Charles Wheelan, Ph.D. The Naked Economist

This will be a different kind of column. Usually, I write about things that economics can explain. This time I'll admit that I'm completely befuddled.

I just don't get the airline industry, at least not the traditional carriers that have been around since before deregulation. The new upstarts like Southwest appear to have a model that works -- but that just makes the older carriers look all the more old-fashioned and obtuse.

Fly the Stupid Skies

There are a lot of industries and businesses that I don't thoroughly understand. But they're different from the airlines in two key respects: 1) They don't routinely make my life miserable; and 2) They seem to make a lot of money.

If you've got a business with thriving profits and happy customers, then I'm not going to spend a lot of time wondering about your business model. But the airlines (again excepting the upstarts) don't seem to have happy customers or thriving profits. Indeed, in the process of routinely exasperating a high proportion of travelers, the major airlines continually flirt with (or succumb to) bankruptcy.

So that leads me to wonder if perhaps some of the business decisions in the airline industry seem shortsighted and stupid because they really are.

Opulence or Cramped Squalor

Here are some of the things I don't get:

1. Why is there no "in between" fare option -- something more comfortable than a cattle car but more affordable than business or first class?

I fly a lot, both for business and pleasure. I invariably fly coach, but I've suffered that indignity enough to at least check the business fare. Here's what usually comes back: $299 for economy class or $6,000 for business.

Perhaps that's a slight exaggeration, but the disparity is so large that I don't even contemplate paying the higher fare. That definitely leaves money on the table

I don't need a linen tablecloth or champagne when I get on the plane, but I'd be willing to pay another $100 or $200 for a shorter, more predictable line at check-in and a seat big enough to read the newspaper in without elbowing someone's head.

Time Is of the Essence

2. Why haven't the airlines been more effective in dealing with the biggest cost of air travel: time lost to security and congestion delays?

The price of a coach airline ticket has been plummeting for two decades. But that doesn't necessarily mean that flying is cheaper. For most busy people, the biggest "cost" of travel these days is in the time it takes to stand in long lines and wait for delayed flights. If you're a $500-an-hour consultant and spend two hours stuck in Phoenix, that's a $1,000 problem. The fact that your ticket only cost $99 isn't much consolation.

True, neither security lines nor air traffic are directly the fault of the airlines. The federal government controls both via the TSA and the FAA. But obviously the airlines are big political players. If they had the clout to lobby successfully for huge subsidies from the federal government after 9/11, then presumably they could use the same influence to push the government toward making necessary investments in the air traffic infrastructure.

And it's not just about money; more sensible policies would help, too. Both gates and runway slots ought to be auctioned off, so that the most valuable times at the busiest airports are the most expensive. It should cost more to take off from Chicago at 8 a.m. on a Monday morning than it does from Tulsa at 2 p.m. on a Saturday.

Yes, that means that the Chicago flight would be more expensive. That's exactly as it should be -- the best way to deal with congestion (in the air or on the roads) is to use prices to spread out the demand. That enables a system with fixed capacity to handle more travelers with fewer congestion delays.

Doh!

Meanwhile, at least for me, the frustration of long security lines is compounded by a lingering fear that the screening isn't really very good anyway.

Here's my security scare story. I was flying recently with my two daughters when one of them had a small container of Play-Doh confiscated after her backpack went through the X-ray machine.

That doesn't strike me as unreasonable. I don't know a lot about explosives, but I could see how something really dangerous might have the consistency of Play-Doh. Here's the problem: As we walked away from security, my other daughter turned to me and said, "Dad, why didn't they take away my Play-Doh?"

If you're going to take away dangerous stuff, then get it all. But if you're going to miss half of it, stop wasting my time.

Money for Nothing

3. Does it really make sense in the long run to charge us something for nothing?

Imagine that you've checked into a hotel at a very reasonable, even cheap rate. Further, suppose that by some act of your own stupidity, you lock yourself out of your room. And then, when you present your ID to the front desk, you're informed that there will be a $100 charge for a new key -- nearly as much as the room cost in the first place.

This is a brilliant move by the hotel in the short run. Your possessions are locked inside the room. They've squeezed $100 of incremental revenue out of a plastic replacement key that probably costs five cents or less.

But it's idiocy in the long run -- or so it strikes me. People don't like to pay $100 for something that costs nothing. They feel angry and taken advantage of.

And yet that kind of thing seems to be standard operating procedure for America's traditional airlines. I paid $100 twice in the past week to change a flight from Chicago to Orange County, Calif.; in both cases I was changing my reservation to a flight that had open seats at the same fare.

This should have been a costless transaction. It doesn't cost American Airlines anything to move me from the 1 o'clock flight to the 3 o'clock one. When I paid the $100 change fee (twice) -- admittedly because of my own poor planning on both occasions -- I felt like the guy being charged $100 to get back into his hotel room.

I've been thinking ever since: How could this possibly be good business, especially as I see the new ads from Southwest (one of the post-deregulation carriers willing to break the mold) now advertising how easy it is to change flights without a fee?

Customer Disservice

4. Is it too much to expect just a little more empathy?

I recognize that there are lots of terrific customer service people across the airline industry. I've had many experiences in which someone offers exceptional assistance in a way that feels like being offered a huge glass of cold water while wandering through the desert.

But those experiences stand out. Too often, the customer service agents appear to have had decades of experience in the former East Germany. I suspect that those surly ticket agents and flight attendants aren't really mean people, but rather perfectly normal people beaten down by grinding circumstances.

Isn't there something the high-paid airline executives can do to change that culture? Bad customer service is like the bitter frosting on an awful cake. The only thing worse than a two-hour delay is a customer service agent who growls at you like it's your fault.

Obstacles, Not Insurmountable

The airline industry is a tough business. Regulation prevents or inhibits some of the global consolidation that needs to happen. Airline seats are an "exploding asset," so that once a plane takes off an empty seat becomes worthless. The price of jet fuel has been going steadily in the wrong direction. And the assorted unions are expert at shooting themselves in the foot, if not worse. That much I understand.

But I'm still not convinced that the industry can't do a lot better. Perhaps I'm way off base, in which case I'm sure I'll hear from the friendly folks at the airlines: I once criticized a major airline in print many years ago -- and promptly learned (ironically) that their PR flacks are much more responsive than their customer service agents.