IAM often asked about the major changes have taken place in the airline industry since my days in the field. There certainly are almost too many to list. We all know that airports and airplanes are more crowded. But behind the scenes, much has also changed.
The influence of technology on the industry has been nothing short of profound. When I left the business, I didn’t even have a computer on my desk. Now passengers at airports are going through new boarding procedures made possible by automation, and in many cases, artificial intelligence. The government now uses facial recognition to eliminate the time and manpower consuming passport control. We just show our face and then get waved into the country under some border entry facilities.
In addition, many airlines follow checked baggage electronically, which vastly improves recovery when needed. Now you can buy an AirTag from Apple or something similar and follow your own bag. When it doesn’t show up in baggage claim—and the airline doesn’t know where it is—you can simply point to your phone screen and tell the airline, “Here’s my bag—go get it.”
But perhaps the most obvious changes for passengers have taken place in the area of marketing and sales. In my day, a passenger could call an airline and make a reservation without showing up for their flights. The no-show problem—passengers not showing up for their reservations—was a big one. This led to the low load factors that were commonplace and affected the seat cost. We used to think of 60–65 percent load factors as normal. Today, as travelers know, it’s much higher, in the 80 percent range at a minimum. No longer do we just make reservations; now we buy tickets that are usually nonrefundable.
In addition, technology has greatly changed airline operations, especially takeoffs and landings. All a pilot sees today in a modern cockpit are glass screens. GPS and automated navigation approaches to airports are common. But much more needs to be done and researched in terms of air traffic control to take advantage of new technology. Maintenance recordkeeping has been vastly streamlined as well. Computers follow an aircraft’s operation throughout its journey now. This “health monitoring” can often pinpoint a failing part before it dies so that a mechanic can meet the plane at the gate and fix or replace the part on the spot without the need to troubleshoot from scratch. This reduces or eliminates delays and helps keep the plane and its passengers on schedule.
But while the effect of technology has been enormous, in many ways I believe that a less obvious yet equally far-reaching change has taken place in the area of leadership. There are many more entrepreneurial types of individuals leading airlines these days in the competitive, less regulated environment made possible by deregulation. Many of them, of course, have started new airlines, like Wizz Air and Volotea in Europe, Breeze Airways and Avelo Airlines in the United States, and lots of others throughout the world.
However, this entrepreneurial focus has not been limited to startups. I don’t think that the airline business under government regulation would have attracted many of the leaders of today—although there are exceptions, such as Fred Smith, who started Federal Express in 1971, years before deregulation, and is probably the most respected transportation entrepreneur. One example of an entrepreneurial manager currently is Scott Kirby, the CEO of United, who is leading the way in a number of new areas for his airline. He has been strongly encouraging the development of SAF (sustainable aviation fuel), now increasingly seen as a reality down the road. He has also been pushing for the use of battery-powered aircraft on short flights and has led the way in financing with the establishment of a venture capital arm to invest in these areas.
American, Alaska Airlines, and many others also have entrepreneurial leaders and new venture capital arms. They have placed orders for battery-powered eVTOLs (electric vertical takeoff and landing vehicles), battery- and hydrogen-powered aircraft, and hybrids. Manufacturers have also been very active in these areas. Boeing invested in and is developing Wisk, an electric autonomous advanced air mobility (AAM) aircraft, and is placing big bets on SAF.
Another major effort in the area of alternative energy involves hydrogen. While Boeing apparently doesn’t believe a hydrogen-powered aircraft is achievable until at least 2040, Airbus has a 2035 target date for a hydrogen-fueled aircraft in the one-hundred-seat sector. (It should be noted that in 2023, its executives began hinting that this target date could very well slip by years.) It uses four propeller-driven motors, and its range is more suitable for the regional market than for mainline airlines. But hydrogen requires a massive investment in production and distribution infrastructure. It will be, I think, decades before mainline hydrogen aircraft are feasible.
