What it Feels Like to Fly
A-J is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the introduction to this series, I suggested that we should analyze the middle class as a “constellation of aspirations that are structured by influences outside of any one consumer's control.” That is, the object of my curiosity is how the middle class consumer feels with respect to the things that he or she consumes. Rather than try to define the middle class in terms of income, or by considering the goods that such middle class folks buy, we should think about how it feels to occupy the role of the middle class consumer--and how companies have structured expectations of what it should feel like. How can we integrate these considerations into financial analysis in such a way that they can aid investing decisions?
Gary Shteyngart’s devastating takedown of American Airlines in a recent New York Times Sunday Review is one convenient and hilarious entry point into this question from the perspective of American air travel. But after a spate of American Airlines maintenance issues, it seems all the more pertinent to make an argument about which airlines are best positioned to take advantage of changes in the industry.
At mid century, when C. Wright Mills (the patron saint of this series) was writing his middle class study White Collar, air travel was a luxury good, something that a relatively small number of people could afford. Today, roughly one half of the adult American population reports flying in the last 12 months, even as breathtaking consolidations in the industry happen with what seems to be clockwork regularity. Northwest’s merger with Delta (NYSE: DAL), and the marriage that produced United Continental Holdings (NYSE: UAL) are the two largest and most recent examples (United outdid Delta in becoming the largest airline in the world). Now, American is in talks with US Airways (NYSE: LCC) to reduce the number of major carriers in the country again. The result of this combination would be an airline that weds American's huge hubs with a large network of smaller markets served by US Airways.
In the case of all three of these pairings, the three-headed specter of reduced competition, higher prices, and lower quality of service looms. But customers already aren’t very satisfied with the experience provided by these carriers--and that already minimal satisfaction (with the exception of Delta this year) is still decreasing, according to the 2012 Airline Satisfaction Study. The American air traveler already doesn't seem to expect to be treated well by the large airlines. New and increasing costs for everything from meals to baggage have led to higher earnings over the past several years--resulting in the broad recovery of an industry that lost more than 160,000 jobs in the decade after 9/11--providing some relief for beleaguered shareholders.
But the experience of air travel itself remains pretty dismal overall, and larger carriers will have a harder time trying to change this experience and manage ballooning costs in the long run. After the broad failure of new scanners, it looks as though we’re still going to be taking off our shoes at airports for long time to come. And it's unlikely that, amid persistently high fuel prices, airlines will give up on fees for formerly free services. All of this is to say that, for the vast majority of US travelers, to fly anywhere forces one to feel the apparatus of the state (our baggage screened, the hazy outlines of our naked bodies made visible to anonymous agents); forces one to endure long delays despite new regulations; and forces one to dedicate a huge amount of time to get just about anywhere that requires wings.
If middle class flying can be described by a single affect or emotion, it’s dread.
The big carriers are going to have a hard time changing these expectations. As they get bigger, they will have more maintenance issues as they combine complicated fleets that are older than smaller, nimbler competitors. They will have a harder time integrating satellite GPS technology into the cockpits of these older planes, which will in turn prolong their exposure to higher fuel prices. The American and US Airways' merger is an instructive example. The two fly twenty-two different planes. Their average fleet age is, combined, more than 12 years. Between 2011 and 2012, American used 3% less on fuel for domestic flights, but paid 12.4% more fuel than in 2011. All of these numbers point to the higher costs associated with putting together two huge fleets.
JetBlue (NASDAQ: JBLU), among other low-cost-carriers have long claimed that they have the alternative to dread. Advertising campaigns trumpeting the absence of fees or the glamor of flight strike me as evidence enough of how much the industry has changed in just the past ten years--and how much lower are our expectations for the kind of service we'll get in the air. Do we really check bags just to feel what it's like not to pay for it, or get excited by a free pack of Blue Terra Chips? Is this enough to translate our dread into something like relief or excitement?
The answer, on the edge of JetBlue's Q3 earnings call, seems: "Well, yeah."
But equally importantly, there are concrete reasons to believe that JetBlue will be a smart long-term decision for investors. In July, the company reported its ninth straight quarter of profitability. It has broken ground on a new international terminal at JFK. And it recently finalized interline partnerships that will increase the number of international destinations available to its customers--without needing to diversify its fleet. As the big guys get bigger and deal with increasingly complex fleet structures, JetBlue has smartly chosen to keep things simple: A320's and Embraer 190's still compose the entirety of its fleet (whose planes are an average of 6.6 years old). This summer, they announced FAA approval to fly GPS "highway" approaches at JFK that will substantially cut fuel costs on many flights.
When it comes to the customer experience, JetBlue has realized how low expectations have sunk. In response, they've been reconfiguring our expectations for what counts as luxury. At the same time, when we suddenly discover that underneath the DirecTV and the new planes, these kinds of companies are still subject to the same whims as those that strike larger carriers, the effect can be almost catastrophic. That is the significant point here about the difference between large and small carriers. Low expectations of the biggest players mean that they are more immune from customer relations headaches, or even seats coming unbolted from the airframe. If what happened to American this week happened to JetBlue, the effect would have been much worse.
The thing that struck me at JetBlue’s rehabbed JFK T5 on a trip from Massachusetts to Chicago in August was how hollow the efforts to civilize travel can seem at times. How low our expectations have shrugged when we extol the presence of a few channels of television on a long flight. The effort to re-inject something like dignity into low-cost travel--which during a four-hour layover compounded by 45 minutes sitting on the tarmac (a trip from the east coast to the Midwest took almost the entire day)--can feel limpid on a hot, late-summer day. The irony of this realization, coming as it did in Eero Saarinen’s modern architectural masterpiece, seemed bound up in what we are willing to settle for these days. Saarinen’s building was intended to be the contemporary manifestation of a chapel dedicated to flight. Sleek, modern, celebratory of technology and a functional aesthetic. In many ways, the building itself still embodies the golden age of flight, so clearly timeless does it feel inside.
The only problem is that everything else associated with the process of getting on a plane and arriving at a destination still makes us feel like cattle. I never feel my own middle-classness as much as when I'm crammed into a middle seat in front of a screaming baby. Physical discomfort feels directly associated with the inability to fly a different airline, upgrade to a better class, rent a jet.
In the face of immovable obstacles placed between us and our destinations, consumers will keep choosing carriers like JetBlue--if only because it has figured out a way to marginally beat our decimated expectations. Certainly in the short term, keep an eye on JetBlue as it is positioned to take advantage of the complicated integrations of larger airlines. The affect or emotion that characterizes middle class travel has become something like bemusement or resigned acceptance.
Even if we don’t get to our destination on time, at least we'll mind the longer trip a little less in leather seats that stay bolted to the plane.
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