When the commission set to work in May, its agenda was loaded with proposals to protect airlines from each other and themselves. One, backed by American Airlines chairman Robert Crandall, would have made it harder for troubled carriers to offer low fares while in bankruptcy proceedings. Another, pushed by New York financier Felix Rohatyn, a commission member, would have created a federal committee to judge whether an airline’s business strategy was sound and whether it was taking on too much debt. A third would have given airlines a generous tax credit for new planes and new engines. By the end of last week, all of those ideas were off the table. What’s left? A suggestion for the government to negotiate international air rights with groups of countries rather than bilaterally, and a proposal to make the air-traffic-control system more efficient by moving it from the Federal Aviation Administration into a new entity not bound by government personnel and procurement rules. Don’t expect much soon on either front: rearranging international negotiations will take years, and Congress is so tired of debating FAA reorganization schemes that Ernest Hollings, chairman of the Senate Commerce Committee, had warned the commission beforehand not to propose it.
So why aren’t airline executives screaming about the commission’s shortcomings? One reason may be that many of them were tied up last week in Galveston, Texas, where a federal jury is hearing allegations by Continental Airlines and Northwest Airlines that American slashed fares to unprofitable levels to drive them out of business. But a more significant cause of the industry’s quiet is that it’s finally focusing on the real threat to its future. A recent Department of Transportation study puts a name on the problem: Southwest Airlines.
Southwest, long a regional carrier, has lately hulled its way into cities from Baltimore to San Jose, Calif. Although its work force is unionized, Southwest operates far more efficiently than the competition; according to consultants Morten Beyer and Associates, it gets far more flight time from its pilots than American–672 hours a year versus 371–and racks up 60 percent more passenger miles per flight attendant. That helped it turn a profit last year while the rest of the industry lost $4 billion. Wherever it flies, it has driven fares down and forced higher-cost carriers to retreat. “That airline is having an impact that the vast majority of people do not appreciate, including people in the airline industry,” says Patrick Murphy, the DOT’s chief airline overseer.
The giants are finally starting to take notice. In early July, competitor Northwest, teetering on the brink of bankruptcy, persuaded pilots’ and machinists’ union leaders to accept wage cuts of up to 15 percent in return for seats on the board and 37.5 percent of the company’s stock. Trans World Airlines has struck a similar deal with its unions, pending bankruptcy-court approval. Last Wednesday, chief financial officer Michael Durham said that American, too, would consider giving employees a stake in return for lower costs. Unless expenses drop, he warned, “a larger and larger percent of our industry is going to be operated by low-cost carriers.”
Reducing labor costs won’t eliminate all of the big carriers’ disadvantage; heavy spending on new planes and terminals during the late 1980s has left most of them loaded down with debt. But lower expenses will leave room for lower fares and still allow for profits. Southwest has shown that bargain prices can draw huge numbers of travelers from their cars. If other carriers can do the same without going broke, they will save far more airline jobs than anything Clinton’s commission could recommend.
