Monday, April 19, 2010

Spirit Airlines: Siding with Industry on This One

The ever-ready sense of American outrage was aroused last week when Spirit Airlines announced a plan to charge for carry-on bags.

Reacting to the public’s irritation (as politicians are wont to do), Senator Charles Schumer and others started making noises about legislation to limit convenience fees that airlines may charge. Several other airlines, in response, pledged not to start charging for carry-on bags (at least in the short term).

Now, there’s an urban myth that says that if you put a frog into hot water, it’ll jump out, but if you put a frog into cold water and heat it, the frog will stay put, ignoring the changing conditions up to the point of death. (In reality, frogs aren’t that dumb, but that’s beside the point.) Hence the expression that says if you want people to accept changing conditions, you should “cook the frog slowly.”

So here’s my perspective. I’m not a frequent flier. I probably average no more than one or two flights a year, the most recent one being last August. So—like the frog dumped into hot water—I may be more likely than people who fly all the time to notice changes that have occurred over time. On my last several trips, I’ve noticed that it takes a long, long time these days to get on and off a plane. Also, if you’re not among the first to board, the overhead bins will already be stuffed to capacity.

It’s only human nature to push our limits. If we weren’t like that, we certainly would never have planted flags at the North or South Poles, much less on the moon. So when airlines started charging for checked bags, passengers naturally started cramming as much as possible into carry-ons and carrying more accessories. Whereas boarding passengers used to toss their duffel into the overhead and sit down, they now have to
  • Stow the duffel

  • Get the computer out and stow the bag

  • Find places to tuck any of the special-needs items that airlines usually allow as a courtesy (diaper bags, strollers, crutches, etc.)

  • Strip off four layers of clothes and stuff them in the overhead compartment

  • Stick the handbag or purse under the seat

  • Stash hand-held items, such as books, magazines, and cell phones, into the compartment on the seat in front.

All this takes time, while people downstream stop and stand, stop and stand. People sitting on the aisle are battered by the edges of things as newly arriving passengers clamor down the aisle, bristling with all these appendages.

It simply takes much longer to board or deplane than it used to—and the whole process can be annoying as hell.

Questioned about his airline’s new policy, Spirit president Ben Baldanza was unapologetic about being “the Wal-Mart or the McDonald's—not the Nordstrom's—of the airline industry.” He observed that under the new policy, passengers who choose not to carry a bag on board won’t be paying a surcharge for those who do.

Makes sense to me. And for those who don’t like it, there are other airlines and other modes of transportation.


Six said...

How about instead of saying, 'siding on the industry with this one' say, 'I am siding with the free market'?

Citizen Jane said...


In this particular instance, the interests of a single company and the "free market" happen to be the same. But what's true of one small company isn't necessarily true of the whole "market" economy. That would be like saying that what you say of carrots should be true of all vegetables--and by extension, the whole biosphere.

When Spirit Airlines starts trading in derivatives, we'll have issues.

Six said...

I will too if those derivatives are the result of an artificial (I guess not so much artificial sense Fannie/Freddie were bailed out) sense of security that was dictated by bad political policy...

Citizen Jane said...

Here's how derivatives could work for an airline.

First, the CEOs save money for the company by firing all the maintenance workers. Then, with the aircraft rapidly deteriorating, they start betting that their own planes will crash. When they do, the company cashes in.

From a purely free-market perspective, it's a win-win situation for the airline!

Six said...

For your little scenario to work it would have to involve the government offering a guarantee at the expense of the full taxing authority on the performance of all of the airplanes regardless of maintenance - thus giving people the (artificial) confidence that those planes would in fact never crash. Still think it sounds 'free market'?

Citizen Jane said...

The thing is, Six, that no such government "guarantee" existed before fall of 2008 because there had never before been a need to bail out banks and lending institutions. Chronic lack of oversight, along with reckless behavior on the part of those companies, led to a financial crisis such as no one had seen in generations. So the bailouts began under Bush and were completed under Obama. All the experts agreed that it had to be done, odious as that might have been to all concerned (except the fat cats who started it all).

What we need to do now is support strong financial reform legislation now being drafted and demand that the government makes sure that no financial institution in this country will ever again be "too big to fail."

Bailouts weren't part of the problem--they were the unavoidable solution.

Citizen Jane said...

