Charge More, Merge Less, Fly Better
04-21-2008, 11:29 AM
#1
Gets Weekends Off
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Joined APC: Aug 2005
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Charge More, Merge Less, Fly Better
NY Times, April 21, 2008
Op-Ed Contributor
Charge More, Merge Less, Fly Better
By ROBERT CRANDALL
THIRTY years ago this fall, Congress passed the Airline Deregulation Act of 1978. Since then, America’s airline system has greatly deteriorated.
Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An ever higher percentage of bags are lost or sent to the wrong airports. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.
Consolidation will not resolve the woes of individual carriers, nor will it fix the nation’s aviation problems. Delta and Northwest agreed to a merger last week, and that deal is likely to be followed by other proposals. But the case for mergers is unpersuasive. Mergers will not lower fuel prices. They will not increase economies of scale for already sizable major airlines. They will create very large costs related to consolidation. And they will anger airline employees, who will perceive themselves to be hurt by the mergers.
Although the system could conceivably be operated by a single efficient carrier, consumers clearly benefit from the existence of multiple airlines. The absence of competition never fosters better customer service.
Market-based approaches alone have not and will not produce the aviation system our country needs. We do not need to return to the over-regulation of the past, but some government intervention is required. The objectives of a national aviation policy should be to enable people to move easily from one place to another, to assure safe, courteous and on-time service for consumers, and to improve the financial performance and international competitiveness of America’s airlines.
The first steps toward achieving these goals should be to improve our outdated air traffic control system, to build much-needed new runways and airport facilities, and to lower the heavy taxes and fees now imposed on airlines and their customers.
Today, aircraft movements are constrained by a radar-based air traffic control system that locks aircraft into predetermined, often crowded routes and that gives pilots little information about the locations of other planes. The system worsens congestion in the air and on the ground.
A new air traffic control system, based on the use of the global positioning system, is in the works. It will reduce costs and congestion by providing pilots with information about other planes, freeing them to choose optimal routes. Unfortunately, Congress has not provided the money to put the new system in place as quickly as possible.
Until the new system is in place, the number of flights at major airports needs to be reduced. Right now, airlines schedule more flights than the runways, terminals and air traffic control system can accommodate. Airlines cannot unilaterally reduce flights because doing so would grant other airlines a competitive advantage. In the short term, the only solution is a government mandate that limits flights to the number the system can handle. To create capacity for future demand, we need to build more aviation facilities, including high-speed rail systems that would encourage the use of airports that are farther away from the cities they serve.
The financial standards for new airlines also need to be made more stringent. In the years since deregulation, nearly 200 airlines have come and gone. These inadequately financed carriers — whose principal goal has often seemed to be merely to exist long enough to reap the rewards of an initial public offering — have consistently cut prices to attract passengers. This downward pressure on prices has hurt airlines that seek long-term success.
We should also revisit the basis on which we negotiate international aviation agreements. Since the 1980s, our government has too often agreed to “consumer friendly” pacts whose sole apparent purpose has been to try to lower prices for travelers. Because the United States has long been the world’s largest aviation market, these agreements have provided more opportunities for expansion to foreign airlines than to our own, with predictable consequences.
Given the recent concerns about aircraft safety, offshore maintenance of American aircraft should be prohibited. Maintenance performed in the United States is done under more demanding rules and a far higher level of Federal Aviation Administration oversight than work done abroad. Keeping the work here would enhance any safety improvements that result from the Transportation Department’s new plan to overhaul its oversight procedures. Moreover, bringing aircraft maintenance work back to the United States will re-create many thousands of skilled jobs.
Fees and taxes can be as much as 50 percent of the purchase price of an airline ticket and typically amount to about 15 percent, according to a study done by the Massachusetts Institute of Technology and Daniel Webster College in Nashua, N.H. Reducing these charges would make it easier for the carriers to recapture their costs without pricing travel beyond the reach of many customers.
Finally, we need to restore balance to the relationship between management and labor in the airline industry. Revising our bankruptcy laws to prevent failed airlines from continuing to operate would focus management and labor on the virtues of cooperation rather than confrontation. Similarly, binding arbitration of labor disputes would encourage both sides to avoid unreasonable positions and would free the nation’s transportation system from the threat of work stoppages.
