The Future of Commercial Aviation – Part One – January 15, 2010

This week I will begin the series on “The Future of Commercial Aviation” and will highlight a few facts about the success of, or lack of success — Deregulation. This will be a three-part series and it is going to be difficult for me to keep it balanced based on my personal biases. However, I am not a Boeing salesperson. I am an aviator who is watching the industry self destruct. As always, I would like all aviators to connect with their roots and one of the ways they can do that is by using the “Third Dimension Blog” as a resource.

Quote of the Week

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, The US and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. —Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008

Was Deregulation a Success or a Failure?

I recently read that the debate on deregulation’s legacy will continue as long as there are economists and consultants who want to write about, and debate, the finer points of Mr. Alfred Kahn’s social experiment. However, no debate here.

Consider the following points from an article in Air Transport World, written in 2008, by Geoffrey Thomas titled “Deregulation’s Mixed Legacy”. 

1. At the time of deregulation the carriers of the US were regarded as world leaders in terms of service, networks, safety and efficiency.
2. The US carriers had been profitable in 17 of the previous 20 years.
3. Prior to its enactment, deregulation was opposed by nearly every US major airline. The carriers, however, soon came to welcome their new freedoms and the majority view is that it has delivered on the promise of lower fares and a greater variety of consumer choices. This consensus notwithstanding, to this day a small but well- credentialed minority views it as a failure, citing among other things the loss of some of aviation’s greatest companies, the bankruptcies of all but one of the major pre-deregulation carriers, the downward pressure on airline wages (most significantly since 9/11) and a widespread perception that customer service has declined. 

The article referenced above can be found at Air Transport World (www.atwonline.com) and is well worth reading. Mr. Geoffrey makes a number of excellent points and his research for the article was well-supported and documented.

The reason I only highlighted three points — instead of the hundred or more in the article — is because I do not wish to deconstruct and reconstruct the Airline Deregulation Act. The points that are most important to me are safety, service, and wages. These are, in my opinion, the core issues.

Safety is good with the airlines. Yes, there have been some accidents and yes there have been lives lost. However, the statistics are there. The major manufacturers are building good equipment, the major airlines have a crew training program second to none, and maintenance is good. The one deficiency I see is the regional carriers need some help with higher minimum standards for their entry level positions and I have talked about that in previous articles.

Service is terrible and this is not because of the cabin crew, the agents at the counter, or the people on the ramp. It is because of the two-dimensional thinking of management (two dimensional thinking meaning me and my buddies or the ATM concept talked about during Congressional Testimony by Captain Sullenberger). If you take care of your people the people take care of business. There are some exceptions to this issue but the bottom line is that when you ask for concession after concession from your people—when you take benefits and pension plans from your people–when you use Walmart as your model for success in the airline business it doesn’t work. Let Walmart take care of consumer products, they do a fine job, and let airline management move forward with restoring the US Airline Industry back to being number one in the world.

Next week we will move forward with our series for the month and I am going to offer up a few opinions. Some will appreciate my side of the story, and some will not.  As always, take some time to look back, connect with your past and remember as an aviator you are a “Gatekeeper of the Third Dimension.”

Robert Novell

January 15, 2010