PILARSKI SAYS… Dark clouds of globalisation

Adam Pilarski

PILARSKI SAYS… Dark clouds of globalisation

Adam Pilarski

PILARSKI SAYS… Dark clouds of globalisation

Standardisation in airlines is making it boring  to fly in the USA, writes  Adam Pilarski, Senior Vice-President at AVITAS.

As featured in Airfinance Journal Column PILARSKI SAYS

A well-known industry pundit recently wondered how come the big three US airlines are beginning to resemble each other in service, fees and amenities.

He claims that from the flying public point of view, the big three mirror each other and pursue strategies that will ensure such a reality prevails for a long time.

They look alike – their aircraft do – they act alike and, if one institutes changes, the others follow in amenities, policies and the like.

This standardisation does not always work to the benefit of consumers. If one of the three changes their reward system to the detriment of the passengers, others immediately follow.  The times of innovative personalities and a desire for uniqueness is a way of the past.

Today, boredom and sameness are in. Flying in the USA is boring and the only opportunity we get to experience something different is to fly foreign carriers.

Anybody who took one economics class can easily figure out the reasons for such developments.  As six huge airlines were allowed to merge into three mega carriers, competition took a subjugated role to airline industry profitability.  Such development has to happen unless foreign competition is allowed.

And since it is not, boredom it is.

The big three airlines proclaim that the developments in the way they operate are driven by what consumers want, though sometimes such claims are hard to stomach, such as when they all raise penalty fees for flight changes.

Such statements in general are correct and the airlines do include some improvements that the flying public desires.  That sentiment though neglects the simple fact that competition by outsiders would expose the consumers to experiences they do not even know exist and that would continuously change the flying experience.

Airlines would not appreciate such inputs since they would involve moving from their comfort zone, but under real competition, they would have to be more creative and change.

One of the greatest benefits of international flying is that it exposes the passengers to different realities and changes their behaviour and world outlook.  This enhances innovations across the globe.  In the US airline industry, we do not have such a push for improvements.

Right now globalisation is under strong attack around the world.  In the US, one major presidential candidate talks about building walls and imposing massive tariffs on our major trading partner to combat globalisation.  The other candidate talks about creating an “exit” tax to prevent US companies benefiting from the advantages of globalisation by moving jobs abroad.

In Europe, the surprising vote in the United Kingdom regarding Brexit showed how some significant segments of the society feel about integration with the continent.

Economists are as close to unanimous as they can be in supporting free trade and specialisation.  As everything in economics, there are trade-offs.  It has been recognised that some gain while some may lose because of trade but overall the gains to society greatly outweigh the losses.  It is not surprising that those who lose are not happy.

Some jobs in the US are disappearing but overall the unemployment rate is fairly low at 4.9%.  Still, those losing out are unhappy and may have found a champion in Mr Trump.

There are three reasons for job losses that are being raised by people dissatisfied with their lot in life who support political candidates previously considered too marginal to gain traction. One is competition from other countries causing jobs to leave the US for those other countries such as China. Another is the existence of government regulations that restricts job creation and the final one is new technology.

After the 18th century when Luddites were smashing machines, the electorate has no longer accepted an anti-technology platform. So attacking those unscrupulous foreigners who work for next to nothing and do not have environmental or labour rights protection is a favourite of the populist movement all over the world.  While the facts are fairly clear that most jobs are lost because of technological advancements and that countries previously seen as cheap labour suppliers eventually lose that position, there obviously are a number of people who suffer from change.

The brilliant Austrian economist Joseph Schumpeter called the side effects of economic progress “creative destruction”.  It is good and necessary for society as a whole, but negative for some.  When cars became reality, an elderly horse and buggy driver did not have a good life or good future.  Today, he may vote for somebody who can attempt to stop progress.

A new economic order may be brewing, one that relies less on efficiency and more on hearing the voices of those who consider themselves harmed. It is not exactly analogous to communism but potentially a significant change in our way of life.

And how about the boring airline industry in the USA? As long as new foreign entrants are forbidden from changing our customary way of flying I foresee continuation of boredom.

As featured in Airfinance Journal Column PILARSKI SAYS