The Price of Air Travel

(Photo: Dave Sizer)

The cost of air travel is going up, and airlines are counting on us not to notice.

I’m not talking about airfares, which have actually declined in real terms over the past decade, despite inching up in the past few years. And I don’t mean the ancillary fees to check a bag, check in at the airport, speak to a live agent, or pick your seat, though these, too, are going up. Instead, I’m talking about the cost of delays and schedule disruptions that waste travelers’ time and force them to travel earlier to their destinations or risk missing important meetings and events. 

Air travel in the U.S. is becoming less reliable and less resilient to shocks like isolated storms that can ripple through the system and impact passengers thousands of miles away. If anti-trust authorities approve the merger between American and US Airways, we should expect things to get worse.

On a recent trip to Boston for an economics workshop, United canceled my flight out of Raleigh twice before eventually putting me on a rival Delta aircraft. With two flights from Raleigh to United hubs cancelled that morning, the queue for rebooking was long, and some passengers were likely stranded until the next day. On the trip home, my United flight was so delayed that I would have missed my connection if I had taken the original flight. So United again put me on a Delta plane that was ultimately also delayed. And a few weeks ago, a friend was delayed on United out of La Guardia. The airline automatically rebooked him—for travel two days later!

Researchers at MIT and George Mason University estimate that delayed and canceled flights imposed on passengers an aggregate delay of 28,500 years in 2007. The cost of these delays, and of risk-averting behavior like traveling early to destinations, was estimated at $15.3 billion, a startling number that accounts for the opportunity cost of time but doesn’t measure the consequences of missing critical appointments like weddings or job interviews.

Department of Transportation statistics suggest reliability improved in 2012 relative to 2011 and is not much worse than a decade ago, with only 16 percent of flights delayed 15 minutes or more and only 1 percent cancelled. But such statistics belie the true state of air travel in the U.S. and the fragility of airline networks. As USA Today reported earlier this year, airlines have padded flight times in order to improve on-time performance. As a consequence, fewer flights are recorded as late arrivals and the share of flights arriving early has quintupled since 1996 to 20 percent. Even with padded arrival times, however, connecting passengers face a 30 percent or greater chance of experiencing delays.

Airlines are increasingly consolidating service at the nation’s largest airports, according to a report this summer from MIT. Meanwhile, the number of large hubs has declined from 20 to 10, even as the number of flights channeled into large hubs has grown 75 percent.

This means an ever-larger share of passengers must make connections in an ever-fewer number of airports, including those in the most congested airspace in the country. If weather, security, or accidents halt or slow operations at one of those airports, effects can reverberate throughout the system, as late-arriving aircraft delay flights downstream elsewhere around the country. United passengers should find this particularly alarming as five of the airline’s hubs rank among the six worst airports in the country for on-time departures.

Because airlines are also cutting routes and boosting loads, they are increasingly less able to accommodate disrupted passengers, leading to days-long delays. Fourteen percent fewer flights were offered in 2012 than in 2007, while aircraft load factors reached a seasonal record in February and have averaged about 83 percent since 2012, well above the loads in the mid 70s typically observed a decade ago.

In adopting fragile networks, airlines are shifting costs onto passengers in a way they hope will be less likely than fare increases to attract the attention of consumers and regulators. Fare competition is relatively fierce because prices are fairly transparent, particularly so with online travel agents and fare aggregators like Orbitz and Kayak.

Network reliability, on the other hand, is largely a shrouded attribute, insalient to consumers who cannot readily compare the reliability of competing itineraries ex ante nor assign blame to various parties like Mother Nature, air traffic control, and airlines ex post—unless they are expert travelers like Ben Schlappig. Consequently, airlines needn’t compete as aggressively along this dimension as they do over fares. So they minimize expenditures on preventive maintenance, spare planes, spare parts, and spare flight crews, and eke out efficiencies gained from larger, though brittle, hub operations—effectively delivering customers a less-reliable product.

Late arriving aircraft were the leading cause of delays in 2012, responsible for more than 12 times as many delays and cancellations as weather. Aircraft positioning is assuredly within airline control.

In reviewing the proposed merger of American and US Airways, anti-trust authorities should be mindful not only of changes in prices as the industry consolidates but also of changes in product quality, particularly as air transport seems increasingly susceptible to breaking. And as airlines build networks with less resilience to weather, mechanical problems, accidents, and other unforeseen events, remember who is to blame the next time you misconnect.

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  1. Chuck says:

    This is where elite status in a frequent flyer program can make a big difference. Usually the airlines will proactively “protect” their top-tier customers in case of a flight delay or cancellation. But if you’re not at the top of the pyramid, or if you’re flying an airline that you don’t often use, you are vulnerable.

    Twenty years ago, an airline typically sold 50-60% of its seats on average. These days it’s more like 70-80%. Simple math says, it’s less likely than a traveler can be quickly rebooked on another flight — even a flight on a different airline.

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    • Levy Flight says:

      Yes, but status only helps so far. Even with high status on UA I have been subject to high frequency of disruptions. In one 2 week period alone I had a series of mechanicals and one storm event that left me stranded 4 nights in the wrong city. This cost considerable amounts of unbilled time due to missed meetings and work events. As the airline network becomes increasingly fragile it is becoming more of a problem for frequent flyers. If do not have status then you are screwed.

