The Airline industry: A Journey to Babel

The airline industry was once seen as a glamour industry. It brought about images of travel to exotic destinations in faraway lands. Today it is the butt of jokes and Youtube videos. It means long lines, intrusive security and bitter crowds. All in all, has gone from an adventure to an ordeal. How did it go from first class to worst class so fast?

If you will give a little of your time I will try to explain the seven main reasons the industry has devolved into what it is today. Now we all know that not every airline flight is a bad experience, in fact, the airlines very much want you to have a good time and they want you to come back. But all too often we hear about how bad security was or service has diminished. This is not a detailed study but an overview of the highlights of what has caused the service to go the way it has.

The first reason we will look at was the government's lack of a strategic plan and its belief that airline service should be based on political necessity, not economic merit. Destinations were often not based on real needs. The government saw the airlines as a public utility with a responsibility to serve many money losing markets. The agency tasked with carrying out this function was the Civil Aeronautics board. Although it was disbanded in 1985, it had regulated the interstate airline industry since 1937.

Considered by many to be the worst bureaucracy in the government, by the 1960s it had set new standards for complacency. The CAB was known for being slow to respond to airline's requests for new routes and had even dismissed requests as 'stale' because they themselves had simply never gotten around to it. It was also a common tactic to only award an airline a lucrative route if it agreed to take a money loser as well. The service was underwritten by the U.S. taxpayer so the airlines did as they were told.

This led to a byzantine route structure for most airlines and a scenario where airline managers needed only operate their aircraft in a safe and reliable manner. Profits were all but assured and true competition did not exist. Although this gave stability to the air travel system, it in no way prepared them for true free market competition. This would prove to be a recipe for disaster.

The second reason was that during the 1960s and early 70s there was a globalization of terrorism. Western countries were being increasingly targeted by international terrorists who had learned that the airlines were soft, high profile targets with a guarantee of gaining worldwide headlines. By 1972 this led the government to require all airports to install security systems and metal detectors. This was the beginning of airport security as we know it today.

The third reason was the complete removal of the rule book. In the early 1970s the U.S. was suffering from stagflation. In 1973-74 an oil embargo by OPEC had raised the price of jet fuel and there was considerable passenger ire over higher airline ticket prices and rising subsidies for service to many cities. The government feared a possible massive bailout of the airlines as had happened with some railroads. The result was the airline deregulation act which was signed into law by President Jimmy Carter in 1978.

This took away the established way of doing business in the airlines up to this point. Many people consider this the single most significant event in the decay of the airline industry. Without the CAB forcing them to act as a public utility and serve losing markets, the airlines pulled out of many underperforming markets. Some cities lost service or had it downgraded to commuter service while others saw an increase in service. True competition was beginning.

Reason four was the arrival of new players in the game. With the opening of markets to newly formed airlines such as Atlantic Gulf, New York Air, Emerald, Peoples Express, Jet America, Muse Air, TranStar, Best, Florida Express, Regent Air, Air Atlanta and Kiwi, the established leagcy carriers now had new competition. In addition, existing intrastate airlines that had not been under CAB control started expanding beyond their home states. Airlines such Air Florida, PSA, AirCal and Southwest added even more competition to the existing legacy carriers.

This had an unforeseen effect on the older, established "legacy" carriers. They were perfectly able to compete with each other but these new "upstart" carriers had very low cost structures and could sell their product for much less than the legacy carriers. This gave the legacy carriers a new problem to deal with. The "low cost carrier".

The combination of low cost competition and high fuel prices hurt the legacy carriers and they began to hemorrhage money. They could not control the price of fuel so they went after whatever costs they could control. First went many of the freebies and passenger amenities such as magazines, pillows, blankets and the good food. Eventually management had little choice but to go after union contracts to try and lower wages. They furloughed employees, sold aircraft and gave up gates. But when they tried to lower wages and demand more productivity from workers they were on a collision course with the unions.

As the upstart carriers nipped away at their passenger loads, the major airlines slid towards bankruptcies. Some filed for chapter 11 reorganization which allowed them to throw out high dollar union contracts. This led to poor morale and a decline in the overall work ethos of many airline personnel. There were labor strikes, mergers and liquidations all of which compounded the industry's woes.

This led to issue number five, a radical change in airline leadership, management and workers. Against this backdrop of bankruptcies and mergers there were falling stock prices. This made many airlines worth more than the total valuation of their stock. The airlines became targets of corporate raiders who were not really interested in running airlines but in carving them up and selling off their valuable assets. Overfunded pension funds and expensive reservation systems made them tempting targets for takeover specialists.

As a consequence there was a huge turnover in career airline workers. The new, lower wages could not attract experienced workers and the new personnel often did not stay long. This moved the industry away from a career oriented work staff to an oft rotated work staff. The loss of experienced professionals in support areas such as ramp workers, reservations and gate staff was never fully recouped.

The result of these numerous mergers and bankruptcies of major and upstart airlines alike was a weakening of most airlines. Eastern, Pan Am and Braniff were liquidated along with countless upstarts. This did clear the way for some of the better managed and less leveraged companies to thrive.

By 1996 most of the dust had settled but by then the amenities were gone and airline travel had devolved into more of a chore than an adventure. Things picked up for a while in the late 90s and it looked like we might again see the fun return to travel, Then reason number two, terrorism, was revisited with the 9/11 attacks. Rigid security was reinstated and there were huge losses of revenue caused by public fear of terrorism. This resulted in the airlines returning to the tactics of wage concessions and mergers.

This was followed by commodities speculators causing another spike in oil prices. Again the airlines started to bleed money and again the leadership resorted to employee wage concessions and merger-mania. The legacy carriers have now taken all they can from their employees and have resorted to more cost cutting measures which has only further degraded their performance. All of this is hard on employees and morale has suffered again as a result. This is felt by the passenger every time a gate agent is rude, a flight attendant is flippant or a bag handler loses or abuses luggage.

Airline travel in the 1960s is often recalled as a utopian experience when compared to today's long lines and restrictive rules but the reality was quite different. For everything we have lost we have also gained something in return. Today's travel lacks the glamour of yesteryear but it is less expensive ergo accessible to more people. The lines are long but security has improved greatly. There is no subsidy for the airlines so they get by without being a burden on the taxpayer. As a result they are more efficient. The modern airliner may be a less exclusive way to travel but it causes far less air and noise pollution. All in all, the system has lived up to the hopes of providing safe, reliable and efficient travel.