Brookings for foreign carriers on domestic routes

[BobbyBiplane]

I am sorry, I guess my point was not clear. Before the deregulation act was passed, Kahn was clear in his belief that it was not the resposibility of government to prevent airlines from failing. Speaking to this point (beforehand), Kahn stated “We cannot agree to define healthy competition as that state where the fortunes of the competitors fluctuate but no competitor ever goes to the wall.” Kahn expected airlines to fail as competition increased. Additionally, in numerous instances Kahn stated that airline pilots at interstate carriers were overcompensated and deregulation would solve this inequity.

As noted by numerous economists, when the price point of a service falls, due to new entrants or more efficient suppliers,the remaining service providers must either increase efficiency to meet the competition or find a nitch (to be read "underserved corner of marketplace where consumers will pay a premium for the service). As we have seen over and over again, nitch suppliers tend to fail.

The situation we see today was fully predicted in 1978. I, and many along with me, viewed deregulation as a force to grow the domestic market and it did, just not the way I had desired.

Given the history of Congress and "consumer protection" regulations, I will be very surprised if it does not, across time, permit foreign carriers to operate in the US (think trucking and shipping, both national necessities). This, coupled with consumer behavior, will continue to drive the price point lower and lower with new entrants reaping short term benefits with cheap labor.

Sorry, this isn't the business I started in back in 1973 and, given Congresses past behavior, it is not going back.

Bob

 

[Dan Roman]

Sorry, this isn't the business I started in back in 1973 and, given Congresses past behavior, it is not going back.

Bob

Ain't that the truth! Your point was clear though and it was a good one.

It's interesting that the Brookings guy somehow thinks letting airlines like Singapore cherry pick our domestic route structure would improve air travel in the U. S. Granted, they provide superior service than U.S. carriers. But they are able to do it because they are subsidized by their Government. They also are routinely guilty of what is legally defined as age discrimination in the U.S. They fire F/A's solely based on age.
The results on air travel throughout the country would hardly be improved by letting foreign carriers skim the cream off the top and expect U.S. carriers to improve service elsewhere.
I agree with your post though, I could easily see our Government screwing this up as they so often do.

 

[IBNAV8R]

The problem, or should I say the advantage, of a free market is that the strongest companies survive and the weakest fail. Much like Darwin's theory, the remaining industry is stronger and healthier.

The trouble is that airlines scream about the importance of a free market. But, when they're down, they scream for protection against those very market forces and their own failures. Now they get to compete by forcing concessions, abrogating contracts, etc. But now, other companies must follow suit to stay competitive and the entire industry then gets weaker. Meanwhile, the problem(s) that caused initial weakness never got fixed and the same buffoons are still running the company(ies).

 

[CEO silly sap]

Is BA still code sharing with Aa?
At least that Star alliance will keep
American jobs with ameicans.

 

[flyburg]

Well, I really don't care too much and no intention to get involved but I guess there are two sides to every argument!

http://www.pprune.org/freight-dogs/496323-help-us-keep-our-european-cargo-jobs.html

 

[Bringupthebird]

The only reason that airlines were regulated in the first place was to eliminate cut-throat competition after an airline had built up a route structure and invested in new technology (i.e. jets) by lower cost competitors who didn't operate with such equipment. A similar arrangement reappeared when regional airlines sought exclusive rights to certain hubs when RJ were first coming to market.

Well, technology plateaued in the 70's and that sort of protection became unnecessary. Deregulation wasn't a bad idea, but you could hardly expect all the airlines that had flourished under regulation (and remember, the margins were thin, even then) to adapt to a competitive market without any hiccups.

What went wrong was the distribution of tickets over the internet which made the market so hypercompetitive that there was (and still is) no rational connection between prices of tickets and the costs of production. Everything is variable and if you can't vary it enough consensually, you can run to the bankruptcy court. Again and again and again.

I think you'll eventually find that the next technological leap will be to eliminate the type of judgement and experience expected in an airline pilot and as a relatively low paying grey collar job, it will attract folks who fall in and out of the business. The seniority system as we know it will be as irrelevant as it is among servers at Applebees. Move up, laterally or out with very little invested in your career, and the airplanes will still keep on flyin' and the airlines will keep on bleedin'.

 

[BILL LUMBERG]

Imagine price wars resulting in just one bankruptcy, but GE doesn't want their capital ice cream machine idled, so they make a deal to undercut this competitors costs (pay to keep the engines running), and that competitor now undercharges for its product, then others fail and so on. That in essence is what's happening in our industry.

