Hard Landing

1. Airline deregulation transformed the industry, creating winners and losers

"Deregulation had to happen. Government protection had its place in helping to establish the modern airline industry; certainly this protection fostered the technical development of the industry, particularly the birth of the jet age. But by the 1970s, if not sooner, airline regulation was as unnatural and anachronistic as Prohibition had been in the 1920s and poll taxes in the 1960s"

Watershed moment. The Airline Deregulation Act of 1978 marked a seismic shift in the industry. It removed government control over routes, fares, and market entry, allowing airlines to compete freely for the first time. This led to:

• Increased competition and lower fares
• Expansion of hub-and-spoke networks
• Emergence of new low-cost carriers
• Consolidation through mergers and bankruptcies

Winners and losers. Deregulation created opportunities for innovative airlines like Southwest and People Express, which thrived with low-cost models. However, it also put immense pressure on established carriers, leading to bankruptcies (e.g., Braniff, Eastern) and forcing painful cost-cutting measures.

2. Visionary leaders like Lorenzo and Crandall shaped modern air travel

"Lorenzo and Carney had turned themselves into two of the most important figures in commercial aviation, in the process transforming Texas International from a marginal, money-losing regional carrier into one of the most profitable airlines in the country."

Frank Lorenzo emerged as a controversial figure, known for:

• Aggressive cost-cutting and labor confrontations
• Pioneering use of bankruptcy to restructure airlines (Continental)
• Building a multi-airline empire (Texas Air Corporation)

Robert Crandall at American Airlines:

• Implemented innovative marketing strategies (AAdvantage frequent flyer program)
• Developed the SABRE computer reservation system
• Introduced yield management and "Super Saver" fares

Both leaders were instrumental in shaping industry practices, though their methods often put them at odds with labor unions and competitors.

3. Computer reservation systems became powerful competitive tools

"American accomplished this feat through a practice that Crandall's people called 'screen science.'"

Competitive advantage. Systems like American's SABRE and United's Apollo revolutionized airline distribution:

• Allowed real-time booking and inventory management
• Provided valuable market data to airlines
• Became profit centers through fees charged to other airlines

Controversy. The systems were accused of bias:

• Favoring the owning airline's flights in display order
• Manipulating fare displays to disadvantage competitors
• Leading to antitrust scrutiny and eventual regulation

The systems transformed travel agency operations and became critical to airlines' marketing and revenue management strategies.

4. Labor relations and union negotiations were critical battlegrounds

"Crandall christened his newfound strategy with the pretentious name 'the Growth Plan,' although there was no disputing that the plan was something extraordinary."

Cost pressures. Post-deregulation competition intensified the need to control labor costs:

• American's two-tier wage system ("B-scale")
• Continental's use of bankruptcy to void union contracts
• United's contentious negotiations with pilots

Union responses:

• Strikes and work actions
• Political lobbying for labor protections
• Resistance to two-tier wage systems and outsourcing

Labor relations became increasingly adversarial, with airlines seeking concessions to remain competitive and unions fighting to preserve wages and work rules.

5. Bankruptcies and mergers reshaped the competitive landscape

"Lorenzo had purchased just enough stock, 50.9 percent, to assume majority control of Continental. He named himself and two others to the company's board of directors."

Strategic bankruptcies:

• Continental's 1983 filing to void union contracts
• Eastern's 1989 filing amid labor disputes

Major mergers:

• Northwest and Republic (1986)
• TWA's acquisition by American (2001)
• Delta-Northwest merger (2008)

These restructurings allowed airlines to shed debt, renegotiate labor contracts, and consolidate routes and assets. The industry became increasingly concentrated, with a few large carriers dominating the market.

6. Low-cost carriers disrupted traditional airline business models

"Southwest promoted itself as the way to 'fly smart,' taking some inspiration from the Volkswagen as the car with cachet."

Southwest Airlines pioneered the low-cost model:

• Point-to-point routes instead of hub-and-spoke
• Single aircraft type (Boeing 737) for efficiency
• Quick turnarounds and high aircraft utilization
• No-frills service to keep costs down

Other disruptors:

• People Express (ultra-low fares, but short-lived success)
• JetBlue (low costs with upscale amenities)
• Spirit and Frontier (ultra-low-cost model)

These carriers forced legacy airlines to adapt, leading to the creation of low-cost subsidiaries (e.g., United's Ted, Delta's Song) and more competitive pricing on overlapping routes.

7. Hub-and-spoke networks emerged as a dominant strategy

"As he had demonstrated back at Braniff, Acker was incapable of small-scale management. He began picking up used jets all over North America, tapping some of his oldest and best connections for financing."

Network efficiency. Hub-and-spoke systems allowed airlines to:

• Serve more city pairs with fewer aircraft
• Increase load factors through connecting traffic
• Dominate key airports for competitive advantage

Major hubs:

• American: Dallas/Fort Worth, Chicago O'Hare
• United: Chicago O'Hare, Denver
• Delta: Atlanta, Salt Lake City

The strategy led to intense competition for airport slots and gates at major hubs, with airlines often paying premium prices to secure these valuable assets.

8. Safety and pilot training remained paramount amid industry changes

"Safety," Lindbergh learned, "lay in speed."

Technological advancements:

• Introduction of jet aircraft in commercial service
• Development of autopilot and flight management systems
• Improved weather radar and navigation tools

Regulatory oversight:

• FAA's role in setting and enforcing safety standards
• NTSB investigations of accidents and incidents
• Implementation of Crew Resource Management (CRM) training

Despite cost pressures and operational changes, the industry maintained a strong focus on safety. Training programs evolved to address human factors and improve cockpit communication, contributing to a steady improvement in aviation safety records.

Last updated: November 19, 2024