Flying the Unfriendly Skies
Eichel, Larry
Flying the Unfriendly Skies The benefits of deregulation are almost too numerous to mention: high prices, old planes, bad maintenance, and layovers in Newark by Larry Eichel One recent...
...And this is all happening in a generally healthy economy...
...Louis market and 62 percent of the passengers for whom St...
...The other major airlines offer St...
...Flight delays have become routine...
...The field was open, and they could make the rules," said Chris Witkowski, who heads the Aviation Consumer Action Project, an organization funded by Ralph Nader...
...Which explains why some travelers who live in the St...
...Even before Eastern was crippled by the mechanics' strike last year, it had lost passengers and revenue as the result of charges from its employees that the airline was cutting corners on maintenance and overworking its pilots—thereby putting safety at risk...
...Northwest consumed Republic, its prime competitor in Minneapolis-St...
...Or even charge similar fares for flights of similar length...
...Paul...
...Air fares declined, service increased, and the number of passengers mushroomed...
...Don Siegrist paid $358...
...If you are looking to come into this business today as a new carrier, you're out of your mind," says George James, president of Airline Economics, a Washington-based consulting firm...
...The experiment was called airline deregulation...
...Louis—Los Angeles and Little Rock, San Francisco and San Antonio, Denver and Des Moines...
...The promise was that there would be better service...
...Louis...
...The computer is such a refined tool for pricing," said Louis A. Marckesano, who monitors the industry for Janney Montgomery Scott, a Philadelphiabased investment firm...
...Lords of the skies In deregulating the airlines in October 1978, Congress decided to stop treating the industry as a public utility...
...While budget fares remain available to vacationers willing to lock in itineraries far in advance, business travelers have seen fares on their discounted tickets rise 47 percent just since last fall, according to Runzheimer International, a travel management firm...
...I think we've reached a point where airlines that make higher profits are safer airlines," asserts John Galipault, director of the nonprofit Aviation Institute...
...Devices so radically different from anything that had come before that a whole new language had to be invented to describe them: Frequent-flier programs...
...Paul...
...The carriers destroyed these suppositions by creating an intricate web of marketing devices to attract and hold customers—regardless of ticket price...
...The fact that we have fewer carriers is obviously of concern to me," says Secretary of Transportation Samuel K. Skinner...
...They complain about poor service, delayed flights, aging airplanes, higher fares—and about how often they have to make a stop and change planes to get from one place to another...
...So did the others...
...gets the impression that all the commercial jets in the world belong to TWA—and that all of them are within view...
...Metzenbaum said...
...Northwest Airlines has 84 percent in Memphis and 79 percent in Minneapolis-St...
...Louis account for nearly 80 percent of the airline's entire domestic system...
...The other was that the mere threat of competition on a route was enough to keep fares in line...
...The expectation was that the airlines would compete primarily through ticket prices...
...But I do know it's time we owned up to the fact that airline deregulation was a mistake...
...Besides prices and volume, something else is up—public dissatisfaction...
...the industry eliminated the most widely used business discounts in the fall of 1988...
...Louis residents what amounts only to token service: they operate a few flights a day between Lambert International and their own hubs...
...USAir has 92 percent of the business in Charlotte, North Carolina, and 86 percent in Pittsburgh...
...Their assets have been redistributed by bankruptcy courts or gobbled up in a wave of merger mania that reached its crest during Ronald Reagan's second term...
...Delta has roughly threequarters of the market in each of Cincinnati, Salt Lake City, and Atlanta...
...Thirty-some jets of varying size and type—each painted white with red stripes, each bearing the airline logo—stand motionless at their gates, noses in, tails out, engines off...
...Two hundred flights in Nashville makes you.king...
...Average domestic air fares increased by 12 percent in the first half of 1989 compared with the first half of 1988, according to the Air Transport Association, the industry's trade group...
...Louis, that is TWA...
...No longer would the government tell the airlines what routes they could fly and what they could charge, as it had for 40 years...
...This past fall, four major carriers—American, Continental, Delta, and United—were operating 22 daily nonstop flights between Denver and Dallas-Fort Worth, a distance of 654 air miles...
...Those surveys indicate that the people who travel the most are the most upset...
...Fares have risen faster than the cost of living and are higher now than they would have been under the fare-setting formulas imposed by the government before deregulation...
