Former American Airlines CEO on the airline mess: "We can't stand much more."


Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An ever higher percentage of bags are lost or misplaced. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.

That grim assessment of the current state of the U.S. airline industry was delivered on Tuesday by one of the travel industry's most respected figures, Bob Crandall, retired chief of American Airlines. (The full text of the speech, delivered at a Wings Club luncheon, is here.)

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There are few who would argue with Crandall's evaluation. But his prescription for curing the industry's problems will surprise those who know Crandall's background and general approach to business matters.

First, contrary to the thinking of most current airline CEOs, Crandall disputes the supposed remedial effects of mergers, as follows:

These days, the solution de jour seems to be mergers, and many voices clamor that consolidation is both inevitable and imperative. In my view, the arguments in favor of consolidation are unpersuasive. Mergers will not lower fuel prices. They will not increase economies of scale for already sizable major airlines. They will require major capital expenditures and are likely to increase labor costs. Finally, they will disadvantage many employees, whose incentive to provide good service will be further reduced.

So, if not through consolidation, how are the airlines to survive and prosper? Here's where Crandall really goes off the reservation.

I feel little need to argue that deregulation has worked poorly in the airline industry. Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment. To put things bluntly, experience has established that market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost and operating problems.

That's right—Bob Crandall is calling for reregulating air travel. It's limited regulation, to be sure. But the fact that a free-market hawk, with impeccable credentials, envisions such a radical solution speaks volumes about the sorry state of air travel, and about how thorough a change in direction is required to restore order to the system.

Modest price regulation, slot controls at congested airports, more stringent standards for new carriers, revised labor laws, amended bankruptcy statutes and a more accommodating stance towards industry collaboration are a far cry from the inclusive regulatory regime of CAB (Civil Aeronautics Board) days. However, these few steps—in my view—would have a dramatic and favorable impact on the financial health of our airlines, the usefulness of our airline system, service levels in the airline business and the welfare of airline employees.

Crandall is anything but a pinko apologist for Big Government. During his tenure at American, he took advantage of the freedom following the Airline Deregulation Act of 1978 to make American the world's largest airline, and an industry leader in many areas. That was the old Bob.

The new Bob apparently now recognizes that the price for that freedom has been too high. "There is an old saying that what can't continue, won't—and it's pretty clear we can't stand much more of what we've had in recent years."

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