May 11, 2015: Qatar Airways is going to add service to three more US cities and the US airlines don’t like it. That’s too bad. We’ve heard this story before.
First, it was the proposed deregulation of the US airline industry. By the late 1970s, there hadn’t been a new scheduled airline certificated by the Civil Aeronautics Board since the end of World War II other than local service carriers. Non-scheduled airlines (non-skeds for short) and charter carriers received licenses for their lines of work, but every effort to obtain a scheduled certificate was defeated by those airlines already holding one. They didn’t want the competition.
When the move toward deregulation occurred in the 1970s, only United Airlines and the original Frontier Airlines supported it. United, then the nation’s largest carrier, had been rejected by the CAB for every major route expansion while UA’s competitors received new route awards. UA thought deregulation was the only way to expand. Frontier, a local service carrier that had become a “regional” airline by then (as designations evolved), also saw expansion opportunities.
Every other trunk and local service airline opposed the idea. They saw new competition from start-ups or expansion by incumbents as a threat to survival. Braniff Inc., which notoriously over-expanded in deregulation, did so defensively, though it wasn’t apparent at the time. Harding Lawrence, the CEO, felt deregulation would soon be deemed a mistake and he wanted to position Braniff as a major carrier capable of fending off anticipated competition from United, American Airlines and other trunk carriers when deregulation was rescinded. He famously (within airline circles, anyway) noted that United was adding more seats to its Boeing 737 fleet. When it was done, it would have added more seats than currently in Braniff’s entire fleet of Boeing 727-200As.
Braniff, of course, became the first of what would turn out to be hundreds of airlines to fail under deregulation. Among those failures, incapable of adapting to new market realities: Eastern Airlines, Pan Am, TWA and even the first new airline to be certificated by the CAB in 40 years, the original Midway Airlines (which, by the way, is where I got my start in the airline business).
Critics point to these hundreds of failures and say deregulation was a bad thing. They overlook the fact that without deregulation, there wouldn’t have been the opportunities to start new airlines in the first place. They also overlook the fact that under regulation, there still were many airline failures–they just disappeared in the guise of mergers with healthy airlines.
It took decades for the survivors to adapt to deregulation, but this is, today, ancient history.
During then era of high regulation, Pan Am, TWA, British Airways and British Caledonian objected to the low fare trans-Atlantic service called SkyTrain, offered by Laker Airways. Legal obstacles, ridiculous restrictions, unfair competition and what turned out to be outright illegal activities were thrown up to block Freddie Laker from his quest to bring low fares to the traveling public.
Richard Branson ran into all kinds of obstacles in his fight to create Virgin Atlantic in competition with British Airways. Alaska Airlines filed many legal objections to Virgin America’s start-up, claiming improper foreign ownership (Branson’s).
More recently Norwegian Air Shuttle’s long-haul Boeing 787 operation was the target of US labor unions crying unfair competition.
And now the US Big Three, American, Delta and United, are crying foul over the Middle East’s Big Three. In many cases, the ME3 serve routes that the US3 do not. But having shifted business plans to emphasize lucrative international travel at the expense of the largely unprofitable US domestic service, the US3 are threatened by the very presence of new competition, be it NAS, Qatar Airways, Etihad Airways or Emirates Airlines. It matters not that the ME3 offer passenger service that is far superior to even First or Business Class service on the US3.
The US3 just doesn’t like competition. Period. Never has. Never will.
The US3 need new advertising slogans: Whining higher for Delta. Something Whining in the Air for American. And Fly the Whining Skies for United. They sure don’t do much for passengers.
Nice Scott. Adding to your chorus, I’m also disappointed with Richard Anderson and Doug Parker in a different way: I thought they were much stronger “people leaders” than they’re proving to be.
Instead of inspiring their troops to rally to the challenge and build even stronger airlines (or strengthening the message about their differentiated positioning vs the competition), they’re designating an outside enemy and calling the world unfair.
How will that inspire airline employees to take ownership for their own companies’ success?
Well Scott, we now know very distinctly into which corner of the field you want to play the ball. That was a brave move ! Freddy himself would have shed a thankful tear. Actually, Protectionism has many visages : open vs closed skies ? is one aspect, flown with which type of aircraft ? is the backside if you flip the coin. Next question is Powered with what Engines ? Employing what kind of Personnels ? Asoasf … it never ends ! U-Turn Al Baker goes by the Social Media making derision of his opponents. Tim Clark buys his way into recognition. Etihad comes in through the back door through merger-absorptions. Kjos confronts through direct legal proceedings … together as a team, they will walk through the walls, US3 or not US3 … I’m putting 1 € down on deregulation reaching the Passenger in fine … but when ?
