In the coming months we’re going to see some interesting consolidation in the airline industry. This consolidation will lead to you having fewer choices, higher prices, and worse service (I know that’s hard to imagine…but it’ll happen).
And it’s all the fault of the Republicans.
Back in 2001-2, post-9/11, every one of the major carriers came a-calling to Congress and lobbying the Prez for “relief” due to financial stress brought about by the terrorist attacks. Always looking for a good excuse to engage in some good ol’ fashioned corporate welfare, our government complied. US Airways was the biggest beneficiary (of many) in an industry that has resorted to bankruptcy as its primary strategic tool. Congress asserted that failing to bailout the airlines with loan guarantees and relaxing of various regs would result in a horrific consolidation that would, in turn, result in the US airline industry going from a handful of carriers to a fingerful of mega-carriers leading to less choice for consumers all because the terrorists killed the air travel industry blahblahblah.
Sounded good but it was total horseshit. Anyone with the ability to read annual reports could see that all the majors were in a consistent decline and had been for years. This decline was brought about by two things…ghastly and totally entrenched and unimaginative management on the part of the majors…and the emergence of low cost carriers like Southwest and AirTran that kicked the shit out of the majors. They kicked the shit the majors because they had to be innovative in marketing, pricing in operations to even have a chance at competing with the existing oligopoly.
And, of course, those august legislators that were the most forceful advocates for bailing out the airlines conveniently ignored the fact that the government, which has to review and approve any such merger, could always shitcan them.
Industry analysts have for years been saying that before the industry can achieve profitability seats have to come off the market. That means that an airline or two has to die. US Air was on the verge of having to liquidate but the government bailout allowed them to go to bankruptcy and, as a result, stay alive. Now, that airline is the primary instigator of the march toward megacarriers as it looks to merge with any of the several bankrupt or near bankrupt airlines (Northwest, Delta, Continental). US Air’s sniffing around at this applies pressure to other majors to do the same thing (yesterday it was reported that United and Continental were in merger talks) thus leading to the very thing Congress said it wanted to avoid.
It is a predictable outcome. The fact that there are newer carriers that have found ways to be profitable tells you that the market, when allowed to work, comes up with a solution. Innovative newcomers figure out new models and thrive. Old dinosaurs adapt or disappear. Republicans, the party of Free Markets, have an enormously difficult time remembering this.
The only thing they got right back then was the assertion that mega-carriers will kill consumer choice, allow horribly run companies to have a competitive advantage, dampen innovation, and keep a moribund industry sector moribund. If, back in the day, we had simply let US Air liquidate and cease to exist (and it had tried very, very hard for many, many years to completely, utterly, thoroughly fail) it is likely that enough seats would have come off the market that we would not now be looking at an airline industry that is a poster child for bad operations and fiscal management. Additional carriers like Northwest and Delta, etc. probably would not have gone bankrupt or teetered on the edge of it.
The moral of this story is let these companies die. New organizations will appear that have come up with better structures and strategies that will allow them to thrive. In an industry in which analysts across the board have been saying that there are simply too many seats available, the best thing you could do for the industry and its consumers is stay the hell out of the way. The weakest player(s) will go under. It ain’t that hard to figure out.
Think about this the next time you hear about Congress getting ready to bail out an industry be it auto, airline, utilities, whatever. It almost never works. The benefits rarely offset the costs.