Bai B Nai
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Crandall Calls For Re-Regulation
Jun 11, 2008
By Anthony L. Velocci, Jr./Aviation Daily
Decrying the “sad state” of U.S. commercial aviation, former American Chairman and CEO Robert Crandall yesterday declared three decades of deregulation a failure and said that treating airlines like a regulated utility must be a part of a broad solution to their current financial crisis.
“We have failed to confront the reality that unfettered competition just doesn’t work very well in certain industries, as aptly demonstrated by our airline experience and by the adverse outcomes associated with various state efforts to deregulate electricity rates,” Crandall told aviation and financial industry professionals gathered at the Wings Club in New York City. “It’s time to acknowledge that airlines look and are more like utilities than ordinary businesses.”
While the rapid rise in jet fuel prices has complicated the job of airline managers, fuel prices are not at the core of the industry’s precarious financial state. Inadequate scale isn’t to blame either, he added.
“The arguments in favor of consolidation are unpersuasive,” he said. “Mergers will not lower fuel prices, and they will not increase economies of scale for already sizable major airlines. If consolidation were really the answer, it is conceivable the system could be run by a single efficient operator.”
Instead, Crandall continued, the industry’s goal should be to harness competition and regulation to create a system responsive to both the imperative of efficiency and the desirability of decent service — now unacceptable “by any standard.”
In addition to reregulation, Crandall called for:
• Overhauling price structures to “recapture” full costs and earn the profits needed to sustain the huge investments essential to the industry’s future.
• Amending the Railway Labor Act to require binding arbitration to encourage both labor and management to adopt more moderate positions than has been true in the past while simultaneously moving all airlines closer to labor-cost parity.
• Revising U.S. bankruptcy laws to deprive failed carriers of the right to use lower costs to undercut the fares offered by “their more prudent rivals.”
• Regulating the number of flights scheduled to what runways, terminals and air traffic control facilities at airports can handle.
• Shrinking schedules proportionately to each airline’s current frequency share as a way to pressure carriers to use the largest feasible aircraft in each slot.
• Imposing more stringent financial standards that new airlines must meet to eliminate or discourage “short-term antics” by start-ups that have destabilized the pricing structure required by a healthy industry.
• A more accommodating stance by Washington towards industry collaboration to achieve more intensive asset utilization and more efficient operations.
Crandall also noted, however, that industry regulation will be insufficient to rescue the commercial air transportation industry. Also needed is a national transportation plan of U.S. aviation goals, including a comprehensive redesign of the air traffic control system. “Unhappily,” he added, “such a plan does not exist.”
Crandall Calls For Re-Regulation
Jun 11, 2008
By Anthony L. Velocci, Jr./Aviation Daily
Decrying the “sad state” of U.S. commercial aviation, former American Chairman and CEO Robert Crandall yesterday declared three decades of deregulation a failure and said that treating airlines like a regulated utility must be a part of a broad solution to their current financial crisis.
“We have failed to confront the reality that unfettered competition just doesn’t work very well in certain industries, as aptly demonstrated by our airline experience and by the adverse outcomes associated with various state efforts to deregulate electricity rates,” Crandall told aviation and financial industry professionals gathered at the Wings Club in New York City. “It’s time to acknowledge that airlines look and are more like utilities than ordinary businesses.”
While the rapid rise in jet fuel prices has complicated the job of airline managers, fuel prices are not at the core of the industry’s precarious financial state. Inadequate scale isn’t to blame either, he added.
“The arguments in favor of consolidation are unpersuasive,” he said. “Mergers will not lower fuel prices, and they will not increase economies of scale for already sizable major airlines. If consolidation were really the answer, it is conceivable the system could be run by a single efficient operator.”
Instead, Crandall continued, the industry’s goal should be to harness competition and regulation to create a system responsive to both the imperative of efficiency and the desirability of decent service — now unacceptable “by any standard.”
In addition to reregulation, Crandall called for:
• Overhauling price structures to “recapture” full costs and earn the profits needed to sustain the huge investments essential to the industry’s future.
• Amending the Railway Labor Act to require binding arbitration to encourage both labor and management to adopt more moderate positions than has been true in the past while simultaneously moving all airlines closer to labor-cost parity.
• Revising U.S. bankruptcy laws to deprive failed carriers of the right to use lower costs to undercut the fares offered by “their more prudent rivals.”
• Regulating the number of flights scheduled to what runways, terminals and air traffic control facilities at airports can handle.
• Shrinking schedules proportionately to each airline’s current frequency share as a way to pressure carriers to use the largest feasible aircraft in each slot.
• Imposing more stringent financial standards that new airlines must meet to eliminate or discourage “short-term antics” by start-ups that have destabilized the pricing structure required by a healthy industry.
• A more accommodating stance by Washington towards industry collaboration to achieve more intensive asset utilization and more efficient operations.
Crandall also noted, however, that industry regulation will be insufficient to rescue the commercial air transportation industry. Also needed is a national transportation plan of U.S. aviation goals, including a comprehensive redesign of the air traffic control system. “Unhappily,” he added, “such a plan does not exist.”
