Airline Econonmics
Delta and Northwest have joined the ranks of airlines in bankruptcy. There are two op eds in USA Today on the subject. One decries Chapter 11 as "business as usual." 
The other defends bankruptcy and cites deregulation as the real demon behind all the airline bankruptcies. I suppose I end up falling more on the side of the abuse of Chapter 11 than otherwise, mostly because the arguments made from the other viewpoint don't make much sense to me. The contention that airline deregulation is the boogeyman in this scenario strikes me as a bit odd. That was almost 20 years ago wasn't it?
Unsure of when exactly the airlines were deregulated (1978), I ended up at the Library of Economics and Liberty reading an article by Alfred E. Kahn. While he does seem to present a fairly balanced assessment of the effects of airline regulation I have to quibble with his tendency to wax rhapsodic about falling ticket prices and airline efficiency. Why have prices fallen? Is it because of airline efficiency? No. It's the result of cutting service. Had the level of comfort and service remained the same and ticket prices had gone down, we could extol the virtues of efficiency in a free market. He also contends that since consumers have flocked to discount airlines, reduced service must be okay with them.
Ummmm. No.
I hate flying Southwest. I would much rather fly Delta. Unfortunately economic considerations do not allow me that luxury. Rising gas prices have slowly been eating away my budget. (Not so slowly the last six months...and, no, I do not drive an SUV.) So have my daughter's braces, to give two examples. Unfortunately, thanks to the ragged economy, my income has not been going up to compensate. I don't fly often and when I do, I have to find the cheapest ticket I can; not because I enjoy being packed into flying sardine can or even that I'm even okay with it. My economic reality leaves me little choice. While I continue to see blurbs in the news about the economy turning around and growing stronger, it hasn't strengthened my paycheck yet. In fact, based on what I've seen on monster.com and dice.com, I'm doing good to be getting the salary I am.
And why was there no mention of 9/11 in these articles? Does the fact that the travel industry tanked after 9/11 and never really rebounded have no bearing? People—foolishly, in my opinion—were afraid to fly. Business travel, the life blood of the airline industry, was severely curtailed and companies learned to live with conference calls. Even after fears of flying abated, the economy was still in the toilet and it just made good business sense to do with less air travel.
If you want to blame deregulation, I would think 15+ years would be plenty of time for a well managed company to adjust its business practices. American seems to be doing okay and seems to be the only "legacy" carrier to have avoided Chapter 11. Allowing such wide use of Chapter 11 does seem unfair to companies like American who have managed to stay solvent through smart business choices. I also find resonance in the observation that the government's new "get tough" bankruptcy laws are focused on individuals and continue to give corporations a free pass. Still, it seems to me that 9/11 is a much more likely cause of current airline woes.
I don't pretend to understand the economics of the airline industry in any way shape or form. I can't even begin to evaluate the business practices of these airlines. I tend to agree with the supposition that Chapter 11 is indeed a option of last resort and companies will try and avoid it whenever possible. Even for the unfortunate employees of United, a job with no pension seems better than no job and no pension. I also wonder what would happen if Delta folded. As tight as money seems to be in this industry does American or Southwest have the capital and resources to take up the slack? Would we want them to? Somehow, I don't think we would.
I don't really know what the answers are here. I suppose the market will eventually stabilize. Given current trends, however, I'm still waiting for them to rename coach to something more appropriate, say, Cattle Class.
September 22nd, 2005 - 20:49
Delta and Northwest, not United. United is already in chapter 11.
And the irony is many “low cost” airlines are actually offering higher service than traditional carriers. Within the last month, for example, I’ve flown both Northwest and Sun Country. Northwest packs you into tiny seats and charges you for anything more than a few ounces of coke. Sun Country, by contrast, has more legroom, leather seats, and serves a hot meal.
Labor expenses are significantly higher at the majors, and while it’s not fair to blame all the industry’s woes on the unions, they can’t abdicate their share of the blame either.
September 23rd, 2005 - 07:00
Oops. My bad. I did mean Delta and Northwest at the top, but was referring to United doing away with its pensions as part of its Chapter 11 proceedings later on.
I never have understood the attitudes of some union groups, airline unions in particular. If your company is struggling to keep its head above water, insisting on higher wages or refusing a pay cut seems to me to be forcing the head under. Talk about cutting off your nose to spite your face. I would think a job with reduced pay is better than no job. I’d say go look somewhere else if you don’t like it, but unions have made that very difficult to do as well since changing jobs mean you lose all your seniority and perks.
Continental is another one that still serves a full meal, well as far as any airline has ever served a full meal. That was a pleasant surprise. If you don’t mind flying red-eyes, JetBlue has leather seats and free satellite TV at each seat. I stand by my dislike for Southwest. I hate the cattle call and the crap shoot for getting a seat, though that has been mitigated somewhat since I learned I can check in on-line and always get an A pass.
(Note: I did change the mistaken reference to United.)