Imagine if when a bankruptcy occurred, that business was truly liquidated or set back on its feet with true costs, not illusory lower costs because someone outside the business favored that business for their gains. Imagine if a bankruptcy actually required you to repay your debts. Imagine if a company once through bankruptcy was forbidden from trying it a second or third or as what's happened, a way of business, bankruptcy to control costs.

Scoreboard.....Stop your veiled digs on Delta or any other airline for that matter. Face it....Your airline was the very epitome of what you described above. Undercutting by not providing a livable wage (Here! Take some Herb Turd Stock and it worked out for some), or a retirement plan for its employees.

The carriers who went into Bankruptcy were hamstrung by the Pensions and legacy route costs they took on during the regulated period. You can't sit there and drop regulation overnight and expect everyone to shed bad deals or bad management. Maybe your GK may drive you down that path, I hope not, but you'll see, it's not about "not paying the bills"

Simplistic description from you, but not for such a complex topic.

 

[scoreboardII]

Bill, not a dig at any one carrier least of all big D.

Second, SWa pilots do fine on the retirement front, reference numerous industry awards for best 401k out there. The thought that once you start work for a company and expect cradle to grave support is absurd, socialistic might be a better word. While many of my legacy friends gloat how they need to hit the sim every 90 days to stay current, swa pilots would never need a sim other than in the current fiasco of AT pilots.

And if you define retirement as a new Cadillac every year with round the world trips every six months, you're right, swa can't provide that, but it seems no one else can either. I am on track to provide 10,000 a month retirement and I only need just under 1,000,000 to do it, roughly 10 more years, that leaves about five to spare.

It's all about not paying the bills, shedding your precious B plans onto the PBGC, putting small suppliers out of business, shirking lease payments, holding airports hostage for gate leases, it's all the rage in bankruptcy. Maybe they should have done it earlier, maybe they should have seen the writing on the wall and looked at the math, CASM rates rule, if yours is out of line, you fail.

 

[Full of LUV]

Lear you're confusing business model and industry model. Free enterprise is a good thing, this industry model is what's the problem, it's not truly free. It's being manipulated by marketeers, GE capital and such.

Imagine if the ice cream stores in your town had a very hi capital cost requiring financing to sell, these folks would be be holding to the likes of GE. Imagine price wars resulting in just one bankruptcy, but GE doesn't want their capital ice cream machine idled, so they make a deal to undercut this competitors costs (pay to keep the engines running), and that competitor now undercharges for its product, then others fail and so on. That in essence is what's happening in our industry.

Imagine if when a bankruptcy occurred, that business was truly liquidated or set back on its feet with true costs, not illusory lower costs because someone outside the business favored that business for their gains. Imagine if a bankruptcy actually required you to repay your debts. Imagine if a company once through bankruptcy was forbidden from trying it a second or third or as what's happened, a way of business, bankruptcy to control costs.

That is the problem, not the free market.

Taking it a step further, if regulation did return, how much air service would be eliminated? I wager well over 50%. Why, because if you have a monopoly, and can pretty much charge what you want, if you do, you lose share, so instead, you reduce capacity to the point which a comfortable profit margin exists.

Pre deregulation only fifteen percent of the US population had flown a plane, that figure is now 85%. Somewhere between those two numbers 15 and 85 is where a regulated industry would thrive and be controlled. Now, are you in favor of losing half our jobs so companies have a monopoly?

Score,
Good post, but a little point of order is that real entities do lose real money in a BK, trouble is most of the time labor is at the top of the debtor list with unrealistic pension promises and spiraling health care costs. Others take cuts too, it's just that the bigger the business, the more potential there is for future business than the immediate loss, this is why you see a company like Indy air or skybus fold in a flop, but with bigger companies, the potential for Boeing, Airbus, financiers, suppliers to do business going forward makes BK reorganization possible.
Ironically, this is the same choice labor is making, as the employees could voice to the credit committee that they want the carrier to fold and pay as much as possible now, but alas they agree to stay on and ride out the reorg at new rates. It's not servitude, an employee could quit and say no way, but they stay, just as Boeing and a host of other suppliers. It's really the seniority system that allows the company to exploit labor by keeping them tied to the present job rather than taking their talents to a new employer.
A lot of people like to infer that the government has "bailed" out these companies. Other than guaranteeing the over the top pension promises of a previous generation and picking up retiree medical through medicare, the govt isn't involved in the BK process.

