2010/05/09

Airline fees and the unbelievable worthlessness of CNN


Earlier this week I stumbled upon a mini-editorial on CNN, wherein the anchor "Campbell" (not sure if it's his first or last name, I think they try to market them like that) went off on the topic of the airline industry charging extra fees. That is, charges that are not part of the ticket price, like the fees for luggage, or food, extra leg room etc. He was all up in arms because new data showed it was EIGHT BILLION dollars last year. He said that airlines are profiting from your discomfort, his face running the gamut of expressions from mocking to outraged. Basically he painted a picture of an industry conspiring to deceptively price gouge.

But here's the thing. In the entire piece, he failed to mention a) whether overall cost of air travel has gone up or down; b) whether the airline industry as a whole was profitable or not. Without those two additional data points, his conclusions are entirely unsupported!

What is definitely happening is a shift to more granular pricing. For example, let's say 50% of travelers have luggage and 50% don't. Say previously everyone paid $400 for a ticket and now it's $350 for the seat + $100 for luggage. Why is that bad? You can argue that it it's annoying to have the cost broken down in pieces, or you can argue that it's great to have more flexibility. I, for one, am very happy to trade a luggage quota I don't use for more leg room! Whatever your opinion, in our example, since the average cost is still $400, you can't say that they are "profiting at your expense". Yet that's exactly what CNN did, without presenting any evidence that the total cost is higher! As a matter of fact, the cost of air travel has been going down for decades and as far as I can tell that trend hasn't reversed recently.

Second, is there price gouging, i.e. excessive profits due to collusion in the industry?Actually, the airline industry "as a whole has made a cumulative loss during its 100-year history". So while it's possible for price gouging to exist in on routes without competition, it's impossible that it is occurring on the industry as a whole. Yet that is what CNN is claiming without any qualifiers.

Wow! You couldn't design a more logically flawed editorial if you tried.

This would be a perfect opportunity for a warning against Gell-Man amnesia, if I didn't already believe that CNN is completely worthless. The only time I see it is accidentally while looking for sports.