Re-regulation

[cezzna]

I posted this earlier in general, but since it really applies to you guys. What do you think about Re-Regulating the airlines? Partial re-regualtion?. I don't think this industry can stay in this current cycle much longer. Legacies aren't allowed to fail, lives being ruined, pesions gone, jobs gone. I'm not convinced that unregulated competition will ever work in this indusrty. It sure isn't now.

 

[SWA GUY]

Time to re-think that post.

 

[GogglesPisano]

Let the market work.

There will be no call for re-regulation of any industry as long as the majority of Americans benefit from de-regulation. Fares have never been cheaper. More people are flying than ever before. If airlines fail others will fill the void -- especially with the new bankruptcy laws about to take effect.

The system is working.

 

[Mesabi Miner]

Meet the reserve

Fares have never been cheaper.

To the detriment of every airline employee and their family.

More people are flying than ever before.

To the detriment of every airline employee that once got respect from people that viewed them as more than bus drivers and soda waitresses.

I think that full regulation will not and should not be implemented. But, there has got to be something that prohibits anyone from flying coast to coast for peanuts. In Ebay-speak, the airline industry needs to meet the reserve when it comes to ticket prices.

MM

 

[dtfl]

Doesn't the government have a say in who gets what gates...and doesn't the govt have a say in what carriers get the new routes to Asia......and doesn't the BK judge have a say in regards to the new pay scales, etc at BK carriers? I consider that partially regulated.

 

[vc10]

Says who? I second what the other guy said. For the consumer, deregulation is nothing but upside---fares are cheap, and seats are available.

Why should this industry (or any other) be organized for the benefit of the employees that work in it?

To the detriment of every airline employee and their family.



To the detriment of every airline employee that once got respect from people that viewed them as more than bus drivers and soda waitresses.

I think that full regulation will not and should not be implemented. But, there has got to be something that prohibits anyone from flying coast to coast for peanuts. In Ebay-speak, the airline industry needs to meet the reserve when it comes to ticket prices.

MM

 

[Ty Webb]

Says who? I second what the other guy said. For the consumer, deregulation is nothing but upside---fares are cheap, and seats are available.

Why should this industry (or any other) be organized for the benefit of the employees that work in it?

It's not just the employees. If the industry is allowed to continue doing what it is doing, ie selling products below the cost of producing those products, eventually, the taxpayers, shareholders and creditors will be affected. Eventually, safety will be affected, too, as the wages fall, turnover increases, and pilots and mechanics turn to other industries that pay more.

The flying part of this job is great, but this profession has a very real cost in terms of time away from family, and an opportunity cost in investing years with a carrier, only to start over at the bottom, through no fault of your own.

Like many other pilots, I have been developing other income streams on the side. If this job gets to the point where it is no longer worth doing, hopefully, I will be able to walk away while "the going is still good" instead of sitting in the cockpit b!tching about how it used to be . . . . .

 

[Mesabi Miner]

Amen, Ty. I just happen to think that a little strategically placed regulation in terms of a "minimum fare" would go a long way toward solving some of the airline's problems. God bless capitalism, but come on now.

MM

 

[fam62c]

Amen, Ty. I just happen to think that a little strategically placed regulation in terms of a "minimum fare" would go a long way toward solving some of the airline's problems. God bless capitalism, but come on now.

MM

We don't need regulation we need capitalism. Look at the last downturn in '89. The industry had the same fundamental problem of overcapacity (and the current mess is a supply-demand problem at it's root as well) and Eastern, PanAm and Midway went under helping pricing to return to sustainable levels. Now look at this downturn. It's far worse than the downturn of '89 and it's been going on for years and just keeps getting worse. The difference is that NO legacy carriers have ceased operation; how can this be? The bankruptcy courts and lenders are keeping airlines flying that have no economic reason for still being alive. It's destroying the whole industry.

I agree with you, people shouldn't be flying across the USA for $99. It costs lots of money to operate airplanes and almost everyone is selling seats at a loss. If the failed carriers were purged from the industry the supply of seats would be lowered to a level where the remaining carriers could finally price for break-even+ and the "junk" passengers that have created artificial demand due to insane pricing would need to go back their Greyhound busses.

Regulation is not the answer. Deregulation is the American way. If we could just get the lenders and the bankruptcy courts to let the strong survive and the weak perish the industry could fix itself. Quasi-regulation by the lenders and courts is getting in the way of the corporate darwinism that is the foundation of capitalism.

 

[Lear70]

The system is working.

Oh yeah, it's working great.

