Mission impossible: Here's the real reason the Big Six are dying
I greatly respect Joe Brancatelli, my fellow USATODAY.com Travel columnist. He's a brilliant writer, and right about most things. But we consistently disagree on one point: the real reason the Big Six airlines are failing.
Joe claims that the major carriers are dying because their fares are too high, fare structures are too complex, customer service is poor, management is inept and top executives have been fiscally irresponsible by taking too much compensation.
I'm a former airline executive, and I agree with Joe that the Big Six are dying — at least as they exist today. And I agree that many of the factors he cites are contributing to their demise. But I believe that even if all those issues could be solved, it would not save the big airlines.
The Big Six – American, Continental, Delta, Northwest, United, US Airways — were doomed by deregulation a quarter-century ago. Their cost structures are based on long histories, and deregulation opened the door to a new crop of airlines such as Southwest and JetBlue that were not saddled with the same burdens. The upstarts could charge lower fares and still make money. Deregulation created an uneven playing field that has forced the Big Six to deteriorate over time.
In fact, the Big Six used to be the Big 12, but names like Pan American, TWA, Eastern, Braniff, Republic and Western have vanished in bankruptcies or mergers since deregulation.
The survivors have cut wages, eliminated unprofitable routes, squeezed more seats into airplanes, laid off employees, cut back in-flight services and amenities, and devised complicated fare structures to extract every last penny out of the traveling public. And then when all that didn't work, they begged the U.S. government for handouts to help them survive.
But it hasn't been enough — and it never will be. For one, the Big Six have labor contracts that keep their costs higher than airlines that entered the market after deregulation. These newcomers can pay rock-bottom wages and set up work rules that favor the airline.
These airlines are called the Big Six because they provide comprehensive service across global networks. That means flying a wide variety of routes, some of them unprofitable, and employing several different types of aircraft to do it. Low-cost airlines, for their part, typically fly only on carefully selected, profitable routes. They operate a single type of aircraft to minimize training and maintenance costs.
The Big Six have started launching low-fare subsidiaries: Delta's Song, United's Ted. But for the Big Six to emulate the models of their low-cost competitors, they would have to change so much they would be unrecognizable. They would no longer be the Big Six.
I agree with Joe that there have been some egregious travesties in executive compensation, and other wasteful acts by managers of Big Six airlines at one time or another. This certainly has not helped their images or financial situations.
But even if Big Six management had been completely saintly over the years, the outcome would still be the same. The big airlines cannot survive in a two-tiered cost structure.
When a company is profitable, it's easy to spread the cheer, the way Southwest does. But when a company suffers continual losses, problems flow. As the Big Six began to cut service, customers became angry. As low-cost carriers began to offer $200 airfares, the public became enraged that prices had been so high for so long. And as the Big Six tried to make up for lost revenue, they alienated business travelers and fliers on noncompetitive routes by sticking them with high fares.
But unlike Joe, I can't really blame the Big Six for cutting service and manipulating airfares to charge whatever the market would bear. They had no alternative, if they wanted to try to stay in business. I'm not condoning their practices; I'm just saying that what they did was totally rational.
Only it hasn't worked. As the economy slowed and the crisis deepened, Big Six airlines alienated not only travelers but also their own employees, laying off thousands who had faithfully devoted their lives to those airlines for countless years. Many who still had jobs became bitter, and sometimes took it out on customers, making matters worse. Only one Big Six airline – Continental – made Fortune magazine's list of the 100 Best Companies to Work For this year, and it shed more than 1,000 jobs.
Please don't get me wrong. I am not defending the tactics of the Big Six, nor am I bemoaning deregulation. Deregulation of the airline industry has been a great boon to consumers, who have reaped the benefits of low airfares. The expansion of low-cost carriers throughout the world has increased the demand for air travel and made it accessible to many people who could not otherwise afford to fly.
Nor am I bashing the unions or employees of the Big Six carriers. These people want the same things as every other American – a decent job with decent wages and some job security. But we must recognize that deregulation created a situation where the old carriers and the new carriers could not peacefully coexist. And the result was an industrial earthquake that has shaken airfares, service and thousands of jobs.
Joe Brancatelli is correct that the Big Six are a dying breed. Some of the companies may survive, but not with their existing business models. And when they are gone, fares will be lower and probably less complex, amenities offered in the air will be commensurate with the price paid for travel, and many new jobs will exist at the low-cost carriers for airline employees who are willing to work for less. As a result, the public will arguably be better off – with the painful exception of the airline employees whose jobs were eliminated.
But change won't necessarily bring stability. We've already seen newer airlines, such as JetBlue, coming into the market with cost structures that are even lower than the original low-cost carriers, such as Southwest. More are undoubtedly waiting in the wings. We'll have to wait as well – to see if history repeats itself.
Read previous columns
Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every three weeks on topics of interest and concern to business travelers. E-mail him at [email protected].
