The Wall Street Journal released its annual U.S. Airline performance study results showing significant improvement in many areas, such as on-time arrivals, improved luggage handling, and fewer complaints. Here’s what they had to say.

Airline service is improving. Really. Our annual scorecard of U.S. airline performance, which ranks carriers on seven different measures important to travelers, shows 7% fewer flights arrived late in 2016, fewer bags were lost per passenger and fewer complaints were registered with the Transportation Department. The number of canceled flights plunged 21% even with major system failures at Delta and Southwest last summer. Alaska topped the scorecard as the best overall performer for the fourth straight year, edging out Delta. American’s numbers improved, but the biggest airline in the world remained the worst in the scorecard for the second year in a row with the highest rates of canceled flights and lost luggage. The gap between best and worst narrowed, but the differences remain substantial.

So, why does flying still suck?

The Baumol Cost Disease, or the Baumol Effect, is hard at work in the personal interaction portion of the industry. (See sidebar for more information on Baumol and his work.)

Try as they might, airline executives will not fix the perception of poor customer service until they realize the automation advances in luggage movement and online ticketing have not yet extended to solving customer issues. By moving too quickly to remove check-in and other support staff, they significantly increase the customer’s cost of handling exceptions. They have also over-burdened a staff regularly in stressful “fire-fighting” modes. These lead to painful encounters that only a few saints would be able to effectively handle on an hourly basis.

Self-service is great at reducing costs. It scales much more effectively than personalize human encounters and works great for the vast majority of interactions. As in many businesses, the exceptions are difficult and unless your customer service department is filled with the right number of well-trained and well-meaning people, unsatisfactory encounters will increase.

Baumol’s cost disease, or the Baumol effect as defined at Wikipedia

is a phenomenon described by William J. Baumol and William G. Bowen in the 1960s.[1] It involves a rise of salaries in jobs that have experienced no increase of labor productivity, in response to rising salaries in other jobs that have experienced the labor productivity growth. This pattern seemingly goes against the theory in classical economics for which real wage growth is closely tied to labor productivity changes.

The rise of wages in jobs without productivity gains is from the requirement to compete for employees with jobs that have experienced gains and so can naturally pay higher salaries, just as classical economics predicts. For instance, if the retail sector pays its managers 19th-century-style salaries, the managers may decide to quit to get a job at an automobile factory, where salaries are higher because of high labor productivity. Thus, managers’ salaries are increased not by labor productivity increases in the retail sector but by productivity and corresponding wage increases in other industries.

Airline service is improving. Really. Our annual scorecard of U.S. airline performance, which ranks carriers on seven different measures important to travelers, shows 7% fewer flights arrived late in 2016, fewer bags were lost per passenger and fewer complaints were registered with the Transportation Department. The number of canceled flights plunged 21% even with major system failures at Delta and Southwest last summer. Alaska topped the scorecard as the best overall performer for the fourth straight year, edging out Delta. American’s numbers improved, but the biggest airline in the world remained the worst in the scorecard for the second year in a row with the highest rates of canceled flights and lost luggage. The gap between best and worst narrowed, but the differences remain substantial.


Also published on Medium.