How many of you remember the air fare wars of the 1980s when you could fly from New York's 3 big airports to Miami or Ft Lauderdale or Tampa for $79 one-way, and you could fly cross country for $99 with NO advance purchase and NO penalty if you canceled and NO extra charge for a carry-on and you could check at least two bags, AND you got a meal with a real knife and fork, and a blanket and a pillow without paying extra?
Those were the glory days for consumers in the post-deregulation airline era. But it was a disaster for the big carriers such as Eastern and Pan Am and Delta and American and United which faced stiff competition from start ups such as Northeastern and Air Florida (which triggered the air fare wars along the East Coast), and Texas Air and Continental that drove down prices in all markets.
While that competition was good for consumers because of the air fare wars, it was a disaster for many of the traditional "long haul carriers" and big carriers who had big, powerful labor unions and high fixed costs -- they were driven out of business or into restructuring. Eventually many of the "upstart" airlines -- the small, flexible companies that could cut prices because they paid less for flight crews and ground workers -- also were driven out of business when prices got too low.
Now another big airline merger is coming: American Airlines and US Airways and while that might allow these two airlines to better control their operations and costs it also diminishes competition for consumers and is likely to lead to higher prices.
The great air fare wars are behind us. Now instead of an air fare war benefiting consumers, it's more like the airlines making war on the pocketbooks of consumers.
Let's count the airlines that went out of business over the last twenty years and with them took away the competition that used to keep fares low, and triggered those air fare wars.
Eastern Airlines used to flourish before deregulation. But competition killed it because its unions had costs too high. EAL had to "match" the fare cuts created by the upstarts, but each fare cut created more red ink. Colonel Frank Borman -- former US astronaut who orbited the moon and read from the Bible to the world from the spacecraft -- was Chairman of Eastern during those turbulent days. Deregulation and the big fight with the unions over the need for cost-cutting robbed him perhaps of running for President or appointment to a cabinet job.
Pan Am like Eastern was the giant for US international carriers. But it couldn't compete either with passenger revenue dropping.
Air Florida was the #1 upstart that triggered more air fare wars along the east coast than any other. But a horrible crash in Washington DC crippled the airline. I worked at WTVJ in Miami during the 1980s and it seemed like once a week, Air Florida would call to say "we're cutting fares" and reporters like me would get on the phone to call Eastern and Pan Am and Delta and ask "will you match?"
Northeastern was a smaller version of Air Florida and it also triggered air fare wars along the east coast.
Braniff was another victim of the price cutting.
Continental under Frank Lorenzo also cut prices and a bankruptcy at Continental allowed the airline to cancel expensive union contracts, so it survived and even created price cutting.
Capitol, Frontier, Jet Express, Mohawk, National, Ozark were all smaller airlines that got swallowed up in the deregulation.
New York Air was created to be a discount airline and helped to fuel the price cutting frenzy, along with People Express under Texas Air and Frank Lorenzo.
We will probably never see strong competition in the airline industry again. At best, we will have an oligopoly of a few giant companies controlling flight schedules, the number of seats and the prices. There won't be "market conditions" any more, but profit goals that will control and motivate pricing.
Reply With Quote
