meaning that two days before the flight, I can get the same fare as I could get three weeks in advance. With nonrefundable tickets and high change fees now the norm, this is an enormous cost savings. For about a third of the price of a comparable Northwest ticket, I'm able to get much of the flexibility of a full-fare coach ticket. With this kind of differential, Northwest doesn't stand a chance.
A big part of the reason for this dynamic is blindingly simple: Smaller, startup airlines don't have to pay their people as much. A huge part of the operating expense for any airline is the legally required complement of pilots, flight attendants, ground crew, dispatchers, mechanics, and others. The major airlines, for the most part, are relics of the days of regulated air travel, when many of those groups locked in sweet packages of wages and benefits. With powerful unions able to ground the airline, it is difficult to cut those packages when the market dictates otherwise.
Take pilots, for example. Being an airline pilot takes years of training, intelligence, hard work, and dedication. But it is arguably no harder than, for example, being a lawyer, doctor, accountant, engineer, or architect (though the specific skills may be different). However, a lot of people want to be airline pilots, since flying offers its own unique rewards. As a result, there is currently something of a glut of pilots. Flight instructors are paid barely as much as a graduate student, and pilots for regional airlines are paid only a few tens of thousands a year, despite having the same level of license as a pilot for a major airline.
At the opposite end, the most experienced pilots at the majors enjoy union-protected jobs paying hundreds of thousands a year, and work rules which, when combined with FAA limits on flight time, can yield very desirable schedules with lots of mandatory time off.
Because of certification rules, and the strength of the unions at most of the majors, it is nearly impossible for an airline to fight a strike. The unions may give some wage concessions (and they have been), but never anywhere near enough to bring wages at the major airlines close to the level that the newer players enjoy.
As a result, we see the major airlines slowly bleeding to death, as the younger ones aggressively take their business through lower fares, comparable service, and fewer annoying restrictions. The airline industry is gradually becoming nonunion through the failure of the union shops to compete. What difference does a first-class upgrade make when jetBlue offers an entire plane of first-class service for a more attractive price?
Can it get worse? Possibly. In my case, I am now actually a liability to Northwest airlines. I still have over 50,000 miles in my Northwest frequent flier account, so I expect to get a couple of free tickets someday. In addition, my lifetime Worldclub membership is still something I use when I travel, meaning that I actually cost Northwest a few dollars in food and service every time I fly with a competitor. (Is this ethical? Absolutely. I paid a hefty fee for that lifetime membership, so Northwest has had more than ample opportunity to recoup its costs.)
Recently, some of the majors have tried spinning off low-cost affiliates (aside: when changing planes in Denver, I passed the gates for United's new spinoff, Ted. Ugh. Clearly that marketing department never cashed their reality check). Will this strategy work? It depends on two thing: one is whether the spinoffs can truly replicate the low-cost structure of the independent newcomers--which depends to a large extent on whether the unions at the majors will allow it. The other is whether the majors are prepared to cannibalize their existing business.
The major airlines have also become extremely adept at using the weapons of incumbency (i.e. control of gates, landing slots, and corporate travel accounts). These advantages don't last forever, though, and the major airlines need the flexibility and cost structure to respond to the competitive threat.