Midflight correction?:
Kelly, Kevin
REPORT FROM ALOFT be too weak to fend off strong foreign competitors like British ...
...vention of something akin to the Civil Aviation Board, the agenThe Reagan administration took a more subtle approach to cy that once regulated fares...
...Since most major carriers can't ness continues: During the first quarter of 1993, the airlines make money at Southwest prices, the federal government would lost another $1 billion...
...desperately wants further...
...say about the industry: Reregulation isn't the answer...
...If the government intervenes D wring the late 1970s the Carter administration it could invite the worst of all outcomes: direct taxpayer subderegulated one industry after another...
...than one-third of Ciampi's ministers have no party affiliation...
...Regulation was president...
...have to demand the carrier raise its fares...
...So far, United has been rebuffed...
...American, for instance, has lines to undermine new entrants...
...The Bush administration's Council on Competitive- the industry's Big Three-United, Delta, and American-want ness, which loosened federal laws by fiat, proved the apex of the 10 percent federal ticket tax rolled back, which they argue this approach...
...And it's beginning with the airline industry...
...succeeds, American carriers would gain enormous advantages because they have cost structures two to three times lower than their overseas rivals...
...needed...
...discourages travel...
...Carriers were busy expanding on the ground, as well...
...For the first time since World But that's something a government commission can do lit- War II, Italy has a government headed by a pretle about...
...The carriers bet passengers would continue to crowd onto planes, despite an economic downturn...
...Bus- sidies...
...to reverse the deregulatory tide unleashed by the last Democratic What's wrong with these options...
...And ment can't close money-losing hubs...
...There is an alternative out there for the airlines to mier who is not a politician, Carlo Azeglio Ciampi, learn from: Southwest...
...Overall, airline management hasn't worked hard to earn labor's trust...
...The to the airlines as a de facto subsidy...
...for 1hcr1 rncrrrc r. - planes and the insolvent carriers didn't go out of business, the Big Three were forced to cut prices to fill their shiny new jets...
...akin to those that hamstrung the auto industry during the 1970s, sharply constrict productivity...
...Instead, business...
...REPORT FROM ALOFT be too weak to fend off strong foreign competitors like British Airways...
...fares that are equitable and competitive...
...A Southwest pilot, for instance, ceed Socialist Premier Giuliano Amato by Italy's president, Oscar puts in 30 percent more flying time than an average pilot at Luigi Scalfaro, Ciampi was able to form his cabinet without United, but earns only slightly less...
...Recently United asked its unions REPORT FROM ITALY for a 5 percent one-year wage cut and a 10 percent increase in productivity, which would require changes in work rules...
...Putting REREGULATION WON'T WORK aside the Gulf War, which drove up fuel prices in 1991, almost all of the industry's wounds have been self-inflicted...
...But sweeping reform to repared back operations in San Jose and may close its hub in dress the foibles of businesses in the marketplace isn't what's Raleigh/Durham...
...Finally, anything that smells like a taxpayer bailout is polit- The new government's program gives first priority to long overically infeasible...
...While the health-care industry may Several airlines developed their "hub-and-spoke" systems be- respond well to government action, the airline industry reveals yond all economic sense...
...Even given these fears, there's only one truth anyone can MIDFLIGHT CORRECTION...
...When the recession drove passengers off Or al 1), airline...
...If U.S...
...Commonweal 18 June 1993: 7...
...FINITA LA COMMEDIA It's no wonder...
...If the U.S...
...President Clinton can do, just as he's about to raise taxes to reAnd fill them they must...
...commission to figure out whether the federal government can Worse yet, the world is watching every move...
...It probably should proDallas, a host of hubs in smaller cities like San Jose and vide some tax relief, perhaps in the form of a lower ticket tax, Nashville cost the industry dearly...
...Undoubtedly President Bill Clinton's coming health- bankrupt airlines are responsible for most fare wars...
...The airlines, of course, disagree...
...Over the last few years United, Delta, and American went on an aircraft buying binge...
...The rationale: Market forces would leading labor unions, the Air Line Pilots Association and the increase competition, providing a boon to consumers, who International Association of Machinists, have proposed the reinwould benefit from a greater variety of services at lower prices...
...The carriers also believed that as bankrupt airlines went out of business, they'd take over the .and drank you for f7vini...
...With unemployment proving an especially Clinton administration reimposes government controls, foreign stubborn foe, the administration worries that a continuing governments will use the reversal to impose even tighter conbloodletting in the airline industry will swell the jobless ranks trols over their own markets-markets the U.S...
...And if the help the industry...
...And the mad- than those of rivals like United...
...Already the industry's taken off...
...solvent carriers oppose any revision of the bankruptcy code...
...companies that could save themselves...
...carriers may soon negotiations in Europe and Japan, seeking to lift government 6: 18 June 1993 Commonweal restrictions on competition...
...He lives in Chicago...
