Subsidies puff up airlines

[Guest AME]

Sunday, August 10, 2003

Subsidies puff up airlines

By Anne Applebaum

About halfway through my extensive dealings with Lufthansa last week -- after I had been sent, futilely, to Dulles Airport to change a ticket but before I was told, definitively, that the ticket could not be changed -- I began to have a sense of deja vu. There was something about the combination of rudeness and incompetence, something about the haughtiness of the half-dozen people I encountered at the other end of telephone lines, something about the failure to apologize for bureaucratic error, something that reminded me -- if ever so faintly -- of the Soviet Union.

I don't want to single out Lufthansa. Any frequent traveler will have had unpleasant experiences with ticketing or baggage. Even infrequent travelers will have encountered the impossibly complex fare systems, the incomprehensible reservation and cancellation rules, the bad service typical of most airlines.

The point is not that the airline industry is the evil empire but that all these problems -- from the bureaucratic inflexibility of airline employees to the system's overwrought complexity -- are typical of heavily subsidized, uncompetitive companies operating in a centrally planned economy. Which is no surprise, as most airlines nowadays are heavily subsidized, uncompetitive companies, operating in what is, in effect, a centrally planned economy.

They also lose money, just like companies in centrally planned economies. U.S. airlines lost more than $18 billion in 2001 and 2002 and are slated to lose more in 2003. Not all of the fault was the airlines': Terrorism, SARS and war in Iraq have cut into airline profits. But those factors have also hurt the hotel industry, the restaurant industry and the economies of places as varied as Washington and Orlando, Fla., yet nobody has talked about massive subsidies for the land of Mickey Mouse or the drivers of tourist buses in the nation's capital.

When airlines are involved, they do. Congress approved $3.1 billion worth of financial aid to the airline industry in April, which came on top of $15 billion worth of subsidies doled out, infamously, after 9-11. European airlines are even more heavily subsidized, one way or another. Others have pointed out why this makes no economic sense, so I won't repeat the full argument here. Suffice to say that instead of forcing the airline industry to get used to operating in new circumstances, like everyone else, subsidies merely delay the inevitable industry shakeout.

But it is equally true that subsidies have left a mark on airline culture. Although on the verge of bankruptcy, most major carriers appear to believe in the certainty of their own permanence. Last year, as profits plunged, payments to airline CEOs -- including the bosses of Delta, US Airways and Continental -- all went up. Only the CEO of Southwest Airlines took a pay cut. Perhaps that helps explain why Southwest, although hurting, is surviving the slump better than most.

It's small comfort, of course, to everyone who is reading this while squeezed into an economy class seat, cursing the fact that a pair of much-loved nail scissors had accidentally been left in the carry-on luggage and is now gone forever. But think how few of the people who led the Soviet Union in its final days ever dreamed that that particular conglomerate would collapse. No company has an inalienable right to exist forever. No company is indispensable. On the contrary, it might be a good thing for the industry if an airline or two went bankrupt -- and think how little their passengers would protest.

Anne Applebaum is an editorial writer for the Washington Post, where this column first appeared.

[Don Hudson]

Anne Applebaum clearly does not work for an airline...

[Guest AME]

...even so, she does point out the fact that, most of the countries in the world are subsidizing their airlines, to the tune of 18+ billion in the US alone, in the last 2 years. :S

[Guest Patrick Bergen]

Even so, this type of article is more about the power that the reporter wields with the pen than a true analysis of the industry. One can only imagine that the critique would not have been offered had the reporter gotten what they wanted. The airlines always pay a price when either a reporter or member of government is perceived to be inconvenienced in anyway.

I would be interested in your source for the 18 billion though. It would be interesting to find out what the figure is in Canada. I'm sure Mr Colinette would have us believe he is offering all sorts of support to the airlines.

[Mitch Cronin]

"Congress approved $3.1 billion worth of financial aid to the airline industry in April, which came on top of $15 billion worth of subsidies doled out, infamously, after 9-11."

From the article quoted.

Collenete would rather pump millions into his train sets. If ever there was a moron... Well, I guess they're all over the place in government.