Why can't airlines in the USA stay (financially) aloft?

[Derleth]

This is all very interesting, and I hope you guys are able to keep it up. I knew I was going to miss a lot of the carriers in this country: I don’t travel by air that often, and when I do it’s usually Delta, TWA, or Northwest. (Regardless of which one I pick, I seem to spend a lot of time in Salt Lake City.)

[JRDelirious]

@David Simmons

I don’t have a cite at the moment but from the beginning airlines were subsidized in the US by various means. One of the main methods of the subsidy was through contracts to carry mail. Airlines were along the line of a public utility; given exclusive routes and with fares regulated so that the combined income from fares and various subsidies allowed them to make a profit.

True. Indeed the driving force for the creation of the ancestors of the “legacy carriers” WAS the air mail.

I believe that the problem arises because the public was accustomed to fares that were smaller than those required for airline solvency and when the airlines were deregulated it was really not possible to suddenly raise fares to a profitable level. This would have been political death for the idea of deregulation which was touted as a way of making the airlines efficient like all businesses are (HA).

Also, many lossy routes that would logically have to get the axe on a free market were retained longer than they had to for similar political considerations (then they were handed off to the Regionals, and before the Regional Jets lemme tell ya, knowing you would no longer get a DC9 thru, but a Beech twinprop for the first and last legs of your trip, that was a source of great hostility). Under regulation, they could cross-subsidize lossy routes by charging more on popular routes, on which demand was high, but supply restricted. After deregulation, you then got a reversal of this situation where airlines were forced into fare-wars wherein popular routes ended up being run at a true-market loss just for the sake of seeing who’d be last man standing and then able to start charging real money. Some legacy majors were able to do this (drive smaller players out of markets by “dumping” fares) during the 80s but with the rise of Southwest and her mimics, who refuse to play by the legacies’ rules, they can no longer.

[Neptunian_Slug]

@Derleth

This is all very interesting, and I hope you guys are able to keep it up. I knew I was going to miss a lot of the carriers in this country: I don’t travel by air that often, and when I do it’s usually Delta, TWA, or Northwest. (Regardless of which one I pick, I seem to spend a lot of time in Salt Lake City.)

You really don’t fly that often since TWA hasn’t existed since 2001.

Delta has a hub in SLC which would explain your vast amount of time there.

[Derleth]

@E-Diddy

You really don’t fly that often since TWA hasn’t existed since 2001.

Delta has a hub in SLC which would explain your vast amount of time there.

I’m about as far from an airline expert as you can get while still being able to travel on the things. I do understand the hub system, and I knew at least one airline I’d heard of had shut down in the past few years, but beyond that it was as hazy as an IFR landing during IMC.

[Acsenray]

@E-Diddy

3. Labor costs at the larger airlines. I don’t want to make this into a big pro-union/anti-union thing. But the costs for all employees are generally higher at the legacy carriers in terms of salary, benefits and pensions. The lgacy carriers have a long history of labor strife usually resulting in more salary for employees whether the airline made money or not.

I don’t want to get into a labour thing either, but I want to point out that at the legacy carriers, executives also usually get more salary, whether the airline made money or not. And executive raises are usually magnitudes of order greater than employee raises. Taking such loot to the bank can make it difficult to argue against comparably modest increases.