Post Deregulation Today

[Bob Owens]

actually, aviation is safer because thankfully we do learn from our mistakes. The vast majority of accidents are caused by human error and processes and procedures have improved across the industry. Let's also remember what the US FAA establishes as law is viewed as the standard by which other countries set their laws.

In other words Deregulation has nothing to do with making it safer, however the possibility reamains that financial pressures may have held it back from becoming even safer, more than likely deregulation has made the airlines less dependable as far as delays and cancellations.

To me deregulation in itself was not what hurt workers. What hurt workers was the abuse of bankruptcy laws and an unprecidented attack on the Labor movement initiated by Ronald Reagn. Wages in the industry continued to rise in the early years of deregulation, the turning point was Patco and frank lorenzo. In both cases the moribund labor movement stood by and allowed things to happen that they never should have. Capital has been on the offensive ever since. The only wages that go up are those who get jobs working as Union officials. Unions often look at the demise of one company, especially a competing unions, as a growth opportunity for their union and more dues to pay their wages. Many of these guys have little real interest in the movement itself, its just a job that provides them a lot better pay than where they came from. They often sympathize more with the company, despite record revenues, than they do with the workers they are supposed to represent.

 

[Bob Owens]

I suspect AA has more airplanes today than UA, DL, and AA combined in 1978. My guess is 95% of the people on these boards got their start in the airlines because of deregulation, and probably wouldn't have been in this line of work absent deregulation.

Wrong.

Show me where growth was stifled because of regulation. The fact is the industry grew, and grew a lot during the regulated era and it produced good jobs as well. Regulation was put in place to foster growth, not stifle it and it did a great job. Growth was fueled by technological advances which made it cheaper to fly. Ticket prices in real terms decreased more under regulation than they have since deregulation, technology advanced more and speeds increased more under the regulated era as well. Planes today are slower than they were 40 years ago. Sure they burn a lot less fuel and thats where most of the advances have been but planes look pretty much the same today as they did when I started. Compare that to the generation before me who worked under the regulated era, they went from the DC 3 to the DC 10 and SST.

Deregulation has been a convenient scapegoat for both the Industry and the Unions.

 

[WorldTraveler]

I can agree with your first paragraph, Bob. Could safety be better? I'm sure it could... but I'm also not sure that there is evidence of systematic corner-cutting either. There will always be the temptation to cut costs but there are also indications that some companies can figure out how to work safely within the present environment. But more money, properly spent, can always be a good thing.
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I would argue that part of the reason the early days of deregulation were kind to airline employees was because the full possibilities of low cost growth were not known at the time. Remember that there were a number of small low cost carriers in the early days of deregulation and most did not succeed long term but current LFC champion WN didn't move out of its core Texas base for several years after deregulation.
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It is true that busting PATCO and the first rounds of bankruptcy opened the possibilities for cutting labor costs but remember that the current top players in the industry - AA, DL, UA, and WN - were all much smaller today than they were back then. All of the big four - and US included - have survived by adapting to the realities of the harsher environment better than previous leaders like Eastern, Pan Am, and TWA.
The real question is how well these current five airlines can adapt going forward because the industry is not stable yet. One of the big justifications for deregulation was that there would be consolidation in the industry that would allow capacity to be better managed among a few key players- but that has taken 35 years to happen.
And not all carriers are willing to cut capacity today.
If capacity can be properly managed, then labor doesn't have to take the next round of cuts on their backs... it should come out of the wallets of passengers who should pay for what it costs to fly.
For too many of the past 35 years, though, labor has had to subsidize the industry because there was way too much capacity which resulted in fares that were way too low.

There is an abundance of evidence, Bob, to show that ticket prices have fallen more under deregulation than they ever did under regulation and they fell the greatest in the decade of the 2000s... and have not recovered since. The whole purpose of regulation - at least after introduction of the jet which did bring substantial efficiencies to the industry - was to keep airfares relatively constant... the same principle that still largely applies to electric utilities today.
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Perhaps the next several years will see more rational capacity and less cuts for labor... we can hope, right?

 

[Bob Owens]

It is true that busting PATCO and the first rounds of bankruptcy opened the possibilities for cutting labor costs but remember that the current top players in the industry - AA, DL, UA, and WN - were all much smaller today than they were back then. All of the big four - and US included - have survived by adapting to the realities of the harsher environment better than previous leaders like Eastern, Pan Am, and TWA.

