Today's Opinions, Tomorrow's Reality
Let Them Die
By David G. Young
Washington, DC, January 4, 2005 --
The cancellation of thousands of flights during the Christmas holiday delayed over 30,0001 passengers and shook America's federal government to attention regarding the country's fragile airline system. Two days after a Delta subsidiary cancelled all 1,1002 of its Christmas Day flights, Secretary of Transportation Norman Mineta ordered the department's inspector general to investigate the system's breakdown.
Since the tough talk in the secretary's memo is clearly intended for public consumption, the subjects of the investigation -- Delta Airlines and US Airways -- have shown little concern. But the public relations disaster of stranding thousands of Americans during Christmas may help shift public officials allegiance away from airline industry lobbyists in favor of public officials' constituents who are the airlines' disgruntled customers.
To be sure, it is the lobbyists, not the customers, who have had the ear of congress and the White House. The major carriers were already bleeding red ink before September 11, 2001, and the attacks on that day gave lobbyists a patriotic-flavored excuse to seek an enormous federal government handout. What was initially billed as proper compensation for a two-day airspace closure soon ballooned into a $15 billion airline industry corporate welfare package, including $5 billion in cash and $10 billion in federal loans.3
But the government handouts didn't stop there. In the days before the invasion of Iraq, lobbyists again convinced congress to give them billions more. Slipped into the bill funding the invasion was a provision to give $3.2 billion more to the airline industry.4 Given the press' nonstop coverage of the war, it is no surprise that the handout didn't yield public outrage.
But even two airline bailouts could not breathe new life into the decrepit business models of the biggest carriers. In the same year as they received the second round of billions from the government, United Airlines, American Airlines, and Delta Airlines still managed to lose money.5 The federal cash infusion allowed Continental, Northwest and US Airways to finish 2003 in the black, but all of them appear to have lost massive sums in 2004, based on financial reports from the first three quarters of the year.6 United Airlines is now in bankruptcy, and undergoing reorganization. US Airways has filed for bankruptcy a second time in two years, and may soon face liquidation.
Seemingly unable to do anything but destroy wealth, United continues to seek government relief. In June of last year, it failed in an attempt to get a $1.6 billion loan from the federal government,7 a failure that has kept the airline in bankruptcy into the new year.
While lobbyists for the old-line carriers have been begging for more handouts to keep the system running, younger airlines with fresher business models have been proving that handouts aren't needed. Southwest, JetBlue, and AirTran not only made money during 2003, but they defied the odds created by skyrocketing fuel costs in 2004 to turn a profit in the first three quarters of the year.8
There are well-established reasons why these new "low cost" carriers are able to turn a profit while the old-line ones cannot. The old-line carriers have high-wage union employees, must maintain a complex assortment of aircraft in their fleets, and operate an expensive hub and spoke system that often creates half-empty flights.
Had it not been for these multiple government bailouts, it is reasonable to expect that debt-laden US Airways, United, and Delta would have already gone out of business. This is exactly how the free market is supposed to work. Unprofitable businesses fail, and profitable competitors take over. Given that old-line carriers generally rate lower in customer satisfaction than their low-cost rivals9, the liquidation of the struggling airlines would actually be a good thing. Who wants to fly an airline that cancels all flights on Christmas and loses massive amounts of luggage?
Keep in mind that when airlines go out of business, competitors generally pick up the routes. Pan Am, Eastern, and Trans World Airways used to operate giant networks. Today, these airlines are gone, but people still fly. Their routes are simply served by other carriers.
Given this reality, the federal government's investigation into the holiday system failures at Delta and US Airways is the wrong way to go. Rather than paying to prop up failing airlines and then investigating them when they provide horrible service, the federal government should simply let the sickly airlines die. This may cause short-term pain for the airline employees and company creditors, but it will provide a long-term boon to the airline customer, the American economy, and to the beleaguered American taxpayer alike.
David G. Young was one of the passengers scheduled to fly on Delta's ComAir-operated flight 5862 on Christmas Day.
1. The Washington Post, Two Airlines Woes Snarl Christmas Travel, December 26, 2004
2. The Washington Post, Ibid.
3. CNN, Bush signs airline bailout package, September 23, 2001
4. Associated Press, Congress Grants Airlines $3B Bailout, April 11, 2003
5. E*Trade, Company Earnings Reports, as posted January 3, 2003.
7. Citizens Against Government Waste, Panel Grounds Airline Bailout (Press Release), June 18, 2004
8. E*Trade, Ibid.
9 San Francisco Chronicle, Travelers Rate JetBlue as the No. 1 Airline, April 6, 2004