Freakonomics Radio XX
[0] Today, I want to talk about something we hate, something we love to hate.
[1] At least we say we hate it.
[2] But do we really?
[3] And if so, why do we hate it?
[4] These are big questions.
[5] So let's start small.
[6] Let's start by listening in on a phone call with a man named Troy Jaster.
[7] Hi, we have a flight that's supposed to take off in a couple of hours, but got a notification that's delayed.
[8] and so I'm looking on your website.
[9] Looks like there's probably not a chance that we get in tonight still.
[10] But anyway, we have to rebook in one way or another.
[11] Reservation for party of four?
[12] Uh -huh.
[13] Give you a moment.
[14] Let me check her flight.
[15] Jaster is a 43 -year -old real estate agent and investor in San Antonio, Texas.
[16] This past Christmas, he was trying to get himself, his wife, Danica, and their two young sons to Omaha, Nebraska to visit with grandparents.
[17] But, as you may remember, the U .S. was getting hit just then with what meteorologists call a bomb cyclone.
[18] Fridid temperatures, big wind, heavy snow, not the best flying weather.
[19] The Jasters had been booked on United Airlines, San Antonio to Houston, and then on to Omaha.
[20] The delay meant they'd miss their connecting flight in Houston, so United rebooked them for the following afternoon, 24 hours after their original departure time.
[21] but Jaster didn't want to wait that long.
[22] I'm really sorry to keep you waiting, hello?
[23] Yes.
[24] I only have one seat available at the end of the flight for tomorrow morning.
[25] So then the first available is the 424 tomorrow?
[26] Yes, sir.
[27] Why don't you connect me to whoever I need to be connected to you to get compensated because we are losing a whole day of our trip?
[28] Jaster did get connected with United Manager.
[29] It took a while, and it didn't go well.
[30] I do apologize.
[31] For this concern about the compensation, it really needs to be submitted on the website.
[32] Okay, so we've been on hold for an hour and a half just to hear you say that.
[33] There's nothing that you can do at all.
[34] It really needs to be submitted on the website.
[35] Eventually, he gave up.
[36] Thank you so much, sir, for being patient and understanding and have a good.
[37] good day.
[38] Thank you.
[39] Bye -bye.
[40] Thank you so much.
[41] Bye -bye.
[42] Hour in 20 minutes.
[43] Yes.
[44] The next day, the afternoon flight the Jasters had been re -booked on, was canceled.
[45] They could have driven to Omaha.
[46] It's around 920 miles.
[47] Roughly 14 hours if you drive straight through, although when your kids are 6 and 9, you might need a few bathroom breaks.
[48] And And there was that bomb cyclone to worry about.
[49] So they stayed put.
[50] My wife has already been on the phone with airlines getting refunds, and it's a big bummer.
[51] There are a lot of people these days who think of airline travel as a big bummer.
[52] A Gallup poll found that more Americans are dissatisfied with flying today than any time in the past decade.
[53] Although, interestingly, a different set of data shows that customers, rate most American airline companies substantially higher than in the past.
[54] That's a strange twist, isn't it?
[55] It's like, well, my flight was fine.
[56] Safe, clean, on time, no trouble with the baggage, but airline travel?
[57] Yeah, such a nightmare.
[58] Today on Freakonomics Radio, the first episode in a three -part series about an industry, unlike any other.
[59] We will get into the economics and the psychology, the agonies, and the ecstasy, the sounds and, yes, the smells.
[60] They make these toasty cheese sandwiches on airlinous flights, and the cheese smells absolutely awful.
[61] Some people, especially older people, may still think about the so -called miracle of flight every time they get on a plane.
[62] For them, the upsides of airline travel are immeasurably large.
[63] For others, the miracle of flight can be canceled out by the smell of a cheese sandwich.
[64] Where do you lie on the cheese to miracle spectrum?
[65] Let's find out.
[66] This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.
[67] Troy Jaster and his family were not the only airline travelers whose plans got wrecked this Christmas.
[68] All the airlines had to cancel flights because of the bomb cyclone, but one airline did much worse than the island.
[69] others.
[70] Southwest has an antiquated scheduling program.
[71] That is Sarah Nelson.
[72] Spelled without an age, by the way.
[73] And I am the international president of the Association of Flight Attendants.
[74] We represent 50 ,000 flight attendants at 19 different airlines.
[75] Southwest is not one of the 19 airlines in Nelson's Union.
[76] Southwest flight attendants have their own union.
[77] And the flight attendant union actually has been asking for years for them to upgrade this system.
[78] And sure enough, the cracks there were shown.
[79] This was not an employee problem.
[80] This was not even really a staffing problem.
[81] This was infrastructure that the airline has not invested in.