The PBGC is about to be declared insolvent once both DAL and NWA dump their pensions onto the PBGC as well, tens of thousands of employees are without jobs, retirement benefits, or medical coverage well before Social Security and Medicare cut in, and what was that about capitalism at its finest? Only the fittest survive?

Well, thanks to the bankruptcy courts, the fittest are simply the last ones to file bankruptcy and EVERYONE survives.

That's not exactly what I'd call a "working system".

The only regulation I'm advocating is one simple law that REQUIRES an airline to price their product at least EQUAL to the cost of producing it. If an airplane has 100 seats and it costs $15,000 to do a 2 hour flight from DTW to BOS (including the G&A costs), then by God those seats should NEVER be allowed to sell for less than $150. If that puts some airlines out of business because of competition, well too d*mn bad; THAT would be a working capitalistic system.

Ty, I agree, but I ALREADY bitch in the cockpit about "the good ole' days",,,

Oh, incidentally, the airline workers aren't the ONLY people who would benefit from this. How about the millions of taxpayers who are going to share in paying for the bailout of the PBGC? Chew on that one a while...

 

[fandango]

You gotta keep the government out of this. When was the last time you heard of the government getting involved and improving things?
TSA is a prime example. Let the market do its job and let the chips fall where they may.

 

[castle bravo]

Oh yeah, it's working great.

" tens of thousands of employees are without jobs, retirement benefits, or medical coverage well before Social Security and Medicare cut in, and what was that about capitalism at its finest? Only the fittest survive?"




I'll bet Alfred Kahn is still getting HIS retirement ckecks from Cornell University!

 

[JD2003]

I will still get 70 percent of my United pension. Hopefully, when I retire, this will be enough to fill my gas tank.

 

[vc10]

Interesting you should say that. University professors are in something called TIAA-CREF. It's not a defined benefit program---it's a defined contribution program. What professors get after they retire depends on what they put in and how well TIAA-CREF invested the money, and everything is backed by real assets. In other words, it's basically a 401(k). TIAA-CREF ("Teachers") is one of the biggest pension funds out there.

So Alfred Kahn isn't getting any pension checks from Cornell.

Further, ALPA could have set stuff up like this if they'd wanted to. But N-O-O-O-O... they wanted the "certainty" of a defined benefit program.

By the way, it *is* possible to have an iron-clad defined benefit program, but it's very very expensive. Basically, pension contributions have to be used to buy annuities from very highly-rated insurance companies.

Oh yeah, it's working great.

" tens of thousands of employees are without jobs, retirement benefits, or medical coverage well before Social Security and Medicare cut in, and what was that about capitalism at its finest? Only the fittest survive?"




I'll bet Alfred Kahn is still getting HIS retirement ckecks from Cornell University!

 

[Flopgut]

Here is a great website: www.braniffpages.com

Braniff CEO Harding Lawrence thought de-regulation would fail. He believed that Braniff needed to agressively grow when de-regulation started because it would quickly fail and that any new route launched during that time would be allowed to remain part of the airlines' system. Braniff launched [gambled] over 100 new routes around the world when de-regulation started. Braniff failed, but Harding Lawrence may still be right, just off by 20+ years.

Here is where I'm coming from:

Continuing with Braniff: Braniff didn't want to go to DFW. They considered Love their home no less than SWA does now. Moving to DFW disturded their operations and was expensive. In doing so they relented market share to SWA, but not without a fight. Braniff matched each route SWA flew out of Love in a very expensive fight. SWA did not run Braniff out of Love, far from it. Braniff was forced to cease Love Field operations by a court order! So in a new "de-regulated" environment, Braniff was very much "regulated" out of Love Field. SWA was very much "regulated" into a durable advantage in a strategic market. De-regulation did not account for the SWA special interest. Free market? My a$$!

I wonder if Alfred Kahn's research accounted for this possibility:

The SWA "phenomenon" makes money, but does not throw off a lot of money. They only fly one model of airplane, and if they are the future then I guess we won't need to engineer/design any new airplanes. They aren't going to support any new airports or terminals that cost them any money, so forget about that. And they aren't going to do any complicated flying that perserves our air transportation system. For instance: If SWA is able to erode Alaska's route system/profit base to the point that they can no longer do the important flying in the Alaskan wilderness that service will be lost forever. SWA is not going to do it. Project that example onto the whole country and you can see the long term effect of de-regulation.

Is this business de-regulated? Not truly. DOJ has to intervene in anything majors do.

