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Survivors of Airline Deregulation Battle Anew for Life

March 31, 1991

WASHINGTON (AP) _ More than a dozen years after deregulation untied U.S. airlines from the apron strings of government, the shellshocked survivors are locked in a bruising battle of weak against strong.

Transportation Secretary Samuel K. Skinner says deregulation was a ″stunning success.″ But others say it created an industry fettered by debt and empty seats and headed toward near monopoly control.

U.S. airlines posted a record $2 billion loss last year, $1.7 million of it in the fourth quarter. Some analysts predict a $1.5 billion loss in the first three months of 1991 alone.

Ticket sales slumped early this year as the recession took hold and consumers put off travel because of fears about Persian Gulf War terrorism. Added to that was a sharp war-related increase in jet fuel costs.

″In the past year the financial condition of the industry has deteriorated to a point where questions are being raised about the survival of all but three or four carriers,″ said Rep. James L. Oberstar, D-Minn., chairman of the House Public Works subcommittee on aviation.

In 1978, 13 major airlines carried 90 percent of all passengers. Their fares and routes were regulated; their profits regular.

The Airline Deregulation Act passed that year, and President Carter promised it would ″lift the heavy hand of government″ from the airline industry.

The goal: Open up competition, reduce fares, attract more passengers, create higher profits.

But heavy flak has torn the once friendly skies.

Of 17 new airlines formed between 1979 and 1985, 14 no longer fly.

Two major airlines, Braniff and Eastern, have shut down in the past year and a half, and several others are operating under protection of federal bankruptcy laws. Among them: Pan Am, once the flagship airline of the United States overseas, and Continental, which had absorbed Texas International, New York Air, Frontier and People’s Express. Continental reported a fourth quarter loss of $2.2 billion, attributing more than half of it to the folding of its sister airline, Eastern.

Just this past Tuesday, Midway Airlines filed for protection from its creditors. The company reported a fourth-quarter loss of $86.1 million.

Meanwhile, TWA has defaulted on $78 million of its debt, and USAir recently laid off 3,585 pilots and other workers on top of last summer’s furlough of 3,600 employees.

All told, 40,000 airline workers have been laid off since August, the Air Transport Association said last week.

Meanwhile, two of the strongest competitors, United and American, are scrambling to buy up the potentially lucrative overseas routes of weaker Pan Am and TWA.

″It is unassailable that the industry was less monopolistic before deregulation than it is today,″ says David Borer, director of collective bargaining for the Association of Flight Attendants.

Despite the economic carnage, there are only a few calls to re-regulate airline routes and prices or to dull the cutting edge of head-to-head competition.

″While far from perfect, no better alternative exists,″ said Charles M. Barclay, vice president of the American Association of Airport Executives.

Still, observers predict the skies may soon be thinned even further. Among those named as probable survivors: United, American and Delta. Northwest says it should be added to the list.

″Three carriers dominating our skies, controlling our airports and dictating their prices to consumers is not what Congress had in mind when it deregulated the airline industry,″ said Sen. John Danforth, D-Mo.

″Deregulation has failed,″ he declared.

Countered Skinner, ″The airline industry’s recent troubles should not be read as an indictment of deregulation.″

Deregulation lowered fares by an average 21 percent, Skinner said, making air travel accessible to millions of low- and middle-income Americans.

But with many airlines in serious financial difficulty, others contend the gains for the public may prove illusory.

The General Accounting Office, the investigative arm of Congress, said significantly higher air fares can be expected as more financially strapped airlines fail.

″The benefits of deregulation could be lost if the industry collapses into a tight oligopoly, controlled by a handful of firms, into which new entry is effectively precluded,″ said Kenneth M. Mead, the GAO’s transportation specialist.

GAO analysts say history has shown that prices rose nearly 9 percent when an air carrier doubled its market share from 10 percent to 20 percent.

The Transportation Department has sought to shore up the finances of troubled airlines by allowing foreign investors to buy up to 49 percent of a carrier’s equity. Northwest, the first to take advantage of the changed policy, recently sold a 49 percent interest to the Dutch airline KLM.

Danforth said he finds the new policy ″hard to swallow.″

But he adds that if the alternative is further bankruptcies, fewer airlines, more job losses and less competition, ″put me in the column with those who say definitely ’maybe.‴

When it comes to assessing responsibility for the industry’s money woes, there is a lot of finger pointing.

The Air Transport Association cites a litany of government policies, among them:

- The Persian Gulf War, including $3 billion in higher jet fuel prices stemming from the Iraqi invasion of Kuwait.

- New airline ticket taxes.

- The cost of enhanced federal security requirements.

- Problems with the air traffic control system.

James E. Landry, the trade association’s vice president and general counsel, said the government failed to meet its responsibilities to increase air space capacity and to ″avoid legislative or regulatory actions that could interfere with the benefits that deregulation has brought to airline consumers.″

Skinner said some airlines never adjusted to the rigors of a free market. Others, he said, took on a debt so excessive they have been unable to service it in a slow economy.

But Skinner also blamed unions for adding to the burden through spiraling labor costs.

The unions, decrying Skinner’s alleged ″anti-worker, anti-union″ sentiment, said the most successful airlines have the highest labor costs, while the weakest have the lowest.

They blame deregulation itself.

″The deregulated era has been an era of wild swings between profit and loss, with mergers and bankruptcies becoming the norm,″ said Susan Bianchi- Sand, president of the Association of Flight Attendants.

Randolph Babbitt, president of the Airline Pilots Association, agreed.

″Dozens of airline bankruptcies, a deterioration of service quality and tens of thousands of jobs lost, just to name a few of the consequences of deregulation, do not add up to a ’stunning success,‴ he said.

John J. Peterpaul, vice president of the International Association of Machinists and Aerospace Workers, goes further: ″We need a degree of re- regulation and we need it immediately.″

Peterpaul said a new federal agency is needed ″to assure that we maintain our domestic airline capability and protect consumers and employees.″

One bankrupt airline, Continental, has called on the government to bail out the industry by making the proceeds of the 10 percent ticket tax - about $4 billion a year - available as a loan.

But James B. Busey, head of the Federal Aviation Administration, rejected the idea even as he acknowledged that ″current conditions clearly pose a real threat to the continued existence of some of our major airlines.″

″Direct financial assistance is not called for and would probably do more harm than good to the competitive process,″ Busey said in recent House testimony. ″Assistance to the weaker carriers would distort the normal workings of what is today a very competitive marketplace.″

Danforth agreed that there is little support in Congress or the administration for a government financed bailout.

End Adv for Sunday, March 31

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