Friday, July 15, 2011

Modern Air Travel: A Historical Perspective

I'm a pretty experienced traveler, and over the years I've learned a few things.  Travel was far more simple back before 9/11/2001, and even more simple back in the 1970's before deregulation.  Anyone who was born before 1970 and did any air travel at all remembers the days of regulated airlines.  I'm tempted to call them the good old days, but they certainly had their ups and downs.  Making a reservation meant going to a travel agent in most cases, because travel could often entail flying on 2 or more airlines in order to get you to your destination and the reservation systems were not computerized or even interlined between carriers.  The travel agents had to work for their money, and booking even a simple trip could take hours or days to have them confirmed.  A lot of phone calls needed to be made.  The routes were regulated, so most of us had a choice of one airline, especially if you were from a smaller city, and the flights were subsidized, so there was little incentive for the airlines to fill the planes.  Flights also were prohibitively expensive, especially out of captive markets, which were most of them.  A flight from Scranton/Wilkes-Barre to Columbus, when I was a college student was $350 round trip, and that is in 1976 dollars.  On the upside, flights rarely got canceled and when one was unless it was truly a weather related problem or a mechanical breakdown.  The airlines operated on schedule and pretty much on-time, meals were served, even on a short flight, and drinks were free.

Deregulation totally revamped the industry, along with the internet and the computer revolution.  Airlines were free to fly where they wanted, expand their system, and compete on routes that were once monopolies.  The airfares plummeted, and the $99 coast-to-coast fare became common.  Airlines that used to be regional carriers like Allegheny (soon to be USAir), Piedmont, North Central, and Southern, expanded their route systems by leaps and bounds.  They lost money on every flight, but it didn't seem to matter at the time.  Upstart airlines like People Express with a non-unionized workforce, low paid workers, and super cheap airfares forced the big guys to cut their fares.  These were the salad days of deregulation, and the consumer was king.  The flight I used to pay $350 for was now $120 round trip.  Airlines were desperate to build up customer loyalty and American Airlines had a very novel concept that changed everything, the frequent flier program.  Enroll in this program, and you would receive a coupon book.  Just have the gate agent pull one of those coupons every time you fly, and you gain points that would be good for certificates after a number of miles flown, and fly for free.  It was clumsy by today's standards, but it changes everything.  Within a year, all the major airlines adopted a frequent flier program.  It was often hard to use the points though because seats were capacity controlled, and often there was only one or two seats available for this kind of travel. That soon changed as competition forced the airlines to ease up restrictions. 

Small regional carriers soon became national, thanks to both growth and acquisition.  Delta bought Northeastern Airlines, Allegheny bought Mohawk, Southern and North-Central merged to create Republic Airlines.  Braniff International, who had very lucrative South American routes, decided to go big time and fly to Asia and Europe, and even lease a Concorde on routes from London.  Long time behemoths like Pan Am and Eastern couldn't compete with younger carriers, had restrictive labor contracts and were strike prone just couldn't adapt.  Both airlines went belly up in the late 80's.  Deregulation was also not kind to airlines who decided to expand too quickly.  Braniff over expanded and took on routes that just were not their.  They were the first major airline to go under.  American Airlines helped them along by matching their airfares and temporarily flying to traditional Braniff cities.  Southwest Airlines which was just a regional airline, known for hourly service for hourly flights between Dallas Love Field and Houston Hobby Airport went national, and their business model has been studied and used by airlines worldwide on how to run a low cost airline.

With deregulation we also had winners and losers that was either market driven, and/or management driven.  Corporate raiders like Frank Lorenzo and Carl Icahn bought out Continental Airlines and TWA respectively.  Lorenzo then raided Eastern Airlines, and stripped it of all marketable assets and routes to feed Continental.  Between incompetent management under Lorenzo along with long standing serious union problems, forced a strike that Eastern never recovered from and soon went out of business.  Non-union Continental overextended itself by buying People Express and Frontier Airlines (not the Frontier that is flying today), and soon found itself in bankruptcy court.  Lorenzo was forced to give up control under the reorganization agreement, and what emerged was a smaller and healthier Continental.  In the case of TWA, Icahn bled it dry and put no money into modernizing it's fleet.  They slowly faded away, went through 2 bankruptcies and  was finally bought by American Airlines in 2001.  Many other airlines popped up and just as quickly went out of business during the 80's and 90's, with very few start-ups being successful.  ValuJet (now AirTran Airways) and Jet Blue have been exceptions, having good business models and modern jet fleets.

With the late 80's and 90's came a big round of consolidation, and the public was poorer for it with reduced service and higher prices.  Airlines continues mergers and buy-outs at a fast pace.  Many familiar formerly regional airlines began being bought by the larger carriers.  As an example, USAir bought Piedmont and PSA and soon became a major national powerhouse, at the loss to many smaller cities once served by the three carriers.  In many cases cities that once had DC-9 or 737 service now had 19 seat turboprops and the airfares skyrocketed to these airports.  For many travelers the benefits of deregulation seemed to come full circle, with high prices and bad service and there was a movement to re-regulate at least to a point.

