Plane Conversations

After the justice department approved the merger of Continental Airlines and United Airlines last Friday, Congressman James Oberstar (D-Minn) voiced his displeasure again  with the merger and suggested that Congress might just need to reconsider the deregulation of airlines that happened in 1978.

The airlines have been stuck between a rock and a hard place for years. Combined profits of the industry are non-existent and customer satisfaction with airline service is somewhere down there in the range of our approval ratings of congress’s performance.

What we have received from deregulation are cheap air fares. Most people don’t remember what it cost to fly on the airlines prior to 1978 because they were either not old enough or did not fly on the airlines back then due to the costs. Real costs for flying via commercial airlines have come down over the past 30 years but the by-product of lower fares has been a reduction in what we consider to be service and the amenities of air travel. In some ways, airline travel has become just another form of mass transit much like rail service.

What we want we can’t have, and the government stepping in will not solve the problem.

We want our cheap $99 return fares, anywhere, anytime, and we want great service and convenient on-time departure schedules to go with the low price.

Deregulation brought on the competition with low cost carriers, which brought down the fares that we all enjoy.

Low fares combined with volatile fuel prices, worldwide competition with lower labor costs and airlines irrationally putting too much inventory of seats in the market took the profits out of the airline industry.

So now we have to adjust to some new fare structure and service level that the free market should work out. Mergers of air carriers are a part of this evolutionary process.

The airlines and their shareholders deserve to make a profit, or at least attempt to do so, while providing air transportation to the consumer. Unlike a utility where we have no choice, we don’t have to fly if we don’t like the combination of price, service and time efficiency of air travel.

As my Southwest flight pulled into the gate Sunday afternoon at Nashville, the flight attendant reminded us that we have many choices about who we fly with and he thanked us for choosing Southwest Airlines. In reality, we have choices beyond whom we fly with because we can drive and, in some cases, take the train. We can also choose not to go at all.  

Regulation of air travel from the federal government should be limited to matters of safety. Congress should not venture anymore than they already have into the regulation of customer service, pricing and competition. 

Government intervention has not brought much value to anything lately and I can’t imagine a scenario where reregulation of the airline industry will ultimately benefit the US economy and the consumer of air travel.

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Congress is still not getting the job done with the FAA Reauthorization bill.

In previous posts  on Plane Conversations I have discussed the issues surrounding all of the different provisions of the bill and why it still hasnt passed into law.

I still don’t know why Congress has to pile in all these controversial provisions that deal with Unionization of FedEx and landing slots at a couple airports into a major funding bill that has been in a stall for years.

The only reason I can think of is good old fashioned politics and game playing on the hill, and in the mean time issues with safety, upgrade of a severely outdated air traffic control infrastructure and long term funding to run the FAA gets postponed again.   

If those of us who run businesses and make payroll every week ran our business like these guys do business on “The Hill” we would have been out of business a long time ago.

Reporting from the Los Angeles Times by Julia Love, Tribune Washington Bureau in a July 30 article:

 Responding to the deaths of 50 people in the crash last year of a Continental Airlines flight near Buffalo, N.Y., Congress passed legislation Friday requiring increased training and experience for regional airline pilots.
The House passed the measure, which also extends Federal Aviation Administration funding, on a voice vote just before midnight Thursday, and the Senate approved identical legislation Friday morning. No member of either chamber objected.
The legislation requires all airline pilots to log at least 1,500 hours of flight time before flying passengers, up from the current 250-hour minimum for newly hired copilots. The bill also boosts training, mandates the creation of a national database of pilot records and aims to reduce pilot fatigue by directing the FAA to update rules on pilot duty hours.

So under political pressure from the families who suffered loss from the crash in Buffalo congress has passed a special bill dealing with pilot requirements and training for airlines.

 The target for the FAA long term funding reauthorization is now set for September 30.

 Any bets on whether they get it done before election time in November?

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Do you agree or disagree with his position?

Congressman James Oberstar, Chairman of the House Committee on Transportation and Infrastructure, offers an opposition viewpoint to the merger of Continental and United. His opinion is published in USA Today Op/ Ed section and can be found in its entirety at

 http://www.usatoday.com/news/opinion/editorials/2010-05-14-editorial14_ST1_N.htm

While I agree with Congressman Oberstar on many issues relating to our industry, especially holding the FAA accountable and his support of General Aviation through the GA Caucus, I disagree with his position on the proposed merger.

The following is an excerpt of his piece in USA today:

This (the merger) is the very antithesis of the structure I voted for when Congress deregulated the industry in 1978. Deregulation promised robust competition and innovation — not market domination by a few powerful carriers.

Beyond encouraging future mergers, the proposed United-Continental merger itself presents problems. The two carriers’ networks overlap on 13 routes between some of America’s largest markets. The two carriers also compete in a number of international markets.

The Justice Department has already expressed its concerns over a reduction in competition between United and Continental. Last year, the two airlines applied for antitrust immunity to collaborate on international service. The department said granting immunity would reduce competition and raise fares in markets where United and Continental claim big shares. As a result, the Transportation Department removed several foreign markets from the immunity.

If antitrust immunity in these markets is unacceptable, how can we now accept a merger that would have the same effect of reducing competition on important domestic and international routes?

The Justice Department should demonstrate that same degree of caution now and put an end to this merger madness.

The problem with his position is that the airlines through this “robust competition” over the past 32 years have not offered better service and done very little to innovate. They have offered lower fares and consequently have been doomed to aggregated losses as an industry since deregulation.

The investors (stockholders) in the airlines have taken a beating and I have to wonder why anyone would ever buy stock in an airline in a long-term hold position. Robert Crandall, former CEO of American, says don’t buy stock in airlines, they are a bad deal. For the airline industry to survive something has to give on the profit (or lack thereof) problem 

It seems that the Congressman and many others in DC consider the airlines much like a utility that needs regulation to keep them from monopolizing markets and raising fares. That is contrary to the position of deregulation that should allow the market to work it out.

The other assumption that many are making, that I believe to be flawed in its logic, is that the consumer has no other choice, so we have to keep the airlines in check. Travel by airlines is not like a utility such as electrical power where we don’t have a choice. The traveling public can drive, take trains in some cases and also fly in private aircraft. Or they can choose not to travel it all. Our nation is blessed with a multi-faceted transportation system.  

I continue to believe that the airlines should be allowed to work this out in a free market way and let the traveling public determine the airlines success by choosing to or not to buy seats at whatever price the airlines think they can charge.

What do you think?

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