[82] Here is a central paradox of airline travel.
[83] Running an airline is expensive.
[84] Flying on an airplane is relatively cheap.
[85] Over the past few decades, airfares have fallen by nearly a third once you adjust for.
[86] inflation.
[87] On many flights, a seat costs less than the gasoline you'd need to drive the same distance.
[88] The low -cost airlines like Southwest and JetBlue in the U .S. or Ryanair and EasyJet in Europe or Jet Star and Indigo and Peach in Asia, they're usually even cheaper than the legacy airlines like Delta and United.
[89] But sometimes you get what you pay for.
[90] Consider the meltdown at Southwest over Christmas.
[91] You might think a big company like Southwest would have state -of -the -art software to schedule and track their employees, but they actually rely on phone calls.
[92] Whenever a Southwest flight is delayed or canceled, the crew is supposed to call in to headquarters to get reassigned.
[93] Over Christmas, so many Southwest flights were canceled that their phone lines couldn't handle the volume, so their pilots and flight attendants didn't know which routes they were supposed to be working.
[94] And once the company lost track of their cruise, they had to cancel even more flights.
[95] Over the last week and a half of December, Southwest canceled nearly 17 ,000 flights more than a third of their total schedule.
[96] Transportation Secretary Pete Buttigieg wrote an open letter to Southwest CEO Bob Jordan.
[97] Budajid Judge called the cancellation unacceptable and he demanded financial compensation for the stranded travelers.
[98] The holiday meltdown is expected to cost Southwest more than a billion dollars.
[99] Being cheap can be really expensive.
[100] There was a lot of anger directed at Southwest over their Christmas failure, and understandably so.
[101] But Sarah Nelson says the anger has been building across the industry.
[102] People were already totally pissed at the airlines.
[103] I mean, seats had shrunk.
[104] They were closer to gather.
[105] There were major complaints going on.
[106] Right before the holidays, we asked our listeners to record audio diaries from their airline travel.
[107] We were expecting a lot of complaints and we got them.
[108] Here's Peter Campbell.
[109] Jetstar are a terrible airline because you cancel two flights on me. So do not fly jet star.
[110] They're shambles.
[111] Here is Jack Peas.
[112] One thing that felt ridiculous that they charged us extra for was a carry -on bag.
[113] It should be an interesting standard to have a carry -on bag.
[114] And here is our cheese -hating friend, Faye Walsh Drew Yard.
[115] Nothing is free.
[116] There's no free water, no pretzels, so you have to buy everything.
[117] and you have to buy it with a debit or a credit card because there's no cash on the plane.
[118] And the cheese smells absolutely awful.
[119] There are also probably going to be many bags of the beloved potato chips.
[120] Cheese and onion flavor, again, a very smelly thing that I would prefer to not have to experience on any airplane.
[121] The thing about flying on an airplane is it's kind of weird if you think about it.
[122] You are in a confined space with a bunch of strangers, You have little control over your physical surroundings and no control over the vehicle itself.
[123] You take off and land at very high speeds and you cross the empty sky even faster, tens of thousands of feet above the planet.
[124] Almost nothing about the experience is natural.
[125] Most humans, when we face an unnatural experience, we tend to get anxious.
[126] When the Brooklyn Bridge was being built in the late 19th century, spectators were allowed to climb up.
[127] up the approach on the Manhattan side, which stood higher than the surrounding tenement buildings.
[128] And some people fainted from the height while standing on a bridge.
[129] So is it any surprise that flying might make us anxious?
[130] And is it possible that we transferred this anxiety about the actual flying to a more tangible set of targets, like baggage fees and canceled flights and stinky food?
[131] Because if you do a simple cost -benefit analysis of airline travel.
[132] The intensity of the complaints can be surprising.
[133] You get to travel 1 ,000 or 5 ,000 miles in a ridiculously short amount of time, often for just a few hundred dollars, to go visit family or do business or lie on a beach.
[134] How would you weigh those benefits against the baggage fees, the smelly cheese, the occasional canceled flight?
[135] Let's face it, Flying on an airplane is an unusual activity that has become normalized.
[136] But it's still unusual, and the airline industry is unusual as well.
[137] So let's try to understand how it works.
[138] We'll start with this man. David Nealeman, and it's spelled N -E -E -L -E -M -A -N.
[139] Neelman is founder and CEO of a new, low -cost U .S. airline called Breeze.
[140] He's also the founder and chairman of a low -cost Brazilian airline called Azul.
[141] He used to be a co -owner of the National Airline of Portugal, TAP.
[142] And before all that, he started another airline that you probably know about.
[143] I think JetBlue was probably the fastest company to a billion in revenue in the history of American business.
[144] Nealiman started JetBlue in 1998.