On the one hand older equipment, skimpy staff and service, and a short term focus associated with a strong sense of entitlement.
On the other hand, brand new planes, abundant staff, affable service and a desire to attract and please the flying customer for the long term.
Why should they be worried about competition…
I think that we are forgetting something when we speak about the US3 VS ME3 battle. In order to change the open skies treaty you need negotiations between two countries.But there is something that everybody forgets has passed unoticed . Qatar and united arab emirates are allies. And as mr anderson has said etihad qatar and emirates are controlled and very heavily supported by their goverments. Here is the hitch. United Arab Emirates and Qatar flies a variety of missions for the us military in the middle and the us air force has a number of bases there. US even have the US central command forward headquarters based there. So far so good.Now the last goverment that have renegotiate the open skies policy with the uae and qatar was canada. The aftermath was for canada to lose all its bases and support from these two countries. The US air force does not afford to lose these alies. So it would would jeopardise these relations for three privatised and hugely profitable airlines
Excellent observation, @steve
It got very personal when they kicked the Canadians out of Camp Mirage at Al Minhad AB.
” On the same day, a military transport aircraft carrying the Canadian Defence Minister and the Chief of the Defence Staff returning from a visit to Afghanistan was refused landing permission at the airbase housing Camp Mirage’
These same morons running the Airlines are perfectly fine with deregulation and free trade as long as it means _they_ can outsource labor and manufacturing to Myanmar at $0.50 and hour, but god forbid any “damn furriners” use it to compete against them.
the US3 airlines (and their regional sweatshop affiliates) need to be taken down by unrestricted competition.
the “foreign ownership” restrictions are BS protectionism.
government subsidies to fly into unprofitable markets need to be eliminated (if you want to talk about subsidies, US3, what about these pork barrel constructs?)
the so called “free market capitalists” running America/
American businesses are only interested in their own freedom to profit, while constructing a system that guarantees their cartel’s market control in perpetuity.
DL has also been on the point in its effort to kill the Export-Import Bank because Boeing is selling planes to some of the ME3 with Ex-Im’s help. Just like Airbus sells its planes with the various Euro Ex-Im Banks’ assistance. Aren’t some of these carriers the same ones who got cash assistance from the government to cover their 9/11 losses?
Thanks Scott for this wonderful piece of Airline Deregulation history.
Interesting article, and I appreciate your posting this as it helps shine a light on the myth of U.S. passenger airline deregulation. Comments added by readers, also point at the hypocrisy of the US3 and the myriad subsidies created by our Congress. IMHO, we are long overdue for changes within the U.S. NAS aimed at repairing the damages that continue to grow, related to the 1978 deregulation.
Regarding your note about Alaska Airlines, although I am a northwesterner, I never realized Alaska challenged Virgin America’s startup. After some brief research online, I see that Delta acquired a 49% stake in Virgin Atlantic in 2012. Curious, and maybe you can shed some light on this: Delta seems to be very hostile and aggressive towards Alaska, in the last year or so. Do you believe it is in any way related to the Delta-Virgin connection? Or, looked at from a different angle, is the Delta expansion at KSEA driven more by a real opportunity to grow (a new Delta hub, perhaps supplanting KSLC in time, and efficiently connecting to Asia), or perhaps more by Delta’s desire to attack Alaska?
I’ve written a bit on DL-AS previously so you might look that up. Basically as DL decided to make Seattle an international hub, it wanted more code-sharing capacity than AS was willing to provide so DL began pressuring AS by terminating services agreements and then upped the ante by starting flights in competition. it’s now become an all-out war. Within Seattle, United and Southwest are suffering with market share loss. AS is holding its own while DL grows.
In addition to Scott’s reply, I doubt the Delta-Virgin Atlantic tie-up had much to do with DL’s actions in Seattle.
Sure, Virgin America and Virgin Atlantic share a partial owner (Branson), a similar brand, and have a marketing partnership.
However they are completely separate companies with entirely different management teams, and they’re each pursuing their own strategies.
