Plane Conversations

The elections should be good not only for business aviation, but also for the overall aviation industry in the United States.

Less government meddling and more free-market forces will ultimately lead to a more efficient system.

A significant change has taken place with the defeat of Congressman James Oberstar (D) Minnesota, who was the powerful Chair of the House Transportation Committee. Even had he not been defeated, with the change in party control, John Mica from Florida would still take the leadership position on this committee.

Josh Mitchell writing for the Wall Street Journal in a November 5 article talks about this in more detail.

If you have tracked Congress’s work (or lack thereof) in passing the FAA Funding Reauthorization Bill, you know that this bill has been held up from final passage due to non-related issues being attached to it regarding unionization of FedEx’s drivers. Mr. Oberstar was a friend of the unions; but, his tenure in Congress is over.

Could it be that the gamesmanship might finally be over? Maybe we will get funding of NextGen and the FAA can take a long-term view of the development of the infrastructure this country needs to have an efficient air transportation system.  

Another post-election articlein Bloomberg discusses the major airlines gaining allies with the new Republican House on out sourcing and anti trust issues.

Quoting from that Article:

“The current Congress has been anti-airline,” said William Swelbar, a research engineer specializing in air transport at the Massachusetts Institute of Technology in Cambridge. “There will be a new set of ears to listen to the industry.”  

The consensus seems to be that the new guard will be less intrusive into the affairs of the airlines and general aviation, letting the market work things out.

This is good news for the air transportation system and, ultimately, good news for the business and general aviation segments.

Less interference will allow us to demonstrate our value without legislation unbalancing the system towards unions or big business interests.

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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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Darren Goode reports on Government Executive.com that House Transportation and Infrastructure Committee Chairman Rep. James Oberstar, D-Minn., predicted last  Wednesday that a multiyear FAA authorization bill will be signed into law by July 4.

Quoting Rep. Oberstar “I think we’ve made enough progress and we ought to be able to get it done by then,” he said. “We are working toward that goal. We’ll get there, we’ll do it.”

For the complete article:

http://www.govexec.com/dailyfed/0510/052010cdam2.htm

In its present form all of the associations that represent the various general aviation constituencies, including NBAA and NATA are for the authorization bill.

There is a provision in the bill on the house side that makes it easier for FedEx workers to Unionize. Obviously FedEx management opposes this provision and has fought it all along the way. It was taken out of the Senate version thanks to the help of our Tennessee Senators.

I have said this before, and will say it again. I do not understand why the provision dealing with FedEx has to be in a bill that funds the FAA and should be dealing with the entire aviation system. It seems to me that lawmakers like loading up these bills with provisions that take care of their key constituencies, which in this case for House Dems would be the Unions. There doesn’t seem to be any rational correlation between funding the FAA and FedEx unionizing?  

OK, Back to the FAA Bill:

It will be good for the FAA to finally have a funding authorization that is more than 3 months or a year. They have been on the short string for three years now. Hopefully the FAA can take this and do something positive with the NextGen Air Traffic Control System.

On the GA side, we will pay more fuel taxes but most people think that is not a bad price to pay in return for no user fees. I tend to agree. Once a new type of tax sneaks in it never seems to go away and the old tax never goes away either. At least we in the FBO and charter business understand how to collect and pay the fuel tax. It is an efficient way of funding our aviation infrastructure system. User fees in other countries around the world have proven to be a nightmare for operators to handle from an administrative and accounting standpoint.

We should expect some inefficiency in how the money is spent, because after all it is big government and there is no disincentive for inefficient spending. Hopefully if the FAA throws enough money at it we will eventually get a NextGen system that can effectively increase the flow of traffic through our airways and make the system more time efficient and save fuel.

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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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