Nation's airlines compete for a piece of the sky
Chicago — At the rate the airline fare wars are going, a traveler could conclude that flying to some distant point may yet become cheaper than a phone call. A Chicagoan, for instance, with time to make advance reservations, can now wing his way anywhere from Tulsa to Washington, D.C., for under $70.
Such ultra-low discount fares are the kind of thing that happens when the airlines come face to face with intense competition after nearly five decades of federal regulation, industry experts say.
``The great bulk of consumers are better off,'' says Alfred Kahn, a former Civil Aeronautics Board (CAB) chairman and the man frequently referred to as the father of airline deregulation.
The average fare, Dr. Kahn says, has risen less than the level of general inflation. ``The overall picture before deregulation was that 15 percent traveled for less than regular coach price. Now 80 percent do. . . . That's clearly because of competition.''
During the last seven years as the now extinct CAB gradually loosened its control over airline fares and routes, the number of major carriers has more than tripled.
Although the industry had some rough years in the early 1980s, scheduled carriers achieved a record $2 billion in operating profits during 1984, according to the American Transport Association (ATA) of America. Fuel prices last year actually went down, and many larger airlines got a better handle on labor costs.
But the rave reviews that airline deregulation has been getting from Capitol Hill have come at considerable cost. And the process of lifting federal economic controls has spurred some key changes in the business, changes some critics say merit closer monitoring by the federal government. Competition pressures
Since 1978 some 120 airlines, including commuter and charter firms, have either gone bankrupt or closed down according to the ATA. Close to half of them came to a halt just last year. Most industry experts forecast significantly more such closings and bankruptcies in the future as larger airlines rebound from the recession and become less vulnerable.
``I don't think we've seen anything yet,'' predicts Michael Exstein, an airline analyst with the Ford Foundation. Congestion
Crowding at the nation's already jammed major airports has risen sharply and is expected to increase.
The reasons range from the lack of enough fully trained air traffic controllers (thousands were dismissed during an illegal 1981 strike) to the increased number of passengers and flights resulting from deregulation.
Many smaller cities that used to have jet service once- or twice-a-day now are served more frequently by smaller turboprop planes. These require just as much space and attention from controllers as larger planes.
In trying to centralize operations and snare as many passengers as possible for a full ride on their own planes, most airlines have adopted hub-and-spoke operations. Passengers are brought to regional, hub airports where they then head out to other destinations.
Landings and takeoffs tend to be concentrated in the same hours. The industry insists the system links small-town consumers with many more destinations. Critics say it burns extra fuel and forces travelers to spend a lot of time in airports where they don't want to be.
``It becomes more difficult to fly anywhere nonstop and it's a major contribution to the congestion we're having,'' says Frederick Thayer, author of ``Rebuilding America: the Case for Economic Regulation.'' Expanded service becomes confusing
Although there is now a great variety in service and bargain fares exist on certain well-traveled routes, the array and changing restrictions are confusing to consumers.
Most travelers, until the latest round of fare wars, have paid more to fly the shorter, less popular routes to small or medium-size cities. Deregulation proponents explain that shorter routes are no longer subsidized by longer runs.
``On a long flight you can spread fixed costs. But terminal costs [at landing and takeoff] are always highest in transportation,'' notes Robert P. Neuschel of Northwestern University's Transportation Center.
In some cities numerous airlines have come and gone in the competitive free-for-all during the last few years. Consumers with tickets on bankrupt or shut-down airlines are finding it harder to trade or cash them in.
Dr. Kahn, ensconced once again at Cornell University as a professor of economics, admits that the overall transition has not been easy: ``It's been rougher than I would have thought, but I never said the industry was going to be recession proof.''
Some aviation watchers contend that the problems are significant enough to lead back to limited government control in the interest of fairness. The search for solutions to crowding
Looming largest is the problem of crowding. Airport operators and the airline industry insist the only logical answer to packed airports and airspace is increased airport capacity. Solutions, they say, include: improving runways, expanding gate space, adding more trained controllers and automation, and developing more reliever airports for general aviation.
Still, those possibilities are limited. No new major airport has been built in the last 10 years despite a 50 percent increase in passenger traffic. And residential opposition to airport noise is currently delaying expansion at more than a dozen airports.
There is considerable debate about whether the airlines should be allowed to fight over limited slots or airspace on the basis of economic power or whether Washington should step in to allocate it as it has at the busiest airports since 1969.
``It's simply a case of scarce reserves being in high demand -- somebody automatically gets less,'' notes Lee Howard, vice-president of Airline Economics Inc., a new consulting firm, which publishes a quarterly newsletter on industry economic trends.
The House Aviation subcommittee expects to keep a particularly close watch over the slot allocation issue during the next few months. ``The concern is that what we saw last summer [airport traffic delays] was only the beginning and that it may get worse next summer,'' says one staff member. Fare fairness
There are those who think the hot new competition has taken an undue toll on some passengers in discriminatory airfares.
Sen. Mark Andrews (R) of North Dakota, chairman of the Senate subcommittee on transportation appropriations, notes that one of his colleagues has saved regularly by buying a Washington to San Francisco ticket on a flight that stops in St. Louis. He gets off in St. Louis and throws the rest of the ticket away.
Although economic experts say short-haul flights can cost as much as 10 percent more per mile than longer flights, Senator Andrews says he suspects some passengers on short flights may now be subsidizing those on longer flights. He says he would like to see each airline held to no more than a 30-percent-per-mile fare difference for passengers in the same class.
``It doesn't mean you can't be competitive, but we've created a two-tier rate structure,'' he says. Public service
There is also the question of whether or not there is a public-service aspect in continuing some flights that may not be economically justifiable.
Congress under the Essential Air Service Program decreed that all communities with scheduled airline service at the time of deregulation could keep it, even if a subsidy were required, until 1988. The subsidy has fallen from $116 million to a comparatively tidy $35 million in the last four years, and many lawmakers hope Congress will see fit to renew the program. Inter-industry cooperation
Another key concern of Congress in the months to come will be the degree to which airlines continue to cooperate with one another in voluntary ``interline'' agreements for tickets and baggage. Such agreements were once required by the CAB. Newer airlines say established lines are balking, and many passengers say that changing from one airline to another on a trip is getting more difficult. Re-regulation or fine tuning?
It was in 1978 that Congress voted to lift controls over airline fares and routes. They were first imposed by the CAB in 1938 to help bring financial order and some obligation of public service to a then-new and financially precarious industry. US lawmakers became convinced over the years, however, that the industry had become overpriced and overprotected at the consumer's expense.
Many view the results so far of lower fares for many and a greater variety of service on many routes as proof positive that deregulation is a solid plus.
But if the problems cited above persist and intensify, there may yet be another move in Congress to reimpose a few basic controls. ``Don't call it re-regulation,'' cautions Senator Andrews, well aware that the mood on Capitol Hill these days is almost universally in support of fewer controls. ``Call it fine tuning.'' Chart: Our nation's Busiest Airports 1983 figures (latest available)
Passengers Takeoffs and landings
(in millions) 1.Chicago-- O'Hare 37.8 609,383 2.Atlanta-- 34.7 571,562 3.Los Angeles-- 32.4 478,892 4.New York--John F. Kennedy 26.5 290,357 5.Dallas Ft. Worth-- 24.7 441,881 6.Denver-- Stapleton 24.6 466,889 Source: Airport Operators Council International