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.

[Cross-posted at The Reality-Based Community]

Michael O’Hare

Michael O'Hare is a Professor of Public Policy at the University of California, Berkeley.