Let airlines fail

Chief Executive, The, July, 2004

CEOS OF MAJOR AIRLINES have gone hat in hand to Congress, asking for billions of dollars of taxpayers' money. They're blaming high oil prices and security costs for their financial plights, but their problems are far more deeply rooted. (See "Clipped Wings," January/February 2004.)

We say it's time to face facts: The major airlines are mismanaged and have cost structures that are out of line with reality. They're also capable of offering appallingly bad service. If they can't make it on their own, they should be allowed to fail. Market forces should prevail. There are other people, at Southwest and JetBlue among other upstarts, who seem to know how to run airlines.

United is in bankruptcy. Both American and Delta are threatening to file. That's just fine. They need to attack their cost structures. They have given away so much money to pilots and other highly unionized sectors of their work forces. They also have locked themselves into hub operations that cause them to bleed red ink the minute there is an external shock.

If the major airlines can't fix themselves, their assets should be sold off. We've seen Braniff, Eastern, Pan Am, TWA and many other carriers go out of business. As long as it doesn't happen all at once, there's no reason we shouldn't see yet another wave of extinctions.

More broadly, the spectacle of airline CEOs going to Washington begging for handouts sends a negative signal to the public about all CEOs. If chief executives are serious about arguing that the government's role in business ought to be reduced, you can't support handouts for those who have failed.