Airline Deregulation - A Total Disaster (companies, tax, money, cost)

[Mike from back east]

Originally Posted by UpperPeninsulaRon

Regulation of the airlines certainly will not cause ticket prices to drop by decree. If ticket prices are regulated downward, .....

Ron, I think you mis-understand the rate floor. Its purpose is not to drive down prices. It is to prevent fare wars from driving the prices down. Fare wars drive prices down to where carriers lose money, causing all sorts of havoc. The rate floor was designed to keep prices from dropping to a point where they lost money, became unsafe, served the public poorly and eventually went into bankruptcy. A rate floor sets a minimum fare level, one that is at least minimally profitable in order to assure carriers are able to perform their duty to the public. It is a barrier of sorts, a price point below which they may not go. They can go as high as they choose, but not any lower than the floor price.

A rate floor doesn't bring back "collective ratemaking" where they all sit down and agree to one set fixed price. We can have a rate floor and still have all forms of competition.

s/Mike

[UpperPeninsulaRon]

Originally Posted by Mike from back east

Ron, I think you mis-understand the rate floor. Its purpose is not to drive down prices. It is to prevent fare wars from driving the prices down. Fare wars drive prices down to where carriers lose money, causing all sorts of havoc.
s/Mike

Mike, Thanks. I'll admit that I was not looking at it as a rate floor. I now understand where you are coming from although my thought process is usually against some artificial method to support wither a high or low price.

I also, however, understand the importance of the overall airline industry as one of the basic foundations of life and mobility in this country.

I'll have to ponder this a bit more. Thanks for helping me understand your point.

[bhcompy]

Originally Posted by golfgod

bhcompy wrote:

Nice union bashing, but it's just not true. In fact many, if not most of the unions at the "legacy" airlines have negotiated way down. There is not a huge difference in labor/hour costs among the big 7 and Southwest. Granted the legacy airlines do have some very senior drivers making much more than the top drivers at SWA. But overall the cost per revenue seat mile is not far apart.

There are 3 big costs of operating an airline; capital equipment, most of it in the form of aircraft, labor, a big chunk of which is drivers, and FUEL.

As I said above (feel free to research this) just like in building cars, there is no HUGE difference among the players in the cost of pilots.

Fuel; they're all paying the same. Except last year because of its superior (financial) management, SWA was able to buy huge futures contracts for jet fuel with CASH ON HAND. No one else had the cash, nor the good enough credit to borrow to do it. Imagine how much better your life would be today if you were paying $1.75 for gasoline instead of $3.40.

Cost of capital. This is the big killer of idiotic airlines. The biggest capital investment of these guys is their airplanes. Coincidentally it's the only one that earns them money. But, as this is crucial, they spend a large part of thei time sitting at (hub and spoke) gates. A parked airplane earns no money. A "point to point" airline enjoys approximately a 7-8% COST ADVANTAGE over a hub and spoke airline.

Imagine if you enjoyed a 7% cost advantage on your largest expense, over your competitors.

golfgod

and i mentioned fuel. it is a definite advantage. like i said, smart business moves pay off. that is not the fault of deregulation. it is the fault of executives in a business in a capitalist economy not being smart enough to secure longterm fuel contracts, just like the state of california didnt until the height of the post-deregulation energy crisis where gray davis pushed through longterm energy contracts to make up for the shortfall in local energy production, because there have been no new plants built in california for decades, at the highest price, which only proves that it doesnt matter whos running the industry. if you dont make sound business moves, private or public, you're not going to have a fun time when a crisis hits. deregulation plays no part in that.

as far as the unions, there is a large burden from the older employees and with pensioners and healthcare plans, which is why most companies have done away with pensions and go with 401k's now. the majority of us companies do not suffer that type of problem because they dont have those type of labor contracts(or labor benefits) with non-executives. you cant say its not a burden, because it is, and its not union bashing to say so. its plain fact. and, regrettably, you have companies filing bankruptcy just to be able to rework some of these contracts because of an unwillingness to accept modern market conditions. a company that doesnt have unionized employees could just terminate employment/layoff or shuffle appropriately, but the airlines dont have that luxury and have to goto bankruptcy court(NWA, USAir) to fight to nullify contracts or have to threaten to(AA) to get where they want to be as a business. that is a legitimate downside of union labor and is in no way "union bashing".

