Service Industry? Airlines Remain User-Unfriendly : Deregulation: Less government control was supposed to solve flying problems, but passengers yearn for the good old days.

The other day I had a wonderful airline ride. The plane was half full, so most passengers sat by an vacant seat. The ground personnel went out of their way to be friendly. Cabin service was attentive and solicitous. The plane left precisely on time and arrived ahead of schedule. The flight-deck crew repeatedly thanked the passengers for their patronage. Baggage was delivered to the carousel promptly. It was like flying in the days before airline deregulation--the good old days seasoned travelers speak so wistfully about.

The only problem was, the flight was on Eastern.

One weird irony of the deterioration of the U.S. airline industry--or, at least, the deterioration of the air traveler’s experience--is that, in its dying days, Eastern became the last major carrier where you could have a good time.

Approaching its doom, Eastern grew user-friendly. Since the airline was cutting back service, planes it did operate ran on time. Because Eastern employees were in danger of losing their jobs, they acted really nice. And because Eastern executives were in danger of losing their stock portfolios, they gambled on the first airline idea since the wide-bodied jet (debut: 1969) that actually made passengers more comfortable--first-class service for the price of coach.

It’s too bad Eastern did not stumble on this innovation until a recession was approaching and its Chapter 11 escrow fund was about to peter out. Had Eastern begun treating customers as assets rather than adversaries a few years ago, it might now be a business-school success story. Instead, Eastern was the first of the pre-deregulation big boys to fail outright. At the end, the airline was basically giving tickets away in hopes of maintaining a passenger base until the economy improved. This would be a painful strategy for a profitable carrier; for one under bankruptcy protection, it was slow suicide. If the people in the front were paying economy fares, what were the people in back paying?

Thus we may proclaim what might be called the Iron Law of Airline Deregulation: The carrier that provides the best product--in Eastern’s case, great service at rock-bottom discount--is doomed.

And the Iron Corollary: The cattle-cars will prosper. Flown American, United, Delta lately? All financially sound carriers with great route structures. All offering passengers travel experiences about as pleasant as the community service requirements of your prison work-release order. Some post-deregulation wonders:

--Seats jammed so close together that you don’t dare take your elbow off the armrest or the other guy will have it for the rest of the flight. “Pitch management” is now an airline science: Folks with tape measures attempt to figure out the bare minimum amount of space that travelers can inhabit. One result is six-foot passengers can no longer bend forward enough in most commercial aircraft to assume the brace position--a factor thought to have contributed to fatalities in several recent survivable crashes, such as the United DC-10 accident in Iowa. The federal government initiative to require parents to carry on-board childrens’ seats is mystifying. Planes already have children’s seats. They’re all children’s seats.

--Endless, snail’s-paced ticket lines as bewildered travelers have hopelessly confusing fare restrictions explained to them (“Is your license plate odd or even?”) and poorly paid ticket personnel struggle to punch the ever-changing coding into their computers.

--Hub-and-spoke systems that are logistically sensible but eliminate a large percentage of direct service. This forces travelers to take at least two flights to reach their destinations.

--Flying first class is now, oh, about as nice as flying coach once was. By adroit reading of the fine print in promotional offers, I’ve recently traveled first on long trips on each major domestic carriers. They all stink. The seats are bigger than in coach--space having always been key. But the food is strictly cafeteria fare--at a bad cafeteria. Most domestic front cabins no longer offer that day’s newspapers, current newsmagazines, champagne or other of the old nice touches. They do warm the peanuts for you. Talk about living.

Two principal defenses can be made for airline deregulation. The first involves price: Most travelers are paying lower prices. Though fares from a few cities with near-monopoly carriers can be unreasonable; by most measures consumers are getting good deals. Average actual price paid per mile traveled has increased since deregulation at a considerably lower rate than the Consumer Price Index and other price barometers. Experience has shown that as long as there are two carriers on a given route, there will be price competition, even if the two are both giants. This suggests bargain fares will stay around even if the industry consolidates further.

The low returns earned by U.S. airlines testify that ticket prices are, indeed, restrained. Eastern, Continental and Pan Am did not land in bankruptcy court by gouging customers. America West, TWA and Midway are running deep losses. American, the queen of airlines, just declared a net loss for 1990. Even before that, American, United, Delta and Northwest were much less profitable than corporations in comparable industries.

