Crandall criticizes consolidation
American Airlines veteran recommends improving aviation infrastructure, reforming business laws and security procedures.
By Eric Kulisch
Improved aviation policies would encourage airlines to work harder to attract customers and boost their earnings better than pursuing consolidation, Robert Crandall, the former president and chairman of American Airlines, said at an aviation conference in late April.
Few airline mergers succeed because they inevitably increase capital costs and complexity, American's chairman emeritus said.
Labor costs are also difficult to bring under control and operating synergies difficult to achieve because unions object to any benefit reductions or management gives into labor demands, he said.
Another false assumption is that the combined airline will have greater revenue opportunities, but Crandall said other airlines typically fight back to retain their share of the market.
The end result is that consumers pay higher prices and get worse service.
'If we consolidate away effective competition it seems likely to me that the consolidation itself will masquerade as innovation and that the hard work of doing a better job of satisfying multiple constituencies will be set aside until the next major crisis comes along,' Crandall said.
American Airlines' attitude towards mergers in part is explained by its poor track record with acquisitions such as TWA, Reno Air and AirCal, as well as the fact that the United-Continental merger would relegate it to the world's third-largest airline with the smallest international alliance, oneworld.
Crandall said the United States could revitalize the ailing domestic airline industry by improving aviation infrastructure and reforming business laws and security procedures.
The airline industry curmudgeon offered several alternatives that would minimize the pressure to consolidate.
The federal government should quickly replace its antiquated air traffic control system ' which raises costs, drives up fuel consumption and discourages competition ' with the NextGen satellite system on the drawing board for years, he said. That would allow more aircraft to operate and enable more direct routes.
Changing labor laws to require binding arbitration might improve labor relations and remove some of the leverage unions enjoy in an industry that cannot afford a strike, Crandall said. He also called for tougher bankruptcy laws so that if a company runs out of money it goes out of business instead of being able to dump its liabilities.
'If both management and labor knew that failure would lead to liquidation the negotiations would go much faster,' he said.
The Federal Aviation Administration, he said, should not allow airlines to over-schedule flights at the busiest airports and fill overcrowded airspace with smaller aircraft.
More effective trusted traveler programs would reduce the expense and hassle of conducting security checks of every passenger at the point of departure.
And, Crandall said, the U.S. government should pursue more balanced open skies agreements because U.S. carriers frequently are denied equivalent operating rights enjoyed by foreign-flag carriers. American Airlines, for example, received rights to serve Beijing but was forced to cancel its inaugural flight when the Chinese government announced that the only arrival slot was at 2:30 a.m. and the only departure slot was at 4:30 p.m.
Crandall maintained his strong protectionist position, saying international alliances have harmed domestic U.S. carriers.
'I've always thought that airline alliances were nothing but a fraud on the public. If I want to buy a Volkswagen I buy a Volkswagen, not a Ford with' a VW logo, he said. 'If I buy a ticket to fly on American, I want to fly on American and not anybody else.'
The alliances were created years ago to aid failing European carriers and did not benefit U.S. carriers, he argued. 'We had them on the ropes and we'd have been better off to finish them.
'The United States has bigger hubs and more traffic and our carriers should have become preeminent internationally and in my opinion would have if we had not created alliances,' Crandall said.
Even worse, in his opinion, is allowing foreign carriers to invest in U.S. carriers.
'Why would you want to allow an international carrier, which has not inherent incentive to provide service within the United States, to acquire ownership of a U.S. carrier? And if you're an international carrier, unless you are masochistic and enjoy losing money, why would you want to buy a U.S. carrier? For only one reason. To drain off international traffic.'