Flying Blind: Deregulation reconsidered

Rez O. Lewshun

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http://demos.org/publication.cfm?currentpublicationID=13A2281E-3FF4-6C82-5EB53F023A456D3A





The free market doesn't work for airlines. It is an unsustainable model that threatens National Security and the US economy, including labor.



Safety, Labor and Passenger Concerns Highlighted; Calls for National Task Force to Investigate Air Travel Problems
New York--A spate of airline tragedies and near misses this year, including the crash of a Continental/Colgan flight heading into Buffalo, New York, have called America's attention to the deeply troubled state of the airline industry. Since 2000, U.S. airlines' net losses have exceeded $33 billion--almost twice their accumulated profits from 1938 to 1999. Eleven domestic airlines filed for bankruptcy protection in 2008 alone; nine shut down altogether. The surviving companies have slashed costs, with some resorting to steps that threaten passenger safety.
In Flying Blind: Airline Deregulation Reconsidered, a wide-ranging new Demos report on the industry, co-authors James Lardner and Robert Kuttner point to preliminary findings in the Buffalo investigation that the pilot and co-pilot lacked crucial experience and training, and "down time" between flights. Since the crash, critics have raised questions about the little-known regional airlines that now handle a growing proportion of domestic flights, effectively acting as subcontractors to the big brand-name airlines. The major carriers have been widely faulted for farming out more and more flights to these smaller companies, which, in many cases, appear to have significantly less rigorous hiring and training standards.
The authors highlight that regional carriers now account for roughly 35 percent of all flight-hours, more than double the 16 percent share that these companies held at the beginning of the decade. At that time, the report shows, two-thirds of all heavy aircraft maintenance was performed in-house, while today more than 70 percent of the work is outsourced, leaving federal inspectors scrambling to keep up with nearly 5,000 repair facilities in the U.S. and abroad.
The report links these practices to a precipitous decline in service standards and labor practices. While many industry leaders blame the airlines' difficulties on the price of fuel and the current economic crisis, Flying Blind uncovers a three-decade-long pattern of declining profitability and rising instability. The industry ran up huge losses in the early 1980s and again in the early 1990s.
"Each of those periods, too, was marked by a wave of bankruptcies and layoffs," Lardner and Kuttner note. "The economic downturn of 2000 and 2001 sent the airline industry into another tailspin, with nine airlines filing for bankruptcy before September 11."
The report traces the industry's current troubles back to the decision, three decades ago, to lift most federal regulation of air travel.
"Deregulation was supposed to lead to a dramatically expanded universe of airlines-companies big and small, old and new, competing and innovating for the public benefit," the authors write. Instead, "Today's industry is more concentrated than ever, yet lacks the resources and motivation to make crucial investments in equipment, technology, and human capital. And most of the major U.S. airlines appear to have no long-term strategy except more of the same-more outsourcing, more service cutbacks and hidden charges, more wage and benefit reductions, and more consolidation in the hope of surviving long enough to be in a position to turn a profit and expand again during a future economic recovery."
Even many of the original champions of deregulation have acknowledged their failure to anticipate some of the key results. By the late 1980s, the economist Alfred Kahn, who has been called the "father of airline deregulation," was highlighting that the "naturally monopolistic or oligopolistic character of most airline markets...would continue under deregulation."
Kahn and others have taken refuge in the argument that deregulation has produced lower airfares and wider access to air travel. The Demos report concludes that even this benefit is widely overstated. "While the price of flying has come down over the past thirty years," the report notes, "it decreased at a comparable rate from the 1940 through the 1960s. In any event, low airfares are as much a problem as an achievement if they leave an industry without the resources to maintain service standards and make crucial investments in equipment, technology, and human capital."
The report makes clear an urgent need for Congress and the relevant executive agencies to make a thorough-going study of the industry's troubles. The authors recommend creation of a federal task force to examine the industry's problems and propose solutions. Specifically, they call on the task force to:
  • Develop a plan to moderate the booms and busts and build a more stable domestic airline industry. Here, the remedies could include capital-reserve requirements and bankruptcy reform.
  • Expedite (and establish stable financing for) a modernized Air Traffic Control (ATC) network.
  • Develop coordinated national and regional transportation plans, with provision for high speed rail networks to eliminate the need for excessive short-haul air traffic.
  • Devise a code of customer service that would, among other things, protect passengers from wildly varying prices and establish more uniform procedures for ensuring remuneration and rebooking when a flight is delayed or cancelled.
  • Promote more equitable and stable labor practices and return to the pre-deregulation practice of pattern bargaining in order to discourage airline competition based on low wages and high-pressure working conditions.
  • Insist on uniform airline safety standards, including mechanic credentials and oversight of maintenance facilities.
  • Develop new regulations to curtail airline consolidation and promote genuine competition where feasible, while, at the same time, cracking down on monopoly pricing and the other abuses of concentration on routes that are incapable of supporting more than one or two carriers.
STATISTICAL HIGHLIGHTS:
  • Out of roughly 150 low-cost airlines founded since 1978, fewer than a dozen are still operating; they account for only about 10 percent of current airline capacity.
  • Before deregulation, there were 11 major trunkline carriers; today, the country has six large mainline carriers-American, United, Delta, Continental, US Airways, and Southwest. The first three, along with their regional partners, control two-thirds of domestic air travel.
  • More than 100,000 pilots, mechanics, flight attendants, ticket agents, cargo handlers, and other airline workers who lost their jobs since 2001.
  • The number of people on the payroll of the legacy airlines dropped 26 percent between 1998 and 2006.
  • DOT Data for US Airways, United, Delta, American and Northwest show labor costs falling by nearly a third, on average, between the end of 2001 and the beginning of 2006.
  • According to the U.S. DOT, 2008 total baggage-fee charges by U.S Airlines came to more than $1.1 billion-a figure that is expected to triple by 2010.
  • In 2007, more than a quarter of all flights were delayed, accounting for 112 million lost passenger hours.
  • More than 100 communities have lost air service over the past decade.
 
