Later On

A blog written for those whose interests more or less match mine.

Terminal illness: Death throes of American airline service

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I don’t think deregulation really worked out all that well for the airline industry or the public. It may have seemed like a good idea at the time, but now the results are in—and they’re ugly. Philip Longman and Lina Kahn report in the Washington Monthly:

“It was certainly one of the hardest choices that I’ve ever made,” explained Fernando Aguirre. He’d raised his family and built his career in Cincinnati, Ohio, rising through the ranks of the city’s business elite, first as an executive at Procter & Gamble’s headquarters and later as CEO and chairman of Chiquita Brands International. Along the way, he became a fanatical fan and part owner of the Cincinnati Reds baseball team, as well as a proud sponsor of the Chiquita Classic golf tournament, the proceeds from which he poured into local philanthropies.

But last fall, Aguirre confirmed Cincinnati’s worst fears by announcing that he and his company were—very reluctantly—skipping town, and for a reason that cast an even deeper shadow over the city’s economic future. Cincinnati has long been (and for now remains) a major business center, the headquarters of six Fortune 500 companies and fifteen Fortune 1000 companies, including not just household-name producers like Procter & Gamble and Chiquita but also retail giants like Macy’s and the Kroger grocery chain. With a population of 2.1 million, it’s the twenty-seventh-largest metro area in the United States. But running a national, much less international, business out of Cincinnati is becoming more and more problematic for a simple reason: inadequate air service.

As recently as 2004, the Cincinnati/North Kentucky Airport (CVG) was a major hub for Delta, and offered nonstop flights to 129 major cities, including Frankfurt, Amsterdam, London, and Paris. Today, the number of flights through CVG has fallen by two-thirds, and an entire concourse stands eerily empty. At the same time, flights out of the airport have the highest fares in the country. This means that if you live or do business in Cincinnati, it’s hard to fly anywhere without paying a fortune and having to cool your heels for hours while waiting to change planes in a city like Atlanta or Charlotte. And if you’re a global business like Chiquita, which operates in seventy countries and needs to be able to attract global talent, the situation is untenable.

So Aguirre is moving Chiquita’s headquarters to the NASCAR Plaza in uptown Charlotte, just a thirteen-minute drive from that city’s busy international airport. The move will be a boon to Charlotte, creating more than 400 jobs with an average wage of over $100,000. But it will be gut-wrenching for existing employees, as well as for Aguirre personally. He recently had to explain to Charlotte’s local press that he is no fan of NASCAR (“I have never gone to a NASCAR race. I’m sure I will end up going to a few from now on”), and that he still pines for his beloved Reds. But at least he and his employees have had time to prepare themselves mentally. “We’ve been dealing with the logistics of our business and the airport for so long now,” says Aguirre, “that everyone knew that the likelihood of moving was very high. It was just a matter of where and when.”

A generation ago, Aguirre and his employees at Chiquita would not have had to face such a difficult choice. Until 1978, the United States viewed airline service as a “public convenience and necessity,” and used a government agency—the Civil Aeronautics Board, or CAB—to assign routes and set fares. This regulation was designed to ensure that citizens in cities like Cincinnati received service roughly equal, in quality and price, to that provided to other comparably sized communities like Charlotte. The government also made sure that smaller cities maintained vital links to the national air network.

In 1978, however, a group of liberals including Ralph Nader, Ted Kennedy, Kennedy’s then Senate aide Stephen Breyer, and an economist named Alfred Kahn, whom President Jimmy Carter chose to run the CAB, conjured up a plan to drive down the cost of airline fares by fostering more price competition among airlines. Though they called it “deregulation,” the practical effect of eliminating the CAB, especially after subsequent administrations abandoned antitrust enforcement as well, was to shift control of the airline industry from experts answerable to the public to corporate boardrooms and Wall Street.

Over the years, most Americans have adopted a pretty standard line about the results. On the one hand, complaining about the indignities of flying—overbooked, late, or canceled flights; surly flight attendants; and, more recently, terrible in-flight food service and high fees for checked baggage— has become a staple of American life, much like complaining about Internet providers or health insurance companies. On the other hand, we’ve told ourselves, at least the increased competition has made air travel cheaper. And at least most of us can still get where we need to go by air.

But now we find ourselves at a moment when nearly all the promises of the airline deregulators have clearly proved false. If you’re a member of the creative class who rarely does business in the nation’s industrial heartland or visits relatives there, you might not notice the magnitude of economic disruption being caused by lost airline service and skyrocketing fares. But if you are in the business of making and trading stuff beyond derivatives and concepts, you probably have to go to places like Cincinnati, Pittsburgh, Memphis, St. Louis, or Minneapolis, and you know firsthand how hard it has become to do business these days in such major heartland cities, which are increasingly cut off from each other and from the global economy.

And it’s about to get worse. Despite a wave of mergers that is fast concentrating control in the hands of three giant carriers, the industry remains essentially insolvent. Absent any coherent outcry, the directors of these private corporations remain free to respond to the crisis in the manner of an electrical utility company that, when it runs short of money, simply cuts off power to the neighborhoods of its own choosing.

The loss of airline service to rural and remote areas is an old story; by the 1980s, even some state capitals— such as Olympia, Washington; Dover, Delaware; and Salem, Oregon—became places you could no longer fly to except in a private plane. But over the last five years, service to medium-sized airports fell by 18 percent. This latter trend is much more disruptive to the economy, reflecting lost service to important centers of commerce that until recently had major airports but are now isolated—most often due to the frantic pace of airline mergers and downsizing.

St. Louis, for example, . . .

Continue reading.

 

Written by Leisureguy

13 March 2012 at 8:16 am

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