How the Airlines Put the Squeeze on Passengers

As airlines become more streamlined and profitable, flyers face even unfriendlier skies

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Jeffrey Milstein

Ninety-two flights sat on the tarmac at a U.S. airport for more than three hours.

If you want some insight into why the department of justice put a gate hold on the merger between American Airlines and US Airways, here's a number to ponder: 13 million seats--gone.

That's how many airplane seats have disappeared over the past year--removed from the system by airlines as they reduce capacity. According to the website Aviation DataMiner, these cuts have come from across the industry. Only ultra-low-cost carriers Spirit and Allegiant are growing.

This means life in the skies will not be improving anytime soon: no empty seats, no room overhead and stressed-out staffs. With fewer seats available, the domestic load factor--the percentage of seats filled--reached a record of 87.1% in June. And as there is little or no capacity growth in the forecast, the future of flying promises more cramp for more cash.

That reality became painfully obvious in a two-day, three-airline lap around the country in late August. "You can't go out with flights that aren't filled," says Blair Pomeroy, an aviation expert with consultancy Oliver Wyman. "The load factor is up 20 points in the last two decades. They have gotten that increase by eliminating marginal flights." Fares are rising because airlines have stopped chasing market share. Instead, they've tried to maximize profit from existing customers by upsizing or downsizing their equipment and adjusting timetables. That means, in some cases, making fewer trips with larger jets. Or sometimes just the opposite: flying smaller jets that are cheaper to operate. This is why you are stuck on a 70-seat Embraer 175 for close to four hours from Pittsburgh to Denver rather than a more comfortable Boeing 737 or Airbus A320.

At the same time, the industry continues to harvest what it calls ancillary revenue (and what passengers call fees--along with a few other words) for everything from checked baggage to so-called premium economy seats, priority boarding, trip insurance, movies, meals and drinks.

The fees are part of a strategy to "decommoditize" air travel, as Delta said in a recent presentation to analysts, by focusing on a "customized and differentiated experience." Translated, that means you pay to get on the plane, then keep paying until you reach the level of comfort and service that matches your lifestyle or pocketbook, from zero extra for a middle seat in the way, way back of a fully loaded wide-body to a vast sum to be cosseted in business class. The major carriers, of course, also try to lock in their less budget-restricted corporate customers with global alliances and frequent-flyer programs that offer better seats and upgrades. But even for the top ranks of flyers, belts are tightening--Delta announced that it would be adding a spending qualification for its medallion level. "Every customer," says Marty St. George, head of marketing for the low-cost carrier JetBlue, "has to decide what they value."

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