Flying: Is it the only way to go?

Last Friday, I took the opportunity to pay my respects to Comair by flying on their final round trip to GRR on their last day of service.  During my :26 minute flight, one of nine scheduled that day between DTW and GRR, I began working on this blog.  Is it realistic to run nine aircraft a day between these two cities?  I then looked at Chicago and Detroit.  There are 35 daily flights between the two cities.  A two-week advance round trip ticket runs a total of $181.  After taxes, just over $100 goes to the airline.  It is safe to say that at $50 each way, this route is not a major moneymaker for the competitors; American, Delta, Southwest, and United.  The route only makes sense when you consider that each competitor has a major hub at either end where they can sell DTW-ORD at a loss if they make enough money on the connecting flight.  It does not hurt that Detroit and Chicago are both major cities.  Also, the 4 hour drive takes closer to 6 with traffic and the scheduled train service is anything but convenient. 

Is nine flights a day between DTW and GRR too many?  How about 35 a day between DTW and ORD/MDW?  Prior to 1978, the U.S. government answered those questions.  The Civil Aeronautics Board (CAB) determined the number of flights allowed, at what times and price.  They decided what aircraft flew the route and at what level of service.  Airline competition consisted of buying the best aircraft and having the best lobbyists in Washington D.C.  The deregulation act of 1978 ended this by opening the gates and forcing the carriers in to the arena to fight it out.  Free of CAB control and subsidies, they slashed fares to fill the aircraft.  The fare sales caused entire aircraft to sell out at the sale price causing a losing situation.  The solution was yield management.  Yield management is basically the setting of ticket prices.  Essentially, the air carriers set a price based on historical data.  Supply and demand then determine the price you pay.  If the seats are not selling, the fare goes down.  As the airplane fills up, the price goes up.  This is why last minute tickets are so expensive.  The airlines have this down to an exact science.

Deregulation and yield management are the reasons there are nine flights a day to GRR and 35 a day to ORD/MDW.  The carriers have pumped so many seats onto the route because they are feeding their hubs and yield management ensures that every passenger doesn’t pay $50 each way.  Deregulation and yield management are also the reasons that carriers cannot just charge more, or just fly less.  For example, Delta decides that nine flights to GRR are too many and cuts back to five.  Assuming no change in aircraft size, the fewer number of seats through yield management would increase the ticket prices.    The higher prices at Delta would push passengers to other carriers and they would travel through their hubs.  Wholesale reduction in flights and higher prices could not happen without the industry working together.  Higher ticket prices would lead to higher profits, however, any hypothetical industry solidarity would break down as the temptation for more profits leads the airlines to add capacity.  A government solution has already demonstrated its failure to manage the market. 

Airplanes are not always the most efficient way to move passengers.  Energy wise trains and buses are more efficient over shorter distances.  However, the solution is not re-regulating the industry.  The answer is having a comprehensive transportation policy that includes planes, trains and automobiles.  This week’s Aviation Week has a commentary about the European carriers losing on regional routes to the high-speed rail.  The carriers are only able to maintain a limited schedule to feed their international flights.  Domestic and some domestic transferring to international flights go by rail to the major cities.  Instead of regulating, the government needs to invest in regional high speed rail and ground services.  Investments in these areas will allow the market to become more efficient.

A more practical, shorter term solution is to upguage from 50-seat RJ’s to larger RJ’s and narrow body aircraft.  Why run nine CRJ-200’s between a market when you could run three 737’s?  Delta is going to give this a shot.  However, the plan comes with risks.  What if the other carriers do not follow?  What if oil drops and the 50-seat RJ’s make financial sense.  Delta will be left without the correct fleet mix to compete effectively on schedules and capacity.  I feel that as long as oil remains stubbornly high, the industry and greater transportation industry will  have to find better ways to move passengers more efficiently.