Is what we call de-regulation going to advance our standard of living, build up the middle class in earnest? Perhaps, it seems so at this moment. Long term? Maybe not. Look over the website at the top of the page, and then try to find anything similiar about SWA. Try to use that sort of reasoning and see where you think the US air transportation system is headed. In 20 years we might end up with the most primitive and limited transportation system in the world.

 

[Publishers]

I think what you are missing is that if the bankruptcy laws were not as they were and were not airlines such cash cows, the impact of dereguation would have taken about 10 to 15 years.

The inefficiency that airlines operated under for so long was going to take a long time to change and in some cases, there was no hope. Braniff took one approach, American another. \

If a few airlines had been allowed to fail outright, the others would have remained stronger but that did not happen. Eastern, Pan American, Braniff, National, etc etc are names of the past.

It is just something that will take longer but the short version is that if you decided you wanted to start an airline on the day of deregulation, you were in better shape than the companies already with airlines.

 

[Lear70]

I will still get 70 percent of my United pension. Hopefully, when I retire, this will be enough to fill my gas tank.

Ummm... that's the entire point. If the PBGC goes belly-up, the Federal Government will HAVE to step in.

IF the government doesn't step in and bail out the PBGC you WON'T get 70% of your United pension, you won't even get 20% of your United pension, you'll get a big giant goose-egg.

Incidentally, how do you figure you're getting 70% of what your pension would have been? The cap on PBGC pensions is usually around $40,000 a year - my dad should have made around $120,000 a year in retirement from US Airways and he's getting the max from the PBGC which is $40,000 a year or approximately 33%.

 

[Redmeat]

Ummm... that's the entire point. If the PBGC goes belly-up, the Federal Government will HAVE to step in.

IF the government doesn't step in and bail out the PBGC you WON'T get 70% of your United pension, you won't even get 20% of your United pension, you'll get a big giant goose-egg.

Incidentally, how do you figure you're getting 70% of what your pension would have been? The cap on PBGC pensions is usually around $40,000 a year - my dad should have made around $120,000 a year in retirement from US Airways and he's getting the max from the PBGC which is $40,000 a year or approximately 33%.

PBGC max 46,000. Average time served will get around 28,000.

 

[Flopgut]

It is just something that will take longer but the short version is that if you decided you wanted to start an airline on the day of deregulation, you were in better shape than the companies already with airlines.

Would it also be correect to say that if you had an airline you could take to BK before the Oct.17th deadline, you have a permanent advantage over one who could not? There will be a pronounced before and after on this date.

 

[Publishers]

I think that is correct although might take some more anaylsis. The earlier point is that you could look at the rules that would be in place and gear yourself to that environment. You could be a niche player and go with a new fleet that fit that structure.

Your labor, even if it was union, was not controlled by a senior bunch that covetted their way. Bankruptcy is not as attractive no matter under what rules but there are things that need to be dealt with.

 

[vc10]

Braniff signed up for DFW. SWA did not. When the time came to go to DFW, Braniff was therefore obligated, because it signed up. SWA was not obligated. At that point, Braniff wished it hadn't signed up for DFW. But it had, so Braniff had to move.

What's so complicated about that?

As for SWA not supporting various types of flying, only one type of aircraft let me ask you a simple question: so what? What you're saying is that Southwest is somehow reducing/eliminating the subsidization of one type of flying by another. The implication is somehow that Southwest makes the development of new aircraft types less likely and makes flights into small cities more expensive.

Even if that's true, so what? Even if true (and you haven't proven a thing) what's happening is a natural development of a free market. This country, allegedly, believes in the free market. Why should people who fly on 737s subsidize the development of 787s, A380s or whatnot? Why should people who want to fly from Baltimore to Orlando subsidize those who want to fly from New York to Elmira?

And the good people of Alaska, or wherever, can take care of themselves. Their senator, Don Young, has two bridges, for a total cost of over $400mm, in the latest transportation bill. The bridges will serve a total of less than 100 people. I wish I was making this up. I'm sure those people would far rather just get an equal share of the cash.

Here is a great website: www.braniffpages.com

Braniff CEO Harding Lawrence thought de-regulation would fail. He believed that Braniff needed to agressively grow when de-regulation started because it would quickly fail and that any new route launched during that time would be allowed to remain part of the airlines' system. Braniff launched [gambled] over 100 new routes around the world when de-regulation started. Braniff failed, but Harding Lawrence may still be right, just off by 20+ years.