Legacy carriers watch out! you may be doomed!
I greatly respect Joe Brancatelli, my fellow USATODAY.com Travel columnist. He's a brilliant writer, and right about most things. But we consistently disagree on one point: the real reason the Big Six airlines are failing.
Joe claims that the major carriers are dying because their fares are too high, fare structures are too complex, customer service is poor, management is inept and top executives have been fiscally irresponsible by taking too much compensation.
I'm a former airline executive, and I agree with Joe that the Big Six are dying — at least as they exist today. And I agree that many of the factors he cites are contributing to their demise. But I believe that even if all those issues could be solved, it would not save the big airlines.
The Big Six – American, Continental, Delta, Northwest, United, US Airways — were doomed by deregulation a quarter-century ago. Their cost structures are based on long histories, and deregulation opened the door to a new crop of airlines such as Southwest and JetBlue that were not saddled with the same burdens. The upstarts could charge lower fares and still make money. Deregulation created an uneven playing field that has forced the Big Six to deteriorate over time.
In fact, the Big Six used to be the Big 12, but names like Pan American, TWA, Eastern, Braniff, Republic and Western have vanished in bankruptcies or mergers since deregulation.
The survivors have cut wages, eliminated unprofitable routes, squeezed more seats into airplanes, laid off employees, cut back in-flight services and amenities, and devised complicated fare structures to extract every last penny out of the traveling public. And then when all that didn't work, they begged the U.S. government for handouts to help them survive.
But it hasn't been enough — and it never will be. For one, the Big Six have labor contracts that keep their costs higher than airlines that entered the market after deregulation. These newcomers can pay rock-bottom wages and set up work rules that favor the airline.
These airlines are called the Big Six because they provide comprehensive service across global networks. That means flying a wide variety of routes, some of them unprofitable, and employing several different types of aircraft to do it. Low-cost airlines, for their part, typically fly only on carefully selected, profitable routes. They operate a single type of aircraft to minimize training and maintenance costs.
The Big Six have started launching low-fare subsidiaries: Delta's Song, United's Ted. But for the Big Six to emulate the models of their low-cost competitors, they would have to change so much they would be unrecognizable. They would no longer be the Big Six.
I agree with Joe that there have been some egregious travesties in executive compensation, and other wasteful acts by managers of Big Six airlines at one time or another. This certainly has not helped their images or financial situations.
But even if Big Six management had been completely saintly over the years, the outcome would still be the same. The big airlines cannot survive in a two-tiered cost structure.
When a company is profitable, it's easy to spread the cheer, the way Southwest does. But when a company suffers continual losses, problems flow. As the Big Six began to cut service, customers became angry. As low-cost carriers began to offer $200 airfares, the public became enraged that prices had been so high for so long. And as the Big Six tried to make up for lost revenue, they alienated business travelers and fliers on noncompetitive routes by sticking them with high fares.
But unlike Joe, I can't really blame the Big Six for cutting service and manipulating airfares to charge whatever the market would bear. They had no alternative, if they wanted to try to stay in business. I'm not condoning their practices; I'm just saying that what they did was totally rational.
Only it hasn't worked. As the economy slowed and the crisis deepened, Big Six airlines alienated not only travelers but also their own employees, laying off thousands who had faithfully devoted their lives to those airlines for countless years. Many who still had jobs became bitter, and sometimes took it out on customers, making matters worse. Only one Big Six airline – Continental – made Fortune magazine's list of the 100 Best Companies to Work For this year, and it shed more than 1,000 jobs.
Please don't get me wrong. I am not defending the tactics of the Big Six, nor am I bemoaning deregulation. Deregulation of the airline industry has been a great boon to consumers, who have reaped the benefits of low airfares. The expansion of low-cost carriers throughout the world has increased the demand for air travel and made it accessible to many people who could not otherwise afford to fly.
Nor am I bashing the unions or employees of the Big Six carriers. These people want the same things as every other American – a decent job with decent wages and some job security. But we must recognize that deregulation created a situation where the old carriers and the new carriers could not peacefully coexist. And the result was an industrial earthquake that has shaken airfares, service and thousands of jobs.
Joe Brancatelli is correct that the Big Six are a dying breed. Some of the companies may survive, but not with their existing business models. And when they are gone, fares will be lower and probably less complex, amenities offered in the air will be commensurate with the price paid for travel, and many new jobs will exist at the low-cost carriers for airline employees who are willing to work for less. As a result, the public will arguably be better off – with the painful exception of the airline employees whose jobs were eliminated.
But change won't necessarily bring stability. We've already seen newer airlines, such as JetBlue, coming into the market with cost structures that are even lower than the original low-cost carriers, such as Southwest. More are undoubtedly waiting in the wings. We'll have to wait as well – to see if history repeats itself.
Read previous columns
Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every three weeks on topics of interest and concern to business travelers. E-mail him at [email protected].
Legacy carriers watch out! you may be doomed!
