Latest news reports that Delta Airlines, 3rd largest airline in North America is pushing its pilots for concessions once again and bankruptcy is a real possibility. Several top executives have already jumped ship. Other large airlines are in a similar predicament. Now, there is rumor about air carriers turning to the federal government for a “bail out” once again. Wow…this passenger carrier scenario sounds “slightly familiar” to the situation…about 45 years ago. On some of the Amtrak topics we’ve had here, some of us have responded: Kill the beast! No subsidies!
Question:
If our large air carriers go “belly up”, are those of us that criticize Amtrak’s support going to have the same attitude? Remember, there are many small, regional carriers that fly long distance too. They use smaller, less frills aircraft that jolt on every airpocket in the sky, but the service is there.
So do we say: It’s free enterprise, let the smaller companies take over? Or are the politicians, especially the ones that enjoy flying 1st class on Boeing 767s, going to demand that Bush and Mineta start funneling money should these large carriers go under?
There are a lot of issues that can be addressed here, including “open access”, but I’ll leave the opening gambits to others.
As I see it, one part of the problem is that the older airlines have a cost set-up that is still geared to the tightly regulated operations under the CAB. The newer carriers tend to pay their employees less and are often non-union.
Another part is that carriers seem determined to maintain a given market share over some routes, whether they are making money or not on that route. The resulting fare wars are great for the customers but not too good for the carriers.
The customers also have to realize that they can’t have it both ways. They seem to want the lower fares AND the bigger legroom and better cabin service that used to be covered by the higher fares of the regulated era.
I thought $200 round trip Orlando-Milwaukee was dirt cheap on Northwest until I found Orlando-Chicago RT for $121 on United. Those charges include all taxes and fees.
United has been turned down on its requests for Federal Money. (The Speaker of the US House of Represenatives was on it’s side.)
I doubt we’ll see “nationalized” air travel. If United or NW goes under another private enterprise carrier will fill the void.
One of my brothers flys almost every week for his job. Says much of the work could be done effectively by videoconferencing (computer to computer) and at much less cost, but the higher-ups don’t picture it. They’re not doing the flying.
Maybe the airline turmoil will push videoconferencing from novelty to critical mass.
Compounding the problem is that some of the big airlines want to purchase the “new generation” aircraft that offers high effieciency…but the costs of these new planes are higher than the nose bleed section of a stadium.
No frills airlines like Southwest and JetBlue have a business model that cuts costs to a point full service carriers can’t compete. They fly one type of jet, don’t handle baggage, don’t serve hot food, they usually fly out of a cheaper airport, etc. Full service carriers have tried to become hybrid carriers where some routes are no frills and others are full service but this doesn’t cut costs that much.
No frills carriers will take over every route that has enough traffic to fill jets on a frequent schedule. This leaves smaller cities with regional carriers flying small planes. Full service carriers will be left with international flights because they are negotiated between countries.
American Airlines former CEO Robert Crandall is betting on air taxis and is trying to get an air taxi company off the ground http://flypogo.com
Deregulation, of which I am a firm believer, is what caused today’s airline situation. Airlines that adopted to new ways of doing things have survived and flourished. Airlines that kept operating “the old fashioned way” too long have suffered.
Airlines that fail will be replaced by profitable private sector airlines. Airtran may take an even larger share of Delta’s business and Southwest may do the same with United and American. Other airlines will emerge to handle the business too.
The interesting aspect of deregulation is going to be how airlines like Airtran and Southwest handle today’s success a decade or two down the road. Will their operation models survive or will they become more like today’s major airlines? As their fleet ages will low cost margins survive? Will low fares remain once today’s major airlines are gone?
Amair is not in the federal government’s future. Airlines are different situation than what was seen in the 60’s and 70’s with railroads. Airlines have no physical real estate for their routes and for the most part only rent gate space at the airports. Both situations are a lot more flexible than the privately owned real estate and routes owned by the railroads. Thus, Southwest, Airtran, JetBlue or new start up airlines can more easily take over the routes left by a failed major airline.
I would cheerfully point out that the US Gov. has taken a different route with the airlines. Instead of creating and Amtrak of the sky, instead it has provided an incredible amount of cash bailout to the individual corporations involved, as well as taking over the responsibility for some of the pension plans (e.g. United); these pension plans being a significant part of the problem.