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The Prussian

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True free market capitalism has not been allowed to exhibit itself and flourish. Bankrupcy courts (government oversight) have been very adept at keeping all the players on the field. As air carriers are being forced to compete with the "living dead", instead of happily expanding into the newly created/vacated marketplace, they instead find themselves competing on an evermore crowded playing field by contracting out domestic flying to regional operators (who hire at pittance wages). The result is that junior legacy carrier pilots are the ones being laid off and taking the fall. Is reregulation the answer??? Hardly. Let deregulation and free markets work as intended.
 

Poahi

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Nindiri

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It's true, deregulation doesn't work. All these low fares allowing working class people to visit families across the country or take vacations in Europe must be stopped. Flying should be a luxury for the wealthy only.
 

tomgoodman

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Robin Hood in reverse

It's true, deregulation doesn't work. All these low fares allowing working class people to visit families across the country or take vacations in Europe must be stopped. Flying should be a luxury for the wealthy only.
If "all these low fares" were only being given to people who couldn't otherwise afford to fly, that would be one thing. The problem is that most cheap tickets are being purchased by those who could easily pay the true "cost of production". Airline employees are subsidizing thousands of customers who make more than they do. If our society believes that airline travel, like food, should be made available to those who cannot afford it, then perhaps the government ought to give the poor (and only the poor), redeemable ticket vouchers.
 

Mil Leave

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"True free market capitalism has not been allowed to exhibit itself and flourish. Bankrupcy courts (government oversight) have been very adept at keeping all the players on the field. As air carriers are being forced to compete with the "living dead", instead of happily expanding into the newly created/vacated marketplace, they instead find themselves competing on an evermore crowded playing field by contracting out domestic flying to regional operators (who hire at pittance wages). The result is that junior legacy carrier pilots are the ones being laid off and taking the fall. Is reregulation the answer??? Hardly. Let deregulation and free markets work as intended. "