I can hear Idna screaming now, but I just happened to see this little item right after I posted the last comment:

If someone's biased, that doesn't necessarily mean they're wrong.

Idna said...

Well, I see that I am being dragged into this discussion. I thought that we were done with the Spirit Airlines after you posted the volcano item. But then I noticed that there were more comments to the Spirit Air ..... AND my name was used in vain. So I must respond. I have two things to say:

1. When I first read this post I thought, "Wow, Jane is starting to GET IT! There is hope."

2. Then I read the bit about the Airline derivative fairy tale. Can you let me know where one can bet on airlines crashing? Even Vegas doesn't give odds on that! Fire all maintenance workers?

I know it was just 4/20, the holy day of pot smoking, but seriously, Jane, what have you been smokin?

Six said...

Jane - do some research.

Fannie and Freddie existed with an implied guarantee of the Federal government because they are GSE's (Government Sponsored Enterprise). That existed long prior to 2008. Nearly all mortgages are government sponsored regardless if you get it from your local bank, a mortgage broker or Bank of America. Because of the GSE status, anything Fannie and Freddie sold was automatically assumed to be AAA rated - largely because of the implied government guarantee. Since they are GSE's, congress and the presidents can manipulate them on the grounds of political policy to 'promote' homeownership... it becomes a political organization rather than one based on good economical principals reactig appropriatly to the Free Market. So when they want to promote homeownership, the elected leaders make it easier to qualify to buy a home and still have Fannie/Freddie buy thier mortgage and re-sell it in mbs. If you get a mortgage from your local bank, Fannie or Freddie buy it on the secondary market (they set the credit guidelines to what they will and will not purchase which in turn is the criteria used by the banks), put it in a collatoral pool, then re-sell it through places like Goldmans. This leads to more people being eligible to buy homes... causing increased demand for homes - leading to price increases. Then political pressure results because home prices have gone up so much that lower income demographics cannot afford a home because the prices have gone up... so Fannie/Freddie are manipulated to make it even EASIER to buy a home (i.e. 100% LTV, Interest Only mortgages now being purchased) which leads to mortgage companies qualifying more people causing higher demand, rinse and repeat. This really got started under Clinton who heavily promoted home ownership - it was left unchecked and in some ways made even worse by Bush.

So do you see now how this was the catalyst to the problem? If anything, regulating congress is what we needed.

I am not excusing banks, particularly the investment banks like Goldmans, but there is a mechanism to punish failure and poor decisions... we did not allow that take effect like we should have. Tremendous rewards should be available to those who take tremendous risk, but so should tremendous failure to those taking the risk. The problem with having Fannie/Freddie was that the American taxpayer was the one forced to take the risk while those at companies like Goldmans were allowed to reap the tremendous reward with no real risk. That is wrong, but it was facilitated by the governments awful policies (i.e. mark-to-market accounting which is a whole other subject itself) and misguided regulation, not simply Goldman.

Personally, I want to see the Goldmans people go to jail... however, I want to see some elected officials who were in charge of overseeing Fannie/Freddie, etc go to jail for thier gross neglegence and out-right lies about the state of those two government-sponsored entities. They along with the negotiating of the AIG bailout are two of the greater crimes committed against the American Taxpayers ever.

Oh and all experts did NOT agree then or now... however, it should be noted that a few years ago most all experts agreed that Fannie/Freddie and the economy were fine. There were a few 'fringe', 'chicken little' types that were ridiculed for hinting that something like this could happen. They were the ones mocked for pushing Bush to try and reform Fannie/Freddie and audit more closely thier books.

Idna said...

Excellent explanation, Six. Below is a link to a 2003 NYT article that shows how the Bush admin. saw problems with Fred & Fran and tried to set up more regulation of them.

But notice at the end of the article: "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Over the years, President Bush's repeated attempts to reform the supervision of Fannie Mae and Freddie Mac were thwarted by the legislative maneuvering of those who emphatically denied there were problems with the GSEs.

I think Barney Frank should be the very first of many Congressman who should be brought up on charges.

Here's the article

Citizen Jane said...

Idna, I don't know if you'll see this comment after all this time, but I just want to say thanks for your thoughtful analysis and information-rich comments. The whole mortgage meltdown is a big, complex subject, and as time allows, I've been doing some reading on the subject. Thanks for your insights!