The Syrian airfield prepare for reception of military aircraft of China
The latest news about fast emergence in borders of Syria of navy of China encouraged Syrians and res[...]
Mow What?
There has been an on-going shake-out in the air transportation business for 35 years. We have attempted to trace the progress of this evolution in the preceding chapters and what we have seen is not pretty. Economic deregulation has brought chaos to the airline industry.
The air carrier industry has become just about as lean as it is possible to get, mostly at a cost to the airline employee and the comfort of the traveler, yet profits are scarce and undependable. Capacity has decreased. Air fares are rising. The last legacy airline has gone into Chapter 11.
There can be no question that the consumer has benefitted greatly—but at what cost? The
entire sector is barely hanging on, trying to survive between one uncontrollable externality and the next. Under deregulation, unfettered competition has taken the place of any discernible national transportation policy. Is this sustainable?
One authority on the subject, Robert Crandall, former American Airlines CEO, thinks not:
«Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment. To put things bluntly, experience has established that market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost, and operating problems.»
The airline industry is composed of or affected by at least four main entities: airline labor, airline passengers, airline management,
and airline company shareholders. Their individual interests are vastly disparate, but their one common interest is airline profitability. Yet, airlines are not reliably profitable; in fact, they are rarely profitable. Under the private enterprise system, a corporation will not long exist if it does not make a profit.
As legacy airlines have slimmed down under Chapter 11 or gone out of business, and as new entrant airlines have picked up the slack in capacity and service abandoned by the legacy carriers, a tentative status quo has been maintained. But at some point this process as a means of maintaining an air carrier system must cease, and a sustainable model for a profitable and durable airline system must emerge. Whether this can be done without at least some form of governmental control or economic re-regulation is now an open question. But there are powerful interests that now suggest that some sort of re-regulation, different from the kind of onerous and inclusive CAB regulation previously in place, must be entertained.
Endnotes
1. Discussed more at length in Chapter 40.
2. Bin Laden was killed by members of United States Navy Seal Team 6 on May 1, 2011 in Pakistan.
3. Pub. L. No. 107-42; 115 Stat. 230.
4. Pub. L. No. 107-71; 115 Stat. 597 (2001).
5. Representative John Mica, Chairman of the House Transportation Committee.
6. Wall Street Journal, April 9, 2012.
7. Pub. L. No. 107-296; 116 Stat. 2135 (2002).
8. The SARS epidemic was the outbreak of a viral respiratory disease in Hong Kong in late 2002, which spread worldwide during the ensuing months, causing over 900 deaths. Although the death rate of SARS is only 1 percent for people aged 24 or younger, it is 50 percent for those 65 or older. SARS caused a worldwide reduction in airline traffic volumes.
9. Hedging refers to the practice of buying crude oil futures contracts. Prices can be locked in at a predetermined (current) price even as the price of oil goes up.
Hedging does carry some risk since to buy a futures contract assumes that the price will rise in the future. If it does not, then the owner of the futures contract will either make no profit or will lose money. Given the history of oil prices, hedging has been a lucrative practice in recent years.
10. Fuel would soon surpass wages as the largest airline cost of doing business.
11. In January 2012, Southwest reported its 39th consecutive year of profitable operation.
12. The Pension Benefit Guaranty Corporation’s (PBGC) single-employer insurance program is a federal program that insures certain benefits of the more than 34 million worker, retiree, and separated vested participants of over 29,000 private sector defined benefit pension plans. Defined benefit pension plans promise a benefit that
is generally based on an employee’s salary and years of service, with the employer being responsible to fund that benefit, invest and manage plan assets, and bear the investment risk. A single-employer plan is one that is established and maintained by only one employer. It may be established unilaterally by the sponsor or through a collective bargaining agreement.
13. Operating loss does not include interest expense and other allowable expenses. The net loss was $23 billion total for all airlines.
14. Alaska Airlines is part of a system of airlines that originated in 1932 and existed as a feeder airline during the period of regulation. It took the name “Alaska Airlines” in 1944. It is the only pre-1978 intrastate airline not to have sought bankruptcy protection.
15. Air Transport Association. “List of Bankruptcies.” http:// www. airlines. org/economics/specialtopics/ USAirlineBankruptcies. htm.
16. This is an unusual result since stockholders of a bankrupt company, even in Chapter 11, usually get wiped out.
17. U. S. Department of Transportation, FAA Aerospace Forecast, Fiscal years 2012-2032.
18. In 1995, the FAA brought regionals flying aircraft with 10 or more seats under the same regulatory scheme as the major airlines.
19. These incidents are taken from Public Broadcasting Corporation website Frontline http://www. pbs. org/wgbh/ pages/frontline/flyingcheap/etc/cronfaa. html#six).