That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits. My understanding is that before regulation, routes were allotted by the government. So an airline might own New York to Boston, so they didn't have to compete. Obviously de-regulation changed that.
The article doesn't go into it, but unions are also a challenge. Much of the airline industry is unionized. So you have situations where pilots that have been there a while get a lot more money. You have people doing essentially the same job but some are getting paid 3x as much just because they've been there a long time. In most industries, there is higher pay for senior talent, but that's because they're more effective at their job, and produce higher output. In this case it's just a legacy cost that makes some airlines incredibly uncompetitive through structural features.
All US airlines have the same labor costs for pilots and it isn't their highest cost anyway. That would be fuel.
If you want to divvy up costs that way: Boeing is probably the biggest problem. Both them and Airbus eat up all possible excess profit on the back end via the cost for airliners. Break up Boeing, bring back competition in airliner manufacturing. People who want to screw over labor don't usually frame things in those terms for some reason.
FWIW I'm not interested in flying commercial with non-union pilots so that airlines can become cheap labor body shops.
I'm also not interested in saving money by having Boeing outsource to kick as many people out of their machinist union as they can (and screw those people out of retirement and healthcare benefits).
I got my pilot certificate last year (zero plans to go ATP/commercial). Its a lot of work. Then you've got years of getting paid pennies to earn your 1500 hour ATP. Then you've got more years of taking the crap routes and not making super dollars. Much like a doctor its after you've put in 10-15 years that it starts really paying off.
The union also protects pilots from blame culture and trying to game metrics. If it isn't based on seniority then what metrics do you use? And do you want pilots to start making flying decisions based on on-time percentage instead of safety?
If your business needs to screw over labor to survive you don't have a worthwhile business.
That's because this assertion is economically illiterate. Deregulation can lead to increased profits where otherwise companies have monopoly power. But often, the regulation was there in the first place to ensure that companies had sufficient profit to invest in expensive infrastructure. (E.g. railroads).
And, at the time, they needed a lot of rail across huge distances. The transcontinental rail lines were hugely expensive and had immense amounts of graft involved in every step of their construction, but they got built. Also enabled the crushing of Native Americans, which was a usually-somewhat-tacit (though sometimes very explicit) goal in Washington.
I mean, they are still regulated, and they still have to go through regulators to abandon a line (IIUC), but it's much faster than it was.
Same thing happens in law, investment banking, etc... the hardest workers are often the youngest and least-paid. They do it because they know big money may come later.
It really depends on the market. In a potentially competitive market, deregulation can work as a function to drive down margins.
Air travel is such a market. Prior to deregulation, routes were set by government action and competition was limited. With deregulation, it's not that hard to setup a commercial scheduled airline, and new airlines popup relatively frequently to address routes where there is margin. It doesn't take that much capital to start an airline; you can lease the aircraft and contract out maintenance (might be part of the lease) and start with a single round trip per day. You don't need to start with a big network or a lot of aircraft. It's not so easy to get slots at busy airports, but you don't have to start there either.
Where deregulation ends up leading to outsized profits is where the market leads to natural monopoly and regulation provides an upper bound on margin, rather than a lower bound. Things like last mile utilities, where it's difficult to run multiple networks in the same space: ex water, sewage, electricity, telecom. In situations like that, to promote competition you want to do regulated unbundling, so there's one organization that runs the last mile and choices for service over the last mile: ex you pay the last mile for delivery of water per acre foot and also your water supplier who must deliver the same number of acre feet to the water network. (or probably a little more, water networks have shrinkage)
Sometimes it does and sometimes it doesn't. It depends on the industry, as the article goes into detail to explain.
I've held the belief that an occasional bankruptcy is basically a sign of healthy competition within an industry: those companies going down literally didn't know how to be any more efficient or they could've survived.
Regarding airline business, a crapload of more people are flying now with better prices than before the industry was deregulated. Sure it must hurt someone at one end, eventually. Part of the business is standing through price wars because someone will always lose: the best companies can endure that. While airline industry probably fluctuates as described in the article there are plenty of other cyclic industries. Churn itself isn't anything new.
> Labor costs might seem variable, but they’re actually not: pilot, flight attendant, and mechanic compensation in the United States is governed by the Railway Labor Act of 1926 (which was extended to airlines in 1936), which stipulates that collective bargaining agreements don’t actually expire but rather remain in force until they’re replaced. So even your wage bill is more or less fixed over multi-year horizons.
> Chapter 11 bankruptcy protection—which allows a company to continue operating while it restructures its debts under court supervision—is practically the only mechanism by which an airline can renegotiate its rigid cost structure, from aircraft leases to collective bargaining agreements. Oftentimes this renegotiation takes on a rather predatory character. When United Airlines filed for bankruptcy in 2002 in the aftermath of the September 11th attacks, it terminated its pension plan...
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole. For airlines, bankruptcy rarely culminates with liquidation; airlines that emerge from bankruptcy proceedings, having voided pension obligations and rejected aircraft leases, can operate at a fundamentally lower cost basis than their competitors. So bankruptcy doesn’t really restore the industry to a competitive equilibrium that can cover the cost of capital: it resets the floor at a lower level, from which a new round of ruinous competition can begin.
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole
The American founders writing a uniform federal system of bankruptcy was a stroke of genius that's been paying dividends for 250 years now.
There are a lot more points on the "how does your system respond to business failure" spectrum besides low-consequence ch11/better-luck-next-time and debtors' prison.
Can you please expand? This is an expansive claim.
I have no reason to prefer it anymore other than if it’s the best on route and price. After all, it’s undifferentiated now.
Thing is, buying miles is normally a really poor use of your money, because the redemption rate isn’t great, and airlines devalue miles all the time. For example, the lowest option at delta is to buy 2000 miles for $70. That’s 3.5 cents per mile, but you can only expect to get a value of 1.25 cents per mile when you redeem them. Which only comes out to $25 in value, loosing you $45 — and that’s assuming you wait to spend miles for a good deal. (Redemption rate is worse during more popular flights.)
Airline miles are just not worth much, which is why people chase like hundreds of thousands of miles at a time through credit card sign up bonuses.
Edit: I thought I recognized your name, I see we discussed pilot unions together on HN a few years back. Can I ask what you have against us? Out of genuine curiosity.
I’m very thankful for the stability and opportunities being a union member has provided my family since I left the tech field, and I wish my friends still in tech could enjoy the same QOL rather than all of us being worse off and upper management being even richer.
Do you realize you are infinitely closer to a pilot than a billionaire or a founder or whomever it is you seem to care more about than working people?
Class consciousness, solidarity, and workers literally fighting and dying earned you an 8 hour day, social security, and all the workplace protections you probably take for granted.
Every pilot I've spoken to is against school teachers unions and yet doesn't realize that pilots are just bus drivers in the sky.
And yes, this does influence me. When a pilot makes $600k/year instead of $300k per year, my ticket price goes up 10%.
I always wondered why airlines were always running bankrupt… Now I know.