...They locked up airport departure and arrival gates with 40year leases so that, in some cases, there literally was no room for competitors to come in.They took nearly all the landing slots at the four airports where the government limits air traffic—Chicago's O'Hare, Washington National, and New York's Kennedy and LaGuardia—thereby limiting the ability of any new entrant to set up a national route system...
...Severin Borenstein, a professor of economics at the University of Michigan, reached a similar conclusion, as did Morton Beyer, president of Avnark Inc., an airline consulting firm...
...Andy Skibo paid $483...
...Big won, small lost," said Vance Fort, senior vice president of World Airways...
...But deregulation has had an impact on safety...
...The systern's way to ease the strains imposed upon it is to make planes sit on the ground and wait...
...Louis is the main domestic hub for Trans World Airlines...
...Louis and 54 destinations, among them all three airports serving metropolitan New York, all three airports serving the Washington, D.C...
...One lesson the deregulated airlines quickly learned was that they did not have to charge every passenger the same fare for comparable seats on the same flight, as they had to when the government set the fares...
...New airlines popped up all over, and consumers reaped the benefits of spirited competition...
...The impact of having a monopoly is so deep...
...And yet, while the system has been strained, it has not broken...
...But it could be argued that much of the increase in air traffic would have happened anyway—that it is more a result of economic prosperity than of deregulation...
...They say that the product being sold, the airplane seat, has one distinctive trait that makes such competition inherently destructive—its perishability...
...American Airlines has 70 percent in Nashville, Tennessee, and Raleigh-Durham, North Carolina...
...Two Democratic senators, Howard Metzenbaum and Robert C. Byrd, have introduced a bill that would put the government back in the regulation business...
...The system suffers from outmoded computers and too few controllers...
...Some early advocates of deregulation recognized the possibility that fares would get out of hand on monopoly routes...
...Fewer people have died in airplane crashes in the 1980s than in the 1970s, even though the number of people flying has increased by two-thirds...
...Indeed, the Airline Deregulation Act eliminated only the Civil Aeronautics Board, the agency that passed judgment on routes and fares, not the Federal Aviation Administration (FAA), which concerns itself with operations and maintenance...
...At several others—including Detroit Metro, Houston Intercontinental, Chicago Midway, Newark, Syracuse, Dayton, Baltimore-Washington, and Washington Dulles—one airline controls more than half the traffic...
...One analysis done for the Boeing Company last year showed that average fares to hub cities were nearly twice as high on a per-mile basis as flights going through the hubs...
...I don't know if complete reregulation is the answer...
...The barriers are so high...
...They have flown in from 30 points east of St...
...Airway robbery If you live in a hub city, your reasonable options often begin and end with the dominant airline...
...There was no understanding of the marketing devices that would be developed and no will to keep them in check...
...That is the result of one of the most dramatic changes of the deregulation era—the airlines' push to build up their hubs...
...Both types of fares have risen faster than the cost of living and are higher now than they would have been under the fare-setting formulas imposed by the government before 1978...
...These troubles aren't limited to St...
...Safety wasn't neglected, but it wasn't the highest priority...
...So are fares to small towns...
...TWA...
...The number of flights is up about 35 percent...
...1 don't like the fact that we're losing airlines...
...Unless Congress steps in, airlines will continue to pilot the industry toward disaster...
...The airport is empty—no planes, no people...
...They set up a new fare structure designed to separate the business traveler who has to fly—and whose fares are usually paid by a company— from the vacation traveler who, if the fares are too high, will drive to the shore rather than fly to the West Coast...
...Some airline executives—and some economists— argue that the airlines had no choice but to insulate themselves from unfettered price competition...
...The carriers, and the marketplace, would make those decisions...
...Fares have been rising faster than the cost of living for the past two years...
...In fact, today there are fewer...
...Or consider Eastern Airlines...
...Louis, how much worse can it get...
...Small is still losing...
...It should be noted, though, that average fares declined slightly in the decade before deregulation as well...
...Yield management...
...There's no one competing with TWA on any of those routes...
...At the same time, the actual cost of putting someone in that seat at the last minute is almost nothing—just the printing of a ticket and the providing of a meal...
...The rules under which the FAA operates may be perfectly acceptable for building a Veterans Administration hospital in Kerrville, Texas," gripes Herbert D. Kelleher, chairman of Dallas-based Southwest Airlines, "but not for a high-tech aviation industry that functions 24 hours a day, seven days a week, and changes from minute to minute...
