A Preview of Flying Blind


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A Preview of Flying Blind

  1. 1. Table of ConTenTs eXeCUTIVe sUMMaRY 1 I. InTRoDUCTIon 3 II. THe PUsH foR DeReGUlaTIon 4 Raising the Alarm 4 Kahn’s Crusade 5 From Reform to Deregulation 5 III. DeReGUlaTIon In THeoRY anD PRaCTICe 6 The Fare Wars 6 The Dinosaurs Evolve 6 Hub and Spoke 7 The Big Get Bigger 7 The Collapse of Antitrust 8 IV. THe InDUsTRY ToDaY 9 Increased Instability 9 Continued Consolidation 9 Declining Quality of Service 10 Deterioration of Pay and Working Conditions 11 Falling Prices 12 Scattershot Prices 12 V. safeTY: noT so saCReD 13 A World Apart 13 A Logistical Nightmare 13 A Slippery Slope 14 VI. ConClUsIons 16 Getting It Wrong 16 Thinking Bigger 16
  2. 2. eXeCUTIVe declining profitability and rising instability. The indus- try ran up huge losses in the early 1980s and again in the early 1990s, and, the authors note, “each of those periods, sUMMaRY too, was marked by a wave of bankruptcies and layoffs. The economic downturn of 2000 and 2001 sent the airline The February 2009 crash of a Continental/Colgan industry into another tailspin, with nine airlines filing for flight heading into Buffalo, New York called America’s at- bankruptcy before September 11.” tention to the deeply troubled state of the airline indus- try. Since 2000, U.S. airlines have reported net losses of more than $33 billion—almost twice their ac- cumulated profits from 1938 to STATISTICAL HIGHLIGHTS: 1999. Eleven domestic airlines filed for bankruptcy protection in 2008 • Out of roughly 150 low-cost air- alone; nine shut down altogether. lines founded since 1978, fewer The surviving companies have been than a dozen are still operat- on a cost-cutting tear, with some ing; they account for only about resorting to steps that (despite pro- 10 percent of current airline capacity. testations to the contrary) clearly • Before deregulation, there were 11 major trunkline threaten passenger safety. carriers; today, the country has six large mainline car- Preliminary findings in the Buf- riers—American, United, Delta, Continental, US Air- falo investigation suggest that the ways, and Southwest. The first three, along with their pilot and copilot lacked crucial ex- regional partners, control two-thirds of domestic air perience and training; they may have travel. been operating on insufficient sleep as well. Since the crash, critics have • More than 100,000 pilots, mechanics, flight attendants, raised troublesome questions about ticket agents, cargo handlers and other airline workers the little-known regional airlines have lost their jobs since 2001. that now handle a growing propor- • The number of people on the payroll of the legacy air- tion of domestic flights, effectively lines dropped 26 percent between 1998 and 2006. acting as subcontractors to the big brand-name airlines. The major car- • DOT Data for US Airways, United, Delta, American and riers have been faulted for farming Northwest show labor costs falling by nearly a third, out more and more flights to these on average, between the end of 2001 and the beginning smaller companies, which, in many of 2006. cases, appear to have significantly less rigorous hiring and training • According to the U.S. DOT, 2008 total baggage-fee standards. charges by U.S Airlines came to more than $1.1 bil- lion—a figure that is expected to triple by 2010. In Flying Blind: Airline De- regulation Reconsidered, a wide- • In 2007, more than a quarter of all flights were de- ranging new Dēmos report on the layed, accounting for 112 million lost passenger hours. industry, co-authors James Lard- • More than 100 communities have lost air service over ner and Robert Kuttner point out the past decade. that regional carriers now account for roughly 35 percent of all flight hours, more than double the 16 percent share that these companies held at the beginning of the decade. At that time, the re- The report traces the industry’s current troubles back port shows, two-thirds of all heavy aircraft maintenance to the decision, three decades ago, to lift most federal reg- was performed in-house, while today more than 70 per- ulation of air travel. “Deregulation was supposed to lead to cent of the work is outsourced, leaving federal inspectors a dramatically expanded universe of airlines—companies scrambling to keep up with nearly 5,000 repair facilities in big and small, old and new, competing and innovating for Flying Blind the U.S. and abroad. the public benefit,” the authors write. Instead, “Today’s The report links these practices to a broader “race to industry is more concentrated than ever, yet lacks the re- the bottom” on service standards and labor practices. sources and motivation to make crucial investments in While many industry leaders blame the airlines’ difficul- equipment, technology, and human capital. And most of ties on the price of fuel and the current economic crisis, the major U.S. airlines appear to have no long-term strate- Flying Blind uncovers a three-decade-long pattern of gy except more of the same—more outsourcing, more ser-
  3. 3. vice cutbacks and hidden charges, more wage and benefit reductions, and more consolidation in the hope of surviv- Policy Recommendations ing long enough to be in a position to turn a profit and foR RegulatoRy RefoRm expand again during a future economic recovery.” The authors call on Congress and the relevant executive Even many of the original champions of deregulation agencies to make a thorough study of the airline industry. have acknowledged their failure to anticipate some of the They recommend creation of a federal task force to ex- key results. By the late 1980s, the economist Alfred Kahn, amine the industry’s problems and propose solutions. who has been called the “father of airline deregulation,” Specifically, they call on the task force to: was writing: “I should have recognized that the naturally • Develop a plan to moderate the booms and busts and monopolistic or oligopolistic character of most airline build a more stable domestic airline industry. Here, markets…would continue—indeed expand—under de- the remedies could include capital-reserve require- regulation.” ments and bankruptcy reform. Kahn and others have taken refuge in the argument • Expedite (and establish stable financing for) a mod- that deregulation has produced lower airfares and wider ernized Air Traffic Control (ATC) network. access to air travel. The Dēmos report concludes that even • Develop coordinated national and regional transpor- this benefit is widely overstated. “While the price of fly- tation plans, with provision for high speed rail net- ing has come down over the past thirty years,” the report works to eliminate the need for excessive short-haul notes, “it decreased at a comparable rate from the 1940s air traffic. through the 1960s. In any event, low airfares are as much • Devise a code of customer service that would, among a problem as an achievement if they leave an industry other things, protect passengers from wildly varying without the resources to maintain service standards and prices and establish more uniform procedures for en- make crucial investments in equipment, technology, and suring remuneration and rebooking when a flight is human capital.” delayed or cancelled. • Promote more equitable and stable labor practices and return to the pre-deregulation practice of pattern bargaining in order to discourage airline competition based on low wages and high-pressure working condi- tions. • Insist on uniform airline safety standards, including mechanic credentials and oversight of maintenance facilities. • Develop new regulations to curtail airline consolida- tion and promote genuine competition where feasible, while, at the same time, cracking down on monopo- ly pricing and the other abuses of concentration on routes that are incapable of supporting more than one or two carriers.