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Flying the Bankrupt Skies

The deregulation of the airline industry reaches its final stages as the legacy carriers falter.

12:00 AM, Sep 20, 2005 • By IRWIN M. STELZER
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Perhaps most important, the new carriers were not burdened with staffing levels that make those that exist in some government agencies seem ungenerous. The legacy carriers have shed workers by the thousands--United cut 25,000 jobs, and US Air used two bankruptcy filings to pare its work force from 46,500 to 22,000. The carriers have also cut wages, in the case of Northwest provoking a strike by its mechanics, who seem to believe that the good old monopoly days are still with us, and who are being shunned by unions representing other workers in the airline industry.

These job and wage cuts are by no means completed. Delta, which has already shed $5 billion in wage costs, is seeking still more savings from its pilots, while Northwest is trying to persuade its striking mechanics to give back some $1.4 billion. Both airlines hope that they can shrink their costs to levels that allow them to compete with the new carriers. One rumor has it that Delta and Northwest will seek additional savings by merging, on the theory that two minuses equal a plus.

Meanwhile, passengers packed into seats on planes filled to capacity wonder how airlines that are now selling all or almost all of their seats can manage to lose money. The answer is that it is one thing to find buns for all those seats, quite another to sell the seats at remunerative prices.

How all of this will play out is difficult to tell. We will know more when United emerges from bankruptcy in about five months. Its labor and leasing costs will be cut almost in half, but it will still be highly leveraged, and with a business plan (or wish) based on $50 oil.

All we know at this point is that we are witnessing a massive wealth transfer--from workers, retirees, and creditors to consumers. That is what advocates of deregulation hoped for some 27 years ago, and unions feared. Both the hope and the fear are being realized.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.