[Mike from back east]

Did anyone see Captain Sullenberger on TV the other day when he spoke to Congress about the state of the commercial airline industry? He told them that his pension was terminated, his pay cut 40% in the past 10 years, and that young pilots aren't bothering to work for the airlines after they leave military service because it just doesn't pay enough to be worth it.

That is the death spiral for our airlines. Deregulation and its endless fare wars is destroying the ability of these firms to pay their people a salary commensurate with their training and experience. Each year we get closer to an airline industry that totally fails us as a nation. Those cheap fares so many people love are going to destroy the industry, leaving the taxpayer to pick up the tab for the health care and pensions of the industry employees, from pilots to ramp rats.

[wheelsup]

Except nurses or [insert career choice here] don't put $50k-$80k into their education to start out making $15k-$20k/yr, with a slow increase from there, and ridiculous job instability.

He's right, had I started flying after 9/11 I would've left. Unfortunately I had too much in it by then to quit.

My W2's as a pilot after entering the work force:

$15k
$27k
$24k
$38k
$56k

Although I did average around 16 days off a month for the last 3 years, so that says something. I guess.

It'll go down again because I got downgraded to an FO again. The starting pay at the majors is dismal as well, at US Airways (where Sully is) starting pay is around $21k/yr for the A330, 767/757, and 737/A320. To put that in perspective that is $10.50/hr. Go ahead, pick your jaw up off the floor. Who would go there? Not me!

New hire experience has come way down. At my commuter/regional, it used to be 2500 hours TT just to get an interview. I worked at a training facility for another commuter/regional who hired guys at 200 hours. Yes you read that right, 200 hours in planes! Less than half of that was by themselves! And that was in some pretty big stuff, up to 90 seat jet aircraft weighing almost 85,000 pounds. That is similar to the mainline NWA DC-9's, except at 1/5 the pay.

Soon you're going to have high school dropouts flying the planes, heck some places already do...it's embarrassing really. I'm looking for a way out, as are a lot of folks. The people left in the next 10 years will be the ones who can't get jobs doing anything else, just think they are flying the public around...yikes. The majors are outsourcing so much of their flying that they are shrinking and the "commuters" are now flying up to 90 seat aircraft. Everyone wants a piece of the action and pilot pay continues to go down.

[gwynedd1]

Originally Posted by Mike from back east

Airline Bankruptcies are in the news again this week, as they have been for 30 years since the industry was totally deregulated during the Carter administration.

Thank you Jimmy Carter - one of our worst Presidents - for TOTALLY deregulating the airline industry and closing the Civil Aeronautics Bureau. You blew it, and your so-called 'advisor' Alfred Kahn was/is a total buffoon.

Most people have no understanding of the ramifications coming from no-holds-barred white knuckle capitalism. Money-losing airlines often cut corners on safety, which we saw repeatedly in the 1980’s as long-time industry stalwart Eastern Airlines was fined heavily for thousands of safety violations and EAL eventually lost enough money in fare wars to go under.

Included in the early rounds of bankruptcy filings were a lot of airline names that were once household words:
(a) Pan Am Airlines; our national flagship airline, the airline that taught the WHOLE WORLD how to fly. PAA was sacrificed on the altar of low fares to compete with British idiot Freddy Laker and his non-sensical Laker SkyTrain flying cattle car concept. Laker is long gone too.
(b) National Airlines; the sunbirds that flew millions to Florida and other sunny destinations
(c) Eastern Airlines; the original air shuttle carrier, sacrificed on the altar of low fares.
(d) Braniff Airlines; crushed by deregulation in 1982.
(e) Republic Airlines; disappeared into Northwest Airlines in 1986.
(f) TWA; a legendary airline, the airline to whom other airlines sent pilots for training, sacrificed on the altar of corporate asset raider Carl Icahn, arguably one of the most destructive men in the world of business.
(g) Many more small airlines that simply got gobbled up or shut their doors.

