Deregulation

Cutlass1287

Cutlass1287

Well-Known Member
Hey guys,
Up until a few days ago, I didn't know much of anything about deregulation, so I picked up a book ("Hard Landing" By Thomas Petzinger ) that discusses the airlines, and how they got where they are today, and soforth (I know that couldn't be spelled right!). What I am trying to do here is figure out if the book is heavily biased or not, and how it affected pilots. Anyway, as far as deregulation goes, this is what I have gathered from the book:

1.The big guys really REALLY didnt want it, but in the end it worked out for the best for them.
2. It really helped all the southwests, texas internationals, and so forth.
3.I guess thats about it.

Any input, or further reading reccomendations would be greatly appreciated!

http://www.amazon.com/exec/obidos/tg/detail/-/0812928350/ref=pd_sim_books_1/002-5393677-0218416?v=glance&s=books (Hard Landing)
 
The only real winners IMO of de-regulation are the consumers. Ticket prices went through the floor due to de-regulations. Most airlines are struggling to make ends meet b/c they have to offer such low fares without gov't regulation on competiton. So, they wind up cutting corners where they can, which is most often either in pilot wages or maintenance issues. The catch 22 of the situation is that if we went BACK to regulation, odds are the flying public would disappear as we know it. Prices would go back up, the open market would evaporate, and the politicans that voted for it would probably not get re-elected since people could no longer fly for Greyhound prices.

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.The big guys really REALLY didnt want it, but in the end it worked out for the best for them.

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Or maybe not. Ask United, Delta, US Air, American, Northwest, or any other legacy carrier that was around prior to 1978 if de-regulation worked for them. Better yet, ask Branniff, Texas International or Pan Am.
 
Well, first off all how come the airlines are any different from any other industry? Why do they need the government to regulate prices?
 
When the airlines were formed (WAY back in the 1930s), regulation was pretty common place. Railroads, trucking, shipping, all of those were regulated. The airlines pretty much started out as government contractors carrying mail. Passengers were an afterthought. To some extent, airlines are STILL heavily regulated. Look at how thick the FARs are. Those are government regulations. They just don't have the income to offset those regs anymore. You take the FARs out, and I can guarnatee you planes will start falling from the sky due to maintenance issues. Why? 'Cause most airline CEOs see the bottom line and nothing else. They'll buy inferior parts just to keep a plane in the air and make money. Just like they'll run a pilot past the point of exhaustion to keep the plane flying rather than hire an extra guy or two.

Do I think we need to bring regulation back? Not really. It would kill the industry by driving away all the passengers. Do I think ticket prices need to start coming up? Absolutely. After Joe Average complains for a bout a year or two, he'll get adjusted and forget how cheap the tickets used to be. Look at gas prices? How many people are thrilled to pay $1.67 when it was around $1.20 only two years ago?
 
I've said before the airlines just need to come together and decide to charge at least X price for fares... If everybody does it, it will work. I think it's illegal, though /ubbthreads/images/graemlins/grin.gif

The fact is that american comsumers are whining bastards who don't know how good they have it... or that the economy bites and people cannot afford high air fares.

Good economy = lots of fliers?
 
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I've said before the airlines just need to come together and decide to charge at least X price for fares... If everybody does it, it will work. I think it's illegal, though

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Not sure if it would be illegal in a free market unless there was collusion invovled. I blocked out microecon after I passed the CLEP, so it's all a little fuzzy. /ubbthreads/images/graemlins/smile.gif

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The fact is that american comsumers are whining bastards who don't know how good they have it... or that the economy bites and people cannot afford high air fares

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Yes on the first one for sure. Although no matter how bad the economy gets, there will always be an overpriced Starbucks on the corner with a line out the door.

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Good economy = lots of fliers

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Maybe. But lots of fliers doesn't really equal lots of income.
 
Well, thats why the question mark was there. I guess I mean that, the airlines cannot recover realistically without a good economy to back them up...
 
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Although no matter how bad the economy gets, there will always be an overpriced Starbucks on the corner with a line out the door.

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"overpriced" vs. "line out the door". This does not compute.

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So, they wind up cutting corners where they can..... or maintenance issues. T

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I agree with a lot of what you've said, except for this deal about airlines cutting maintenance and safety. Historically the major airlines far exceeded any FAA requirements. It was just good business, plus the right and moral thing to do. It is a myth, in my opinion, that major airlines only practiced safety because they were forced to by the FAA.