...Louis is Southwest Airlines—a low-fare carrier that offers no food other than peanuts, no assigned seats, no connections with other, bigger carriers, and no service east of Detroit...
...The theory was that there Larry Eichel is a reporter for The Philadelphia Inquirer, which published his five-part series on airline deregulation last December...
...Survey after survey has found widespread unhappiness with the experience of flying...
...area, Los Angeles, San Francisco, Philadelphia, Boston, HartfordSpringfield (Connecticut), Orlando, Miami, Tampa-St...
...A Roper Poll conducted in the fall of 1988 found that fear of flying was higher tha6 at any time since deregulation began in 1978...
...A few did fade away...
...In a lot of places, there is less...
...The result has been a decline in public confidence in the airlines...
...And the service is as bad as the fares...
...For the most part, they don't...
...Full coach fares are high, as anyone knows who has had to rush off on short notice for a business meeting or family crisis...
...Hundreds of jets built in the mid-1960s are still flying, years beyond their design lives...
...And Texas Air bought Eastern, Continental, People Express, New York Air, and Frontier...
...The trend in the airline industry is toward a marketplace controlled by the large and the few...
...Louis is the origin or destination...
...Some of the advocates of deregulation originally believed that the old, established airlines would fail to adapt to the new environment and rapidly become extinct...
...David Brown sat in coach...
...An unsold seat becomes worthless the moment the plane departs...
...Braniff Airlines suspended passenger operations in November...
...Today nearly all of the upstart, low-fare carriers have disappeared, along with some long-established ones—more than 200 casualties in all...
...And Delta has roughly three-quarters of the market in each of Cincinnati, Salt Lake City, and, most significantly, Atlanta, the largest hub in the South...
...Commission overrides for travel agents...
...He dined on California lasagna and beef roulade...
...The number of people traveling on airlines has increased about 65 percent since 1978, fulfilling the promise that deregulation would make flying accessible to the masses...
...Only two significant airlines formed after deregulation have survived—America West and Midway—and they account for well under 3 percent of the national market...
...Study after study has shown that passengers beginning or ending their trips at most of the nation's 35 hub airports pay higher fares...
...It just doesn't pay us to work in those cities...
...Why didn't one of the airlines drop its price and grab the business...
...And anyone who happens to be there at 9 a.m...
...American and Delta share 89 percent in Dallas-Fort Worth...
...They prefer, instead, to expand their own hubs or create new ones at airports they can dominate...
...Louis and USAir has 92 percent of the business in Charlotte, North Carolina, and 86 percent in Pittsburgh...
...Systems like Lambert's are at the heart of the debate over airline deregulation...
...One can plausibly contend that safety has improved despite deregulation," they concluded, "and would have improved more in the absence of the policy...
...The problem is that once a carrier establishes a hub and becomes dominant at that airport, the airline can use its economic power to keep others out and to create a virtual lock on the local business...
...And Southwest has only 3 percent of the market...
...The problem is concentration at individual airports causing lack of competition," says Senator Danforth...
...Economists and lawmakers worry that diminishing competition will cause fares to rise even more quickly in the future...
...The others did, too...
...TWA merged with Ozark, its rival in St...
...That approach continues to this day, allowing the major airlines to limit price competition among themselves—even on routes where they do go head-to-head...
...It allowed them to match the low fares of the upstart carriers on a selective basis, thereby taking away those carriers' reason for being...
...Now there are eight "mega-carriers"—American, Delta, Northwest, Pan American, Texas Air (the parent company of Continental and Eastern), TWA, United, and USAir—and there are rising fares...
...Unnatural selection The big airlines used control over information, rooted in their computer systems, to help kill off the low-fare carriers that seemed to be the wave of the future in the early years of deregulation...
...Brad Weaver paid $229...
...Louis area feel they have become the hostages of TWA, which does 82 percent of the airport's business...
...To many passengers, air travel has never been such a hassle...
...Before deregulation, TWA had nonstop monopolies on only six of those routes...
...You can't put together enough in the way of resources to get a full running start...
...I don't like the fact that there's some feeling in the industry that we've got less competition than we had before...
...American and United jointly have 80 percent at O'Hare...
...We went through a period of bashing each other's heads in over fares," said James Lundy, a spokesman for Delta Airlines, looking back at the early years of deregulation...