While the FAA still exists to deal with safety issues, the CAB dealt with economic health of the industry based on the principle that a profitable airline is a safe airline. Conversely, when an airline is losing money or fighting for its economic survival, there is a natural corporate tendency to defer many routine checks and safety reviews in order to cut labor costs and keep flying. It is this tendency that must be avoided at all costs.

Some notable deadly failures of the deregulated airline industry are:
(1) The 1982 Air Florida crash in Washington, DC. A cut-fare startup that leased everything and lured youngish hot-shot military jet jocks with visions of dollar signs. The pilot decided to take off without fully de-icing his wings during a heavy wet snow. It crashed on the Fourteenth St bridge and flipped into the Potomac River.
(2) The 1996 ValueJet crash in the Florida Everglades. A cut-fare startup that leased everything and contracted out services. With corners cut bare, no one was left to check-the-checker. Loaded oxygen canisters were simply stacked in a cargo hold and not tied down. A ramp rat thought the canisters were empty. A doofus at the contractor facility neglected to put FULL tags on the canisters which fell over in-flight and burst into flame.

The current spate of bankruptcies mean we are near the logical end of the disaster that has been our national disgrace called airline deregulation. Airlines will try to avoid bankruptcy via mergers that allow them to cut overhead costs and survive a bit longer. Delta and Northwest are now talking other merging. When mergers and bankruptcies end there will be 4 surviving major airline systems, just like we now see for hundreds of former railroads that are now distilled down into 4 major firms (CSX, NS, UP, BNSF).

When began in the late 1970's, those of us who knew the history and reality of transport knew this was coming. We knew the history of fare wars and bankruptcies dating back to the 1870’s and we knew how to avoid it but we were drowned out by the drumbeat of deregulation and the promise of cheap fares.

We’ve seen the sorry saga of what happens when Government bows to far right ideologues and force whole industries into deregulated status. Recall the debacles of banking deregulation (the S&L crisis) and energy deregulation (Enron and the rigged shortages and insane prices that nearly bankrupted California, etc).

Closing the CAB got rid of 3 key aspects of airline regulation:
(1) Collective ratemaking: an exemption from anti-trust law that allowed airlines to set rates as a group.
(2) The Rate Floor: a minimum level of fare prices below which no airline was allowed to go. KEY item to prevent fare wars.
(3) The Long Haul - Short Haul Clause: that you cannot charge less for a longer flight than a shorter one, it simply isn't logical that a 2500 mile coast to coast flight will cost the same or less than 500 mile hop.

Carter threw it all out. If his administration kept the Rate Floor under airline fares, that one piece of regulatory oversight would have been sufficient to assure a minimum level of profitability and maintain industry stability. In January 1993, the day Bill Clinton took office, there was a front page article in the WaPo that United Airlines wanted the Government to re-institute a minimum of regulation to restore order to the industry. No one noticed.

The regulated airline industry in this country was once the ENVY of the world.
- It made a profit.
- It was a good place to invest.
- It was a good place to work, glamorous even.
- It supported THREE makers of commercial jetliners in the USA. No need for foreign-made planes.
- It borrowed money from AMERICAN banks at reasonable rates.
- It served the public well; you knew before hand what it would cost, you could get seats at any time, you flew point to point.