We need to be realistic: whether there are mergers or not, airline fares are going to increase. Every business must charge enough to cover its operating and capital costs. Regulatory and oversight changes intended to make our carriers more successful may well force prices up faster than would otherwise be the case. But we will be better off with higher fares and more competitors than with higher fares and fewer competitors.
The enormous economic importance of our once peerless aviation system is indisputable. Adding some sensible regulations and making the investments needed to give our airlines opportunities for success would be a far better way to safeguard that economic contribution than further airline consolidation.
Robert Crandall, the chief executive of American Airlines from 1985 to 1998, is the chief executive of an air taxi startup.
Op-Ed Contributor
Charge More, Merge Less, Fly Better
By ROBERT CRANDALL
THIRTY years ago this fall, Congress passed the Airline Deregulation Act of 1978. Since then, America’s airline system has greatly deteriorated.
Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An ever higher percentage of bags are lost or sent to the wrong airports. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.
Consolidation will not resolve the woes of individual carriers, nor will it fix the nation’s aviation problems. Delta and Northwest agreed to a merger last week, and that deal is likely to be followed by other proposals. But the case for mergers is unpersuasive. Mergers will not lower fuel prices. They will not increase economies of scale for already sizable major airlines. They will create very large costs related to consolidation. And they will anger airline employees, who will perceive themselves to be hurt by the mergers.
Although the system could conceivably be operated by a single efficient carrier, consumers clearly benefit from the existence of multiple airlines. The absence of competition never fosters better customer service.
Market-based approaches alone have not and will not produce the aviation system our country needs. We do not need to return to the over-regulation of the past, but some government intervention is required. The objectives of a national aviation policy should be to enable people to move easily from one place to another, to assure safe, courteous and on-time service for consumers, and to improve the financial performance and international competitiveness of America’s airlines.
The first steps toward achieving these goals should be to improve our outdated air traffic control system, to build much-needed new runways and airport facilities, and to lower the heavy taxes and fees now imposed on airlines and their customers.
Today, aircraft movements are constrained by a radar-based air traffic control system that locks aircraft into predetermined, often crowded routes and that gives pilots little information about the locations of other planes. The system worsens congestion in the air and on the ground.
A new air traffic control system, based on the use of the global positioning system, is in the works. It will reduce costs and congestion by providing pilots with information about other planes, freeing them to choose optimal routes. Unfortunately, Congress has not provided the money to put the new system in place as quickly as possible.
Until the new system is in place, the number of flights at major airports needs to be reduced. Right now, airlines schedule more flights than the runways, terminals and air traffic control system can accommodate. Airlines cannot unilaterally reduce flights because doing so would grant other airlines a competitive advantage. In the short term, the only solution is a government mandate that limits flights to the number the system can handle. To create capacity for future demand, we need to build more aviation facilities, including high-speed rail systems that would encourage the use of airports that are farther away from the cities they serve.
The financial standards for new airlines also need to be made more stringent. In the years since deregulation, nearly 200 airlines have come and gone. These inadequately financed carriers — whose principal goal has often seemed to be merely to exist long enough to reap the rewards of an initial public offering — have consistently cut prices to attract passengers. This downward pressure on prices has hurt airlines that seek long-term success.
We should also revisit the basis on which we negotiate international aviation agreements. Since the 1980s, our government has too often agreed to “consumer friendly” pacts whose sole apparent purpose has been to try to lower prices for travelers. Because the United States has long been the world’s largest aviation market, these agreements have provided more opportunities for expansion to foreign airlines than to our own, with predictable consequences.
Given the recent concerns about aircraft safety, offshore maintenance of American aircraft should be prohibited. Maintenance performed in the United States is done under more demanding rules and a far higher level of Federal Aviation Administration oversight than work done abroad. Keeping the work here would enhance any safety improvements that result from the Transportation Department’s new plan to overhaul its oversight procedures. Moreover, bringing aircraft maintenance work back to the United States will re-create many thousands of skilled jobs.
