The following is an item from Aviation Week & Space Technology 3 Oct 2005 which I think germane to the discussion.
“ENDANGERED SPECIES by PIERRE SPARACO
Europe’s financial analysts and aviation experts are increasingly puzzled by the U.S. airline industry’s dire straits. They don’t understand why legacy carriers can’t adapt to a new environment, maintain workable yields and restore profitability. Moreover, Europeans are concerned to see icons like Delta Air Lines lengthening the list of airlines operating under Chapter 11 protection.
The U.S. carriers that paved the way for mature air transportation were long admired in Europe. In the aftermath of World War 11, all European flag carriers dreamed about evolving into highly respected players like Juan Trippe’s Pan American World Airways. Tiny operators tried hard to replicate Pacific Southwest Airline’s Californian success story under Kenneth Friedkins’s leadership. In the same vein, Europeans familiar with the so-called northeast corridor were impressed by Eastern Airlines’ shuttle, the ultimate progress in shorthaul travel. Much later Air Inter and British Airways adopted the same path on their busiest domestic routes.
Today, however, the unthinkable is happening and Europeans are perplexed by the course of events. U.S. rules of the game provide significantly greater freedom of action than in other regions of the world, especially Europe. Jobs can be cut as needed in the absence of political interference, labour costs are lower in the U.S. than in Europe (including pension programs) and enthusiasm for the French born shortened work week has not yet crossed the Atlantic.
U.S. carriers are currently expected to post a combined $8 – 10 billion in losses this year. High fuel prices are further worsening the outlook, as is increasingly painful air traffic congestion.
Are U.S. majors an endangered species? Are we watching them draw near the vanishing point? Since the late 1940s, air transportation’s growth has justified a constant need for additional capacity – fleets expanded and operator’s overall size increased, in accordance with good management practices. Moreover, the U.S. Airline Deregulation Act of 1978 was signed by President Jimmy Carter at the right time to bring down remaining barriers and phase out the economic regulation of the airlines by the Civil Aeronautics Board.
Operating in a nearly ideal context, the U.S. airline industry evolved into a global model and inexhaustible source of inspiration. Deregulation, initially a strictly American way of running air transportation, soon extended to the rest of the world, including the long-reluctant European Union.
Now, in sharp contrast to such great achievements, the emerging feeling is that we are, perhaps, waking up from an American dream. However, the economic reality we are facing is, as always, complex.
The airline industry, in the U.S. and elsewhere, is not and has never been consistently profitable. Costs are high and revenues usually too low, while all players suffer the effects of factors such as economic downturns, political crises and oil shocks. Giovanni Bisignani, the International Air Transport Assn.’s chief executive, likes to stress that losses in the last few years have far exceeded profits accumulated since the Wright brother’s first flight. And he is not overstating the case.
Today, however, most experts unconsciously adopt the narrow view and display a surprising lack of memory. Furthermore, the emergence of low-fare carriers in a deregulated market has exacerbated the major’s difficulties, but wakeup calls, such as Pam Am’s dramatic liquidation in 1991, have gone unheeded.
In 1993, Robert Crandall, then American Airline’s CEO, said “There is no secret about how bad the airline business is, very bad indeed. The idea that American Airlines could ultimately disappear is no longer (far -) fetched.” He made this pessimistic statement in an era when Southwest Airlines was still one of a kind, long before the appearance of aggressive new entrants like Jet-Blue Airways.
An unemotional top-to-bottom review of the airline industry could well show that the Europeans are proving more resilient because they had the opportunity to monitor U.S. experiments and developments, and so could avoid repeating the errors of Pan Am and its peers. For example, Air France-KLM is now the biggest carrier in the world and achieves superior profitability despite the low-fare carriers’ irresistible growth.
Of course, Europe is not without its lame ducks, such as Alitalia and Olympic Airlines. EasyJet, Ryanair and their imitators in the last 10 years have made forecasts obsolete, reminding us that the future in unpredictable. But that’s no consolation.
Indeed, sooner or later, a reality check will be needed. It is ironic to see that Europeans – including former flag carriers – are now largely employing the corporate structure that U.S. airlines used for decades. If the U.S. model doesn’t survive in an evolving environment, European carriers could eventually find themselves at the same crossroad.”