In the 90's, as reservation systems became more automated and computerized, the major airlines forged alliances with smaller commuter carriers, and their flights operated under the major carriers' airline code.  By looking at a ticket, it was hard to know if you were flying on the major or a commuter outfit.  Companies such as Comair and Skywest were soon operating as Delta Connection with much smaller equipment, and at a much lower cost than the major carrier, but it provided what was marketed as a seamless connection to the major carrier at one of the hubs.  This provided convenience to passengers, but did little to relieve the high cost of flying into small and mid-size cities.

In the early 1990's Bombardier Aerospace in Montreal, Canada introduced the 50 seat Canadair Regional Jet.  This revolutionized service, albeit temporarily, to small and mid-size cities across the country.  The major carriers bought these airplanes by the hundreds, dry leased them to their regional partners, and cities that had been deprived of jet service soon had it restored.  The planes, though crowded, were a vast improvement over the much slower turboprops.  Soon afterwards, Brazil's Embraer introduced their own 50 seat regional jet and the airlines now had a cheaper and more efficient means to service their markets.

It didn't take long for the airlines to realize that they had stumbled on to a cash cow.  The regional jets broke even at half capacity, had flight crews that made a fraction of the trunk carrier's pilots, and only needed one flight attendant.  Airlines started move service to larger cities from larger trunk carrier planes, to regional jets, often with more frequent service, and used them on longer flights on the thinner routes.  It became common to book a flight from Memphis to Phoenix only to find yourself shoehorned into a RJ for over 3 hours.  In the meantime, many of the cities that had reaped the benefit of jet service, suddenly found themselves with less service, and in many cases reverted back to smaller turboprops.   Embraer and Bombardier soon introduced 70 and 90 seat planes, and routes that used to be served by DC-9, 737, or MD-80 were now operated by the larger RJ's.  This remains part of the business model by the legacy carriers to this day.

The first decade of the 21st century was a tumultuous one for the airline industry.  About the time the airlines were at least breaking even, the Sept. 11, 2001 attacks on the World Trade Center and the Pentagon almost destroyed it.  The whole aviation system was shut down for days, air travel plummeted, a recession raged, and the federal government hoisted the Transportation Administration Administration (TSA) upon us.  Air travel became more inconvenient, less comfortable, and more intrusive as poorly trained TSA agents began random body searches, and restricting what can be carried on an airplane.  Instead of profiling potential terrorists, everyone was subjected to often ridiculous scrutiny.  Nail clippers were banned, liquids had to be under 3 ounces, and must fit in a one quart ziplock bag.  Later on came subjecting passengers to x-ray machines, and full body searches.  Many travelers who used to fly are now driving to their destination.

This was not a happy time for the major airlines either.  Legacy carriers, Delta, Northwest, USAirways, America West, and United all filed Chapter 11 bankruptcy.  Airfares went up, and the airlines were looking at ways to raise even more revenue.  Meal service soon ended in coach, and on soon on some carriers, snacks were no longer available.  Checked baggage, which used to be included in the cost of the ticket, now became an extra, as much as $25 each way for the first checked bag and more for the second or third.

While the behemoths lingered in bankruptcy, a few low cost airlines turned a profit.  Southwest continues to this day to not charge for checked baggage and is profitable enough to being able to purchase an equally profitable AirTran.  The result of this merger still remains to be seen.  JetBlue has been very successful as has Virgin America.  The lean and mean airlines are going to be the survivors. 

The 21st century has also brought about the merger of major airlines, to the detriment of their customers.  Delta and Northwest both emerged from bankruptcy only to merge in to the "New Delta".  The merger meant, that the Delta hub in Cincinnati shut down, the Northwest business unit in Minneapolis is closing, hubs in Memphis, Detroit and Minneapolis are being scaled back, and some cities that used to be served by both airlines are now served by neither.  United and Continental are also in the process of merging, and it remains to be seen how the now largest airline in the world will do.  Now in 2011, airlines are faced with $6.50 a gallon prices for Jet-A fuel, there are fewer choices, higher prices, poorer service.  TSA has become an inefficient, authoritarian, and arbitrary security force.  95 year old great grandmothers in wheel chairs and 5 year old girls are being subjected to what in any other time would be felony sexual battery. 

So the question remains, are the American people better served by airline deregulation, or would we be better off with a Civil Aeronautic Board assigning routes, assessing rates, and subsidizing poor performers? 

I'm still in the camp of deregulation.  In the past routes were subject to political pressure (even more than now), airlines were kept in business through tax payer subsidizes, and competition was nonexistent.  Let the chips fall as they may, when one airline fails, someone comes along to fill the void, and cities who can not support profitable air service, probably don't need service.

Feel free to discuss here.  Or send me hate messages on twitter @simkeith

1 comment:

  1. Get rid of the TSA, and you'll see an immediate turnaround in the airline business. It'll be like the 80's after Reagan slashed the tax rates.