Annals of Commerce: seatbacks and clueless executives

I think we are now up to three flights diverted because of tiffs between passengers over reclining seats.  Discussion, in the air and in print, has mostly been in assertive mode: “I paid for this seat and you have no right to recline into it!/I paid for this seat including the  space above your knees; the button is on my armrest!” It goes downhill from there. Ronald Coase is famous for demonstrating that when parties claiming the same resource can negotiate, there’s no efficiency loss by unambiguously assigning the resource to one or the other. What matters for GDP is that either the farmer or the cowboy has the rights, and that they both know which.

He’s not as famous, but should be, for showing that there are a lot more cases where the parties can’t make deals, and government needs to consider, at least in addition to tradition, political power, and the like, ‘who will best use the resource?’.  Government here is the airline company, within some FAA constraints (like ‘no seats that recline into an exit row’), and it seems to me the rules are pretty clear: the ‘seat’ we are renting you is a trapezoidal solid that goes under the one in front and above the one behind you.  United, at least, says it forbids the use of the anti-recline device that has triggered the latest dustups. But it’s not clear that they have the managerial capacity to motivate underpaid, overworked flight attendants supervising a coach section full of angry, surly passengers to implement the policy, and it’s crystal clear that they don’t understand that when passengers start duking it out with each other because the airline has put them in an impossible position, it don’t do the stockholders no good.  It’s very expensive to divert a flight, and probably expensive to deliver a load of furious passengers who had a scary, miserable trip.

The rules worked reasonably well until the seats got so close together that some other stuff that used to be part of the deal disappeared, like the ability to use a laptop on the tray table, or travel with actual knees, when the seat in front came down (did you say “cross your legs?” What are you, some kind of nut?). The big problem here is not an angels-on-a-pinhead pilpul exercise in moral philosophy, it’s that airline company management is a dysfunctional culture mismatched to a competitive environment and to the predictable, known capacities of the customers it sells to, possibly crippled by a general IQ deficiency.

Why are the seats so small? The operating myth is that “American Airlines increased the seat pitch and fares, and everyone went to the competition with lower prices and smaller seats, so there.”  I remember that episode, and all American managed to say about their product in marketing was that there was ‘more legroom’. How much more? What does that actually feel like to sit in? More than what?  Was the price premium appropriate or gouging? No-one would try to sell soap that way!

Nor did they get Expedia and the other search sites to make it clear that that seat was not just like all the others that popped up with nothing but prices to distinguish them.  Interestingly, that has recently changed; Expedia, at least, now shows an additional class of seating on the search entry page, if you click on “show options”, “Premium Economy”.  And even if you don’t, each flight listing indicates the default seat pitch in inches.  This is definitely progress!

OK, let’s do a test surf.  From SFO to JFK RT, 5-7/XI/14, leaving about 7 AM and coming home at noon.  “Economy” on Expedia brings up a bunch of options at around $340. Most have 31″ seats, tagged “Standard”; Virgin America offers “32”+ W”, tagged “Roomier” (I guess W means “wider”) for $393.  A “Premium Economy” search offers only one airline, Virgin America, which has a seat 2″ longer (that’s two, the number just above one) for $1091.  I know United has an “Economy plus” class; why isn’t it showing up?  Of course the greater mystery is Virgin’s pricing, $6.15 each way for each of the first 32 inches of cabin space, and $175 each for the next two inches.

Let’s see what United actually offers. On their web site, I find comparable flights for $336, but I can’t find out the extra fare for legroom until I’m four screens in and have chosen flights….click…click….Ah, Economy Plus is $100 extra each way for five inches.  Seat, $168/31 =  $5.40 per inch; legroom $100/5 = $20 per inch.

Virgin’s pricing is too silly to discuss, but United’s is almost as stupid, because the inches they are selling for $20 are much, much cheaper  to provide than the $5.40 kind.  They don’t include any bag or passenger or seat weight (fuel!), or ticketing/processing overhead, or cabin service, or boarding time: just five inches of fuselage skin. United would be coining money selling empty space for five bucks an inch on this route — that would be a $20 premium each way, a number even the stingiest corporate travel officer would approve.  One more time: if you can make money selling an inch of fuselage with a share of passenger and luggage for $5.40, you have to make much more money selling for that price with no-one in it.

