Let Some Airlines Die

I missed it last week, but apparently the CEO's of a number of major US airlines took the PR offensive last week to beg for more government subsidies and pension bailouts.  Reason's Hit and Run has the roundup.  They observe that the Senate was open to their pleas:

But luckily for the money-squandering dullards, there are enough members of
the Senate Commerce Committee who apparently believe certain businesses are too
colossally incompetent to fail:

The Commerce Committee's ranking Democrat, Sen. Daniel Inouye of
Hawaii, agreed: "If we do not begin to solve the problems plaguing the air
carriers, we will see more failures in coming months and certainly more jobs
cut."

Because what is the federal government if not a
guarantor of full employment at lousy companies?... If Inouye and his fellow
hacks were serious, they could start by privatizing airports, allowing vigorous foreign
competitors
to own more than 50 percent of U.S.-based airlines, and letting
the failures actually fail, for starters. But that would take a belief in free
airline markets we haven't really seen since the Carter Administration.

It has always been hard to get airlines to just go away.  Pan Am hung around forever, as did TWA, through bankruptcy after bankruptcy.  My guess is that politician's unwillingness to let airlines fail has only increased with the advent of frequent flyer miles - no congressman wants all of his well-healed constituents calling the office and complaining about the 300,000 United miles they just lost.  By the way, have you ever noticed that frequent flyer mile holders are the only creditor of airlines who consistently come out of bankruptcies whole?  Even the worker's defined benefit pension plans get a haircut before frequent flyer mile holders.

Legacy airlines are really backwards in their practices - for example, many of their supply chain processes are reminiscent of the auto industry in the 60's and 70's, in part because airlines are sheltered from foreign competition while auto makers for the most part aren't.  I used to work in the aviation industry, and the opportunities there are tremendous, but no one in the industry will even listen.  The "not invented here" attitude was invented in the airline industry.

And while the management of these firms is backwards, you also have to deal unions a share of the blame.  Union supporters often accuse companies of "union-busting".  I have never heard the term, but in the case of airlines, one might be able to accuse the unions of "company-busting".  Unions hold out and strike for outrageous salaries and benefits and work rules that far outstrip what similarly skilled people make in other industries.  By the way, unlike conservatives, I don't have some deep seated hatred of unions.  In a free society, workers can try to organize to increase their bargaining power.  I do have problems with the way the US government, through legislation, tilted the bargaining table in the unions' favor, but that is a different story. 

For some of these reasons, and others, I was flabbergasted that local company America West would purchase USAir.  When there are so many planes and gates for sale on the market, and cities are begging for new competitors to enter their airline market, why would you buy yourself a load of trouble in the form of legacy union contracts and frequent flyer obligations?  It is noteworthy that Southwest has never bought another airline, and prefers instead just to buy assets out of bankruptcy.

  • Scott

    I'm actually beginning to think the best way to keep Washington on a tight leash is for We the People to consistently vote out incumbents of either party.

  • http://politicalcalculations.blogspot.com/ Ironman

    Being very familiar with the industry, I agree with most of your points regarding how the airlines operate - from managerial incompetence (widespread) to unions seeking to choke the last golden egg out of the goose (Ref: United).

    You did err on one point however - Southwest Airlines purchased Morris Air back in the 1990s, and not out of bankruptcy! It had the advantage of being a very good fit with Southwest (no unions, same equipment, same overall philosophy.) Morris was so successful, in fact, that Southwest insisted on a five-year non-compete clause for its senior management to prevent them from immediately setting up a new carrier. Five years later, they started JetBlue!

  • http://desertislandfoods.com Scott P

    I too was appalled by the America West/US Air deal. I fly AWA a lot out of Phoenix and by and large have had very good experiences. I would say the opposite of US Air, which leads me to think that AWA sees something there that I don't.

  • http://genericconfusion.blogspot.com Greg

    I haven't had many problems flying on a variety of airlines (the legacy of living in three locations without a hub airport). I don't have a problem with USAirways, and do hope they stick around, as often they offer the best route for places I fly in the southeast.

  • Bernard

    It is apparent that the intent of deregulation didn't live up to the initial purpose. While weak airlines were force out of the market by the majors carriers because they could not compet. The major carriers are now finding themselves faced with seek government protect to remain in business. I say let the market determine the survial of those who have the right operation model. If weaker airlines didn't receive government protection then why are the major carriers demanding government protection just to stay in business. What good for the goose is also good for the gander. The playing field should be the same for everyone.