Air Travel: Vaporizing a Business

I'm not sure which is more depressing - the fact that five years after 9/11 we're more vulnerable than ever, or the fact that government leadership incompetence is working to destroy one of the best things America had going for it on 9/10/01 - an extremely reliable, inexpensive commercial airline network.

I've heard two stories about TSA and travel nightmares recently. In one, apparently the rules changed overnight and when my girlfriend checked in for her usual Monday morning flight to her client site, designer makeup - powder, solid, whatever - has been deemed a threat. Especially when carried by cute young consultants who travel on the same exact flight every single week.

In the other, more disturbing incident, TSA gave Mary Hodder's ID to someone else, not to her. And then the TSA agent first denied that that ever happens (while 2 more IDs were turned in as mistakenly not returned while he was talking about how it never happened ever before) and then, when she demanded to be able to file a complaint, he covered his badge and literally ran away. Talk about "cover up". Check out her blog post on it. And, if you know him, please have him arrested (obstructing justice?) and fired.

I'll refrain from my usual anti-TSA rants and focus on the very simple business facts surrounding the airline industry. It's a high operating leverage industry, which is to say, it has high fixed costs and low variable costs, so each additional ticket it sells represents a large portion of profit above a certain point, and below that point each ticket it falls short makes for a massive loss. It does well by filling planes with price sensitive leisure passengers and selling a few price insensitive business travelers ludicrously expensive tickets. What happens when the business traveler segment - which might not care so much about ticket prices, but does care when it comes to standing in line, body cavity searches, and mistreatment at the hands of the high-school educated hourly TSA employee - stops flying and starts using WebEx?

Business travelers are much more price insensitive than leisure travelers - in the short term. However, business travelers are sensitive to the way they are treated and their time. Over the long run business travelers will look for alternatives to travel if the price goes up (even in terms of opportunity cost) or if they don't like it. Today, happily, technology has caught up to the point where it can provide an inexpensive alternative. With a webcam and a WebEx presentation, the relative advantages of flying have been reduced (but certainly not eliminated). Whenever possible, business people will now begin to avoid travel. It's what the new Porter's Five Forces calls a "Substitute" - if you're United, it's called a "bitch" - because it's about to make you even more bankrupt and miserable than you already are.

Meanwhile over in leisure land, travelers are a different kind of demand inelastic and price sensitive. Weddings don't lend themselves to video conferencing, and neither do newborns, high school and college reunions, tailgate parties at so-called Big Games, and the rest of it. Leisure travelers don't mind the occasional TSA grope or gaffe - as much - or the lines because they only travel once in a while. Waiting in a line once every six months is nothing compared to waiting in line twice a week, or more. Leisure travelers will continue to fly, but there are limits to what a family of four can pay to get to a wedding, and at some point a gift becomes an appealing alternative to thousands in non-refundable airfare. Everybody loses. Especially United and its ilk.

So as TSA destroys the customer experience and forces business people to spend hours thinking about new ways to avoid travel (while they're standing in line for something pointless that will, as always, fail to catch whatever it is that can blow up the plane) the airlines will see their customer mix shift from its historical 1:2 business to leisure ratio towards a much more leisure-heavy balance. These customers will be harder to attract, impossible to retain, and much more price sensitive. Major companies will go bankrupt and the slacking overall demand will force skilled employees to retrain and find new industries.

As the country moves further and further away from its reliable and inexpensive network of air transportation, I'm sure it's only a matter of time before a new startup's blog reads like the following:

John Smith, founder and CEO, was waiting in line to check his bag at WTF airport in East Jesus, when it dawned on him that there is a better way. When he landed he went straight to the office, quit, and the next day started UpYoursTSA.com. Today UYTSA has over 100 million users, all of whom credit John with liberating them from America's TSA-induced flying hell. They left the world of rubber gloves and confiscated designer makeup behind to get actual work done. These customers are intelligent people, like you, who want to spend less time with strangers and more time with their families and friends.

(If you've already started that company, by the way, please let me know. I'd like to invest. And, if you didn't know, I'm also looking for work. The less travel the better.)

When I was crisscrossing the country as a consultant before business school I did some research on container security. Port authorities refuse to consider anything that slows down the transit of containers - even by 1%. Any solution has to scan the containers and make them go through the system faster. Because, if you're going to spend all of that money revamping the system, they - like smart managers - insist on operational improvements, in order to justify and recoup some of the immense costs involved. Why do we care more about throughput and time in the system for inanimate steel shipping containers than we do for our fellow man? Are TSA and airline executives really that coldhearted? If the brainless container cares about how long its waiting in line to be scanned, wouldn't a person standing in a line care, too?

Obviously it's not the sensitivities of metal containers, but that the shipping industry is highly operationally leveraged, and tying up containers for 1% longer would require buying millions of new containers and increasing shipping and port capacity, which would result in a rise in prices and a massive loss of business.

Some might say safety matters more for the passengers than for containers. Wrong. Any one of those containers could have a pretty devastating explosive device on it, and in places like the Port of Los Angeles and Long Beach, or ports near New York City, or Seattle-Tacoma, there are a lot of people who that device could kill. More than fit on your turbo-prop from Bakersfield to Sacramento, for one. The difference is the people who sit next to the ports - the port security managers and other executives - would rather not have their entire industry commit paranoia-induced suicide. Like what's happening with the airline industry.

(Hey TSA, get this: they only scan 5% of the cargo containers but that's probably 99.9% of the potentially dangerous ones. Crazy, huh? Amazing what happens when you think about what you're doing just a little bit.)

Comments

[Ben]

Alex,

As you know I worked on a number of these issues when I served in the Government. If fact as the holder of the first key ever issued to the TSA offices, I am probably one of those idiots you are referring to. (Don't worry, I am not offended by the rant) Some of your facts on the industry and TSA are off though.

The important thing to know though is there are a number of startups for you to invest in. In fact, DCM just invested in one of the personal jet services.