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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.
Last edited by Mike from back east; 04-12-2008 at 11:03 AM..
With carefull shopping or flying charter, it would cost my Grandfather 6 weeks pay in the 1960's to buy a Round Trip ticket to Europe... now the same ticket costs only 1 weeks pay...
Deregulation has been bad not only for the Airlines but for all the public utilities also.
It does not work !
Hey come to think of it, deregulation is nothing more then even more government intervention into our lives. America is slipping. Or has it fallen?
Thanks for all those facts on the Airline industry.
I don't see the logic there? Deregulation = govt is pretty much hands off and they allow the industry in question to do whatever it is they like for the most part. Free and unfettered capitalism does not work, only in the minds of foolish people does it work. Human beings are always going to be out for themselves and making a quick buck. You can not trust people in corporations to do the right thing, there must must must be over sight.
I don't see the logic there? Deregulation = govt is pretty much hands off and they allow the industry in question to do whatever it is they like for the most part. Free and unfettered capitalism does not work, only in the minds of foolish people does it work. Human beings are always going to be out for themselves and making a quick buck. You can not trust people in corporations to do the right thing, there must must must be over sight.
You are real close. Probably exact in theory. But when you add in the ingredient of corruption on big corporations you have the opposite of what degregulaion was intended.
Here is how the cable companies work for example. Big brother orders deregulation with the one or two cable companies who are in a specific area. This should in theory open new opportunies for more cable companies to come in thereby creating COMPETITION. Lower prices? Competition equalls lower prices??? Yea right.
Now all the competing cable company execs get together in secret and set a new price. There own price. A very high price. They all win many times over now. Before dereguation I remember paying $19.95/M. Today it is more then double and we still only have one or two choices, both a dollar apart.
Im not sure if the Airline industry is working this way but I trust big corporations about as much as I trust politicians and cops.
Deregulation may have been bad for the industry, but I'd say it has been nothing but good for consumers. Even though the price of oil has surged in the last 10 years, flight prices have barely budged since 2000. The main part of airline tickets that have gone up are the associated fees that were added on by the government after the 2001 increased security fees.
Think about how much the price of almost everything else transportation related has increased since 2000. It's pretty crazy how cheap the prices of airline tickets have stayed.
That being said, I suspect we are going to see a huge ratcheting up of airline ticket prices in the next several years as airliners go bankrupt and competition is reduced.
With careful shopping or flying charter, it cost my Grandfather 6 weeks pay in the 1960's to buy a Round Trip ticket to Europe... now the same ticket costs only 1 weeks pay...
True: in the mid 1960’s, I was making $1.20 an hour. In 2003 I was making $48.00 an hour when I retired, a 40-fold increase. Your Grandfather experienced the same growth in his rate of pay, thus making the ticket prices look cheaper and in real dollars they probably were as many efficiencies have been achieved in all industries over the past 40 years. All in all, not a truly good measure that airline deregulation is the success that you hint at.
Quote:
Originally Posted by AustinGuy
- Deregulation may have been bad for the industry, but I'd say it has been nothing but good for consumers.
- It's pretty crazy how cheap the prices of airline tickets have stayed.
- I suspect we are going to see a huge ratcheting up of airline ticket prices in the next several years as airliners go bankrupt and competition is reduced.
- Consumers think they’re getting a bargain, that’s the smoke and mirrors aspect of it all. There are tons of costs we eat every time an airline goes bankrupt. Guess who picks up the cost for the pension and health care costs that the airlines once paid for? You do. The Government usually steps in via the Pension Benefit Guaranty Corporation and/or other programs.
- You make the case when you say prices are crazy. Indeed they are, that’s WHY these guys are going bankrupt left and right, they can’t raise prices to cover increased fuel costs because the other carriers will kill them by not raising prices.
- Yes, you will see a huge increase in fare costs once the number of carriers has gotten down to four and they each are able to price their fares as they see fit. It doesn’t have to happen this way. Back in the Great Depression, around 1932, the ICC told the railroads to put their heads together and come up with a plan to rationalize the large number of railroads into a smaller number that were financially stronger and operationally more agile. Worked well. Didn’t have to destroy that industry to save it.
There is no free lunch. Cheap fares have eaten into the ability of the airline industry to sustain itself for decades and at this time just about all of them are broke - and flying has become a miserable experience.
except for the recent issue with maintenance, southwest has done very well for itself as an economically robust low cost airliner. it was one of the only successful airline companies post 9/11 as well because they did not make the same mistakes that united, delta, and companies in other industries like automobile manufacturers made. they dont have absurd union contracts, they keep things simple, they make use of smaller airports, they made longterm fuel contracts prior to the explosion in fuel prices, and they have no frills.
people are harping on capitalism here, but one of the primary costs has been the absurd contracts the unions(a socialist concept) worked up and their unwillingness to negotiate down in the face of bankruptcy. it's pushing both the domestic airline and autoindustry into deeper financial trouble because when these companies do consider costcutting movies to save money, they cant make layoffs or reduce employee pay or benefits. so instead they cut in other areas, like maintenance
You are real close. Probably exact in theory. But when you add in the ingredient of corruption on big corporations you have the opposite of what degregulaion was intended.
Here is how the cable companies work for example. Big brother orders deregulation with the one or two cable companies who are in a specific area. This should in theory open new opportunies for more cable companies to come in thereby creating COMPETITION. Lower prices? Competition equalls lower prices??? Yea right.
Now all the competing cable company execs get together in secret and set a new price. There own price. A very high price. They all win many times over now. Before deregulation I remember paying $19.95/M. Today it is more then double and we still only have one or two choices, both a dollar apart.
Im not sure if the Airline industry is working this way but I trust big corporations about as much as I trust politicians and cops.
I see what you mean, I agree. I think thats not "deregulation" though and ending monopoly. Deregulation I thought is when you say okay we will relax government oversight over this particular industry and allow you to govern yourself. It goes back to what you said, people are absolutly corrupt in these industries and you can not allow them to govern themselves.
I have asked this question before in other forums and no one has been able to give an example. It seems relevant here...
Name me one Big Government program that is better than its privately administered counterpart.
I think the airlines are a great example of how the competition of the marketplace creates lower prices, better service, and innovation for consumers. It is also an example of how some government regulations can create a safer environment for consumers without killing an industry.
As for deregulation being bad for consumers, you cite two crashes as if there were no crashes prior to deregulation. You cite big-name, dinosaur airlines that went under while failing to mention that Southwest Airlines has never had a crash and single-handedly changed the model upon which airlines are based now. You claim that price competition among airlines is a bad thing. Instead, as I mentioned above, we have extremely safe airlines (thanks to a fairly reasonable amount of regulations), low fares for consumers, airlines filling niche markets between smaller airports, and more people flying than ever before.
You say that deregulation is always a disaster. You clearly have a socialist agenda. (Just as I'll admit that I am a fan of the free market.) That's fine but socialism is not good for the consumer who benefits from price competition and innovation. In fact, socialism has worked so well in Cuba that they got color TV about 10 years ago and are now allowed to have cell phones and microwaves. Of course, none of those things were invented in a socialist country.
There are transitional pains when deregulating an industry. Remember the deregulation of long distance service in the 1980s. What a debacle that has been for consumers, right?
In my opinion, deregulation was one of the few good things that Jimmy Carter (clearly liberal and closer to socialism than the far right that you denigrated) did as president.
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