A1 Technology & Travel

By Tricia A. Holly

WEDNESDAY, MARCH 16 — A few months ago, a friend of mine who is a frequent business traveler came up with a great anecdote to describe airline service. “You know,” he said, “you can really tell the quality of an airline by its nuts.”

Forget the flat beds and good-looking air hostesses. Forget the accelerated check-in lines and user-friendly kiosks. The true barometer of airline service is the peanuts, he informed me.

Hmmm. Food for thought, I thought, and all but forgot about it.

Then, I saw Delta’s recent announcement that beginning next month it was dropping its food-for-sale program, increasing prices on beer, wine and cocktails, and eliminating pillows. (To be fair, Delta said it will continue to offer free meals to first-class passengers on flights longer than three and a half hours and to all passengers on international flights of at least five hours.)

In a near perfect competitive swipe, Southwest simultaneously announced that it was not only keeping its pretzels and peanuts, but offering a healthier alternative to boot. Starting next month, the nation’s first low-calorie airline will introduce low-calorie, brand name snack packs.

I found all of this activity rather worrying. Cutting amenities like pillows can’t be a good sign. Equally, I’m not so sure that investing in a low fat menu is the smartest way to spend money when fuel prices are at an all time high. I’m sure that all of those slim bodies I see regularly flying on Southwest flights, especially the Vegas route, will welcome some low-calorie alternatives to go with their Budweiser breakfast, but come on.

Somewhere along the way the airlines got it all terribly wrong, I thought. And then, the inevitable began. Cutting back on pillows and rearranging the in-flight snack menu telegraphed more drastic changes were in store.

What had served as great fodder for airline jokes one week quickly tumbled into a worrisome trend the next. The airlines realized that token cut-backs on amenities were never going to get their bottom lines back in the black. Broad-sweeping changes were needed. So one by one each of the major carriers and Southwest began raising fares. Was it inevitable? The short answer is a resounding yes.

Delta’s answer to its financial woes was to create a low-cost rival to Southwest and JetBlue called Song. Well, that clearly didn’t work. Last year, Delta reported total losses of $5.2 billion–the highest ever by a
U.S. airline in a single year. The airline narrowly avoided bankruptcy after its pilots agreed to $1 billion in concessions. Song, by the way, will still offer food for sale, although there is no word yet whether it, too, is planning to introduce “lighter” snack alternatives.

Delta began this year in a similar financial predicament. So what does it do? It cuts all of its fares in half. Well, that didn’t work either. In its filing with the SEC, Delta stated that it doesn’t believe the company’s cash flows from operations will be sufficient to meet all of its monetary needs, and that it might have to tap into the $250 million it borrowed last year from American Express unless it found a way to stem the flow of red to its bottom line.

You could almost see the conversation in Delta’s board room going something like this: “Mr. Grinstein [Delta’s CEO], I’m sorry to inform you and our shareholders that our previous revenue-generating strategies simply haven’t worked. In order to stay afloat we’re going to have to think of another plan.”

“Any ideas, anyone?”

“Why don’t we cut the pilots’ salaries?”

“No, we did that last year. Good try though.”

“I know, why don’t we get rid of all the pillows?”

“Hey, now that sounds good to me. All in favor of tossing out the pillows raise their hands.”

“Okay. The pillows are outta there.”

Now I’m not picking on Delta. All the airlines need to figure out a better way to operate their business. But the Simplefares program, introduced in January, largely contributed to the current spate of fare increases. The Simplefares plan, which effectively cut in half fares on domestic routes, forced Delta’s competitors to follow suit. While low fares may be great news for consumers, they’re cancerous to the airlines’ revenues.

Pressure to keep up with the Joneses will cost rival Continental Airlines $200 million this year, twice the loss it had originally anticipated, according to a recent SEC filing. While consumers may initially snub a fare increase, their travel habits are elastic, so paying a few dollars more for a flight ($1-3 on Southwest, for example) is not likely to drastically influence load factors. In the same way, since travel agents no longer get paid a commission, a difference in a few dollars will not greatly affect what they charge clients.

What will stop consumers from flying, however, is reduced service. There’s an old adage that says bad luck always comes in threes. In the airline industry, the first is cutbacks on amenities (pillows), the second is price increases, and the third is cutbacks on service.

Tricia A. Holly / Executive Editor

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