...KEVIN KELLY efits eat up 40 percent of an airline's revenue...
...Already the industry has shed 100,000 jobs, including to liberalize...
...airlines were allowed to cut fares and expand service in Europe, they'd have a huge advantage...
...Is overcapacity the government's fault...
...They also want limits placed on how long Now the Clinton administration is charting a far different a carrier can remain in bankruptcy, since they believe the course...
...abandoned routes...
...Lease payments on new aircraft can build the nation's health-care system, is suggest a tax to save run well over $200,000 a month...
...It began deliberations through a hub in Chicago, it's nearly impossible to establish on May 24...
...Such action is exSo it's no wonder that the Clinton administration formed a tremely unlikely, to say the least...
...They bought over 445 aircraft to expand their fleets by up to 43 percent each...
...Indeed, it's a problem the government can ban "predatory pricing" used by bigger airthe carriers are already tackling...
...Then there's Three of the nation's twelve largest carriers have failed, in- Southwest Airlines, whose average fares are one-quarter lower cluding the one-time national flagship, Pan Am...
...Subsidizing inefficiencies that business itself can fix That leaves the thorniest problem: Labor...
...eled routes, like Chicago to Newark/New York...
...Unions remain unconvinced that carriers would use any sign of weakness to de- Fed up with corruption, ineptitude, and economic mand steeper and steeper cuts...
...Plenty...
...More with its unions...
...That carrier pays high wages in return longtime governor of Italy's Central Bank...
...There isn't any money for it...
...Girrhrrs .Airline...
...If the Clinton administration takes action before the carriers heal themselves, it will only preserve a money-losing structure that consumers will pay for through higher fares...
...Certainly there are things the government can do...
...Another industry execuCouncil on Competitiveness, industry's regulation-buster, has tive has suggested the federal government provide loan guarbeen disbanded...
...But reregulation would free foreign governments to resist any pressure to open their markets...
...It ers in large destination markets like Chicago, New York, and can encourage better labor relations...
...employees laid off by aircraft manufacturers like Boeing...
...Skyrocketing costs, including high wages and 1993 fares are higher than 1992's, today's deeply discounted hefty debt payments racked up because of overambitious tickets for leisure travelers are below 1978 levels...
...Salaries and ben- serves no one...
...The last thing due reforms...
...While hubs may be big money-mak- its limits...
...antees for new aircraft purchases...
...Once again, the govern- especially since the new fuel tax will hit the industry hard...
...No, for that the Big Three have only themselves to blame...
...In late relatively easy when carriers simply shuttled passengers from April, Clinton appointed a committee, the National Commission point A to point B, say Pittsburgh to Saint Louis...
...Horrible labor relations have bedeviled the THE FIX IS OUT industry for years...
...inesses as diverse as airlines, trucking com- The new commission is likely to hear many arguments fapanies, and financial institutions had the wraps voring reregulation, and much, much more...
...Though bashed profits...
...ment in government...
...Tough work rules, Kevin Kelly writes for Business Week...
...And management, led by going through the customary negotiations among Italy's domchief executive Herb Kelleher, has forged a strong relationship inant parties that usually make up the ruling coalition...
...Certainly the industry looks like a good candidate...
...So what's the lesson...
...More importantly, these options overlook the fact that only the carriers can solve problems they caused...
...Most of the airlines that International, continue to keep fares affordable on heavily travstarted up after deregulation in 1978 are now out of business...
...But these days, to Ensure a Strong Competitive Airline Industry, to study with airlines ferrying passengers through complex "hub and whether the nation's beleaguered air carriers could benefit from spoke" systems that funnel the Saint Louis-bound traveler a healthy dose of government authority...
...they aren't brought in as partners, and they learn about key decisions the way the rest of us do-in the newspapers...
...Unions are barely tolerated...
...It focused on rolling back federal safety and pol- carriers, slaves to fare wars, need to have somebody else do lution laws, regulations that had driven up the cost of doing their pricing for them...
...All told, the in- of low-cost new entrants, including Reno Air and Kiwi dustry has lost $10 billion since 1989...
...Elsewhere, the new government has committed itself to stiffer Instead, they want the government to turn the ticket tax over enforcement of health, safety, and environmental laws...
...Crazy The Clinton administration must also consider that confare wars, including last summer's half-price bloodletting, have sumers would be the first losers if fares were regulated...
...The lack of dialogue clearly hard times, in May Italians began a new experihampers any meaningful changes...
...Appointed to sucfor more liberal work rules...
...Taxpayers would pick up the But the Clinton administration is also considering whether tab if a carrier failed...
...Currently, the Department of Transportation is locked in tough Moreover, the federal government fears U.S...
...From the unions' perspective, the deregulation...
...And a raft growth plans, have driven losses up further...
...The incare reform legislation will involve some regulation of costs...
Vol. 120 • June 1993 • No. 12