In addition, there are a host of technical challenges for a sustainable battery-powered aircraft to overcome. For example, the weight of an airplane goes down in flight as fuel is used. But the weight of batteries stays the same, cutting into range. So the technology must make huge advances before even medium-range aircraft are possible. These and similar aircraft will have a minuscule effect on the commercial airline industry. Commuter aircraft constitute a low-single-digit fraction of the total number of aircraft in service, and it will take decades to turn over the fleet with these and superseding larger designs. But this doesn’t mean that small steps won’t be pursued. It’s an important start.
Major airlines are undertaking other entrepreneurial pursuits in addition to the development of new aircraft. Delta’s purchase and operation of a refinery come to mind. The eVTOL start-ups intend to create an entirely new air taxi industry—tiny flying machines that allow passengers to overfly congested highways between airports and downtowns or between downtowns and suburbs. However, an entirely new certification system will be required across the globe, and new air traffic management systems must be created to control the plethora of “bumblebees” buzzing around the cities and in and out of commercial airports, below controlled airspace.
I have been asked a number of times: What became of the great old airlines like Pan Am, TWA, and the like? Many other airlines disappeared through mergers or acquisitions, including Western, Northwest, Braniff, Allegheny, and Piedmont, to name a few. Each carries its own story.
In the case of the well-known Pan Am, the company’s leaders never developed a strategy to deal with deregulation. The airline was viewed as the US flag carrier and pioneered many famous new services, going back to the days of the Clipper—a flying boat—and, in recent years, the double-decker Boeing 747. After deregulation, however, its management was focused on route expansion, mainly to China as well as domestically, when it should have focused on its cost structure and the likelihood that it would be running up against low-cost competition. Buying National Airlines largely for the route structure and domestic mass it provided, then agreeing to raise National’s labor costs to those of Pan Am, made no sense and was certainly a nearsighted management decision in a deregulated environment. After many unsuccessful attempts in the 1980s to reinvent itself, the company sold assets such as the famous Pan Am Building in New York to raise needed cash rather than take steps to be more competitive. Pan Am finally declared bankruptcy and ceased operation in 1991. Most of its route assets were bought by Delta.
TWA had much the same issue as Pan Am. Its management never developed a strategy to deal with deregulation. The airline, founded in 1930, had been owned by Howard Hughes since 1939. In 1960, Hughes was forced to put his stock into a trust at the insistence of banks before they would finance the jets TWA needed to compete. By 1966, Hughes had had enough of dealing with the banks, and despite the trust, nothing prevented him from selling his stock. The rest of the story is told in chapter 9. It was an unfortunate ending to a great airline.
Another question I’ve been asked concerns the influence of airline deregulation on the airlines I’ve been involved with. It is impossible to overstate its influence, initially on our efforts to merely survive and in later years on our efforts to sustain ourselves as a successful carrier.
Although deregulation was not approved until 1978, TIA got a taste of what it meant in 1971 when a start-up, Southwest Airlines, received approval from the Texas Aeronautics Commission to begin operations and compete with us. Operating wholly within Texas, Southwest was out of the jurisdiction of Washington and not regulated by the Civil Aeronautics Board. The Texas commission liberally approved Southwest’s low fares and market entries while TIA was governed by the lethargic CAB from Washington. Southwest, as a new airline, employed new workers at entry-level wages and instituted liberal work rules. TIA’s wages were the product of many years of union negotiations, going back to 1947, and were much higher and contained many expensive work rules as a result.
Southwest executives publicly vowed to put TIA out of business. We had to drastically adapt, or we would die. This led to renegotiating labor contracts and our experiments with Peanuts Fares. When deregulation was approved on the national level, in 1978, not only could Southwest expand beyond its traditional borders into the rest of the United States, the legacy major and local-service airlines could also expand at will into TIA markets and set prices we needed to meet in order to compete. New entrants popped up all over the country. Many of them were potential threats to TIA. In response, and taking our own advantage of deregulation, we expanded TIA’s routes and marketing, launched New York Air, and embarked on growth through mergers and acquisitions. We had to gain infrastructure and slots at airports, and we needed a sophisticated computer reservations system. Our efforts to acquire National, TWA, Continental, Eastern, and others were driven by these realities. Some were successful. Some were not.
