Continental Airlines, the nation's eighth-largest, went belly-up the other day, the second major airline bankruptcy since Congress deregulated the industry in 1978. Labor unions charge that Continental is using the bankruptcy technique to bust the union contract.
Continental is not the only passenger carrier in trouble. Last week, Eastern Airlines appealed to its 37,500 employees to take a pay cut, part of an effort to slim spending by $300 million in 1984. Eastern boss Frank Borman, the former astronaut, is clearly eyeing Continental's initiative of using the courts to force lower pay scales for pilots and all other employees.
Western Airlines, also seeking to control costs, is trying to get wage concessions by turning over 25 percent of the ownership of the company to employees. The list grows day by day.
Why are the skies so unfriendly to commercial aviation at a time when the economy seems to be recovering? Only three of the 10 top carriers in the nation are reported to be showing a profit.
The answer, as this reporter has suggested on other occasions, is the predatory, cutthroat competition that was encouraged by over-eager deregulators, committed to Adam Smith but ignorant of what goes on in the real world.
When critics cited not only the rash of bankruptcies but the fact that many smaller communities no longer have adequate airline service, deregulators such as former CAB chairman Alfred Kahn shrugged it off: "That's the way the enterprise system works," Kahn says.
In a timely analysis to be published later this year in the Transportation Law Journal, Denver professor Paul Stephen Dempsey demonstrates that the nation was sold a bill of goods by deregulation zealots in the Carter administration. And the failed ideology hasn't been challenged by the Reagan administration.
"Deregulation was portrayed as offering Americans the best of all possible worlds," Dempsey says. The chief villain appears to be Kahn, named by Carter to be chairman of the Civil Aeronautics Board, but he had plenty of support from such liberals as Sen. Ted Kennedy. Kahn, who takes free-market philosophy quite literally, lowered entry barriers into the air passenger business, to encourage vigorous price competition.
With help from Kennedy and others, Carter and Kahn got the Air Cargo Deregulation Act of 1977 and the Airline Deregulation Act of 1978 through Congress. Motor-carrier deregulation was established in 1980, and rules covering railroads were liberalized with the Staggers Rail Act in 1980.
In addition to saving consumers $8 billion, airline deregulation was to have other benefits: the industry would become more efficient without the intrusion of those pesky Washington bureaucrats.
When deregulation opponents warned that under an emasculated CAB the carriers could adopt whatever route and market practices they chose, pulling out of many small- and medium-sized markets, the free-marketeers were not impressed. When it was pointed out that fare "wars" create an unfair price structure, with passengers forced to pay much more to fly shorter distances than longer ones, the deregulators brushed off an economic contradiction for which there is no logical explanation.
"To (these) arguments," Dempsey says, "they told us this was the way the invisible hand of the marketplace worked."
But as airline service deteriorated under deregulation, did the surviving deregulated airlines make money? Dempsey takes a look at the record: over the past three years, the airline industry has suffered operating losses of more than $1 million a day, or nearly $2 billion overall. The industry's debt has ballooned to 70 percent of capital.
Since the passage of the Airline Deregulation Act of 1978, Continental, Air New England, Braniff, El Al, Laker and 15 other carriers have gone bankrupt. Those in trouble from time to time, apart from those mentioned above, include Pan Am, Air Florida, Republic and World. A normally healthy operation like Delta in 1982 suffered its first deficit in 36 years.
In a way, the airlines are in a position analogous to the Third World countries: if the banks holding their long-term debt (which Dempsey estimates at $10.1 billion for the biggest 16 carriers) demanded timely payment, even more of them would join Continental in bankruptcy court.
Thomas G. Plaskett, vice president of American Airlines, sums it up well: "Deregulation has encouraged the concentration of services on major, dense routes, and this has led to excessive, destructive competition and overcapacity. . . . We find it difficult to reconcile such destructive competition with the overall public interest."
There's the key phrase--the public interest. Transportation is not just any old business. Basically, it's a public utility, which has to be regulated in the public interest. It's time to re-regulate the airlines.