Battling It Out in the Skies

By John Greenwald

Now nearly complete, deregulation has turned air travel into a free-for-all or less than it now costs to fly to San Francisco, we'll fly you there and back. And there again." So boasted the ads of People Express last week, in the Newark (N.J.)-based airline's latest low-fare offering. Once unthinkable, such price slashing has become almost commonplace in the six years since Congress began deregulating air travel. That historic step has made U.S. skies the most competitive in the world and turned the once orderly American airline industry into a survival-of-the-fittest battleground. Now virtually complete, deregulation will conclude Jan. 1, when the Civil Aeronautics Board plans to hand its few remaining duties to the Department of Transportation and go out of business.

Long gone is the cozy world in which CAB-regulated carriers were an exclusive and protected club. Since Congress passed the Airline Deregulation Act of 1978, the number of interstate airlines has increased from 36 to 125. They range from no-frills discounters like People Express, the fastest-growing company in aviation history, to tiny Regent Air, which plies its passengers on flights from Los Angeles to Newark with caviar, lobster and French champagne. Not all of them have been profitable. Old and new carriers, including Braniff and Air Florida, went bankrupt by expanding routes too fast. Said Daryl Wyckoff, a professor of transportation at Harvard Business School: "The airlines were always ending up like my beagle, 15 blocks from home and panting."

The industry seems to be settling down. U.S. carriers lost nearly $1.4 billion from 1980 through 1982, but they are expected to earn $1.5 billion in 1984, thanks largely to the economic rebound, tough cost cutting and the wiser use of new routes. Says David Garrett, chairman of Delta Air Lines, long one of the most profitable air-transport companies: "Once we get into 1985 and are completely into deregulation, we hope to see the industry stabilize."

For travelers, the happiest sign of the airlines' new freedom has been lower ticket prices. Fares today are generally well below what they would have been without deregulation and have been rising more slowly than inflation. A ticket from New York City to Los Angeles (2,475 miles) on People costs $119, and at least five carriers offer seats on flights between Dallas and Houston (217 miles) for $25. At the same time, though, prices on lightly traveled routes remain high. A one-way Frontier Airlines coach ticket from Denver to North Platte, Neb. (207 miles), can cost as much as $163.

The new price schedules are often a bewildering maze of choices and restrictions. A coast-to-coast flight on a full-service carrier like United Airlines may have dozens of different fares that hinge on such variables as when tickets are bought and the length of a traveler's stay. Moreover, the price of flights of comparable distances may differ widely, depending on how much competition exists on that route. To make matters more confusing, carriers keep close watch on one another's prices and adjust their own prices accordingly. United alone makes 3,500 fare changes a day.

Some travelers have discovered ingenious (if timeconsuming) ways of profiting from lower fares. Rice University Historian Francis Loewenheim, who shuttles between Houston and his native Cincinnati, has found that he can save more than 50% by going via Newark, some 1,000 miles out of his way. People Express's Houston-Newark-Columbus fare runs from $85 to $109, compared with $265 for a one-way, undiscounted coach ticket from Houston to Cincinnati on Delta. It does not matter to Loewenheim that he has to finish his trip with a two-hour bus ride (cost: $18) from Columbus to Cincinnati. Says he: "It takes a little longer, and you have to put up with some extra hassles. But the saving makes the time and effort definitely worthwhile."

The most maddening side effect of deregulation has probably been the lengthy delays that cropped up this summer at major U.S. airports. With carriers bunching their flights during the most attractive hours, an airport like Chicago-O'Hare found itself facing 42 departures between 7 a.m. and 7:15 a.m., but with a capability to handle only 23. Jetliners had to wait and wait before taking off, forcing many passengers to miss connections and appointments. Andrew Edson, a Manhattan public relations consultant, recently spent two hours on the ground in an Atlanta-bound jet at New York's La Guardia Airport and finally arrived too late for the meeting that he planned to attend. After one return flight was canceled, he switched to another, only to encounter a second lengthy delay. Says Edson: "I spent eleven hours in a plane, in the air or on the ground and wound up going nowhere."

To ease congestion, the Federal Aviation Administration last month prodded 100 airlines into an unprecedented agreement to spread out 1,300 rush-hour flights at the six most crowded U.S. airports. These are Chicago-O'Hare, Atlanta's Hartsfield, Denver's Stapleton and the New York City area's Kennedy, La Guardia and Newark. The pact will not take effect until Nov. 1, but it has already come under heavy fire. Critics both in and out of the airline industry charge that the accord will reduce competition and hurt new airlines. Declares Michael Muse, chairman of Muse Air, a Dallas-based discount carrier: "If you take away the airlines' prerogative of scheduling flights when the passenger wants them, then you take away deregulation and put everything in the hands of the FAA. That was certainly not the intent of the people who wrote the deregulation legislation."

Muse and others have their suggestions for dealing with congestion. One is to construct more airports. "If the highways are crowded," says Phil Bakes, president of Continental Airlines, "the role of the Government is to build more roads, not to tell people what time to go to and from work." But not one major U.S. airport has been built in the past ten years, despite a 50% increase in passenger traffic; local opposition to increased noise levels is stalling sorely needed expansion of at least a dozen existing facilities.

