Bob Crandall, American Airlines’ former chief executive, rocked the airline community when he claimed high fuel prices are not to blame for the current industry malaise and called for limited reregulation of the airline business.
His comments were made during a speech at the Wings Club in New York. Why reregulate airlines? Because they don’t seem capable of setting their own pricing and do not follow cohesive pricing procedures. They are all selling seats “too cheaply.”
Evidently if the government was involved, the airlines would be more rational in their pricing decisions.
According to Travel Weekly, Crandall pronounced these words of wisdom.
Crandall threw fuel costs out of the discussion. He said high fuel prices are not the true culprit although they do aggravate other problems.
… mergers won’t produce economies of scale for already-large companies and won’t lower fuel costs.
Crandall suggested requiring airlines to price tickets based on the sum of fares for each leg flown, which would foster more nonstops that are more efficient and “turn conventional wisdom about hubs on its head.”
He urged that the Railway Labor Act be amended to forbid strikes against airlines and require binding arbitration for labor disputes.
The government’s lack of a national transportation plan has led to a decline of airlines, railroads and highways. He is “appalled” that no one in Washington has given any thought to developing high-speed rail both for city-to-airport transportation and as an alternative to air on routes of 300 miles or less.
He also said the air traffic control system needs to be fixed, but that “we seem to have lost our political will to resolve conflicts.”
“Until we regain that will, our antiquated ATC system will continue to inhibit [the success of U.S. aviation],” Crandall said.
We agree with him on everything — except the need for reregulation.
{ 3 comments… read them below or add one }
The only ramp up in airline regulation I’d like to see is to impose capital adequacy requirements, and to get rid of Chapter 11. These companies are in and out of bankruptcy because the shareholders don’t put up enough money. In the US, typically an airline will finance 90% of its assets with debt, compare this to profitable foreign airlines like BA and QANTAS that finance about 30% of their assets with debt. The other thing I don’t get is why when an airline is insolvent and goes into Chapter 11, management get to keep their jobs. In most countries if a company goes into official administration, the first people to go are the directors and senior managers who got the company into its precarious position in the first place.
Re-regulation would take us back to the gravy days for the airlines as there wouldn’t be any incentive to control costs. Take a look at airfares prior to deregulation and you will see that they were much higher and that far fewer people flew places. Airlines were virtually guaranteed to turn a profit since they weren’t competing in the marketplace. This was great for stockholders but it didn’t do anything for the consumers and it didn’t encourage innovation in service.
Yes, the airlines have their issues, part of which is the cost of fuel, part is mismanagement and part is plain stupidity. Any industry that forgets to price it’s product in such a manner that it turns a profit is stupid and since most of the airline management teams are sheep and follow each other to the slaughter, they are acting stupidly.
The solution to their current crisis is to allow free market forces to work, not to regulate an industry. It is clear that there are too many seats being sold at too low of price and therefore management needs to charge according to their costs, not according to what their customers want to pay. It is not a simple nor easy solution but it is one that they need to undertake.
I agree with the first poster.
If large airlines were allowed to fail and were immediately liquidated (no matter how painful in the short term), you would see much stronger and more customer friendly airlines. It is unfair that certain airlines – like United, Delta, and Northwest – can walk away from their commitments to their suppliers and employees and still be permitted to operate.
The argument that air service would “go away” is several of the legacy airlines folded is specious. Look at the mega-retailers of the 60′s – WT Grant, Korvette’s, FW Woolworth – have all ceased to exist years ago and there are still an adequate number of retailers today.