Many of the older airlines have been able to renegotiate some of their labour contracts to help with their cost structure, but not all. Much of the lower cost structure of the newer el-cheapo companies comes from paying the help a lot less than the older airlines. It’s true that a little of it comes from operating smaller aircraft from smaller airports, but not that much.
I have a hard time feeling any sympathy for the major airlines. For many years they have gouged the traveling public as much as they could. Here’s an example: From Washington (DC) Dulles to Jacksonville, FL, the cheapest available fare is about $90 because JAX is served by at least one of the “new” airlines. From Dulles to Tallahassee, FL (165 miles west of JAX), the cheapest available fare is approximately $300, because Tallahassee is only served by the “old” airlines. Now, I realize that any business “should” maximize its revenue, but where the “old” airlines don’t have competition from a discount carrier they are just rapacious. You can fly the 2000 +/- miles from Dulles to L.A. cheaper than you can fly the 800 miles from Dulles to Tallahassee. I don’t claim to be an airline expert, but I know *** well I can’t drive my car 2000 miles for the same cost as 800 miles.
I think as long as they don’t all belly up at the same time, the market will adjust and Southwest, Jetblue, etc will expand. The real problem is if 3 or 4 go so quickly that a big void is left and the government is pushed by public opinion to do SOMETHING. The something will be expensive, inefficient, and an albatross we can’t get rid of.
This is a different situation from the railroads. With only a few exceptions, no one really wanted to provide rail passenger service. It wasn’t like Sante Fe could opt out and someone else would come into fill the void. Southern held out their name train for a while, but couldn’t make it pay. Cars and airplanes had dwindled the demand for rail passenger service.
Even today, only the northeast corridor is really profitable. This situation may change as gasoline and aviation fuel prices continue to rise - especially if the railroads can use electric power generated from other fuels (I know big IF). Also as the population increases and we get more high density areas like the northeast then more intermediate distance train service can be supported.
You would think that Bush and Congress will let the sick air carriers sink and allow the strong carriers to pick up whatever service is viable. This is consistent with the post-Staggers deregulation of freight railroads and Mineta’s view of Amtrak. Don’t bet on it, because air travel (and Amtrak to a lesser extent) has spillover economic, political, and social benefits. The Feds may foster consolidation of airlines and set up emergency loans, but they will not make an “Air-Trak” or let raw market forces determine the air transportation system.
Will there be an AmAir (probably already a trademark of American Airlines, BTW)? The short answer is no. The cost of entry to into the airline industry is low and every time a niche or opportunity arises, someone seems eager and willing to jump into the frying pan. Hopefully, the US Government will show more restraint by limiting aid, let the weak airlines die, and let the better-run airlines reap the rewards. Don’t forget that Amtrak can’t help but be the puppy in this dog-eat-dog competition. Unfortunately, I see airline competition only intensifying as very light jets (see other threads) start to come on stream.
Antonio, it isn’t just Delta. Northwest is working hard to bust the mechanic’s union, and threatening bankruptcy too. They have less than one week left of the 30 day cooling off period, before the mechanics can strike. It sounds like the pilots will cross the picket line, and the airline will keep flying. The filght attendants have been threatend to be replaced if they honor the mechanic’s strike. Northwest has been wanting to outsource its maintenance, but has also been training replacement mechanics.
In spite of all that Northwest may still file for bankruptcy.
We need the airline industry–botom line. Many other jobs are associated with it. For business travelers who fly all over to conduct their “business”, many hotels and eating places are in business for trhis main reason. Do away with thye business traveling pubic and other related business will shut down.
That is always a rough situation for employees. No easy answers. Management claims that if employees don’t accept pay cuts, then bankruptcy is assured. Union employees had already given concessions in the past and stand firm. Then the company goes bankrupt, it’s reorganized and union contracts no longer are honored.
On the flip side of this, a company outsources some jobs OR unions give into concessions… and bankruptcy still occurs. From past bankruptcies in recent history, we’ve seen that corporate executives often wind up receiving promised bonuses, or severance payouts totalling six figures or higher.