And Now the Good News About Nation’s Airlines
You’d never know it from all the gloom in the airline and aircraft businesses these days, but global air travel is a great competitive success story for U.S. airlines and the outlook for aircraft orders in this decade and beyond is as bright as ever.
The competitiveness figures, in the government’s latest Economic Report of the President, are dramatic. Travel and transportation turned from a chronic trade deficit to a surplus in 1989, doubled to $4.1 billion in 1990 and rose sharply last year to more than $9 billion.
The success of U.S.-based airlines is behind it. In the last five years, U.S. carriers--mainly American, United and Delta--have doubled their international passenger traffic and increased their share of foreign markets.
And the lesson of their success is that airline deregulation in the United States produced strong companies and innovative methods of doing business worldwide.
To be sure, you won’t hear airline bosses talking about success these days. Robert Crandall, chairman of AMR Corp.--owner of American Airlines--pointed to rising losses last year and deferred plans to purchase about $5 billion worth of Boeing aircraft.
In fact, all the U.S. airlines lost money last year, as travel was discouraged by war in the Middle East and the U.S. recession. UAL Inc.--owner of United Air Lines--deferred purchase of some Boeing planes, and Delta’s Chairman Ron Allen spoke of doing likewise.
Meanwhile, Delta sent a chill through Boeing’s Seattle headquarters Monday by ordering nine planes from Airbus Industrie, the consortium owned by four European governments. True, the planes were replacements for Airbus aircraft that Delta had inherited last year when it acquired now-defunct Pan Am--and so their purchase is not necessarily an indicator that Delta will become a big customer of the European consortium.
Still, gloom is understandable, with Boeing laying off workers, airlines losing money and passengers staying home in frustration at the recession and anger at airline attempts to raise fares. Predictably, many Americans are questioning whether the ultimate result of airline deregulation is an industry in tailspin.
But that’s a short-term view born of recession. Longer-term, the outlook is bright. Boeing, for example, recognizes that orders may lag in the next few years. But the Seattle company, which sells more than 60% of the world’s airplanes, has recently increased its estimate of total aircraft industry sales to the year 2000--to 5,894 planes, with an even greater number for the first decade of the 21st Century.
The simple fact is that more people on more continents are traveling by air--and their numbers will continue to grow. Air travel in the United States and western Europe will grow 5% a year, experts say.
The increase could be surprising in eastern Europe and the republics of the former Soviet Union--where the giant state airline Aeroflot is now seeking partnerships with Western carriers. Distances are great in Russia, Ukraine, Kazakhstan, etc.
And Asia is enjoying the world’s fastest travel growth, more than 10% a year everywhere.
Airlines destined to do well include Singapore, Cathay Pacific, Japan Air Lines--and United, American and Delta, which is opening a hub in Taipei in 1993.
Delta is already seeing rapid growth on the New York-to-Frankfurt run it inherited from Pan Am. It has added to the business by connecting Frankfurt to its hubs in Cincinnati and Orlando, Fla., and by using Frankfurt as a hub for other European cities.
The pattern is the hub-and-spoke system developed by U.S. airlines since deregulation, as a way to economically bring together large numbers of passengers from many locations to fill a jumbo jet in Atlanta, Chicago or Dallas for a longer journey overseas or across the United States.
It was competition born of deregulation that developed the hub-and-spoke idea, says analyst Andrew Nocella of AvMark, an airline consulting firm in Arlington, Va. And it was competition that lowered fares and doubled air travel in the United States even as it weeded out weaker carriers--and made way for stronger U.S. companies to compete internationally.
European and Asian airlines, protected and often owned by governments, didn’t have the toughening of competition. So they operate at high costs and charge high fares. That’s why it costs 50% more to fly from London to Paris than from New York to Washington.
Will government airlines in Europe and Asia now deregulate? Probably not. But that will only provide opportunity for U.S. carriers able to operate at lower costs--as United Air Lines does with its profitable service from Tokyo to Hong Kong that competes effectively with Japan Air Lines.
Meanwhile, back home, the promise of deregulation continues to be fulfilled. U.S. airlines tried to raise fares but couldn’t do so, faced with public dissatisfaction and competition from such carriers as Southwest Airlines, the Texas-based maverick that has opened a hub in Oakland and dramatically cut the cost of flying from Oakland or Sacramento to Ontario and San Diego.
Competition is ruinous, cry some airline bosses and airline unions. But don’t you believe it. As the success of U.S. airlines in global markets shows, whatever doesn’t break you makes you strong.
