Thursday, June 12, 2008

No Quick Fix

Just a week after Irish low-cost carrier Ryanair’s CEO Michael O’Leary defiantly announced that it would risk its recent profit boost in the coming year by not raising prices in the face of soaring fuel costs, U.S. airlines are scrambling to find ways to cut costs. An article which appeared in yesterday’s New York Times reports that airlines “are power-washing jet engines more often to get rid of grime, carrying less water for the bathroom faucets and toilets, and replacing passenger seats with lighter models” in attempt to bypass substantially raising ticket prices. Even so, both American Airlines and Virgin America have announced they are raising prices. United Airlines has resigned itself to grounding 100 aircraft, reducing its capacity by 10%, laying off thousands of workers, and saying good-bye to its low-cost carrier subsidiary, Ted.

There is no doubt that all of the airlines in the U.S. need to take a hard look at their current practices in order to determine what fat (if any) remains to be trimmed.  Reducing capacity and getting the best performance out of aircraft through frequent cleaning and maintenance are two examples which are being embraced.  What no one wants to talk about too loudly is the reality that jobs may be cut, prices may go up, and consumers used to extra amenities may be in store for an increasingly “no frills” approach to air services.  Arguably, if the airlines could simply meet consumer demands for efficient, scheduled, transport, receiving a cup of soda rather than the whole can may not draw too much ire.  Unfortunately, that matter remains largely out of the hands of the airlines themselves.  Overcrowding at major airports coupled with the Federal Aviation Administration’s tortoise-like “improvements” to air navigation modernization will continue to leave passengers frustrated.  This unfortunate reality has ushered in numerous “doomsday prophecies” with news writers and “analysts”—many of whom keep themselves blissfully removed from the intricate series of complications crippling American’s aviation industry—salivating over the next opportunity to blast the aviation industry while making unspecified and largely irresponsible calls for re-regulation as the be all, end all “solution” to the present crisis.

A recent op-ed from Business Travel News set it sights on the pending Delta/Northwest Airlines merger.  The author decries the airlines’ citing of fuel prices as the primary motivator for the merger and instead rehashes the call for fiscal austerity as the only approach consistent with the free market ethos which has animated the industry since deregulation began in 1978.  Yes, tightening the belt and making capacity choices is part of doing business in a volatile market.  On the other hand, the author fatally undermines the integrity of his argument by failing to acknowledge that Delta, Northwest, and every other U.S. airline are bound to run up against antitrust criticisms for the simple fact that they are not allowed to merge with anyone but each other.  It is disingenuous, not to say highly inconsistent, to lob criticism at U.S. airlines for seeking mergers with each other in the name of keeping robust competition alive while idly passing by the current ownership rules and cabotage restrictions—both of which grossly undermine consumer choice and competition.

If there is a simple lesson to be drawn from the current woeful state of airline affairs (as distinct from the numerous complicated lessons which are still coming to light), it is that there is no correspondingly simple solution.  Dynamic factors, some of which remain well out of the control of the airlines themselves, are at work.  Fuel prices, of course, have and will continue to remain a source of consternation for the airlines; one which they will either deal with intelligently or suffer the consequences.  Longstanding and wholly outmoded government regulations, coupled with an archaic air navigation system, are something else altogether.  They are impediments to sustainability (to say nothing of growth) which are tolerated for reasons as politicized as they are unconvincing.  Given the centrality of frequent, reliable, and affordable air transport services to any economy not modeled on the Middle Ages, any and all government failures to provide the aviation industry with the best means to compete and provide service ought to become the focus of public scrutiny.  No, do not pass without notice the missteps of the airlines themselves; hold them accountable for any and all absences of market discipline.  But the narrow lines of analysis which practically channel William Ernest Hensley’s “Invictus,” that the airlines remain the sole masters of their fates, captains of their souls, are as stale and inappropriate for the times as that poem’s trite, Oxford-style Stoicism.

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