Since deregulation, our airline industry has done a total turn for the worse:
- Loses money almost every year, debt heavy.
- A terrible place to invest; own stocks here at your own risk.
- Wage givebacks have turned the industry into a poor career choice.
- We're down to just 1 maker of commercial jetliners: Boeing. McDonnell-Douglas and Lockheed are gone. Government subsidized Airbus Industries of Europe now sell lots of planes here, so now we import unemployment.
- French banks financed many purchases of Airbus planes at sweetheart rates, cutting US banks and financiers out of the business.
- The public is poorly served by hub-spoke patterns that require 2 flights to make 1 trip; taking longer to get where you're going.
- Heaven only knows what your fare will be, they change day-to-day, hour-to-hour, even minutes later. Airlines spend billions on systems to do pricing manipulations that have one target - YOUR wallet. Pray that you don’t have to fly on short notice, as you’ll pay through the nose.
- Interlining of baggage is often not available. If you need to use two airlines to get where you're going, you probably have to claim it at the transfer city and check it in again with the second airline.

One proper role of government is to take the ragged edges off of capitalism, usually via minimal regulatory oversight. The public has NOT been well served by total deregulation of the airlines, or any other industry, nor will it ever be.

Hi Mike,

If airlines were not surrounded by cartels it would not be so bad. Airlines just happen to be one of the few things that are not monopolized in some way.

[texdav]

I agree;look att he past and the real dollar cost of flyiny then . It opened flying to many people because it brought airlines into competition. Few people flew before because cost in real dollars was hgh.

[bxlefty23]

An example of TOTALLY free markets was the mortgage business a few years ago. When some crooks started writing "liar loans" with no proof of income or even proof of employment, the abuse began. Without any government regulation to prevent liar loans, millions of such loans were written, it was a "free" market without even a minimum of oversight. Once one idiot offered no-doc / no-down / loans, everyone in the totally unregulated mortgage market had to follow suit or else lose business - so they all started writing the destructive loans. The taxpayer is eating these loans now, as at least $250B of these worthless loans have been "swapped" by investment firms and banks to the U.S. Treasury (that means us taxpayers) for Federal guarantees, etc. In this case, the word "swapped" means taxpayer bailout, like the recent $30B swap of worthless Bear Steans paper with the Fed. The abuses in the unregulated mortgage market are abusing we the people, as it is we the taxpayer who will eat this crap, like we ate the S&L scandal when Bush's father was President.


Wow tell a bigger lie
The mortgage industry collapsed was caused and often FORCED by govt regulation

govt regulation
1) allows banks to loan out way more money than they have
2)created artificially low interest rates which led to artificially high housing prices
3)legislation was passed FORCING bank to lend money to high risk low income usually minority candidates
4)the interest tax deduction encourage one form of behavior over another- the govt encourages people to buy houses whether or not they could afford them

[wanneroo]

I think the unions are a big part of the problem with airlines much like the automakers.

[hindsight2020]

Originally Posted by wanneroo

I think the unions are a big part of the problem with airlines much like the automakers.

Um, no. Unions in the transportation industry are necessary in a de-regulated market to maintain some semblance of economic incentive for those who make it their business to transport pink bodies at altitude at 7 miles a minute. As to why they're failing we'll discuss in a second. They're not the problem at all, de-regulation and the seniority system is.

The comparison between the union dynamics in auto manufacturing and the airlines is flawed because the free market comparison between the airlines and auto manufacturing is flawed to begin with. With passenger flight, the product is in its very essence is a known quantity. There are not the proverbial million ways the product can be delivered to eek out a competitive advantage, the job is to fly passengers from point A to point B without the need for a pine box. In the age of automation we take for granted the underlying safety issue that supports this whole industry, but as the latest incidents show with Colgan Air (regional contractor for the Continental Express buffalo crash) and US Airways show, this issue never goes away. TVs, peanuts and extra pillows is an irrelevancy in the context of the product, which is to deliver you to point B alive. For that reason, this so called competition is a capitalistic facade aimed at diluting the argument to that of our above poster, where the product is equated to the million ways a firm can optimize and market the delivery of a car.