[145] It was low cost, but somehow high gloss.
[146] I have a lot of deficiencies, but one gift that I have is I can visualize things.
[147] And I just visualized brand new airplanes with leather.
[148] seats with live television and friendly people.
[149] I just thought that if we did that, then people would really beat a path to our door.
[150] Neelman had been working in the industry for a while, and he knew it well.
[151] He had all these legacy airlines with all these legacy costs.
[152] The service wasn't great.
[153] The planes were old.
[154] I had met the treasurer of Southwest Airlines who became my CFO at JetBlue, John Owen.
[155] And John taught me that you could actually buy a new plane, and it was cheaper than buying an old plane, you know, because maintenance was less and you could finance them property.
[156] And so we were able to buy new airplanes.
[157] We were able to hire people and put it right in New York, which is crazy because, you know, New York's a place you can't get in today, no way, no how.
[158] But JFK was just this wide open airport.
[159] JetBlue proved phenomenally successful.
[160] It set a new tone in airline travel.
[161] Easy, fun, normal.
[162] Maybe David Neal and and it's one we should blame for making such an unnatural activity seem so natural.
[163] It's just transportation, people, with TV and good snacks.
[164] The legacy carriers were still presenting themselves as a rarefied experience.
[165] They ran TV ads with glamour shots of jetliners, set to Gershwin soundtracks.
[166] But over time, that changed.
[167] I think a lot of them took pages out of JetBlue's book, frankly.
[168] You know, nobody had live television, and now Delta has...
[169] has decided to put live TV on all their planes and United as well.
[170] And then they all went through bankruptcy and got rid of a lot of their legacy costs.
[171] And that helped them a lot.
[172] Then fuel came down and they were able to start making money.
[173] And I think they just had to get better because there was a new standard.
[174] And they said, all right, let's do it.
[175] So, you know, I don't want to take credit for all of it.
[176] But I think you should take a little bit of credit because, you know, it's a much more pleasant experience to fly today than it was back when we started JetBlue.
[177] But there's more to running an airline than creating a pleasant cabin experience.
[178] On Valentine's Day of 2007, there was an ice storm in New York that forced JetBlue to start canceling flights.
[179] And just like Southwest this past Christmas, JetBlue lost track of its pilots and flight attendants.
[180] Over just a few days, they canceled more than a thousand flights.
[181] Passengers were irate.
[182] The company's stock price dropped.
[183] and David Nealiman, nine years after creating JetBlue, was booted as CEO, which was very disappointing for me. But he had another idea.
[184] In the back of my mind, I had this thought of a 19 -year -old boy.
[185] I want to come back to Brazil.
[186] Brazil is where Nealeman was born.
[187] He comes from a Mormon family and his parents lived there while his father was doing his mission and later working as a journalist.
[188] They eventually moved back to the States.
[189] But when it was time for David to do his mission, he was.
[190] was sent to Brazil.
[191] Because I was born in Brazil, I had a Brazilian passport.
[192] So when it came time for me to serve, because I had that passport, I was called back to Brazil.
[193] You don't really get to choose where you go.
[194] But luckily, I was assigned to Brazil.
[195] And so I went down there and I was in favelas and the slums of Brazil.
[196] And it kind of made me realize that, you know, there was another side to life.
[197] And as a 19 -year -old boy leaving there, I can just have that distinct impression that I wanted to come back to Brazil one day and kind of make a difference.
[198] When Neelman lost his job at JetBlue, that day had arrived.
[199] By now, he was 50 years old and he started Azul Brazilian Airlines.
[200] He rounded up some people at JetBlue.
[201] The CEO at Azul today was on his mission in Portugal, so he spoke kind of funny Portuguese.
[202] And then another guy dated a Brazilian at Harvard.
[203] And so he spoke some Portuguese because he wanted to be able to date her.
[204] So we kind of rounded up this band and we went down to Brazil.
[205] Like JetBlue, Azul was a low -cost carrier.
[206] But the Brazilian airline market was much different than the American market.
[207] And from Nealman's perspective, much more promising.
[208] Brazil had nearly 200 million people spread across 3 million square miles, but fewer than 50 million people flew each year.
[209] And that compared to about 550 million in the U .S., and so we just transformed travel in Brazil.
[210] Our competitors were serving 42 cities and today we serve 160 cities.
[211] And from fewer than 50 million passengers a year in Brazil.
[212] Now there's 110 million people.
[213] So most of all that new traffic was generated by what we did.
[214] It's the most important thing I've really ever done.
[215] What it's done for the country, as important, we created a logistics company because prior to us being there.
[216] If you ordered something online, it would take it like two weeks for you to get your package.
[217] It would be done through the post office, basically.
[218] There wasn't a UPS.
