Bankrupt Skies
The Airline Industry is Always Broke
By Daniel Muniz
The airline business always seems to have it
tough when it comes to bankruptcies. And only a few big industries
are as fierce and competitive as the airlines. Consequently, nearly
all the big carriers have either gone broke or are currently broke.
In fact, over 100 airlines have filed for bankruptcy protection
since this business sector was deregulated in 1978.
But is this cruel environment really a bad
thing?
During the old economy of the past, Big
Business, Big Labor, and Big Government were often partners
operating in the vacuum of a monopoly. The consumer had few choices
in general and in particular the government maintained control over
the entire aviation industry from routes to ticket prices. The
Airline Deregulation Act of 1978 changed all of that by allowing
fledgling newcomers to compete directly with the big players.
And unlike hyped up, over-marketed, and
over-priced products like Starbucks Coffee or shoes, consumers in
this industry have shown that they care more about price than about
anything else.
And the bottom line is simple. Getting from point A
to point B can be done with a big carrier or with a young competitor
like JetBlue or Southwest. The result is still the same in which you
arrive at Point B from Point A but the optimal choice can be done at
a much lower price. And for the past couple of decades, the consumer
has chosen the lower price much to the chagrin of the big carriers.
In a free market economy, a company thrives,
survives, or dies. Although the consumer plays a big role in
deciding the outcome, part of the equation still belongs to the
company itself. And as a result of the fierce competition, every
airline has had to find ways to lower its operating costs in order
to achieve the low prices that the consumer craves.
Again, the nimble more responsive smaller
carriers seem have the upper hand over their old economy competitors
especially when it comes to leadership, operating costs, and
purchasing decisions. JetBlue and Southwest are focused in thriving
in this intense environment while the big airlines seem to struggle
with just surviving and looking to the government for
help.
High fuel prices and other circumstances
beyond its control have rocked the industry but the smaller carriers
have done exceptionally well in these adverse conditions. And they
have even increased market share and routes.
Also, an assertion that is often made is that
the legacy airlines are often stuck with most of the older more
experienced employees who have the bigger costs such as higher
salaries and better benefits. This argument is patently false
because in a free market economy, a company is not stuck with
anything. The market decides the value of the employees and it is
free to choose its work force.
Unfortunately, the big monopolized unions from
the old economy have taken away this freedom. They have artificially
inflated these labor costs beyond a true market value due to their
collective bargaining agreements. And these agreements impose
numerous restrictions on what workers can and cannot do during their
workday, thus dwindling down efficiency and greatly and
unnecessarily increasing the size of the work force.
During the golden age of the monopolies of the
old economy such as steel, auto manufacturing, etc, these
restrictions worked because the consumer lived in a protected
economy which competition was not an issue. But in a deregulated
competitive environment with market forces at play, these
restrictions imposed huge burdens, which helped push the older
airlines into bankruptcy.
But is this a bad thing?
It is unfortunate that big companies have to
file for bankruptcy but in the same token, environments and
consumers change. Companies (and unions) who refuse to change and to
adapt to the new market conditions are doomed to failure as has been
evident with the decline of Big Labor as well as the Big Business
from the old economy. Although the government can help bail out the
airlines, I don’t see the need for that especially since discount
carriers like JetBlue and Southwest have already done so well in the
in the post 9/11 market conditions.
Big Business and Big Labor have come to a
grinding halt before and the world didn’t come to an end. In fact,
the consumer came out ahead because better competitors emerged. And
because of our free market society, the focus on the consumer’s need
for low prices is good for the economy.
If more airlines do go under, then so be it.
We need more outfits like JetBlue and Southwest to shake up the
business world, give consumer more choices, and lower prices.
And the consumer doesn't mind.
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