Deregulation and the Airlines

Back in February, Continental Connection Flight 3407 crashed outside Buffalo, NY last February killing all on board. Preliminary reports indicate the two pilots were relatively inexperienced and failed to realize how dangerous flight conditions had become.

The crash brought to light how little new pilots are paid, especially those who fly for commuter airlines. It has been the practice for major airlines to pay new pilots very little for the first three years. The thinking for the major airlines was to screen out new pilots that wanted the glamour but did not want to put in the long hours.

Smaller carriers do not have large operating budgets to attract pilots with high-hours. Newer pilots needing flight time usually look to getting on with a commuter airline and working their way up to the majors.

Deregulation brought about some unintended consequences. Instead of creating more competition, deregulation created opportunity for certain carriers to buy up their competition. (The same argument had been made for the break up of Standard Oil. Seven new oil companies were created only to form back together again under BP and Shell.)

The legacy carriers, in buying up their competition, did not reduce competition as much as they added to their debt. The legacy carriers failed to see the consequences of increasing their debt in the face of an aging workforce. As pilots, flight attendants and other personnel received pay increases or retired, the airlines saw more of their profits going into benefits rather than operations. In-flight services were first cut then eliminated. Routes were scaled back opening more opportunities for start-up carriers and commuter airlines creating a whole new set of competitors.

The addition of these newer, cheaper airlines meant the legacy carriers had to lower their airfares in order to remain competitive. Keeping fares low was good for the consumer but caused the airlines to operate on slimmer profit margins. Spikes in fuel or maintenance costs could not be quickly absorbed without shutting down routes or laying off employees.

The smaller carriers faced the same issues but with slightly different consequences. Taking over less profitable routes from the major carriers meant more business but they did not have the large operating budgets to pay their personnel competitive wages. Younger, less experienced personnel would have to be hired to fill positions. As the personnel became more experienced, they would inevitable apply to one of the major carriers in hopes of making better wages.

Smaller carriers were not immune to higher fuel costs, higher maintenance costs, or increase gate fees at airports. This meant smaller profits for these carriers that in turn were limited to how much they could offer their personnel in wages. Increasing wages and benefits in an industry with narrow profit margins means something else has to be eliminated. In flight meals were eliminated. Ticket kiosks replaced counter personnel. Checked bags are now routinely charged. Carry-on bags are probably next.

If we want to really address the cause of the crash, we need to look beyond just the aircrew and what is going on in the airline industry as a whole. The industry needs to be seriously revamped or we will continue to see more accidents.