Alfred Kahn, considered the father of airline deregulation, says industry giants must adjust to keep up with low-fare carriers such as JetBlue and Southwest.
By STEVE HUETTEL
Published September 20, 2004
Longtime airline employees blame him for the sad state of their business. Though many don't know his name, travelers who love their cheap tickets on discounters such as JetBlue owe him a tip of the hat.
Alfred E. Kahn is widely credited as the father of airline deregulation. As head of the federal Civil Aeronautics Board, he led the push to end decades of government control over where airlines flew, who could compete and how much passengers paid.
The change opened the door to new startup carriers such as People's Express. Deregulation also sparked such innovations as connecting hubs, where airlines collect passengers from far-flung locations and send them to destinations around the world.
There also has been severe turbulence in the industry since Congress passed the Airline Deregulation Act of 1978. The volatile competitive landscape helped doom major carriers like Eastern and Pan Am. United Airlines and US Airways are now in bankruptcy, with more likely to follow.
Kahn, 86, has retired as a Cornell University economics professor but stays busy writing about airline and telecommunications issues. He talked with the St. Petersburg Times on Friday about the shaky condition of traditional airlines and the impact of deregulation.
Q. What's the short story of how the airline business has changed since deregulation?
It could be summarized as the widespread adoption of the hub-and-spoke operation . . . and the ability to maintain those operations (with fewer passengers) in the face of the recession, 9/11 and the Iraq war with great competition from the low-cost, point-to-point carriers.
The hub and spoke (brought) enormous benefit, not only increased convenience to get anywhere in the world, but convenient service for business travelers to go to a nearby city with a choice of flights in the morning and a choice of flights in the evening.
The advantages in the first 10 or 20 years seemed so great that every one of the carriers who came in to challenge the majors went bankrupt.
We began to worry that the country would be dominated by three to five carriers. These carriers came to dominate hubs with wonderful service, but people would pay a real premium for that wonderful service.
Then, Southwest began to come into various markets. Not directly - in Baltimore rather than Washington, in Providence rather than Boston. At the cost of inconvenience to people but with extraordinary low fares.
They began to take real market share away from the majors, which had to raise fares more and more on the business travelers to where it became really ridiculous. Then there was this falling off of traffic. And we began to fear for the survival of the hub carriers.
Q. What will be the result for traditional hub airlines?
Some of the majors saw the writing on the wall and began to form alliances. One predictable outcome is there will be some reduction in the number of hub carriers. Bankruptcy enables hub carriers to tear up their labor contracts and force concessions from (employees).
Q. What airlines do you like?
I've been on JetBlue and it's a wonderful flying experience. The planes are great, the TV and service is great, and the fares are incredibly low. They're no more congested than at airports anywhere else. I like it, other than the fact I've got to drive (50 miles) to Syracuse.
Q. US Airways is the only airline serving your hometown of Ithaca, N.Y. Will you be sorry if the carrier goes under?
Of course I'll be sorry for human reasons and also because of the good service I've been getting. They invited me to talk to them after deregulation, and I tried to explain to them what the opportunities were and the risks.
On the other hand, I was brought up to be economical. I went to testify in Washington and the round-trip fare was $750. I like them, but I'm not insane.
Q. Hasn't deregulation made the industry more susceptible to huge losses during economic downturns? Was the change worth it?
The industry has always been cyclically sensitive. Except the last few years have been much more catastrophic.
But there's also been important increases in efficiencies made possible by heavy discounting. There have been billions and billions in benefits (from lower fares) to modest-income people.
Q. But hasn't there been a cost to airline employees who lost jobs or saw their pay and benefits cut?
Under regulation, the airlines themselves on average were less profitable than most industries. Much of their monopoly profits went to (high salaries for) pilots and machinists. In human terms, it's hard on them.
Q. What advice would you give to people in the airline business?
The airline industry for most people in the business was a great romance. My message is it's not a romance anymore. It's a business and should be subject to the same economic pressures as any other industry. It should be an industry in which people can invest and make money by being innovative and cost-conscious like Southwest.