...Meanwhile, inside the terminal, 4,000 travelers are playing commercial aviation's version of musical chairs...
...United and Continental together have 85 percent in Denver...
...The FAA has come under criticism as too ponderous and inflexible a bureaucracy to adequately monitor a dynamic and growing industry...
...TWA has a monopoly on nonstop service between St...
...0- Pressure on the air traffic control system has increased...
...If I know that if I cut my fare $20 today, you're going to cut yours $20 tomorrow, then it's stupid for me to do it," said Randall Malin, executive vice president of marketing at USAir...
...I can't see where deregulation has had any impact on safety...
...This array of prices, one of the most wideranging in the whole American marketplace, is the direct result of an experiment launched by Congress 11 years ago...
...The effect is clear, as Wall Street demonstrated with a vengeance last year when stocks of the largest airlines, which posted record profits in 1987 and 1988, soared and became subject to frenzied wheeling and dealing...
...All four charged the identical coach fare, $300, one way...
...Computer reservations systems...
...This is a monopoly, and it's just not fair," she said...
...The airlines set up hub-and-spoke route systems to capture traffic and dominate regional markets...
...Experience levels of pilots and mechanics have dropped, and airline executives wonder where they will find the crews of the future...
...Now it's $592, and that's with a seven-day advance purchase and a 25 percent penalty for changes...
...These marketing devices served two fundamental purposes: They deterred price competition among existing airlines, and they discouraged the formation of new competitors...
...Those unregulated fares—along with the ongoing array of airline mergers, consolidations, takeovers and bankruptcies—have spurred debate about whether the time has come for the government to reassert some control...
...In the last three years, we've seen less courtesy, less reliability and much higher fares...
...And there is considerable evidence that airlines convert such dominance into higher fares...
...I think it's fair to say that the airlines, in the rush to merge, acquire, or expand, did not put safety at the top of their ladder of considerations," admits James Oberstar, chairman of the House Public Works and Transportation subcommittee on aviation...
...Presidential Airways filed for bankruptcy protection last October...
...The postderegulation average is the combination of two pricing trends: Sharp declines for travelers who can book their trips far in advance—declines which have made flying more accessible to people with modest incomes— and sharp increases for people who must make their plans at the last minute...
...The average airline fare, when adjusted for inflation, is slightly lower today than in 1978...
...There were provisions in the original version of the deregulation bill—language ultimately deleted by Congress—that would have imposed price ceilings on routes where a single carrier had 90 percent or more of the traffic...
...And no new carriers of consequence are on the horizon...
...Why would I do that...
...The military, the traditional source of pilots, is producing fewer at a time when the airlines need more...
...By ten o'clock, those TWA jets and passengers are in the air, headed west...
...Louis—Philadelphia and Pittsburgh, Newark and New York, Tampa and Toledo...
...Information technology— the capacity to assemble and manipulate complex combinations of fares and schedules—gave airlines the ability to target different ticket prices to different kinds of passengers with remarkable sophistication and precision...
...Three other hub airports—Dallas-Fort Worth, Denver, and Chicago O'Hare—are controlled by two carriers apiece...
...But there was one major difference between David Brown and his fellow passengers...
...Inadequate government oversight has allowed the increase in passengers to strain the nation's air travel system severely...
...Nearly every major carrier has adopted a hub-and-spoke route structure: That's a system in which an airline offers one-stop service between hundreds of pairs of cities—the spokes—by funneling passengers through a central airport—the hub...
...The fare to Boston is unbelievable, and Philadelphia is very high, even if you're willing to take connecting flights...
...USAir consumed Piedmont, Empire, and Pacific Southwest...
...Hub-andspoke route systems...
...The overall accident rate for the past 10 years is about half what it was for the previous 10, according to the National Transportation Safety Board—even though 1989 was one of the industry's worst-years in this decade...
...Lambert International Airport in St...
...By working in concert, they have created a market in which there is little incentive for a traveler to patronize a new airline, or for an investor to finance the venture in the first place...
...Rarely do the major airlines invade hubs already dominated by other carriers...
...The idea was that there would be more airlines...
...A wing and a prayer Ever since Congress enacted airline deregulation, lawmakers have repeated these words as if they were a mantra: "Congress didn't deregulate safety...
...I used to be able to fly to New York for $180 round trip," said Alice Burgess, whose St...
...The safety record of the major airlines has been better in the decade since deregulation than in the prior decade...