Fees and taxes can be as much as 50 percent of the purchase price of an airline ticket and typically amount to about 15 percent, according to a study done by the Massachusetts Institute of Technology and Daniel Webster College in Nashua, N.H. Reducing these charges would make it easier for the carriers to recapture their costs without pricing travel beyond the reach of many customers.
Finally, we need to restore balance to the relationship between management and labor in the airline industry. Revising our bankruptcy laws to prevent failed airlines from continuing to operate would focus management and labor on the virtues of cooperation rather than confrontation. Similarly, binding arbitration of labor disputes would encourage both sides to avoid unreasonable positions and would free the nation’s transportation system from the threat of work stoppages.
We need to be realistic: whether there are mergers or not, airline fares are going to increase. Every business must charge enough to cover its operating and capital costs. Regulatory and oversight changes intended to make our carriers more successful may well force prices up faster than would otherwise be the case. But we will be better off with higher fares and more competitors than with higher fares and fewer competitors.
The enormous economic importance of our once peerless aviation system is indisputable. Adding some sensible regulations and making the investments needed to give our airlines opportunities for success would be a far better way to safeguard that economic contribution than further airline consolidation.
Robert Crandall, the chief executive of American Airlines from 1985 to 1998, is the chief executive of an air taxi startup.
04-21-2008, 01:33 PM
#2
Gets Weekends Off
Joined APC: Jan 2006
Posts: 1,542
This article is stating the obvious.
Airline service has deteriorated over the past 30 years. The main reason is cut throat competition has lowered prices. In order to survive with these super low airfares, airlines have cut costs, causing delays, complaints, and bad quality service. If all airlines just raised ticket prices across the board, the service would be better.
OK, but how do you plan on raising ticket prices without mergers???
The whole point of these mergers is to increase airlines pricing power. If DAL/NWA and UAL/CAL control about 50% of the US market, they will have a much better time raising fares.
Airlines merging means more pricing power. More pricing power means higher fares. Higher fares means more profits. More profits mean airlines can spend profits on better service (that includes paying employees who provide the service and making them happy).
Airline service has deteriorated over the past 30 years. The main reason is cut throat competition has lowered prices. In order to survive with these super low airfares, airlines have cut costs, causing delays, complaints, and bad quality service. If all airlines just raised ticket prices across the board, the service would be better.
OK, but how do you plan on raising ticket prices without mergers???
The whole point of these mergers is to increase airlines pricing power. If DAL/NWA and UAL/CAL control about 50% of the US market, they will have a much better time raising fares.
Airlines merging means more pricing power. More pricing power means higher fares. Higher fares means more profits. More profits mean airlines can spend profits on better service (that includes paying employees who provide the service and making them happy).
04-21-2008, 01:56 PM
#3
A moment please...
Joined APC: Sep 2007
Position: Just passin' thru
Posts: 769
Do airlines merging together necessarily equate to more pricing power if they do not also reduce capacity?
IOW, if two airlines simply merge, doesn't supply remains the same vs. the same amount of demand, so there is no increased pricing power?
Competetion may be reduced, and it is with reduced competetion that supply can be reduced with less threat from other competetion, thus realizing increased pricing power.
Rationalization must occur for pricing power to be restored.
IOW, if two airlines simply merge, doesn't supply remains the same vs. the same amount of demand, so there is no increased pricing power?
Competetion may be reduced, and it is with reduced competetion that supply can be reduced with less threat from other competetion, thus realizing increased pricing power.
Rationalization must occur for pricing power to be restored.
04-21-2008, 06:09 PM
#5
Self Employed.
Joined APC: May 2005
Position: Corporate Pilot
Posts: 7,119
The Fre Market
The free market is what has made the explosive airline growth possible. If airlines were to raise prices people will reduce flying in kind. Unlike 1978 today the airlines have some strong competition from the internet, flex-jet operators and a better highway system.
If airlines were to double or triple ticket costs demand would disappear.
SkyHigh
If airlines were to double or triple ticket costs demand would disappear.
