Reregulation Fantasy
Another critic of airline deregulation misses the mark.
About twice a decade someone comes along with a book denouncing airline deregulation as a threat to safety. It always turns out that what the author is really lamenting is the loss of monopoly wages and benefits for the employees of a formerly cartelized industry. This year's installment in that ongoing series is travel reporter William McGee's Attention All Passengers.
Compared to some of the previous contributors to the genre (Ralph Nader, John Nance, Mary Schiavo), McGee has done a credible job of research, interviewing aviation experts, and presenting a selection of their views, even when they conflict with his thesis. But instead of confronting their points, he simply proceeds with his own argument, untroubled.
Here is the tall tale McGee wants us to buy: Back in the 1960s and '70s, the airlines were wonderful places to work. (McGee was a dispatcher at "the world's greatest airline," Pan Am.) Flying was a pleasure for passengers: free meals, leg room, numerous empty seats, big planes going to small towns, etc. Then along came this thing called deregulation, with the ensuing dog-eat-dog competition kicking off a downward spiral that has continued to this day, worsening dramatically during the last decade.
Fares are so low now that airlines chronically lose money, forcing them to slash their work forces by outsourcing just about everything (even heavy maintenance, some of which is now done overseas!), automating the check-in process, and jamming their planes to more than 80 percent of capacity. They have abandoned small towns and cities to regional airlines with poor safety records and small, uncomfortable planes.
McGee's remedy? "Partial" reregulation, tougher antitrust enforcement, a ban on offshore maintenance, an overhaul of bankruptcy laws, and much more.
McGee's critique suffers from internal inconsistency. Generally he laments the airlines' broken business model, which can't seem to make profits. Yet he also complains that the airlines have "virtually unlimited resources" for lobbying and influencing public opinion. Even while bemoaning airlines' profitability problems, he carps throughout the book about their significant productivity gains in recent decades, thanks to technology (online booking, check-in kiosks), outsourcing of various functions to lower-cost providers, and unbundling of pricing (the separation of cost components like meals, luggage, and early check-in).
McGee also makes the mistake of treating "the airlines" (or at least those flying nationally) as a homogenous group, ignoring major differences between the legacy carriers that have merged into a handful of megacarriers and their more nimble competitors—not just Southwest and JetBlue, but Alaska, Allegiant, Hawaiian, Spirit, and Virgin America. Each of the latter has pioneered a unique business model, carving out its own market niche (or niches). Allegiant, for example, is a travel company that includes an airline focused on leisure travelers who live in secondary markets (such as Bellingham, Washington) and want to go to resorts in Florida, Hawaii, and Las Vegas. Hawaiian has evolved from a mostly inter-island carrier to a long-haul trans-Pacific airline, and as Aviation Week recently put it, this kind of "expansion pays off for Hawaiian." But in McGee's world, it's as if these airlines and their market-discovery business plans don't even exist.
When economist Alfred Kahn, with the help of Sen. Ted Kennedy (D-Mass.), brought about airline deregulation in 1978, many (myself included) warned that after 40-odd years as a heavily regulated cartel, the legacy airlines would have great difficulty adjusting to free competition. And so they did. Most of the old names—Braniff, Eastern, National, Northwest, Pan American, and TWA—went under, but commercial aviation boomed, with competition producing lower fares that saved passengers tens of billions of dollars per year. The few legacy carriers that remain standing—American, Delta, United/Continental, and US Airways—have all gone through bankruptcy proceedings.
Yet air travel and the airline industry is far bigger today than in 1978, with 3.6 times as many annual passenger miles. That is due mainly to the long-term decline in airfares brought about by deregulation. Adjusted for inflation, the average domestic round-trip ticket cost $578 in 1979, compared with $322 in 2009 (and a bit higher last year). You won't find those figures in Attention All Passengers.
