The headlines say it all -- the airlines are in trouble. United and US Airways are in Chapter 11 bankruptcy, their long-term survival in question. American is said to have hired bankruptcy lawyers. The major "network" (as opposed to low-cost, "point-to-point") carriers are reporting record, or near-record, losses, and several have asked their employees for deep concessions. Discussions about federal cash assistance and loan guarantees have been in the air since Sept. 11, 2001. Even Southwest, the only major airline to avoid losses after the attacks, has warned that it could dip into the red for the first time this quarter.
There has been no shortage of ideas about how to get the industry back on its feet, including some expressed quite eloquently at recent congressional hearings: Have the government intervene to strengthen the industry's finances. Ease restrictions on the federal airline loan guarantee program. Push for re-regulation of selected routes and fares. Seek to legislate a change of balance between labor and management. And lawmakers are reconsidering the effect of federal fees and charges, particularly those imposed to pay for increased security.
With the spotlight focused so intensely on the industry's problems, you might be tempted to think of this as a new situation. Take it from us, it isn't. As chairman and executive director, respectively, of the National Commission to Ensure a Strong Competitive Airline Industry, created by Congress in 1993, we find ourselves experiencing an alarming sense of deja vu. What worries us is this: If we've been here before, what's to stop us from being here again in 2013?
A decade ago, the headlines were eerily similar to today's. Continental, TWA and America West were in Chapter 11. Northwest had its Chapter 11 paperwork nearly ready. Pan Am, Eastern and Braniff had been liquidated. Over a four-year period, the airlines had lost more money than they had made since the Wright brothers first took to the skies in 1903. Congress worried about reduced competition and loss of service. Even the reasons commonly cited for the industry's present troubles echo the news of the early '90s: fear of terrorism, war with Iraq, a slow recovery from recession, and high industry costs and debt. Furthermore, many of the solutions being proposed today are the very ones that were floated back then: loan guarantees or other direct federal cash assistance, re-regulation of some routes and fares, altering the balance between labor and management, and addressing the cumulative effect of federal fees and charges. The plot was the same; only the players have changed.
It was precisely because the problems of a decade ago were so troubling, the proposed solutions so numerous and the perceived need for quick action so stark that Congress decided to give the National Airline Commission, as it was soon dubbed, just 90 days to do its work. During that period, we met 18 times and heard 150 witnesses. And at the end of it, we issued a report containing 61 solid policy recommendations.
Why, given this coordinated bipartisan effort, does the industry still find itself beset by the very problems our recommendations were designed to address?
The answer starts with the fact that few of our recommendations were designed to produce the quick results that Congress, and the airlines, clearly wanted. Yet we had no choice, for what the commission found was an air transportation system that was costly and inefficient -- frankly, broken -- and there was no swift or easy way to fix it.
The industry's metaphorical "assembly line" -- the air traffic control system -- was obsolete. At the same time, its "factory" -- which includes runways, gates, terminals and other infrastructure -- was inadequate to meet rising demand. Growth was stalled across the board, in part because both legal and practical considerations prevented airlines from seeking alternative financing abroad. Finally, the industry was staggering under the burden of federal financial and regulatory requirements that had been imposed haphazardly over time.
Some, if not all, of these problems, of course, stem from the fact that the aviation industry is not monolithic in structure. Airlines are operated independently of airports, which are themselves independent of air traffic control. And, as the commission noted a decade ago, "in the history of American business, there has never been a major commercial industry whose minute-by-minute operating capacity was capped by the daily operating efficiency of the federal government -- except the airlines." There are good reasons to preserve this complex structure, safety being by far the most important. The snag -- and the challenge -- is that the tensions it entails lead too often to inefficiency, miscommunication and failures of accountability.
Of necessity, the commission's focus was on long-term structural changes designed to address the industry's problems within this constraint. But, as fate would have it, a recovering economy, combined with operational changes by the carriers themselves, turned the airlines' fortunes around for a few years. By 1995, total industry profits exceeded $2 billion; by 1997 they topped $4 billion. Traffic was growing, with the total number of passengers rising from 473 million in 1992 to 660 million in 2000, the peak year to date.
The '90s boom eliminated the pressure to implement long-term changes. Why take on the political fights when the growing economy seemed to be "solving" the airlines' problems? Government and industry alike simply lost interest. It seemed as if the good times would never end. But they did.
It is tempting to blame Sept. 11 for the airlines' current difficulties, and the aftereffects of that day did exacerbate them enormously. Many people were reluctant to fly, and some of them may have decided to stick with the alternatives -- train travel, for example -- that they had turned to. But the problems had actually begun to resurface much earlier. The airline industry's growth turned out to be as unsustainable as that of the stock market's technology sector.
One sign was the fact that industry profits in 2000 were approximately half what they had been the previous year. Another was the massive gridlock of 2000. News reports were filled with stories about flights delayed and canceled. Members of Congress were actively discussing legislative attempts to force airports to build more runways. It was too little, too late. Passenger levels had soared far beyond the capacity of the system's infrastructure, forcing travelers to search for alternatives to the increasing hassle of air travel and giving new meaning to Yogi Berra's quip, "No one goes there anymore, it's too crowded." In short, the airlines' "assembly line" had begun to break down. And of course, the economy had started to contract. Systemic problems were thus dragging the industry down well before September 2001.
What can be done? Do we need another commission? More study? New recommendations?
The answer must be no, for the solutions needed today are the ones recommended 10 years ago -- and then largely ignored. Now is not the time for the policy equivalent of Botox injections to smooth out the wrinkles until the economy improves again. It is time, finally, to fix air transportation's long-term, systemic shortcomings. Here is what it will take:
* The federal air traffic control system needs a stable, predictable stream of revenue, that can be used for operations, maintenance and long-term capital investments. This should include access to the bond markets to finance up-to-date technology. Currently, air traffic control improvements are largely dependent on the unpredictable and highly political federal budgetary process, a process that will become even more unpredictable in this period of recurring deficits. Under such conditions, it is impossible to plan ahead. The system will be at riskunless changes are made.
* Airport infrastructure must be expanded so that planes can move on time and passengers are not unnecessarily stranded and delayed. Airport capacity was inadequate in 1993. The FAA predicts that by 2013 the airlines will carry nearly 1 billion passengers a year, double the number of 10 years ago, yet since 1993 only six runways have been added at large hub airports. Ominously, it can take 10 years to build one.
* Laws and rules on investment in the airline industry must be liberalized to give the airlines access to global capital markets, and vice versa. Cross-border investment is allowed in a range of industries, including those deemed critical to national security, but is severely restricted for airlines. They therefore lack the financial flexibility of other businesses to reorder their operations when needed, forcing undue reliance on government and the acquiescence of labor.
* Airlines must be freed from the shackles of government-to-government air service agreements, which limit where and when they can fly.
* The financial burden imposed on the industry and its customers by government-mandated fees and charges must be reexamined. The burden was considerable in 1993, and it has grown significantly since then, in part as a result of the new security rules. Some charges, such as airport improvements, should be borne by users of the system. But others, such as those affecting security, are the legitimate responsibility of the federal government and should be funded through general revenues.
Sometime in the next few years, an improving economy will doubtless push some struggling carriers into profitability. We might be fooled into thinking that everything is okay. But that would be an illusion, just as it was 10 years ago.