When deregulation first hit there were a lot of underfinanced shoe string operators. The FAA did nothing to shape them up and they looked bad compared to the majors. I remember one start-up with just a handful of old 727s that had two gear up landings in one week at FLL. Some of the stuff that went on was mind-boggling. Again with the blessing of the FAA apparently as most of these airlines failed financially rather than ever having their certificates pulled.

There are some bad people in aviation. But the lion's share of credit for the stellar safety record of the major airlines goes to those that company people that managed maintenance and flight operations, not the FAA.
 
Not overpriced to me - I'm about to go and give them 15 minutes of my pay!!! /ubbthreads/images/graemlins/grin.gif
 
That's a pretty good book. Haven't read it for many years. I liked "Splash of Color" by Nance. Good view from Braniff's perspective of deregulation.

Deregulation was good for the industry. It brought unprecedented growth and opportunities for anyone that wanted to be in the business. It also opened up air travel to the masses.

The majors have brought about their own demise, IMO. When deregulation hit, there was panic, generally. The majors weren't sure how to compete. Some of them went away quickly, after making very bad decisions. Braniff was a great example, over-expanding with no real plan. Fortunately for the majors the new start-ups were severely underfinanced and poorly run, including safety wise. They died out quickly.

The mistake the majors made at this point was they got cocky or maybe lazy (in the corporate suites) is a better term. With business booming and gas getting cheap (compared to the 70s) they expanded like crazy and more importantly lost control of their costs.

By the time of 9/11 the majors were already in big trouble. Revenue was moving down, costs were going even higher, many had huge debt burdens because of expansion and acquistions, and the new entrant carriers were well financed and savvy. Plus SWA had steadily grown from a minor irritant to a major force. The whole house of cards was ripe to collapse.

There was no excuse though. All of this should have been foreseen by the very highly paid executives. Their failure to position their companies for this is the main ruin of the majors.

Now there is nothing that can "save" these companies as they now exist. They will have to lower costs, shed debt, come to grips with their pension obligations and start over again. The industry that comes out the other side of this will be lean and mean and more customer service oriented, IMO. And it will be safe.
 
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The fact is that american comsumers are whining bastards who don't know how good they have it... or that the economy bites and people cannot afford high air fares.

Good economy = lots of fliers?

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Again with the whining stuff. Who is doing all this whining? (Forgettiing the part about their lineage).

And just for the record: do you go out of the way to pay more for the things you buy? Do you ever make decisions, like going on vacation for example, based on cost? Deregulation caused the whole travel industry to take off like a rocket. People could afford to fly their families on vacation and still stay in nice hotels and see the sights. It made things like the whole Disney World, Orlando economy possible as these were no longer regional things that people drove to. It got the Griswold's out of their station wagon to fly to Wally World.

It was also a tremendous boon to business. Cities that could offer good airline transportation at good prices boomed, while those that couldn't withered. Air travel became the backbone of business, not a luxury. It was one of the huge mistakes that airlines made when they tried to stay ahead of their costs by socking it to their best customers, businessmen. Forcing them to find alternatives to airlines.

Deregulation = good. Management handling of deregulation = bad.

Customers = good. Customers fault for airline problems = no way.

Those in the industry that think there is any solution that involves providing worse service or higher prices to the customer = doomed.

Just my .02
 
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"overpriced" vs. "line out the door". This does not compute.

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I guess "overpriced" is subjective. To me $5 for a cup of glorified coffee is too much, yet there is always a line at Starbucks. When my wife stopped working there, that's about when I stopped drinking Frappaccinos.

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I agree with a lot of what you've said, except for this deal about airlines cutting maintenance and safety. Historically the major airlines far exceeded any FAA requirements. It was just good business, plus the right and moral thing to do. It is a myth, in my opinion, that major airlines only practiced safety because they were forced to by the FAA.


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While I agree mostly, you have to admit that there are a lot of accidents attributed to faulty maintenance. The Air Midwest B1900 a couple of years ago, faulty jackscrews, re-used engine mounts, etc. I've even seen it at certain successful airlines. The problem the airlines are going to face sooner or later (and I think sooner rather than later) is the people that make the decisions probably won't know a thing about aviation and will get away with the bare minimum of what they can legally. I'm not saying ALL airlines, I'm saying some. They'll run the risk of that incident that will end the airline (and the jobs of all the employees) so they can sock money aside and make the fast buck. Then again, I'm in a pretty pessimistic mood today.
 