Here is where I'm coming from:

Continuing with Braniff: Braniff didn't want to go to DFW. They considered Love their home no less than SWA does now. Moving to DFW disturded their operations and was expensive. In doing so they relented market share to SWA, but not without a fight. Braniff matched each route SWA flew out of Love in a very expensive fight. SWA did not run Braniff out of Love, far from it. Braniff was forced to cease Love Field operations by a court order! So in a new "de-regulated" environment, Braniff was very much "regulated" out of Love Field. SWA was very much "regulated" into a durable advantage in a strategic market. De-regulation did not account for the SWA special interest. Free market? My a$$!

I wonder if Alfred Kahn's research accounted for this possibility:

The SWA "phenomenon" makes money, but does not throw off a lot of money. They only fly one model of airplane, and if they are the future then I guess we won't need to engineer/design any new airplanes. They aren't going to support any new airports or terminals that cost them any money, so forget about that. And they aren't going to do any complicated flying that perserves our air transportation system. For instance: If SWA is able to erode Alaska's route system/profit base to the point that they can no longer do the important flying in the Alaskan wilderness that service will be lost forever. SWA is not going to do it. Project that example onto the whole country and you can see the long term effect of de-regulation.

Is this business de-regulated? Not truly. DOJ has to intervene in anything majors do.

Is what we call de-regulation going to advance our standard of living, build up the middle class in earnest? Perhaps, it seems so at this moment. Long term? Maybe not. Look over the website at the top of the page, and then try to find anything similiar about SWA. Try to use that sort of reasoning and see where you think the US air transportation system is headed. In 20 years we might end up with the most primitive and limited transportation system in the world.

 

[dueguard1]

We don't need regulation we need capitalism. Look at the last downturn in '89. The industry had the same fundamental problem of overcapacity (and the current mess is a supply-demand problem at it's root as well) and Eastern, PanAm and Midway went under helping pricing to return to sustainable levels. Now look at this downturn. It's far worse than the downturn of '89 and it's been going on for years and just keeps getting worse."

Hey Fam, let's just remember here that back in 89' we did'nt have 1 billion American households with internet capability using modern day Robin Hood sites like Travelocity scanning for the most cheapest thing available with Jet fuel.......Let's face it more than 90% of Americans could care less which Airline they get on, their willing to be stuffed like sardines for 2 hours or more just to get to their destination at the lowest fare.....It's Called WALMARTIZATION!

 

[Publishers]

It is called basic transportation. The basic fact is that there is nothing to distinguish what Boeing you are on, which Diet Coke they give you, nothing except FF miles to make a case on. Same planes, same airports, same ATC etc.

 

[Flopgut]

Braniff signed up for DFW. SWA did not. When the time came to go to DFW, Braniff was therefore obligated, because it signed up. SWA was not obligated. At that point, Braniff wished it hadn't signed up for DFW. But it had, so Braniff had to move.

What's so complicated about that?

As for SWA not supporting various types of flying, only one type of aircraft let me ask you a simple question: so what? What you're saying is that Southwest is somehow reducing/eliminating the subsidization of one type of flying by another. The implication is somehow that Southwest makes the development of new aircraft types less likely and makes flights into small cities more expensive.

Even if that's true, so what? Even if true (and you haven't proven a thing) what's happening is a natural development of a free market. This country, allegedly, believes in the free market. Why should people who fly on 737s subsidize the development of 787s, A380s or whatnot? Why should people who want to fly from Baltimore to Orlando subsidize those who want to fly from New York to Elmira?

And the good people of Alaska, or wherever, can take care of themselves. Their senator, Don Young, has two bridges, for a total cost of over $400mm, in the latest transportation bill. The bridges will serve a total of less than 100 people. I wish I was making this up. I'm sure those people would far rather just get an equal share of the cash.

It is not as simple as Braniff agreeing to to move to DFW. You should need no other evidence than the fact that this has been a huge ongoing legal action. The legal process led to a compromise in the form of the WA, which was a win for SWA. So obviously, there was merit on the side of SWA opponents. Furthermore, Herb worked under this agreement without trying to change. It was a real dirty trick on his part, not SWA's most shinning moment. Not one party to the agreement were made to believe that not participating was an option. There is no way to rationalize it, SWA staying at Love was dirty pool.

So what about the other stuff? Well we are talking regulation, and my analysis is pretty valid. No, nothing is proven. But where is this headed? We now have 45% of domestic capacity in BK, and the most successful airline in the country only goes to 60 cities. Are we going the right direction? I think not. I think we need a national air transportation policy that can address where we are going. We need to be leaders in all things aerospace manufacturing and air transportaion and we are falling behind. Right now, the crown jewel of de-regulation is a small, boutique type airline that if it were the only thing this country had going, the US would no longer be a superpower and the economy would crumble. Panama would have a better air transportation system than the US.