But could they?  Of course they could. Now, if you’re an airline executive, be sure to read the following sentence slowly, and feel free to make notes and move your lips if it helps:

use a bigger airplane and move the seats apart.

A couple of years ago I posted a similar analysis arguing for a no-frills business class at a rational, competitive price and obviously somehow failed to tilt the earth’s  axis (SFO-FRA RT is still six times as expensive in business as coach).  Air travel market practice and conventions are glacially improving, but I hold to my original thesis: this industry is in the hands of people who simply do not understand what they are doing. They are not profit-maximizers who make money gouging their passengers: they are nincompoops who mistreat their passengers and their stockholders alike.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

8 thoughts on “Annals of Commerce: seatbacks and clueless executives”

  1. “Ronald Coase is famous for demonstrating that when parties claiming the same resource can negotiate, there’s no efficiency loss by unambiguously assigning the resource to one or the other. What matters for GDP is that either the farmer or the cowboy has the rights, and that they both know which.”

    I think that you don’t understand the implications of the Coase Theorem, or what you wrote above. ‘No efficiency loss’ (under restrictive assumptions) is not saying much, to those involved.

  2. They are not profit-maximizers who make money gouging their passengers: they are nincompoops who mistreat their passengers and their stockholders alike.

    Either that, or the customer demand for airline seats isn't really subject to this sort of rational analysis and, as weird as it seems, that advice would lead to lower profits. Watching the way people go about arranging travel, I think this is a highly plausible scenario. And I think the underlying problem is that no one except Southwest has ever figured out how to make an airline profitable and even that success is somewhat suspect and likely not repeatable. And so, unable to make money following rational ideas, the airlines keep trying irrational ones in the hopes that something will work.

    I have no idea why any investor would put money into an airline. It's less entertaining than just lighting it on fire.

    1. In Europe, Ryanair and Easyjet have copied the Southwest formula and make money. Easyjet is slightly less horrible for passengers.

  3. Um, no. I flew in the 1970's. Seat pitch in economy was 31 inches. It still is on major airlines.

    Americans are fatter, and flying is more affordable so planes are fuller. But seat pitch hasn't changed.

    You can buy more if you want it. But if you would rather save money, you can do that too. The free market is working just fine. Mandate more legroom and you price poorer and working class travelers out of the market.

  4. I've flown quite a bit – over two million miles on American and about a million on other carriers – and I never knew, until recently, that reclining my seat makes me a jerk. I recline, the person in front of me reclines, that's the way I thought it was supposed to work. Now, if I insisted on my right to recline while insisting that the person in front of me not recline, I'd be a world-class a**hole of Trumpian proportions. But, making my seat slightly more comfortable while allowing you to make your seat slightly more comfortable, seems, if not eminently reasonable, at least inoculation against a charge that I'm inconsiderate or worse.

    That said, I interpret the Golden Rule to mean that treating others as I would like to be treated means I frequently have to treat others better than they're likely to treat me. A tit for tat exception eviscerates the rule. So, from now on, I'll refrain from reclining if there's someone behind me, but I also won't complain if the person in front of me reclines. There's too much hostility in the world; while I may be an imperfect instrument of peace, I will try my darnedest not to be an instrument of discord.

  5. I just flew Alaska from pdx to bos with our 15 week old daughter. We opted to buy her a seat so my wife wouldn’t have to breast feed next to a stranger. The airlines require you to use a car seat for your infant. We own the smallest car seat on the market yet our car seat JUST fit into the seat. There was less then a centimeter between the car seat and the airline seat in front of it. Needless to say, this did not go over well with the gentleman sitting in front of our girl who was now no longer able to recline his seat.

    Question for United – would our car seat be considered an anti-reclining device? And what happens when your infant seat can’t fit?

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