September 25, 2008 • New York City - Former American Airlines chairman and president Robert Crandall this month met with New York City Business Travel Association members to discuss challenges facing the airline industry and possible solutions, including government intervention. An excerpt of audience questions and his answers follows.
Given our government's inaction [regarding the struggles of the airline industry] and given that it is unlikely to grab their attention right now, there are some unintended consequences coming. What will it take to get the government's attention?
I don't think there is a widespread understanding that 100 cities in the United States are going to lose commercial airline service before the end of the year. If the schedules that are out there right now are actually implemented, that is going to create a lot of angst, and fares are going to go up pretty dramatically.
What can the corporate travel manager do?
Why do we have these problems? Because all of us are quiescent. How many of you follow current affairs? How many of you know or believe that the money a hedge fund manager earns for running your money is income? The answer is that you put money in a hedge fund, and the hedge fund manager gets paid a fee of 2 percent of whatever money you put in plus 20 percent of whatever gain you make. You know that the tax rate they pay is 15 percent. Do you know why it is a 15 percent tax rate? Because your senator says, "Oh, I think that looks like a capital gain, not income. You know why he says that? Because they give him huge campaign donations. You guys want to know why the government doesn't work? It's because you don't give a damn.
I say to everyone, "If you don't read the
New York Times every day, you don't know what's going on. And if you don't know what is going on and you don't hold your representatives accountable, then they are going to do what they choose. John McCain has been the most vocal against Amtrak for a number of years. That is why we don't have high-speed train service--because they won't give Amtrak the money to redo the electrification system that runs the trains and they won't provide money to update the tracks and they won't provide new money to update the cars, which are now wearing down. Congress can do this but they don't, because the public doesn't demand it. So they are paying $700 billion a year to import oil and we use some of that oil to spew out the back of jets to sit in conga lines at LaGuardia, and we use some of that oil to fly from here to Washington instead of saying to people, "No, you can't fly to Washington, you have to take the train," or "We are not going to allow you to fly to Washington or to Boston. You have to take the train."
Out of your laundry list that you shared today, what are the priorities?
It is time to stop the long conga lines [of airplanes] and the delays by putting a limit on the number of airplanes that can go in and out of these airports, and get cracking on a new air traffic control system. Do it now. Give the Federal Aviation Administration long-term, multiyear spending authority, and don't tell me it is going to be done by 2020. Tell me it is going to be done by 2012. Call up all of the general aviation people and say, "We are not interested in whether you want to put equipment on your airplanes or not. If you are going to fly privately, you are going to equip your airplane. If you can afford a private plane, then you can certainly afford $25,000 worth of hardware to put on it." So stop the congestion, get on with the new air traffic control system and fix Amtrak. I think you guys need to say, "We need an energy conservation and a transportation plan." The highway trust fund money is running out because people are driving less and because we refuse to raise the gasoline tax. That fund is running out of money. The [transportation] secretary now wants to borrow what money is in there not for rapid transit but to spend it on highways. That is silly; we need more rapid transit and more high-speed rail if we are going to conserve energy.
What will be the next airline merger?
I don't know what is likely to be the next airline merger. If I were in charge of public policy, I wouldn't allow Delta and Northwest to merge, but I am not in charge of public policy and I think they will. But if that happens, you are going to see the remaining carriers look toward a combination of deals. The great problem is if you look at the structure of the system, American and United would make a good combination, but probably wouldn't be allowed. Continental and United ... maybe. The real question is whether or not the remaining airlines will seek to actually merge or whether they will satisfy themselves with participation in alliances. If I had to guess, if Delta and Northwest go together, everyone else is going to sit back and wait to see how it works out. US Airways is sitting out in the west and if US Airways and Continental could hook up, the carriers have good numbers in terms of traffic flow.
When [former Civil Aeronautics Board chairman] Alfred Kahn deregulated the industry, he said, "I can't imagine that destructive competition will emerge." But it has emerged. It has happened and what is out there in our own markets is very destructive competition. So you have three carriers trying to use a small city to feed three different hubs. They all under-price the product because they all want that small city to move across their hub and strengthen their network. So if we see a mileage-based fare, it makes more sense, but a free market isn't going to produce mileage-based fares; that's just the way it is.
Most people disagree with me, but I think that the government is not doing its job in the airline business, as usual, and the consequence is that we have a bunch of noncompetitive U.S. airlines. In the long run, that is a dreadful problem. When you don't see Delta and United and American in the list of world's top airlines, we have a problem.
Does it make sense for Southwest Airlines to only publish certain fares on their Web site all the time?
The problem is that if you want Southwest to publish that by some simpler means for you, it's going to cost Southwest money. So why should they pay that? If it's a sufficiently unique product and you want it enough to chase it, then why should they pay something to make it easier for you to buy it if they are going to sell it anyway? I got worms and you want to go fishing, but you have to come get my worms to do it.