Delays are due in part to a lack of air-traffic controllers. Commercial flights are now directed by some 13,500 controllers, a drop of 2,850, or 17%, since President Reagan fired striking members of the Professional Air Traffic Controllers Organization in 1981. Says Delta Chairman Garrett: "The main reason for the delays is that the air-traffic system has not been brought back to where it was by the FAA." The agency has promised to add 1,400 controllers by Sept. 30 of next year.

The shortage of personnel and the growth of new carriers have raised concerns about airline safety. "The margin of safety is growing thin," warns Henry Duffy, president of the Air Line Pilots Association. Fears were heightened this past summer by a spate of mid-air near collisions. In August, for example, a private aircraft came within 100 feet of a Delta jet carrying 146 people shortly after the larger plane left Washington. Nonetheless, most experts contend that U.S. skies remain remarkably safe. On regularly scheduled passenger flights last year, there were three fatal accidents out of 4.9 million departures, with a death toll of twelve. No fatalities have been recorded so far this year.

Under deregulation, the airline industry has revamped its route system and expanded the range of services offered. Virtually every carrier now funnels traffic through efficient hub terminals that link the cities it serves. For the most part, the industry has divided itself into two complementary groups. On the one hand are what some analysts call "the backpack and raisin" carriers such as People and Muse, which offer low fares. On the other are such established airlines as United, Delta, American and Northwest, which offer something for everyone while concentrating on travelers who want reasonable comfort and firm reservations. Yet another development has been the expansion of commuter and feeder lines, which provide service to small markets where major carriers have cut back.

The discounters have been the most important force for change since deregulation began, and People Express has been the boldest pioneer. Airborne since 1981, the no-frills carrier now operates 56 jetliners and a route map that stretches from Los Angeles to London and includes 26 cities. While its revenues (1983: $286.6 million) are still well behind those of behemoths like United ($5.4 billion), People Express is already the twelfth-largest U.S. carrier. Its secret: low costs that enable it to undersell the competition, along with unusually strong employee morale. The average annual salary for People Express's 14,000 full-time employees, who are all nonunion, is just over $20,000 a year, less than half the norm at larger airlines. But every employee is a stockholder and works hard. A People Express customer-service manager is a Jack-(or Jill) of-all-trades whose duties include serving as check-in clerk and flight attendant, plus stints at tasks ranging from accounting to fuel management.

People Express's cost cutting and threadbare ground facilities can turn a flight into an adventure. Its cinder-block loading gates at Newark's North Terminal often reach stifling temperatures in summer. Passengers have fainted while waiting for their planes in nearby packed and narrow hallways. Once aloft, travelers may find it hard to get comfortable amid the clutter of knapsacks and bassinets created by the company's policy of charging for checked luggage. "It's Animal House, pure and simple," sniffs one flight attendant for a major airline. But many passengers love the camaraderie. Said Carole Leomporra last week after arriving on a Minneapolis-to-Newark jet with her two-year-old daughter Sarah: "On other flights, the employees seem to hate their airline, and it shows. On People, you get the feeling that they care. As far as I'm concerned, that makes it all worthwhile."

Some analysts fear that the heavily indebted carrier, which earned $10.4 million last year, may be growing too fast. Said one close observer: "As went Freddie Laker, so could go People Express." But People Express Chairman Donald Burr, 43, insists he has another flight plan. Says he: "In the early days, we said, 'As an ant, why get in the way of giants?' But now we are a big ant, and we are ready to move in giants' circles."

The giants have learned some things from their upstart rivals. Airlines have been demanding--and getting--wage reductions from their workers, and layoffs have pared their total employment to 329,000, down nearly 10% from 1980. Older lines are introducing new conveniences to make flying easier.

Pacific Southwest Airlines has do-it-yourself check-in centers that let passengers use credit cards to buy tickets and reserve seats without going to the regular ticket counter.

To be sure, some turbulence still roils the airline industry. "There will be more bankruptcies," predicts CAB Chairman Dan McKinnon. Among the weak sisters is Braniff, which returned to the air last March and has since become a discounter. But Braniff said last week that it is still losing money and wants to merge with another carrier. Pan Am is also suffering.

The airline remains plagued by high labor costs and has lost $555 million over the past three years. Eastern, which has seen its vital Florida-Northeastern U.S. routes attacked by a host of aggressive rivals, lost $52 million in the first half of 1984. Eastern is expected to ask its employees for new wage concessions in addition to those they agreed to last year.

Nonetheless, almost no one wants to return to the days before 1978. "Deregulation is working," says former CAB Chairman Alfred Kahn, who pushed hard for wide-open skies. "That is the bottom line." Agrees a spokesman for the Air Transport Association, which represents most major U.S. carriers: "All our members oppose economic reregulation." Having tested its wings in the brisk wind of competition, the airline industry is confident it can fly. --By John Greenwald.

Reported by Kenneth W. Banta/New York and Jay Branegan/Washington

With reporting by Kenneth W. Banta, Jay Branegan