Squalls in the skies
When the Carter administration and Congress agreed on airline deregulation back in 1978, the intent was clear: By allowing the airlines to fly almost anywhere they wanted, there would be greater competition, fares would be slashed , and the industry and the public would benefit.Skip to next paragraph
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What has happened since then, of course, is not quite all that sanguine. Competition certainly intensified. Carriers can offer low-cost fares.
But at the same time, fares on many long-distance runs skyrocketed. A number of carriers watched profit margins dwindle. Six of the nation's ten largest carriers registered losses for the quarter ending June 30 of this year. Some regional carriers were gobbled up in mergers, and, in the case of Braniff, declared bankruptcy. Now, two national carriers are declaring bankruptcy (Continental), or considering it (Eastern). The company that owns TWA says it may ''spin off'' - i.e., sell - the airline because of the carrier's financial woes. Many pilots argue that only a national work stoppage will call attention to the rising layoffs of airline employees. Continental pilots vote a strike.
What's going on here? And what lessons are there for Congress and the American people, as they go about deregulating other industries, such as trucking?
The first thing to recognize is that airline deregulation was long overdue, just as it was for railroads - and as is now the case with trucking, which has been partially deregulated.
Nor should it come as a surprise that mergers, changes in route structures, and some red ink would follow deregulation.
What seems equally clear, however, is that the deregulation process needs to be better calibrated to fit the needs of each industry.
In the case of trucking, for example, that would seem to include finding ways of protecting older, established long-distance carriers from new single-operator carriers who have low costs and can go just about anywhere at any time, day or night, without the need to service existing routes.
In the case of airlines, both the federal government and the industry were remiss in not considering the long-term impact of high-cost labor contracts on established companies. Such high labor costs (with wages and benefits making up roughly 38 percent of total airline expenses in 1982) could be absorbed in a period of relative prosperity and rising personal income, as in the late '70s. But suddenly confronted with two back-to-back recessions, as happened in the early 1980s, plus the rise of non-union, no-frills, regional airlines, the bigger, older carriers were obviously headed for trouble.
The challenge for the airline industry is therefore essentially two-fold. The carriers need to upgrade management techniques. Productivity must be stressed. That means more wisely identifying exactly what market a carrier can reasonably service.
One other factor must be looked at by Congress and the courts. That is the use of bankruptcy to avoid long-term financial difficulties.
Is the bankruptcy act being abused when Continental files for reorganization under Chapter 11 proceedings even before a judge has approved a request from the company to break a union contract?
In other words, is this a union-busting tactic? Continental insists that its union agreements forced it to employ more workers than necessary and that its contractual payroll costs were responsible for its present financial difficulties. Thus, it has scrapped its union agreements - and pay schedules. Eastern says that it will seek bankruptcy unless its employees take a 15 percent pay cut.
The Supreme Court is scheduled to take a look at bankruptcy proceedings in a case coming up in October. Congress should also take a fresh look at Chapter 11 proceedings in the wake of Continental's action.