Thoughts from the sky
I’m on UAL 673 from LGA to Chicago right now. It’s been a little while since I flew one of the old-school U.S. airlines – I’ve favored JetBlue and Virgin America recently – and while it wasn’t a carefully considered decision, now I know why. A few years ago, I lived on United. At one point, I had half a million frequent flier miles with them. When I arrived at the airport this morning, I brought my boarding pass directly to security, at which point they dismantled my bags in search of my toiletries. As they extracted my traveling toothpaste, shaving cream and moisturizer (especially important in the winter:), I asked him to stop, put it all back and let me check the bag. Having traveled with the exact same toiletry bag at least five times with its current contents, I was surprised by the lack of consistency and general inefficiency of our airline security screens, but that’s not my point here. When I returned to the ticket counter to check my bag, they charged me $15. Surprised, I objected and questioned the policy to make sure the employee hadn’t made a mistake. “No, we began charging for checked luggage two months ago. American did it first,” she explained. I can understand charging for food, headphones and even pillow kits, but charging for checking luggage? This seems a step too far. Now I understand why I’ve favored the newer, more streamlined airlines recently and have another reason to continue doing so. The flight I’m on, a 9a from LGA to ORD, that would be a popular business flight under normal circumstances, is about 40% full.
The American airline industry seems to me very analogous to the American auto industry. We have a few old entrenched companies who have survived – United, American, Delta, Northwest – who we’ll call the Vintage 4, and we have newer upstarts – Southwest, JetBlue, Virgin America – who we can call the Nouveau 3. The new companies are streamlined, have assembled more efficient business models and are slowly but surely, winning over American travelers. They’re winning over Americans because they’re offering a better service and the superior health of their businesses shows clearly. The Vintage 4 have aging fleets, union contracts that make it more difficult to compete, and maybe partially as a result of the above, pesky disgruntled flight attendants who are a far cry from the stewards and stewardesses of an earlier era. No need to elaborate there. In the auto industry, we have a few new upstarts developing electric-powered cars, albeit not quite ready for mass production, and we have entrenched players, who have consistently failed to innovate or evolve. I’m written about this several times already, but the airline industry is a perfect comparison for what happens over time when the incumbent fails to innovate and respond to the market. In today’s WSJ, Bob Lutz, Vice Chairman of GM, defended CEO Rick Wagoner, saying “To blame the American automobile executives for this frankly is ridiculous. How were we supposed to forecast this when the government doesn’t forecast it and the financial institutions couldn’t?” What a bullshit comment. He misses the point completely. Financial institutions fucked up and three of the largest five no longer exist. That’s what happens when you fuck up. The only difference is that with the financial orgs, it happened relatively quickly, over less than a decade as mortgage-backed securities gained in popularity. With the auto industry, it’s happened over 40 years, and yet they’ve spurned each and every opportunity to shift course. The federal government should demand specific milestones be met towards a greener and more efficient industry if GM and their brethren are to take loans funded by taxpayer money. If that means Wagoner, Lutz and existing management find new careers, that’s fine. The industry and the companies will be better off for it. In fact, I’m not sure they can execute a successful turnaround without new management. As long as they continue to make excuses for past performance though, it’s clear to me that they won’t be making the kind of progress we expect any time soon.
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