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Again with the whining stuff. Who is doing all this whining? (Forgettiing the part about their lineage).


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Um, which airline do you fly for again? I can give you a list of times I've heard SWA passengers complaining that the $299 one way walk up fair was "outrageous" and "overpriced." Even when told that they would pay twice as much on Continental or Northwest, they responded with "But this is Southwest! You're supposed to be cheap!" How about "I paid $49 for my ticket and didn't even get a snack pack!" Sorry, I consider that whining.

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And just for the record: do you go out of the way to pay more for the things you buy?

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If I can afford the superior product that I will be happier with, yeah. Most of the time I have to take what I can get and be happy with that.

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Do you ever make decisions, like going on vacation for example, based on cost?

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What was "vacation" again? /ubbthreads/images/graemlins/smile.gif

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It made things like the whole Disney World, Orlando economy possible as these were no longer regional things that people drove to.

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Then why are Disney's prices steadily going up and the airline prices going down? BTW, it actually costs MORE for a family of four to go to Disney now than it did five years ago, airfare included.

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Deregulation = good. Management handling of deregulation = bad.

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For the most part, I agree with that. I'm not blaming the industry or the consumers for the airline's problems. It's about 95% mis-management. I'm also making calls based on what I've seen in the tourist capital of the world/lowest common denominator. I've said it before, things may be different in other parts of the country. I just call 'em like I see 'em.

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higher prices to the customer = doomed.

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This I disagree with. Costs for the airlines are going to rise no matter what. Employee wages will continue to rise with inflation, and fuel costs will also continue to rise (unless we find alternatives). Airlines can't rely on good customer service to fill EVERY plane and hope for bulk pricing. When you add the total revenue from customer tickets, and it doesn't even cover the cost of fuel, you won't last long. Even SWA knows this. I think airlines are seriously mishandling the fees they are now imposing (ie charging for not booking on-line instead of offering an on-line "discount"). Prices can be brought up to a manageable level (for consumers AND management) if presented properly.
 
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The problem the airlines are going to face sooner or later (and I think sooner rather than later) is the people that make the decisions probably won't know a thing about aviation and will get away with the bare minimum of what they can legally. I'm not saying ALL airlines, I'm saying some. They'll run the risk of that incident that will end the airline (and the jobs of all the employees) so they can sock money aside and make the fast buck. Then again, I'm in a pretty pessimistic mood today.

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Well, if the try to do the bare minimum then they will fail. The FAA guidelines are a poor way to run an airline. Very expensive to repair thing after catastrophic failures rather than maintain them properly. Look at ValuJet.

I do think that the loss of experienced people is a problem. Although I am told (mostly by my kids) that this is a typical attitude for someone at the retirement end of things. The manufactures have anticipated this by designing airplanes that require much less maintenance expertise on the line. Components are simply pull and replace for the most part, quick and easy.

I expect the industry to get safer and safer. I've heard doom and gloom since deregulation and with some noted exceptions, things have just gotten better from a safety standpoint.

Now cheer up /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif /ubbthreads/images/graemlins/smile.gif
 
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It made things like the whole Disney World, Orlando economy possible as these were no longer regional things that people drove to.

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Then why are Disney's prices steadily going up and the airline prices going down? BTW, it actually costs MORE for a family of four to go to Disney now than it did five years ago, airfare included.

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See Starbucks. Supply and demand. Lines out the door.

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higher prices to the customer = doomed.

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This I disagree with. Costs for the airlines are going to rise no matter what. Employee wages will continue to rise with inflation, and fuel costs will also continue to rise (unless we find alternatives). Airlines can't rely on good customer service to fill EVERY plane and hope for bulk pricing. When you add the total revenue from customer tickets, and it doesn't even cover the cost of fuel, you won't last long. Even SWA knows this. I think airlines are seriously mishandling the fees they are now imposing (ie charging for not booking on-line instead of offering an on-line "discount"). Prices can be brought up to a manageable level (for consumers AND management) if presented properly.

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I think you are confusing costs with price. The consumer determines the price. The airlines have some control over price by setting supply. Only supply and demand set prices. You can manipulate prices, but you are really only manipulating demand when you do that. Lower prices = higher demand and vice versa. It still comes out as supply and demand = price.