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Should the word “competition” be used to describe a subsidized offshore airline? “Disruptive” would be a better word to describe the effect on the market. Did Sky Train, Laker or the others make a healthier market, or simply disrupt the incumbents to the point that new market opportunists, like Delta & Virgin, grew into the breach? At least Delta has to provide a product at a profit. The ME3 do not have that concern. How does a business compete when their competitor leverages the human rights of its workers and has no need to be profitable?
I would like your thoughts on the market once the incumbent players are destroyed and the ME3 bubble bursts. How many US jobs can be outsourced and sent offshore before the virtuous economic cycle of the US middle class disappears.
@Ad Lib: Competition to US airliners was provided for decades by the state-owned airlines called BOAC, Air France, Lufthansa, Sabena, Japan Air Lines, etc., and continue to be provided by the (essentially) state-controlled Air China, China Southern, China Eastern, etc. I don’t have a lot of sympathy for US airlines that treat their passengers like cattle. When Northwest was providing non-stop service from Seattle to London, I flew British Airways with lie flat business seats over NWA’s angle-flat. American spent hundreds of millions of dollars to revamp its business class (when Tom Horton was CEO), installing angle-flat J class–and it totally bombed. All that money wasted to replace with lie flat. Lufthansa had to rip out its angle flat because it couldn’t compete with Cathay Pacific’s lie flat.
Aside from the long history that US carriers simply don’t want competition, I’d ask this question: Are the ME3 stimulating traffic (I’ve not really seen any data on this), much as LCCs stimulated (and, it is true, diverted) traffic from the legacies? Ryanair, Spirit Air and f**k-the-passengers airlines like these are doing great guns but I won’t fly them. I still want some level of passenger experience that they don’t offer. I’ve not flown the ME3, but generally I prefer the BA/AF/LH non-US carriers to the US3 for better pax-ex (which is a low bar, to be sure). When SAS served Seattle, it was my first choice to Continental Europe (within Scandinavia it’s not so hot). Service, passenger experience are important–and the US carriers can’t/won’t compete.
Concurring in principle with your ME3 & LC carrier comments, having flown all three up front the experience is good & there is little to choose between them. The ME3 Achilles heel is the hubs they have created which are just bloody awful & usually require an aircraft change of if regularly to the Far East or the Antipodes. The more direct flight routing via BA, Qantas, Malaysian, Thai & Singapore, in my experience offers a more mature & customer aware cabin crew & a superior 380 flying experience.
I’ve had a bucket full of LCC’s & on business & will no longer entertain flying them at any cost, even the thought of using them for holidays fills me & my wife with dread. In fear of sounding elitist more often it’s not the general flying experience but the people who I share the cabin with.
Damn pleebs clogging up the skies.
Perhaps it is better to frame the debate within the industry since Open skies agreements were created in the 1990’s. Those bilateral agreements which expanded fair competition have conditions, one of which is “no subsidies.”
Singapore Airlines and Thai probably serve as good data points to model customers’ preferences. They do not like the Middle East connection, but if new capacity metrics tell the story, they prefer the ME3’s service 20 to 1.
You are of course correct that it is not a zero-sum market. But, capacity metrics and pricing are highly sensitive. Sometimes it does not take much for every player to find their business model unsustainable.
It is humbly suggested that true competition requires playing by the rules. In this case, the provisions of Open skies agreements which have benefitted so many and created so much competition simply need to be enforced to preserve competition.
Meanwhile, here’s an example of shrewd advertising.
On the other hand, the Pontificators are secure, economist who can not predict the economy worth a hoot are secure and you have to love it when they say, well so and so will loose their job but they will be replaced by a job at Burger King or McDonalds (th9ough that is looking more attractive all the time)
So what it amounts to is if you are Mcneaerany (who blames it all on the unions) or have risen to a certain level where you don’t have to produce real results to stay employed its all fine.
So, you have a job, a house maybe with a mortgage, a couple of older cars and you sort of get by, and then you loose your job.
It makes a whole lot of difference whose job is lost to the person who has built up something.
Me, I liked the good old days, now management loathes workers and that comes from them being a cheapo commodity that you can dump.
It used to be a collaboration of Management, workers and financial institutions funding their expansion to the benefit of all. Now its grab what you can while you can and don’t worry about the mess you got yours.
At some point your race to the bottom results in someplace like Pakistan.
My earlier comment about LCC’s & the type of pond life they attract is ably demonstrated by this UK headline of today. OK lads having a laugh but at what potential cost.
Whilst the paper in question follows the Fox type of editorial sensationalism the message is clear……
This is a TEST SHOUT only.