Just proof that a little knowledge is dangerous. I presume you also support cabotage? The free market will have EVERY airline job going overseas within 10 years if allowed to.
The free market is a wonderful system but it is not a cure-all. There are certain segments of business where it is poorly suited. Remember, our airlines are also a strategic asset to be used in national emergencies. (wartime) You cannot provide a viable CRAF fleet by simply letting market forces have their way.
Of course, if you support true free markets with all its implications, I take back my post. It just seems we have too many people talking about free markets without thinking that argument through.
 

machophil

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True free market capitalism has not been allowed to exhibit itself and flourish. Bankrupcy courts (government oversight) have been very adept at keeping all the players on the field. As air carriers are being forced to compete with the "living dead", instead of happily expanding into the newly created/vacated marketplace, they instead find themselves competing on an evermore crowded playing field by contracting out domestic flying to regional operators (who hire at pittance wages). The result is that junior legacy carrier pilots are the ones being laid off and taking the fall. Is reregulation the answer??? Hardly. Let deregulation and free markets work as intended.

STATISTICAL HIGHLIGHTS:
  • Out of roughly 150 low-cost airlines founded since 1978, fewer than a dozen are still operating; they account for only about 10 percent of current airline capacity.
  • Before deregulation, there were 11 major trunkline carriers; today, the country has six large mainline carriers-American, United, Delta, Continental, US Airways, and Southwest. The first three, along with their regional partners, control two-thirds of domestic air travel.
 

The Prussian

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Mil Leave....

You presume wrong...I don't support cabotage...too many governmental quality control disparities, and safety issues.

But more government is not the solution. The government's involvement in this industry has been the problem. Consider these points...government involvement in the bankruptcy process:

---has allowed the airlines to strip out their pension plans.

---has also allowed air carriers to realign pay scales.

---has even forced ALPA to throw in the towel on AGE 65, due to both of the above mentioned realities.

---has neutered unions by limiting their ability to strike.

---has kept all players alive, but equally miserable.

And now we want government to come in and "fix" things??!? Careful for what thou dost wish.
 

pilotyip

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Life was good for a few pilots under regulation. There are probably 3-4 times as many pilot’s jobs in 2005 as there was in 1977. Back in reg time it was about 90% military that went to the majors. Dereg opened up a lot of airline job to non-military pilots. To return to regulation would raise ticket prices, reduce the number of passengers, and therefore reduce the number of pilots needed. BTW SWA the low cost provider has near the top wages, this was done under de-reg. Flying is still a great way to make a living, pilots are not doctor's, if you want to be treated like a doctor finish med school, pilots are not wall street CEO's, if you want ot be a wall street CEO, get into one the top 10 MBA's school. You are pilot you fly airplanes, if you like doing that you are probably happy. If not you are in the wrong line of work.
 

Herkdrv

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Life was good for a few pilots under regulation. There are probably 3-4 times as many pilot’s jobs in 2005 as there was in 1977. Back in reg time it was about 90% military that went to the majors. Dereg opened up a lot of airline job to non-military pilots. To return to regulation would raise ticket prices, reduce the number of passengers, and therefore reduce the number of pilots needed. BTW SWA the low cost provider has near the top wages, this was done under de-reg. Flying is still a great way to make a living, pilots are not doctor's, if you want to be treated like a doctor finish med school, pilots are not wall street CEO's, if you want ot be a wall street CEO, get into one the top 10 MBA's school. You are pilot you fly airplanes, if you like doing that you are probably happy. If not you are in the wrong line of work.
Spoken like a true management stooge :puke:
 

Flopgut

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You know, the UAW made out like gangbusters, really. Just think if the ATSB was used to sort out the auto business? We could buy Chevys at Hyundai prices. US autoworkers build very expesive, marginal cars and the govt supports that. Nothing has gotten safer, more reliable, grown more, AND gotten cheaper than airline flying and airline workers can't catch a break. Really sucks.
 