The reason the unions are failing is that they whipsaw the labor group against each other due to the seniority system. In the airline world, lateral career moves are not possible. This is to say, in order to get a job at airline B because you got furloughed from A, you have to start at year one pay. That would be great if year one pay was a livable wages but thanks to de-regulation it is sadly not even close. Age 65 is a perfect example of a segment of the union representation lobbying for their interest at the expense of everybody else. In that regard many feel double crossed by union representation at the airlines. Our readers have to understand that the reason a seniority system is prevalent in the industry is because the work of flying an airplane is the pursuit of a STANDARD. That is to say, the company not only desires, but REQUIRES, pilots to be carbon copies of each other. Every pilot is hired to perform its duties to the letter of procedures and exercise their discretion within the context of operating standards. This environment does not require not incentivizes personal over-achievement. You don't move up quicker by someone else's subjective evaluation of your last 4 landings compared to your peers. For that reason the criteria for advancing in pay is solely based on the crudest and rather useless of all criterion, longevity. That needs to change but and as difficult as that is, it doesn't even touch on the real causal problem, which is de-regulation.

People continue to assert that de-regulation brought lower prices. This is true. In the days of regulation flying was essentially an upper class thing to do, the common folk you see packed at a southwest gate did not exist. Likewise, the access to pilot jobs was skosh based on the fact that minimum requirments were set high and capacity was lower, thence less need for pilots. Nowadays anybody willing to endebt themselves for a "dream" can chug through the licenses at a lowest common denominator pilot factory and be barely dangerous to themselves in the pursuit of a 20K job. That's not only a problem for the labor force, it's dangerous. So the way I see it de-regulation has allowed the facade of progress to be put in place, while progressively destroying the foundation under which this product gets delivered (safety and cockpit experience/proficiency).

Once again, automation has allowed airlines to get away with this race to the bottom by supplementing a lot of the under-experience in today's cockpits with airplanes that almost land themselves. This can only take them so far. When cabbotage finally sets in, and you have foreign carriers flying grandma around, you will finally see the fruits of your cheap tickets. Hey look, Afghan air can fly me dallas-atlanta for 20 bucks round trip. Awesome. Hope you like the fact they will probably operate in the states with even less restrictions than our domestic carriers. Think this proposition is hyperbole on my part? Keep up with the anti-union red herring and fast forward 15 years. My advice, buy stock in personal 'chute companies....

--break break---

wheels up, et al. I feel your pain. As a military pilot myself I see the airline industry as a very sad state of affairs. Compensation is horrible, job security is horrendous, benefits are non-existent, clearly not an industry that values the experience and professionalism I would bring to the table. The shenanigans of having to juggle a possible perma-career at a regional for fear of resetting the pay clock at a major just to be furloughed during that first year is something I literally cannot afford in my pursuit of putting food in my family's table. For that reason I decided to not pursue airline work. And I'm not just talking about military pilots, civilian pilots with decades of experience operating turbine equipment, forced to peddle in a cestpool of unlivable wages while providing a safety product that's priceless to the passengers in the back, it's a disaster of an industry. I know how much age 65 set you guys back, and added to the continual race to the bottom. I even work with SWA pilots at my reserve unit and those folks consider themselves LUCKY to have been blessed with the one thing that separates their career from others, TIMING. I also work with FCF pilots at places like boeing, and the stories about their training of these foreign outfit pilots would raise the hairs in the back of your neck.

Even then, they're [SWA, FEDEX, UPS, the ones doing ok TODAY] just racing to the bottom as well, hoping to be able to afford getting out before the cabotage takes over completely and americans, pilots and passengers alike, begin paying the price of that free lunch of low fares. I wish you and your peers all the luck in the world, and maybe the ability to get out of the industry and do something lucrative enough to satisfy your livelihood and that of your family. As a parting shot I'll provide Colgan air's FO pay for first year pay: 21/hr with a 75 hour guarantee. $18,900/yr gross base pay. As much as it scares the human fiber our of me I'd die for my country and my family for free if it became warranted, but I won't die for 18,900/yr and the promise of saving a buck for some entitled populace who should be driving home.

Union bashing....talk about load-fire-aim in this discussion.....