United Airlines shows how inequality is putting the squeeze on customer service
You've probably seen the footage of police violently dragging a paying passenger off a United Airlines flight. But was the incident really just a one-off example of bad corporate behavior? Arguably, it was a particularly dramatic example of a deeper trend across the entire economy. Treatment of customers is increasingly stratified by class: Well-off individuals with money to burn get pampered, while the vast majority of Americans are treated like dirt.
Let's start with the airline industry itself, where United is already kind of notorious. The airline has shrunk the chairs on its flights, increased fees for baggage, and eliminated pre-boarding for people with infants. "Gate agents and flight attendants all just seemed crabbier," as The New Yorker's Tim Wu observed. A Canadian musician made the airline infamous in 2009 when they destroyed his guitar and employee after employee reacted with indifference. The implicit caste system of boarding groups and upgrades has become more exacting, so elite first-class fliers are the only ones to escape all this.
But it's not just United, either: The practice of overbooking flights — which is why United needed to get some passengers off the plane to begin with — is actually extremely common. When it comes to everything from prompt performance to denying people boarding to damaging baggage and overall complaints, the decline in customer service is being felt across the entire industry.
Slate's Helene Olen pointed out this isn't even just the airline industry. It's everywhere:
Everything from retail to travel (Hi United!) is dividing up into intense luxury and bargain basement, with less and less in between.
— Helaine Olen (@helaineolen) April 10, 2017
For instance, high-end luxury hotels are growing revenue per room at solid pace, with some are even partnering with high-end restaurants to bring multi-course meals to room service. But the chains that don't cater to the upper class are more stagnant, cutting back on amenities like even having a restaurant at all, much less room service.
Same thing in retail: Luxury stores enjoy healthy earnings, while mid-level stores like Sears and JCPenny struggle, and more and more customers wind up in Target, Kohl's, or Walmart. "A salesperson at Nordstrom's will walk you from department to department, helping you select what you need, but Walmart is so bereft of sales help that Bloomberg reports they can't even keep the shelves stocked," Olen pointed out.
Private schools for the wealthy are pulling away from the rest of the population, attracting high-paying customers with glittering amenities like Olympic-style swimming and athletic facilities. In medicine, "[t]he monied are increasingly likely to use concierge medical practices," Olen noted, "while even fairly middle-class people are turning to crowdfunding campaigns to handle the financial crises they are plunged into by unexpected illness or tragedy."
You can even see it in theme parks: Disney World now offers its high-dollar customers premiere hotels, fine dining, VIP tours, spa treatments, and more, while everyone else gets shunted into off-site lodging and byzantine deals for cheap tickets.
What's going on? In a word, inequality.
As more and more of all the income generated in the economy goes to a small slice of the population, that elite group inevitably drives more consumption: In 1992, the top fifth of income earners accounted for 53.4 percent of all consumption. By 2012, their share had grown to 61 percent. High-end industries that cater to upper-class customers were the first to recover after the Great Recession. For everyone else in the economy, incomes have stagnated.
But everyone's income is someone else's expenditure. So rising inequality means key expenditures for companies keep climbing — land and business space, health-care costs, etc — even as the buying power of much of their customer base doesn't keep up. At the same time, the people in the bottom 80 percent are far too big a customer base to leave behind. So companies have to figure out how to keep making a profit from them, even though they can't afford to pay any more today than they could a few decades ago.
The answer is to cut customer service for most Americans to the bone, while showering high-end customers with top-of-the-line treatment. To get back to the United example: Overbooking takes advantage of the fact that some people don't show up for flights to squeeze more sales out of the customer base. Airlines will often ask for volunteers and coax them through compensation offers, but that costs money. Taking the gloves off and hauling a customer from a plane is cheap.
By contrast, in an economy where incomes were much more equally distributed, companies wouldn't be able to play upper-class customers off lower-class ones: They'd have an incentive to maintain customer service for everyone.
Another factor worth mentioning is the government's ultra-lax enforcement of anti-trust law in the last few decades. Merging is yet another way for companies to deal with the economic realities of a poorer customer base, and airlines and other industries have taken advantage of the opening. That's left customers facing fewer companies with more monopoly power, and thus fewer alternatives if any of those companies treat them like dirt.
Certainly, there's a corporate culture that's infecting United and Walmart and other companies, one that says lower prices are all that matter: As long as you keep prices low, you'll be fine, no matter how poorly your company treats customers in other ways. And it often works! People will, in fact, put up with an enormous amount of grief to get lower prices.
But this idea didn't just pop into CEOs' heads one day. It's been driven by material changes in the economy. People don't put up with bargain-basement treatment because they want to. They do it because they have to. Decades of wages not rising, while costs keep going up, has left them no other choice. And companies exploit that to keep their profits up.
Editor's note: A previous version of this article mischaracterized Neiman Marcus' earnings. It has since been corrected. We regret the error.