Costs are the airlines' responsibility. These will get ironed out as cost-efficient airlines will survive and those that can't deliver service at cost below price will die. Of course that in itself will lower supply and price will then go up and profits will result for all the remaining players. Try to get too greedy and someone will surely come in with some supply and fix your wagon. (See the story of Southwest Airlines).
 
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The industry that comes out the other side of this will be lean and mean and more customer service oriented, IMO. And it will be safe.

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You're talking Heresy now....It's not about the customers!!! /ubbthreads/images/graemlins/grin.gif
 
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I think you are confusing costs with price. The consumer determines the price. The airlines have some control over price by setting supply.

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So what you're saying is that the airlines will scale back flights instead of raising prices?

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Costs are the airlines' responsibility. These will get ironed out as cost-efficient airlines will survive and those that can't deliver service at cost below price will die. Of course that in itself will lower supply and price will then go up and profits will result for all the remaining players. Try to get too greedy and someone will surely come in with some supply and fix your wagon. (See the story of Southwest Airlines).

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I happen to be a Keynesian (sp?) when it comes to economics (the whole sticky prices, sticky wages thing). I don't think you can place the airline industry into the econ cookie cutter mold and say "Viola." It's more complicated than that, and gov't fees make it even more so. What happens if Uncle Sam decides that the 9/11 fee needs to go up? Airlines cut their prices so the public doesn't blame them for jacked rates again? What about fuel costs? SWA was one of the smart ones that hedged years ago, and it's paying dividends for them now. With the industry the way it is, it's VERY difficult to "deliver service at cost below price." Even SWA is having problems with that, and they actually cost MORE on some routes than the legacies. They turned a profit by slim margins the past few quarters. Slim by SWA standards, but still better than Delta and United. US Air is gone, there's no doubt in my mind. Customer service has been notoriously bad at that airline, and now people are in the "we don't care since management doesn't care" mode.
 
Hell Kell,
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How many people are thrilled to pay $1.67 when it was around $1.20 only two years ago?

[/ QUOTE ] Still $2.00/gallon in NorCal.

JR
 
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So what you're saying is that the airlines will scale back flights instead of raising prices?

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???? What I'm saying is if demand increases relative to supply fares will go up. If it goes the other way fares will go down. This is the way the airline industry has worked for about 25 years now, since the government got out of the fare setting business.

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With the industry the way it is, it's VERY difficult to "deliver service at cost below price." Even SWA is having problems with that, and they actually cost MORE on some routes than the legacies. They turned a profit by slim margins the past few quarters.

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I'm not sure we disagree on anything here. We're just looking at opposite ends of the same elephant. SWA's whole history is one of delivering service at costs below prices. Sure it's tough. It may get tougher if the majors successfully transition to low cost operations. SWA's history is to come into markets, increasing capacity and offering lower fares to significantly increase demand and fill their planes. The result is prices above their costs and below their competitors costs. If that changes the other way SWA is now in a tight spot. But it gets solved by addressing cost and/or supply, not price.

The supply issue will get solved. It is not possible to operate long term at cost above price. That string is run out, so something has to change. Either costs will go down, or prices will go up as flights decrease, or more likely a combination of the two. But the idea that airlines will just one day wake up and say "dang, all we have to do is charge more and we're golden" just doesn't work. Charge more and SWA and JetBlue and AirTran get really healthy really quickly and pour more capacity into the market you are trying to charge more in. Dang, well it worked for a month or two now we're back to fighting for market share.

That's the permanent state of the industry. It's no different from the grocery business or the hardware business or anything else. You think that the price you are paying for a screwdriver is set by the cost of making it. In fact probably 100 companies have gone out of business because they couldn't make screwdrivers at costs below what people would pay (given there were so many screwdrivers to choose from). Some plant in Taiwan could and now there are lots and lots of screwdrivers and they are relatively cheap. The market settled out and consumers and manufactureres found a sustainable level of supply and demand for screwdrivers.

The airline industry will too. It's just going through a tough time of working out deregulation, which is only 25 years old. It will probably always be volatile because of problems controlling costs, particuarly fuel, and the highly elastic nature of pricing travel. But it will settle down in a few years and you'll see who the survivors will be and who didn't make it. (Until the next shakeout0.
 
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