Amish RakeFight

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Life was good for a few pilots under regulation. There are probably 3-4 times as many pilot’s jobs in 2005 as there was in 1977. Back in reg time it was about 90% military that went to the majors. Dereg opened up a lot of airline job to non-military pilots. To return to regulation would raise ticket prices, reduce the number of passengers, and therefore reduce the number of pilots needed. BTW SWA the low cost provider has near the top wages, this was done under de-reg. Flying is still a great way to make a living, pilots are not doctor's, if you want to be treated like a doctor finish med school, pilots are not wall street CEO's, if you want ot be a wall street CEO, get into one the top 10 MBA's school. You are pilot you fly airplanes, if you like doing that you are probably happy. If not you are in the wrong line of work.
You got that right. The lack of education (formal or otherwise) within the regional pilot ranks is astonishing. Actually an embarrassment.
 

pilotyip

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Really?

Spoken like a true management stooge :puke:
So a flying management job such as Director of Standards is a management stooge? A guy who made less money than his line biddies with the same date of hire? A guy who likes flying airplanes and thinks this is a great way to make a living. Is that the guy you were talking about? BTW still livin the dream
 

pilotyip

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No college degree?

You got that right. The lack of education (formal or otherwise) within the regional pilot ranks is astonishing. Actually an embarrassment.
So this thread is really about no college degree? That a degree is not required to be able to fly an airplane? Do we need to go there?
 
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Ty Webb

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It's called an AIRLINE, not a battered pilots' shelter

. Flying is still a great way to make a living, pilots are not doctor's, if you want to be treated like a doctor finish med school, pilots are not wall street CEO's, if you want ot be a wall street CEO, get into one the top 10 MBA's school. You are pilot you fly airplanes, if you like doing that you are probably happy. If not you are in the wrong line of work.

YIP, if you haven't noticed, it's not such a great way to make a living anymore . . . . working more weekends and holidays carting the unwashed flatfooted leisure travelers on crappy schedules, with shorter turns, longer days, shorter layovers and 1980's payscales, not adjusted for inflation, you can have it, pal.

You and I have went round and round on this for years. There is no reason . . . . again, NO REASON that pilots can't be paid the same sort of wages they were during regulation, adjusted for inflation. . . . .

Pilot Pay is about 6% of the total operating costs of that airplane. You could give every pilot on the property a 50% raise, and it would raise their costs about 3% per flight hour. or a dollar a ticket.

Why, in your opinion, shouldn't pilots make two or three hundred thousand dollars a year? Because you don't think that you're worth it! And you don't think your fellow pilots are worth it, which is why you're in management at a shelter for battered pilots.
 
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tdwnds1

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Ok...gotta put my two cents into this one...

First of all, most pilots have truly "paid their dues" in this industry. Spent Tens or Hundreds of Thousands of dollars to get all their ratings to first get...

1.) A 15 dollar an hour CFI job (maybe) making barely enough to feed themselves (or they are living at home) Average time 2 years.

2.) A regional job making SLIGHT more (often less!!!) than the CFI job and stuck in the right seat for years.

3.) If they are lucky enough to get to the majors (BIG IF) make good money for a while and face a first, second or third furlough or even better the liquidation of their airline.

I wont go in to the whole degree thing. Ive flown with college pilots who were idiots and non degree pilots who were brilliant, so there is NO hard and fast rule.

Lastly, we ARE like Doctors and Lawyers..the public, at least on the exterior, holds us in the same regard. We fly multi-million dollar aircarft with 100s of peoples lives in our hand, can be fired over one mistake that could be deadly and have to know literally THOUSANDS of pages of information and regulations (that change by the day BTW). Yet if you leave one job you have to start at the BOTTOM of the next one.

Doctors spend alot of money to get their degree as well and have a few years residency that obviously is tough, but once they get to that next level the sky is the limit. They have insurance to shield them from liablity (albeit expensive) and they can move ANYWHERE in their profession for the same OR HIGHER pay. Same goes for Lawyers. How we can NOT be thought of in the same compay.

Above all we ARE professionals and should be treated and paid as such!
 

pilotyip

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Have an answer?

Ok...gotta put my two cents into this one...

Above all we ARE professionals and should be treated and paid as such!
Agreed, but how do you do it in a free market place where the consumer determines how much money a company will be able to make?
 
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