Meanwhile, investors are hardly cleaning up on airline stocks. Want to buy Continental Holdings, the new name for Texas Air? It’s under $2 a share; slightly more than a year ago it was around $25. Pan Am is suddenly a penny stock, yours for about 15 cents. Stock in AMR, the holding company for American, generally considered the soundest U.S. airline, recently fell from $70 to $52.

The other big defense of airline deregulation is removal of government control over who can fly where has eliminated wasteful routes while making the system responsive to ever-evolving shifts in where people want to go.

There can be no doubt about this. Once, under regulation, I flew non-stop from Colorado Springs to Buffalo. That was great for me and the 20 other people on the plane. Not so great for the carrier--which no doubt had been petitioning the old Civil Aeronautics Board for 10 years for permission to, say, stop in Chicago. One of the most attractive aspects of air transportation is that, since planes do not require roads or tracks, their destinations may be rapidly changed as public needs change. Contrast the responsive U.S. domestic route system to the structures of state-controlled foreign airlines--many Western European carriers continue to run near-vacant planes to some destinations while having weeklong waiting lists to others.

But it’s a mistake to think that because U.S. airline service has become more rational under deregulation, it is now fully rational.

For example, airlines continue to practice instant price-matching on each other’s lowest promotional fare--great for consumers but a built-in airborne version of the tragedy of the commons. No airline ends up with more market share; all sacrifice income.

Airlines, though a service industry, continue to take actions that broadcast negative images to customers, even though in service industries perceptions are crucial. Emitting negative vibes so powerful they registered on supercollider test screens was Frank Lorenzo’s greatest sin at Continental. Although Continental is now basically user-friendly, the company’s new swell-guy management may never be able to overcome the Lorenzo legacy. American, whose pilots staged a slowdown during the December travel rush--sending passengers a two-word message that was not Merry Christmas--may now be stepping up to assume the Lorenzo mantle.

And despite the centrality of business travelers to airline profitability, some carriers still seem determined to drive this segment away. Pan Am’s frequent- flyer program, for example, might as well be called the “Please Fly With Someone Else Program.” Credits from past years cannot be combined with credits from the current year, meaning there is little incentive to build up miles by flying Pan Am year after year. Locking in long-term customer loyalty is supposed to be the point of frequent-flyer banks. Pan Am’s program not only has the reverse effect, but the airline maddeningly sends regular statements listing your essentially useless past miles--which is like reminding you that you were a fool to fly Pan Am in the first place.

Despite its exasperating faults, there is no doubt that the U.S. airline system has improved structurally in some respects under deregulation. If American and United begin flying to Heathrow, British Airways will be up against two efficient, canny organizations. Whatever their other faults, U.S. managers lead the world in the science of retailing--pricing, promoting and selling jetliner seats, as evidenced by the dramatic increase in Americans passing through airports--and elbowing you. Foreign airlines that remain state-regulated can’t touch us here.

An interesting note about behavior post-deregulation is that airlines are the only major U.S. corporate segment following the precepts of “industrial policy,” the somewhat murky modification of free-market economics advanced by many liberals.

Industrial policy generally calls for government to help favored industries expand through coordinated actions that antitrust laws would bar--in the airline business, this means government approval of practically all mergers and route acquisitions. Industrial policy calls for companies to sacrifice current profits in favor of future growth--sacrificing current profits is something the airlines have raised to a high art.

The result of airborne industrial policy, whether planned or coincidental? The average person can afford to fly and does so often, with an historic shift being that the typical U.S. airliner now takes off with more passengers on personal travel than business customers on expense accounts. Before deregulation it was the reverse. That development--favoring the common man and woman--is just what liberalism would embrace. Yet at the same time conditions for all air travelers have become much crummier--at least the phenomenon is egalitarian, everyone aboard can’t wait to get off--and the basic product in some ways inferior. This does not bode well for the cherished liberal goal of expanding industrial policy.

Airlines aren’t following the liberal wish list exactly, of course. In a way, though Lorenzo is gone, his spirit haunts the business. Ruthlessness, toward employee and customer alike, is now the dominant impression that anyone who comes into contact with the major U.S. carriers walks away with. Ruthlessness can create economic efficiency. But it can also lead corporate managers to conclude that passengers will tolerate 32-inch-pitch seats, with their knees resting comfortably under their chins during three-hour gate holds at Atlanta. Thanks for flying with us today, and please come back again as soon as you think you can stand it.