SkyHigh
04-21-2008, 08:14 PM
#6
Gets Weekends Off
Joined APC: Aug 2007
Position: non acceptus excretus
Posts: 561
Well Sky High, Let's do it!What do we have to lose ? Maybe demand will decline and maybe not but after all the concessions we have taken there is little left to do save for to shave our heads. The free market may have been ok for the consumer but has been a disaster for the airline worker particularly the pilot. Yes lots of jobs created and all of them a step backward! If you don't believe me what are you doing for a living?! !
04-22-2008, 12:08 AM
#7
Gets Weekends Off
Joined APC: Nov 2005
Position: B777 Left
Posts: 736
Originally Posted by SkyHigh
The free market is what has made the explosive airline growth possible. If airlines were to raise prices people will reduce flying in kind. Unlike 1978 today the airlines have some strong competition from the internet, flex-jet operators and a better highway system.
If airlines were to double or triple ticket costs demand would disappear.
SkyHigh
If airlines were to double or triple ticket costs demand would disappear.
SkyHigh
Raise prices, less people will fly. In turn, less fuel burn, less baggage handling, less "soft" problems at airports, etc. Part of the problem with carrying a 90% load factor by everyone, is that the airlines have cut personnel not to be able to deal with the numbers of pax. The airlines have the personnel to deal with probably a 75% load factor.
The one thing the airlines have not done is a concerted effort to raise prices. This due to internet listing of fares, of course. Let the LCCs take a lot of the cheap business, let them deal with the 90% load factor. Higher fares with a lower load factor makes for happy passengers (guests in the new airline speak). The pax feel they are getting a good deal when they receive the service they paid for. Not a bag of blue chips and a coke on a four hour flight.
It is difficult for an airline to be all things to all people: a full service carrier, a LCC, direct flights from every small community to major metro areas, expectations of riding on one airline and finding yourself on another (code share & RJs). IMO that is why JetBlue, SWA and Airtran are getting good reviews. They do one or two things very good, not try to be everything to everybody.
04-22-2008, 03:20 AM
#8
Sequester bait
Joined APC: Jul 2007
Position: UH-60, AS-350, C-550
Posts: 273
Originally Posted by fireman0174
The first steps toward achieving these goals should be to improve our outdated air traffic control system, to build much-needed new runways and airport facilities, and to lower the heavy taxes and fees now imposed on airlines and their customers.
04-22-2008, 06:14 AM
#9
Banned
Joined APC: Feb 2008
Position: The Beginnings
Posts: 1,317
Originally Posted by SkyHigh
The free market is what has made the explosive airline growth possible. If airlines were to raise prices people will reduce flying in kind. Unlike 1978 today the airlines have some strong competition from the internet, flex-jet operators and a better highway system.
If airlines were to double or triple ticket costs demand would disappear.
SkyHigh
If airlines were to double or triple ticket costs demand would disappear.
SkyHigh
It wasn't too long ago when getting on a plane was a big deal to the average shmoe, because it was expensive and rare. Now we all think it's our god-given right as Americans to fly everywhere for 100 bucks. Good while it lasted, but those days may be disappearing.
Economically, with oil going up, this may no longer be possible. Air travel will survive, but we may be looking at a giant contraction that will return air travel primarily to the domain of the businessman and the well-to-do.
04-22-2008, 06:19 AM
#10
Retired
Joined APC: Feb 2008
Position: whale wrangler
Posts: 3,527
Originally Posted by deltabound
I'm afraid this may be the future of air travel in the US, and sooner than anyone thinks.
It wasn't too long ago when getting on a plane was a big deal to the average shmoe, because it was expensive and rare. Now we all think it's our god-given right as Americans to fly everywhere for 100 bucks. Good while it lasted, but those days may be disappearing.
Economically, with oil going up, this may no longer be possible. Air travel will survive, but we may be looking at a giant contraction that will return air travel primarily to the domain of the businessman and the well-to-do.
It wasn't too long ago when getting on a plane was a big deal to the average shmoe, because it was expensive and rare. Now we all think it's our god-given right as Americans to fly everywhere for 100 bucks. Good while it lasted, but those days may be disappearing.
Economically, with oil going up, this may no longer be possible. Air travel will survive, but we may be looking at a giant contraction that will return air travel primarily to the domain of the businessman and the well-to-do.
i can,t wait for that day
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