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  2. Scott Walker says:

    Most corporations that have employees traveling are (perhaps unintentionally) complicit in this by adopting travel policies that dictate use of lowest fare regardless of other considerations. Even if an airline tried to offer a more reliable product, unless they could do so profitably at the same or lower fare as their less reliable competitors, most business travelers couldn’t reward them for it with their business. And shareholders would no doubt demand that any airline that tried it bring their costs in line with the competition to at least match their margins.

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  3. J1 says:

    “airlines have padded flight times in order to improve on-time performance”

    So adjusting block times to accurately reflect the amount of time it will take to get to the destination is considered “padding” now?

    Airlines are consolidating operations because nearly all airline customers (yes, including high yield customers) care about one thing and one thing only – ticket price. When customers begin caring about the issues you discuss, airlines will, to the extent possible, deal with them.

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    • Ake says:

      The block time is generally not disclosed to the passenger. What they discuss is the “flight time” reported on a normal itinerary. This is usually the block time + lots of padding.

      Cost is really important yes, but getting to that meeting is even more important. That’s also why airlines try to price target business travelers traveling on certain times. Airlines consolidate because they want to increase profit and reduce competition, nothing else.

      If we could have a good measurement for the reliability of the airlines operation, this would be huge. I can pick airline and flight if the price is within 15-20% of the cheapest option at my company. That’s the premium my company is willing to pay to the airlines (which I use to fly my own preferred airline).

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      • J1 says:

        Block time is pushback from the departure gate to block in at the arrival gate, and it is what’s “disclosed to the passenger”, as departure and arrival time. Telling passengers what the actual block time will be is honesty, not padding. A crew will occasionally mention flight time in a PA, but that is not the time passengers are given when they buy a ticket.

        From a customer standpoint, completion factor x A14 performance is a good (nearly perfect actually) measure of operational reliability. Why the DOT doesn’t publish that number is a mystery, but AFAIK they don’t. It can be derived from data they do publish though.

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  4. Eric M. Jones says:

    I find it utterly puzzling why airlines were so gutless when the Bush administration toughened so-called airline “security” and made travel so demeaning and difficult for passengers. They created the perpetual-war “terror state” where free and easy travel is now only a fond memory.

    The airlines deserve a massive decrease in value, and the public deserves getting manhandled and giving up their bottled water and nail clippers. They asked for it.

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    • Ake says:

      Since they have scanners that can scan bottles regardless of size, I think this is simply a way for the airports to make more money. By confiscating all bottles at the security check point, we purchase new ones at the shops inside..

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  5. scot says:

    U.S. Airlines are also actually cutting their throats with all the bag fees and such. PAX hauling all that baggage, which once would have been checked in, across the gate increases the turnaround times at the gate and introduces delays. I guess customers would punish an airline that raised all its ticket prices, made check in bags free, and enforced carry on rules.

    Given airlines make such razor thin margins and deliver such paltry returns the cost pressures that customers place on their tickets are always going to be reflected in reduced operational capacity. Its not they can will fuel prices cheaper.

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  6. Colin says:

    How much of this is due to our antiquated air traffic control systems? Why not privatize the FAA like Canada has done with NAVCANADA, which delivers much improved performance and helps cut down on delays.

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  7. Norman says:

    Interesting article. We are all used to the metric of price for air tickets. And we all recognise the metric of service (and recognise that we perhaps don’t need meals, drinks etc. on the plane, in exchange for a few dollars off), but the metric of reliability is, as you say, shrouded, perhaps because it’s impossible to measure.

    It used to be the business airlines were reliable, and the non-business airlines were cheap. The question is whether there’s space for a competitor with 10% higher prices who operates a 20% more reliable product. Would companies pay for this? How would the airline market it? Oddly, it shouldn’t be too difficult to achieve – you simply limit your aircraft types and have a spare of each at each hub.

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    • Dwight K Schrute says:

      i have flown southwest recently on business trips and have found that their prices are attractive and their service is as good (if not better) than the “business” airlines.
      the majors are really a bus with the pretense of service. in reality there’s no service for those back of the bus. don’t even think about sitting in an exit row if you haven’t paid for the seat.
      at least southwest is honest about what you will be getting. just check in early to avoid being back of the line.

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    • UnitedConnection says:

      Indeed. And airlines have incentive to continue to over-optimize, since the risks will always be opaque to travelers. This explains why carriers’ preferred metric is on-time percentage (probability) instead length of delay (payoff), or even expected delay (probability x payoff = expected value). And even the latter metrics likely wouldn’t be enough: in the event of truly serious delays, airlines could merely shrug point to the “unprecedented” nature of the weather (or other) shock that set the delays off, obscuring the fact that the non-linearity of harm in the fragile system they created is the true culprit.

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  8. James K. says:

    I might be wrong here, but it seems illogical to say that “late-arriving aircraft were the leading cause of delays, responsible for more than 12 times as many delays and cancellations as weather.”

    Aren’t late-arriving aircraft often caused by weather conditions?

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    • United connection says:

      Point is that removal of redundancies and excess capacity + increased centralization of the route network amplifies negative effects to travelers when shocks (weather or otherwise, doesn’t matter) happen. The increase in delays caused by late arriving aircraft (ie cascading effects through the network) compared with delays caused directly by weather (ie the shock itself) illustrates this effect.

      In the past, bad weather in Chicago may have only caused delays to pax with Chicago as their final destination/origin, since connecting pax could use excess capacity in the system to get to their destination using other connections. Today, weather in Chicago might affect pax all over the network, since a) there is almost no excess capacity anymore and b) vastly more flights fly into or out of places like Chicago.

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