 

[Lear70]

Luv, I think the inference is that, in such a tightly-controlled "deregulated" environment, there *SHOULD* be some kind of accountability and a limitation on REPEATED use of the bankruptcy code to continually write-down employee compensation contracts (CBA's).

The ONLY way that could be accomplished is by having it LEGISLATED, just as Pension Reform was legislated (albeit AFTER the horses had escaped the barn). The CURRENT bankruptcy code is highly flawed and does NOT support a free-market approach to the Airline industry. No way to change that without government intervention. Since they don't do that, it's akin to governmental tacit acknowledgement of that pattern.

Until/unless reform happens, it's just going to be more of the same. Wring all the profits out of the company at the apex of the up-turn, dump all the debt on the down-turn through Bankruptcy. Wash and repeat.

 

[jmreii]

I am sorry, I guess my point was not clear. Before the deregulation act was passed, Kahn was clear in his belief that it was not the resposibility of government to prevent airlines from failing. Speaking to this point (beforehand), Kahn stated “We cannot agree to define healthy competition as that state where the fortunes of the competitors fluctuate but no competitor ever goes to the wall.” Kahn expected airlines to fail as competition increased. Additionally, in numerous instances Kahn stated that airline pilots at interstate carriers were overcompensated and deregulation would solve this inequity.

As noted by numerous economists, when the price point of a service falls, due to new entrants or more efficient suppliers,the remaining service providers must either increase efficiency to meet the competition or find a nitch (to be read "underserved corner of marketplace where consumers will pay a premium for the service). As we have seen over and over again, nitch suppliers tend to fail.

The situation we see today was fully predicted in 1978. I, and many along with me, viewed deregulation as a force to grow the domestic market and it did, just not the way I had desired.

Given the history of Congress and "consumer protection" regulations, I will be very surprised if it does not, across time, permit foreign carriers to operate in the US (think trucking and shipping, both national necessities). This, coupled with consumer behavior, will continue to drive the price point lower and lower with new entrants reaping short term benefits with cheap labor.

Sorry, this isn't the business I started in back in 1973 and, given Congresses past behavior, it is not going back.

Bob

Very good points! in 1973 I was in middle school whereas much of the trade in the US was among the states and not a global economy in which I knew little about before completing two business degrees. I definitely see the day of some foreign airline carriers receiving access to US markets as well as some US carriers receiving access to foreign markets. The name of the game is competing whereas certain markets will not accept poor service disguised as the cornerstone of your product.

 

[Full of LUV]

Luv, I think the inference is that, in such a tightly-controlled "deregulated" environment, there *SHOULD* be some kind of accountability and a limitation on REPEATED use of the bankruptcy code to continually write-down employee compensation contracts (CBA's).

The ONLY way that could be accomplished is by having it LEGISLATED, just as Pension Reform was legislated (albeit AFTER the horses had escaped the barn). The CURRENT bankruptcy code is highly flawed and does NOT support a free-market approach to the Airline industry. No way to change that without government intervention. Since they don't do that, it's akin to governmental tacit acknowledgement of that pattern.

Until/unless reform happens, it's just going to be more of the same. Wring all the profits out of the company at the apex of the up-turn, dump all the debt on the down-turn through Bankruptcy. Wash and repeat.

I think the notion of multiple BK's is more prevalent than reality.... Who's operating and done multiple BK's except US AIR and Continental? Really could be argued that their first BK's did not get at the heart of the issue which was unsustainable workrules, payrates, and pension promises in the face of deregulation. BK was the only way UAL, DAL, and now AMR could ever exit the pensioner medical and pension obligations that the newer post de-reg industry entrants were not burdened with.

Also, suppose in AMR's BK instead of reorg, they instead just sold the bulk of their assets, including the logo and existing operation, in a fire sale to a group of investors that wanted a airline and had money to buy one on sale or start their own..... that is essentially what is taking place. Yes the prior mgmt gets a golden parachute to walk away and labor is left with a rubber check of future wage promises, but if they don't quit, they are essentially consenting to the deal on a personal level. This is precisely why UAL started and DAL refined getting a bond that acknowledged the debt being written off in the BK proceedings that was repaid by new investors, granted at a 40% discount.
LUV

 

[Dumb Pilot]

, in such a tightly-controlled "deregulated" environment, there *SHOULD* be some kind of accountability and a limitation on REPEATED use of the bankruptcy code to continually write-down employee compensation contracts (CBA's).

Watch it, you are coming dangerously close to making a democratic argument. LOL! just messing with ya!

 

[Lear70]

Heh heh...