[219] There wasn't a FedEx in Brazil.
[220] And so today we delivered a 4 ,800 communities in 48 hours all over the country.
[221] So we take life -saving vaccines and organ transplants to areas that didn't have air service before.
[222] We serve the Amazon basin.
[223] There are runways where we have to buzz the runway and get all the animals off and before we can land, because it's a four -day boat ride if you don't go on us.
[224] How do you make money?
[225] Now, that's another issue.
[226] It's interesting, Brazil would be making so much money today, except for one thing, and that's the exchange rate.
[227] When we invested our money in Brazil, it was 1 .6 to 1.
[228] And there were times during the pandemic, it hit 6 to 1.
[229] And 65 % of our costs are in dollars.
[230] If it was still 1 .6 to 1, we'd have 1 ,000.
[231] airplanes down there, and there'd be 300 million people traveling by air.
[232] I always say to our team, this is the land of milk and honey guys and gals.
[233] This is like the U .S. market in 1965.
[234] I mean, to be able to go into a country, the size of Brazil, and become the largest airline in 14 years is incredible.
[235] And so, you know, obviously profits have been held down.
[236] We created $5 billion of value, and now it's, you know, less than a billion, but it'll be back.
[237] When we consumers buy things, whether it's plane tickets or a car or hamburger, we tend to think that the demand comes from us.
[238] We want something, we look for it, we buy it.
[239] We don't usually think about how suppliers create demand, but Azul did create demand in Brazil, or at least they tapped into a latent demand that no one else was supplying.
[240] Now David Neelman is trying to do the same thing back in the U .S. with yet another new airline.
[241] 90 % of our traffic is generated.
[242] It's not stolen.
[243] That's coming up.
[244] After the break, I'm Stephen Dubner, and this is Freakonomics Radio.
[245] There are many things that people hate about airline travel.
[246] Here's one.
[247] Unless you live near a relatively large city, it can be really hard to get where you want to go.
[248] It's not like you can't get there, but it might take a while.
[249] You might have a layover or two, and it may have a layover.
[250] end up being pretty expensive.
[251] One of the things that people complain about, it's the lack of nonstop service.
[252] That, again, is David Nealeman, founder of JetBlue in the U .S. and Azul in Brazil.
[253] As the airlines, as the mergers went through and everyone kind of retrenched to their hubs, you saw more and more cities that lost airline service.
[254] The airline mergers over the past few decades have left the U .S. with four big airlines, American, United, Delta, and Southwest.
[255] for Southwest, the others operate on what's called a hub and spoke model.
[256] American, for instance, has hubs in Dallas and Charlotte and a few other places.
[257] United uses Chicago and Newark and Denver as big hubs.
[258] Delta has hubs in Atlanta and Minneapolis, Salt Lake City.
[259] If you live near a hub and you want to fly to one of that airline's spoke cities or vice versa, then you're in good shape.
[260] But what if you live in a place like Huntsville, Alabama, Huntsville, Alabama has become the largest city in Alabama.
[261] Cities grown 25 % over the last 10 years, and air service is down 25%.
[262] And fares are up.
[263] So, you know, it's a pocket of pain that we can take advantage of and we can go in there and have some success.
[264] And that's why Nealeman has started yet another low -cost U .S. airline called Breeze.
[265] The reason we started Breeze is because we saw that there was less service.
[266] 98 % of the time we take you nonstop between destinations that you couldn't go nonstop.
[267] Can you explain how you decide on the routes you're going to fly with a new airline?
[268] A lot of people don't know this.
[269] And this is a holdover from the regulated days, but we are required on a monthly basis to provide the traffic figures on every single person we flew and the average fare that they paid.
[270] And it all goes into a database and we all have access to it.
[271] So when we're looking for a route, we can say, holy, there's 150 people a day flying this particular round.
[272] There's no nonstop service.
[273] There's some gut that is involved because you have to stimulate too.
[274] You have stimulate a lot of traffic and some markets can stimulate better than others.
[275] What do you mean you can stimulate?
[276] I mean, if you're living in, say, Idaho Falls, Idaho, and the drive is 16 hours to get to Disneyland.
[277] And if you want to, you want to, to buy a ticket, it's $450 and you connect through Salt Lake, then you just don't go or you take that grueling trip less often.
[278] And then I'll send someone pops in there and says, hey, we'll take your whole family and you go for $59 each way.
[279] You will get on an airplane where you wouldn't have done it before.
[280] That's the way you stimulate traffic is by offering convenience service on low fares.
[281] So we're just kind of filling the gaps in generating traffic.
[282] 90 % of our traffic is generated.
[283] It's not stolen.
[284] When I look at your route map, It looks like it could overlay perfectly onto inter -U
[285].S.