By the end of this decade, four or five major airlines will rule the American skies. That scenario, predicted by some industry experts, is becoming more and more likely.
Actions by airlines in recent weeks bewildered experts and consumers alike. They came with the swiftness of a bolt of lightning.
For instance, the friendly acquisition several weeks ago of Trans World Airlines by Texas Air Corp., owner of Continental Airlines and New York Air, will solidify the three carriers into the second largest airline in the U.S., after United. That won`t take place, however, until late this year.
To strenghten the position of United Airlines, coming off a 29-day strike at the same time, the parent company, UAL Inc., agreed in principal to buy Hertz Corp. for $587 million, adding rental cars to the firm that already owns Westin Hotels. In the meantime, UAL is selling real estate partnerships in some Westin hotels to raise up to $200 million. Several months ago, United also agreed to buy Pan American World Airways` Pacific routes for $750 million.
The war for control of the skies will continue as United, American and Delta vie for each other`s air and airport hubs. The competition that confounds the industry and the consumer was made possible by the Airline Deregultion Act of 1978 that declared an open skies policy. The casualties in the months and years ahead likely will be big carriers with big financial problems and smaller carriers that might be gobbled up by the big birds–or small carriers that simply run out of money.
Who will live and who will die is hard to say. The small carrier content to remain small and serve a select geographic constituency with good service probably will survive. The venturesome small carrier that sets broader horizons, however, could become vulnerable if it chooses to compete in a major airline`s treasured space.
Although consumers generally are familiar with the old established carriers such as American, Braniff, Continental, Delta, Eastern, Northwest Orient, Pan American, Trans World and United, many smaller regional carriers have come and gone. Braniff was reinvented. Continental was gone and returned. Among the long range question marks are Eastern and Pan Am.
A chart published last month in Travel Weekly, with figures from the Air Transport Association and other sources, showed the airline body count since deregulation in 1979 through this April 30:
A total of 54 airlines declared bankruptcy and 73 ceased operation. Last year alone, 20 carriers filed for bankruptcy and 14 ceased operations. That seems to be the way of the industry.
In recent events, TWA, which was fighting off an unfriendly takeover by corporate raider Carl Icahn, agreed to join the Texas Air family for $925 million. Texas Air is run by Frank Lorenzo, who took Continental Airlines into bankruptcy in 1983 to dump costly union contracts. What he will do with TWA and its reluctant unions is a chilling thought to employees. Meanwhile, TWA`s unions are exploring ways to buy the company and avoid the Texas Air takeover. At the same time, TWA`s flight attendants have voted to strike.
Airlines such as American and United have played hardball with the unions to shed themselves of costly contracts that the newer, leaner carriers don`t have. With two-tier pay structures that permit airlines to save money when they hire new employees, American and United need only pay salarys on a level with those paid by relative newcomers such as Midway, New York Air and People Express, all born A.D.–after deregulation. Lorenzo is expected to play the same game with TWA to cut costs and trim fat.
United, nearly back to full service after its Air Line Pilots Association strike, is pulling out all the marketing stops to win back its passengers. United passengers flying from July 1 through 7 will receive a voucher that will permit a 50 percent refund on any ticket. Undoubtedly, United will unveil some creative marketing gimmicks to boost a slipping No. 1 Hertz in the rental car market, while trying to please passengers who prefer other rental car agencies and to recover from the strike.
”The strike is history,” said Richard Ferris, chairman of UAL Inc., in an interview with two Tribune reporters. ”I want to put the bitterness behind. I`ve got 42,000 employees who are pent up and ready to go and a bunch of employees who will come back to work and get excited by the growth opportunities.”
Some, however, think United`s ”friendly skies” image will remain tarnished for awhile, especially in the minds of some employees, and with passengers who were inconvenienced during the fray. The strike was costly. Consider Hawaii, one of United`s top destinations: The state lost $1 million a day in tourism revenue alone.
Meanwhile, American and Delta are slugging it out with United in such important markets as Chicago, Atlanta, Denver and Dallas. The Hawaii market, too, is heating up with competition among the carriers.
The Wall Street Journal quoted a Boeing official as saying: ”The only guys who`ll survive are those who eat raw meat.”
Robert Crandall, American`s chairman, told the Journal: ”We`re trying to build a national and international network just as fast as we can.”
What the airlines do next month, the remainder of this year or next year is kind of a crapshoot. Even the acquisition of new aircraft is risky. ”A poor aircraft decision can make or break an airline,” Julius Maldutis, Salomon Brothers vice president and airline analyst told Travel Weekly.
If you think all this is confusing to Wall Street and the industry, just think about the travel agent and the consumer.
When the United strike was still impending, caring travel agents protected their clients by booking them on other carriers to avoid last-minute hassles. Once the strike began, everyone who had a television set or who happened to be at an airport could see the anger and frustration of passengers and the chaos created when the nation`s largest carrier was shut down.
For the consumer, sorting out air fares is, and will remain, a constant source of irritation. The air fare game is no fun for travel agents, even if they are sitting in front of a computer terminal. The changes and restrictions applied to fares seem to change by the day, if not more rapidly. Sometimes the public is unwilling to listen or understand.
”A debate still rages over whether deregulation has meant substantial improvements for the traveling public,” wrote Alan Fredericks, Travel Weekly`s editor. ”But most travel industry people agree that, so long as air safety is preserved and essential air service is still available, it is better to let business people control their own fates.”
The picture is unlikely to change until the air war is over and the airline giants control the skies. And, about the time that happens, some enterprising multi-millionaire with a yen to run an even more efficient airline will come along and upset the status quo, if there ever is a status quo. There always will be another Freddie Laker to pioneer a new, cheap air fare across the Atlantic or another People Express to entice passengers with low domestic fares and no frills.