McGee's most troubling claim is that air safety is at risk. He blames two factors: the shift of more than 50 percent of all departures from major airlines to regional carriers (typically operating small regional jets or turboprops) and the large-scale outsourcing of aircraft and engine maintenance.
As is typical of consumer reporters, McGee presents mostly anecdotes, not data, to suggest that much of outsourced maintenance is performed by unqualified and poorly regulated repair businesses. He says "much" of this work is done "outside the United States in developing countries, in El Salvador, in Mexico, China, Singapore." Yet according to the Department of Transportation inspector general's report that McGee cites, 661 of 907 repair stations used by U.S. airlines are in the United States, and another 69 are in Canada; a large (unspecified) number are in Europe; and fewer than 200 are in Central America or Asia. The maintenance, repair, and overhaul industry is global and generally well respected, but you'd never know this from the book's anecdotes.
McGee relays complaints from Federal Aviation Administration safety inspectors that they don't have ready access to overseas repair stations. In some cases, that may be true. But he ignores the fact that several other levels of oversight exist.
First, by law, the airlines are responsible for the airworthiness of their fleets, and proper maintenance is a precondition for airworthiness. Airlines conduct regular maintenance audits of their contractors, including on-site visits. In many cases they have on-site employees overseeing their contractors' work. Not a word about any of this appears in Attention All Passengers.
McGee also tries to frighten readers by suggesting that planes overhauled at Chinese repair stations get put back into passenger service without being tested, although the planes' cockpit crews must fly them back to the United States. Later in the book, he concedes this point by citing critical entries that Northwest pilots made in their maintenance log book on such a return flight.
Ultimately, the proof of McGee's safety allegations should show up in airline accident records. While he never provides such data, I dug into the National Transportation Safety Board's accident database and retrieved airline safety data going back to 1947, tracking fatal accidents in absolute numbers, per million miles flown, and per million aircraft departures. (Since fatal accidents were rather rare events even in the early post?World War II years, trends are more easily seen by using 10-year averages.) Both before and after deregulation, fatalities per mile and per flight have steadily declined. (See chart.) Aviation safety was improving prior to deregulation and has continued to improve since then.
Some advocates of reregulation argue that the fatal accident rate per million passenger miles disguises what's happening with regional airlines, since the major airlines fly the vast majority of all miles. That's why I included the rate based on aircraft departures, since regional carriers make a bit more than 50 percent of all departures. And during the most recent decade, when the growth of regional airlines reached its highest rate ever, safety continued improving.
Since McGee's lament about the decimation of airline employment due to outsourcing is equally data-free, I obtained numbers from the airline trade group Airlines for America on total U.S. airline employment from 1971 to the present. From 1971 to 1978, airline employment grew slowly, from 284,000 to 313,000. And then it took off, reaching 406,000 by 1988 and an all-time peak of 547,000 in 2000, 74 percent higher than in the year of deregulation. Since then, however, the twin shocks of 9/11 and much higher fuel prices have led to airline cost cutting and outsourcing, resulting in 386,000 employees as of 2011. So McGee is right about recent job shrinkage, but today's number is still 23 percent higher than when airlines were deregulated in 1978.
McGee was a guest recently on NPR's Diane Rehm Show, along with "Ask the Pilot" columnist John Cox and Air Line Pilots Association President Lee Moak. Cox and Moak dismissed McGee's safety scaremongering as groundless. As Cox put it, "Those of us that are involved in airline safety, we're looking at this data for trends all the time, and the safety has gotten better." Washington Post transportation reporter Ashley Halsey III added, "Lee's pilots would be complaining, loudly and very publicly, if they felt that they were being given substandard equipment."
Unleashing competition on an industry that had been in a regulatory straitjacket for four decades was bound to lead to "creative destruction." Tools such as outsourcing, automation, and creative pricing are all part of the discovery process as airlines seek viable business models for a sector that was badly in need of fundamental change. More evolution is likely (and necessary) in coming years, but so far three decades of deregulation have served airline customers well.