SWA has been groomed to be a benefactor in this business via the WA. They are nearing Wal-Mart proportions. And like WM they are going to push policy in their favor artificially shaping things they way they want them. Airports will now have to live in fear that SWA may determine they are due for a shake down. We won't build new airports or new airplanes. SWA will just want the 737 reverse engineered to fit into smaller less sophisticated airports. Pretty soon, this country won't even have something as useful as Aeroflot!

With regard to Alaska, its a pretty transportation intensive place. You either continue to invest in infrastructure there or give it up. Huge strategic advantage with regard to global air freight You ever been there BTW?

 

[Flopgut]

De-reg article

I'm not a big Glen Tilton fan, but he makes a good point in this article:

http://www.msnbc.msn.com/id/9431147/

De-regulation has really only been extended to LCC. Legacies have been forced to provide a host for LCC to thrive upon and it is killing us. The Wright Amendment is an example of this trend. No issue is too large or small to be skewed in the favor of LCC (SWA specifically), and likewise the opposite is true for legacies.

The "legacy" for legacies is, and has been, to be very large international airlines that compete globally. We have not been allowed to do that. Now is the time for free market economics to be made available to all airlines, not just LCC.

 

[Publishers]

Free markets work well absent of artificial impacts. That is the probelm. Big international carriers are fighting against government supported airlines, in short, artificial influence.

To put together that international airline, you need to hub and spoke to consolidate traffic. Understanding the symbiotic effects is the hardest part of air system infrastructure.

 

[Ty Webb]

The "legacy" for legacies is, and has been, to be very large international airlines that compete globally. We have not been allowed to do that. Now is the time for free market economics to be made available to all airlines, not just LCC.

Careful what you wish for, Hotshot. You think you have competition from LCC's, wait until you have foreign carriers competing against you domestically. . . .

The problems at the legacy carriers are largely of their own making. Very little innovation, stagnant structure, employees with a huge sense of entitlement and no intiative to deliver a better product. Thieving management and horrible decisions (the foolish stock buy-backs, United's Avolar project. the failed merger between UsAirways and United to name a few).

I know, the list makes your head hurt, right? Much easier to blame LCC's and leave it at that.

 

[Tejas-Jet]

PBGC max 46,000. Average time served will get around 28,000.

Uhhhhh....PBGC max at age 60 is $28,800 per year....if one waits until age 65 to start getting his PBGC ...then it will be around $46,000 per year....

It goes by the age you are when you start getting it....seniority/years of service mean absolutely nothing...

Tejas

 

[FlyinScotsman]

let's just remember here that back in 89' we did'nt have 1 billion American households with internet capability using modern day Robin Hood sites like Travelocity scanning for the most cheapest thing available with Jet fuel.......Let's face it more than 90% of Americans could care less which Airline they get on, their willing to be stuffed like sardines for 2 hours or more just to get to their destination at the lowest fare.....It's Called WALMARTIZATION!

Since when did Travelocity or the others web sites set the ticket prices? Isn't that the job of the airlines? They only sell the tickets for what the airline tells them they can. Don't blame them for cheap ticket prices.

 

[Flopgut]

Careful what you wish for, Hotshot. You think you have competition from LCC's, wait until you have foreign carriers competing against you domestically. . . .

The problems at the legacy carriers are largely of their own making. Very little innovation, stagnant structure, employees with a huge sense of entitlement and no intiative to deliver a better product. Thieving management and horrible decisions (the foolish stock buy-backs, United's Avolar project. the failed merger between UsAirways and United to name a few).

I know, the list makes your head hurt, right? Much easier to blame LCC's and leave it at that.

I did not say anything about cabotage. And I have not blamed LCCs in this thread. What I'm saying is that LCCs have been deregulated and legacies have not.

Legacies need to be able to consolidate in the current environment. The only thing stopping it is the US government...the same ones who crafted deregulation?!

Your response is an interesting one though, and suggests a lot about your perspective (one I see a lot). Your default position is to believe that legacy airlines should just be a lifeless carcass to be fed upon for not evolving. They are however not allowed to evolve. I'm certainly not suggesting we allow cabotage, or even foriegn ownership. Other countries will not allow the US unfettered access to their markets and we should not either. Other countries are allowing airlines to consolidate, even across borders. The US government can't stop that, and likewise, those other governments can't stop the US from allowing US carriers to consolidate. But of course, they don't have to! Uncle Sam is taking care of that for them.

LCCs in this country have done a nice job of carving out a market and delivering a good product. Deregulation has worked for them nicely. The time is overdue to extend those same priviliges of deregulation to legacy airlines.