...And one of the healthier carriers, Northwest, has just taken on several billion dollars in added debt as the result of a leveraged buyout...
...Like other aspects of the airline industry under deregulation, safety often comes down to a matter of dollars and cents...
...One theory was that there was no inherent advantage in bigness, no "economies of scale...
...It allows a rifle-shot approach that can be deadly...
...I'd say that's intolerable...
...It is not just that TWA now accounts for 82 percent of the total St...
...Or charge the same fare on every flight to the same city...
...And Judith Benson, one row in front of Brown and just across the aisle, paid $124...
...United, the object of an unsuccessful takeover attempt earlier this year, may yet be headed down a similar path...
...The issue is lack of competition...
...The issue is not deregulation or re-regulation," said Senator John C. Danforth, the ranking Republican on the Commerce, Science, and Transportation committee, an intervention advocate...
...Last year, the General Accounting Office studied 15 airports dominated by one carrier and reported to Congress that—surprise—those airports had 27 percent higher fares than airports of similar size that did not have a dominant airline...
...The major airlines poked gaping holes in the two theories on which airline deregulation was based...
...American absorbed Air Cal...
...And it stays that way for a few minutes, until the next group of planes descends on Lambert...
...When you're up to 82 percent, as we are [with TWA] in St...
...Flying the Unfriendly Skies The benefits of deregulation are almost too numerous to mention: high prices, old planes, bad maintenance, and layovers in Newark by Larry Eichel One recent Friday evening, David Brown boarded United Airlines Flight 103, nonstop service from Philadelphia to San Francisco...
...It took the others a while to adjust...
...And business passengers have found themselves more and more often paying full fare or something close to it...
...And most of them are headed for destinations west of St...
...I resent it bitterly, and it's more than an issue of money with me," says Hal Kroeger, who runs a paper products distribution business from offices in suburban Florissant, and is so frustrated that he is considering having his company lease a private jet...
...So the higher fares and increased profits of the last two years should mean that more money is now available for new planes and quality maintenance—at least for American, Delta, Northwest, United, and USAir, the five most profitable major carriers...
...When the next recession comes, all the airlines will be tempted to further cut corners on maintenance— and to delay the overhaul of old planes and the purchase of new ones...
...Flights that pass through or begin or end in St...
...The system is bulging at the seams, but the record shows that it is the safest in the world and has never been safer," claims Transportation Secretary Skinner...
...The risk of trying to compete at another carrier's hub is enormous," Transportation's Shane said...
...Delta gobbled up Western...
...So did Andy Skibo, Don Seigrist, Brad Weaver, and Judith Benson...
...But other airlines—Pan American, TWA, and Continental—are not doing too well...
...For a time, deregulation worked just the way its champions had predicted...
...It's an amazing thing," said Brown, a sales representative for a California wine company, shaking his head, "The mysteries of airline pricing are unbelievable...
...But eventually they figured out how to turn their bigness into an asset by creating a new game in which only they could afford to play...
...Only the established airlines had enough money to put that technology to use...
...That explains why American Airlines, when it decided to expand its north-south route system a few years ago, chose to set up two medium-sized hubs in Nashville and Raleigh-Durham, rather than one big hub in Atlanta—Delta's stronghold...
...would be more competition...
...But Arnold Barnett and Mark K. Higgins of the Massachusetts Institute of Technology studied all the safety numbers and reached a slightly different conclusion, one that meshes with the opinions of several independent experts...
...David Brown paid $586 for his seat...
...The real fruits of deregulation could be just such a total breakdown of service and safety...
...Two hundred flights a day for a carrier coming into Atlanta may not make you competitive," ex. plains Al Kolakowski, vice president for sales at Delta Airlines...
...Petersburg, New Orleans, Phoenix, Las Vegas, San Diego, and Seattle...
...And they bought up other airlines to eliminate competition and to achieve "critical mass"—the size and reach they needed to survive in the world they had created...
...In fact, the number-two carrier in St...
...American Airlines has 70 percent in Nashville, Tennessee, and RaleighDurham, North Carolina...
...Louis company makes medical videos...
...But those days are gone...
...In St...
...The demise of People Express, the best known of the low-fare operators, was "a classic, textbook case of information technology as a competitive weapon," said Donald Burr, that airline's founder...
...It took us a while to learn how to compete...
Vol. 22 • February 1990 • No. 1
