Plane Conversations

National Public Radio recently aired 2 very interesting segments on the airline industry.  The first segment cited companies leaving small cities because of poor air transportation service. The second segment cited an interesting statistic; all of the airlines that existed before the deregulation act of 1978 have gone bankrupt.

But wait, wasn’t airline deregulation supposed to be good for the airlines?  Wasn’t it supposed to spawn innovation and drive economies of scale?  Wasn’t it supposed to increase choices for the airline passenger?

Well, at least one of these impacts is true; deregulation spawned innovation – although probably not the way it was predicted in 1978.  Today, new technologies are appearing everywhere from new forms of social organization to faster and smarter aircraft systems.   This article features a very interesting aircraft sector called the personal sport jet.  While I do not know enough about their actual business model, it would appear that they are aiming where the airlines and major manufacturers simply cannot reach.

With an operating cost of $400 per hour instead of $1200-$2000 per hour in this class, the excel sportjet can deliver a 2 hour jet flight performance in a “regionalization” market.  Social media trends show us that people are connected in shorter distances and far more diverse locations than the hub and spoke system can accomodate.

This aircraft is small, lightweight, and fast.  It uses a single jet engine and flies at a lower altitude reducing pressurization forces and associated cost. The Sport Jet II carries 4 people and employs extensive use of composites in addition to simplified pilot qualification requirements.

Clayton Christensen’s book “The Innovator’s Dilemma” cites numerous now classic examples of how industries are threatened by simple upstarts that deliver what the customer wants at a price they can afford without the complexity and “over-performance” burden that mainstream players evolve into.

While the aviation business is very complicated, it is truly a pleasure to witness new products and innovations that come to market under the radar of the big players.  We hope that they grow to have an impact on the industry.  After all, that is what Social Flights is all about.

Bravo Sport Jet II, Bravo. 

In a September 2 post I discussed Congressman Oberstar’s statement that possibly we should consider re-regulating the airline industry. His opinion is that the mergers happening between major carriers are bad for the consumer and will leave them with fewer choices, higher prices and less service.

I am opposed to regulation of the airlines in matters of customer service and free market competition. With the exception of matters of safety, I believe the government should step aside and let the market work things out. The government does not have a good track record meddling in matters of the free market.  

A September 5 blog by William Swelbar at www.swelblog.com has been posted that intelligently puts the facts out and further convinces me of the government’s need to get out of the way. The blog title, “Dear Chairman Oberstar: What Do You Mean This Is Not What You Voted For?” sets the tone of this post.

If you are interested in this issue Swelbar’s post is a well written argument on the history and merits of the deregulation of the airline industry that happened in 1978. Jump over to his site and take a read .

Even though business aviation and general aviation compete with the airlines for some portion of the travel market it is still good for the economy and the aviation industry as a whole to have a free market system of profitable and competitive airlines to keep our economy moving.

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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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A March 26 article in Travel Weekly by Michael Fabey brings up an interesting battle that is going on between the airlines and the FAA / DOT over the control of landing and departure slots at two of the busiest US commercial airports.

Delta and US Airways want to swap slots between La Guardia (LGA) and Reagan National (DCA) and both say the FAA/ DOT should have no say in the matter and they are prepared to take it to the courts. In an effort to avoid a legal battle the two carriers are offering to give up 12% of those slots to other carriers in the transfer.  Southwest Airlines has a different take on this since they are conspicuously left out of the deal. The article states the following about Southwest’s position:

 The plan leaves Southwest, which wants some of the very slots the FAA is trying to wrest free from Delta and US Airways, out in the cold. It opposed the modified proposal, saying it would enable Delta and US Airways to pick their competitors and make a private deal with public assets that wouldn’t be in the best interest of the public.

Southwest also viewed the slot-control question differently. The FAA must force Delta and US Airways to give up the slots to prevent the carriers from monopolizing the service in their respective markets, Southwest said.

“The DOT and FAA unquestionably have the legal authority to require divestitures of slots,” Southwest said in its filing on the issue.

 The article gives the opposing opinion of Delta and US Airways which is also supprted by American, Continental and United:

 But airlines argue the exact opposite is true. Congress has made it clear that the FAA’s interference in domestic airline matters should be limited to concerns over safety or airspace congestion, they say, and the FAA has no authority to decide on competitive issues involving things like slot sales or trades.

The carriers say the only U.S. federal agency with the authority to rule on domestic airline competitive matters is the Justice Department.

“That limitation on the FAA’s authority reflects Congress’ determination that the FAA … should not interject concerns about competition over which it has no institutional expertise,” Delta and US Airways said in a filing last week with the FAA in their bid to push through their proposed slot swaps.

Rivals American, Continental and United, meanwhile, jumped to the defense, questioning in filings the FAA’s authority to force airlines to give up the LaGuardia or Reagan slots for competitive reasons.

It looks very much like nothing more than hard ball business tactics by the major airlines to gain more control of certain markets they deem lucrative.

So the question is:  Who has the authority to regulate this? The FAA/ DOT or Department of Justice? Or should the government just leave them alone and let the market work it out?

The airlines have been struggling for the past three decades to make money in a post deregulated system. By securing competitive advantage in certain markets they can have more control over pricing which will allow them to charge air fares that will make them money. If the market of travelers doesn’t like the price they charge for air fares then the market can come up with a different solution, which may or may not include travel by air? The traveling public has an appetite for cheap air fares, but that doesnt reconcile with the fact that the airline industry must make money to stay in business.

I say let the airlines work it out and keep the government out of it. What do you say?

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