EO made the claim that if not for Deregulation we would not be in this industry. Thats what I dispute. The growth rate of employment was higher during the regulated era for the industry than it was in the deregulated era, sure the survivors have more employees than they used to but the overall number, especially for mechanics is down.

The real question is how well these current five airlines can adapt going forward because the industry is not stable yet. One of the big justifications for deregulation was that there would be consolidation in the industry that would allow capacity to be better managed among a few key players- but that has taken 35 years to happen.

I recall that being one of the arguements against it, as consolidation would result in higher prices.

And not all carriers are willing to cut capacity today.

Capacity is down from what it was 10 years ago and load factors are running at 80%.

There is an abundance of evidence, Bob, to show that ticket prices have fallen more under deregulation than they ever did under regulation and they fell the greatest in the decade of the 2000s... and have not recovered since. The whole purpose of regulation - at least after introduction of the jet which did bring substantial efficiencies to the industry - was to keep airfares relatively constant... the same principle that still largely applies to electric utilities today.

Show me the evidence.
The purpose of regulation was to provide stable growth, keeping the fares stable was a means to an end, as technology provided efficiencies fares fell. The 747 was one of the biggest forces behind cheaper airfares.

Perhaps the next several years will see more rational capacity and less cuts for labor... we can hope, right?

Well the supply of labor may take care of that either way. AA complianed to the NMB when I wrote that if every mechanic restricted themselves to just 40 hours a week, just one Aviation job and no ot, then the industry would collapse. They claimed it was a call for a job action. We've been working against ourselves by our willingness (forced through neccessity) to supply more A&P labor. This unrealized shortage is why when we get released we could probably engage in self help tactics that dont have to mean an all out strike. Start off with simply refusing OT. Tulsa is already a year behind with as much OT as they can give away, imagine if people stopped, sure they could send the work out, assuming there's enough capacity to absorb AA's work. Same goes for DFW and MIA, max ot at both locations, to a lesser extent LAX and NYC since they tend to keep both of those stations fat because of the more militant history those two stations have had in the past. I havent heard anything from ORD. The shortage of pilots is even more critical because their hours are limited by law (mechanics can legally work more hours in a week than a pilot can in a month). The airlines have done such a good job at cutting wages that the number of people seeking an Air Transport category certificate has dropped by 2/3s, mechanics by 1/3rd or more. With the recent announcement at the Paris Airshow that they recieved over $100 billion in new aircraft purchases it looks like Boeing will be looking for quite a few more A&Ps as well.

 

[WorldTraveler]

Bob,
here is a good summary of the industry since deregulation - full of charts and data and generally pretty accurate.

http://www.gao.gov/new.items/d06630.pdf

The entire movement from the age of turboprops to jet engines produced huge economies of scale which benefitted the development of the airline industry... but after that, the movement has clearly been toward lower fares and greater efficiency... part of the reason many execs have been crying out for a new Boeing narrowbody is because there really have not been any significant changes in airline technology and the efficiencies that come with it since the dramatic leap from the jet age. The 787 was supposed to deliver a leap in efficiency but it really is not overwhelming esp. in light of options such as winglets that can account for about 1/3 of the 787s efficiencies - at far less cost.
Note the huge increases in labor productivity over the past 10 years in figure 6. No aviation technology had anything to do with that - although computer technology certainly was a major factor.
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Yes, consolidation will result in higher prices but when you see the graphs that clearly show that airfares over the past 30 years have plummetted and then you look at the same graphs of profitability in the industry (too bad they didn't superimpose the two graphs), then it is apparent that deregulation drove prices down too far and airline companies and their employees have paid a high price for it.
I'm not sure there is much hope for regaining some of what has been lost but it would be nice if the bottom is finally reached in terms of diminishing compensation. Note also that the only thing that has increased for airline employees is benefits costs which while not identified is for health care costs which have eaten a huge share of the entire national budget.
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your efforts to limit the supply of labor might have some potential of working if we lived in a closed economy - but we don't. There are billions of people around the world looking to make a living and they will do the work that Americans don't want to do - as long as they can make more than what they could otherwise make.