Airline bailout – an industry that’s been given every advantage in the world asks for more help.

President Trump has been floating a bailout of the Airline industry as part of his Coronavirus response. I respect that the downturn in demand for global travel has left the industry on the brink, but it’s an industry that thanks to the last four administrations, and particularly the last two have been given every advantage under the sun. That they were not able to budget properly to see out a downturn isn’t the fault of the consumer or the taxpayer. Coronavirus is a once-in-a-lifetime event so if they require government assistance it must come with a hefty cost.

For Trump who himself was a failed airline executive who turned the venerable Eastern Air Shuttle into the loss-making Trump Shuttle in a short period of time in the late 1980’s and early 1990’s, this is an opportunity to fill a lifetime dream of being accepted by the titans of that industry.

Fort Lauderdale-based Spirit Airlines is one of the better run US air carriers By JT Occhialini [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)%5D, via Wikimedia Commons

The largest players in the airline industry act in many ways like a cartel, fixing prices and engaging in predatory schemes to crush smaller competitors. Thanks to the Obama Administration’s lax enforcement of antitrust laws, airline mega-mergers became a thing in the late 2000’s and early 2010’s. While each merger involved Eric Holder’s Department of Justice demanding some asset divestment, it was basically window dressing.

The most costly of these mergers for the consumer was actually approved by Holder’s successor, Loretta Lynch. US Airways served as the only network hub-and-spoke carrier with a low cost structure. It was a low-fare carrier for all intents and purposes, keeping most city pairs especially on the east coast competitive using its Charlotte and Philadelphia hubs efficiently. Allowing US Airways to merge with American and absorb AA’s costs and culture was a disaster for consumers and has seen air fares rise while service levels have continued to drop.

Enter Trump and his protectionism which then gave US carriers an advantage against foreign competitors who were effectively blocked in some cases from competing aggressively on point-to-point foreign travel.

The national “network” carriers in the US all filed for bankruptcy and emerged from Chapter 11 with a lower cost structure in the last 15 years, also giving them a competitive advantage over airlines like Southwest, generally well-run and considered one of the “most admired” companies in America annually. Southwest’s great sin was not running its business poorly enough like Delta, US Airways, American, United and Northwest. Following bankruptcies these airlines all consolidated taking six national “network” carriers into three massive airlines. As noted above the Justice Department under President Obama opted not to force larger concessions out of these merged carriers.

Meanwhile beginning with the Clinton administration and continuing to this current one, large airlines have been given formal antitrust immunity to form joint ventures across the Atlantic which allows them to coordinate schedules and pool resources – that’s the good. The bad is it also allows them to effectively price fix and not allow upstart competitors to be compete effectively because the deck is stacked against them.

Southwest remains an admired company. Other airlines are generally not well-thought of. By Jonathan Payne [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)%5D, via Wikimedia Commons

So essentially we have three airlines only flying the Atlantic with great frequency. The joint venture between British Airways and American Airlines; a joint venture between Delta Airlines and Air France-KLM as well as Virgin Atlantic (Delta is the single largest shareholder in Virgin Atlantic) as well as United Airlines and Lufthansa. New entrants like Norwegian Air Shuttle operate at a distinct disadvantage and when they begin to gain market share, the entrenched carriers operating with antitrust immunity engage in anti-competitive practices.

I would argue airlines like Fort Lauderdale-based Spirit Airlines and Denver-based Frontier would fill the void of an major airline collapse, giving consumers the opportunity to fly at lower fares in a more efficient manner. While I respect business travelers avoid those two airlines they provide a benefit for the average American the large network carriers and Southwest with its high cost structure do not. In terms of service levels Southwest and Delta remain high, while every other US carrier is generally not well-thought of by travelers.

Delta is the dominant airline in New York effectively using the Port Authority’s control of slots to a major competitive advantage

If members of Congress determine a bailout is necessary they need to place severe restrictions on the industry. First off, I would recommend continuing the lax regulation of the number of carriers that can compete on non-transcontinental routes, but offset that with requirements to serve small cities. I do believe Airline Deregulation of the Carter years has been beneficial to consumers in large markets but not in small towns. Secondly, I would cancel the antitrust immunity given to the joint-ventures across the Atlantic that essentially allow price fixing. Thirdly, I would force Delta Airlines to divest many of its slots in the New York market and put those up for auction. Delta is the largest carrier at both LaGuardia and JFK Airports and while they do not have any approaching a monopoly at either, I believe they have a huge competitive advantage because acquiring slots to compete with them effectively at either airport is difficult. New York is the largest air market in the US. Fourth, I’d require network carriers to eliminate the Saturday-night stay fare scheme and also force change fees for these same carriers to be restricted or eliminated. Fifth, working with foreign governments I would allow the concept of “Open Skies” for any US gateway. Foreign airlines would still be restricted on flying within the country but could serve any international point from any US point permitting they secure the slots if necessary.

If the culture of the industry does not change, this bailout or whatever assistance is given to the industry will have been a mistake.

One comment

  1. […] the President talking about a massive airline bailout it’s worth noting as I did this week, many of the excesses of an industry that has run amok were cemented by the lax antitrust regulation …. The theme of Obama’s Justice Department not properly regulating big business reappears time […]

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