Is air travel too expensive? - The airlines' side.

• Author: Crandall, Robert L.
• Position: Special Global Report

Some very troubling problems face the airline industry today, and that affects the purse strings of our nation's corporations. The most fundamental problem is figuring out how the world's carriers can provide the service, safety, comfort, and convenience the public clearly wants while simultaneously keeping costs low enough to earn sufficient money to justify the huge investments our business requires.

Airlines are a long-term business. We cannot change course every time an adverse event creates a short-term glitch, which is not to say that events do not affect our business. But such events are essentially blips on a long-term trend line that has, until recently, been looking awfully good. The real bad news is not that the short term looks discouraging but that it is getting harder to be optimistic about the long term.

Most of the problem relates to factors that are driving our costs up rapidly. One core issue is the extraordinarily high capital cost of new aircraft. Another is the industry's undersized and antiquated infrastructure. And the effect of rising costs to refurbish and expand existing facilities, and to build brand new ones, is likely to be exacerbated by the desire of cities either to tap their airports as a source of funds for other needs or, at the very least, to eliminate local support altogether.

Another factor pushing up costs is the constant pressure we all feel to make less noise, be more environmentally responsive, and comply with higher maintenance standards.

But perhaps the most troubling factor of all is labor-cost pressure. The labor demands are likely to produce costs that will make it difficult, if not impossible, for us to make a profit operating airplanes bought on the basis of very different wage and benefit assumptions.

Our efforts to constrain total labor costs are also shaped by the unique interrelationship between quality and productivity that characterizes our industry. Airlines are a service business, and, no matter how creative we are, the bottom line is that real service improvements almost always require having more people and utilizing assets less intensively. Thus, to some extent, the term "better service" implies lower productivity and creates an inherent conflict between our customers' desire for a better product and their desire for the lowest price. But, despite our customers' expressed desire for quality, most of them are unwilling to pay anything higher than the lowest available fare.

Still...