Our teams led the way on many fronts. Perhaps the most important was to show airline management, as of course many have done since, that price is an extremely critical factor for most airline passengers— just as it is in many businesses. We take this for granted today, particularly with computerization, which puts price first and foremost on flight reservation sites. But during the days when I was active in the industry, the importance of price was only beginning to be understood. Perhaps because most airline management personnel were able to fly for free or close to it, they never felt what consumers felt.
Today, carriers and the entrepreneurs who lead them have taken various approaches to the cost equation. There are carriers that “spend” some of their cost advantage by providing slightly better service, such as an improved seat pitch. There are also scheduled services provided by tiny airlines, such as Tradewind Aviation, which operates from small, convenient New York–area airports, and JSX, operating out of close-in Love Field in Dallas. Both airlines use small aircraft and emphasize their convenience. Of course, there are also many larger airline start-ups in the United States and abroad—the so-called LCCs and ULCCs (low-cost and ultra-low-cost carriers)—offering, as their names imply, even lower prices. These carriers provide bare-bones service, which passengers are willing to tolerate in exchange for the much lower prices. Carrier executives certainly understand price these days.
TIA did not invent cut-rate fares. Sharply discounted fares were in existence long before us, but there were major restrictions on their use. TIA, however, was the first airline to offer the unrestricted sharply discounted fares that today are common across the globe. We launched this fare promotion—Peanuts Fares—just before deregulation legislation was approved and began making record profits with them. Later aided by the freedom under deregulation to make creative marketing decisions without governmental economic oversight, we began internally considering “unbundling” services from fares in the late 1970s. Unbundling is common today and taken for granted. In earlier days, charging for checked bags and even food was unheard of. We didn’t go forward with much of this at the time at our airline, although Donald Burr, after he left TIA in 1980 to start People Express, did use the unbundling concept quite effectively. Today, all airlines have some form of unbundled service, often to the great annoyance of the traveling public.
Many old-timers in the 1970s and 1980s resented me for taking an aggressive approach to our problems and challenges, several times in the feared arena of ownership and control. We were the first to resort to the stock market to solve our strategic needs. We were the first airline to launch a bidding war for a carrier and the first (and, to date, the only) airline to successfully acquire another carrier by appealing to its shareholders through the tender-offer route. These moves, of course, were made possible by the elimination of the economic regulation of the industry. Consequently, I was never a member of the “club.” I was kind of feared by other members, perhaps largely because of these unfriendly deals and my willingness to take risks. I always sat at the end of the table during industry association meetings while the more established, more tenured, and older members sat toward the other end. They didn’t want to sit near me.
Another question I’m often asked is whether airline deregulation has gone too far and whether some economic regulation should be brought back. This question brings to mind the famous comment by the dean of airline deregulation and chairman of the CAB during its dismantling, Alfred Kahn, who noted that with the legislation, the egg had been broken and was not capable of being put back together.
Some argue that airline deregulation has brought a progressive consolidation of the industry. However, it would be a mistake not to look at the industry before deregulation, when there were many mergers and acquisitions. Today, around 80 percent of US domestic passenger traffic is carried by four airlines: American, Delta, United, and Southwest. But there is no reason to believe it would have been different without deregulation. In fact, there might be even fewer dominant carriers, since Southwest was essentially a product of deregulation and is today one of the largest carriers. Also, Alaska Airlines bought Virgin America in order to gain assets and critical routes in San Francisco, Los Angeles, and elsewhere, and Alaska and JetBlue have attempted mergers with Hawaiian and Spirit, respectively, but been rebuffed by a very active FTC. As we did at TIA and Continental, these carriers have concluded that mergers and outright acquisitions are needed to gain critical mass, although the government had different ideas It should be noted that this need would still be present in the absence of deregulation.
Under regulation, the CAB protected existing airlines from all types of new competition, both from entrepreneurs and from one another. Applications for new routes often took years to process through the CAB. Changes to fares had to be approved. So did other changes, such as adding coach class to airplanes, lowering fares, adding liquor to in-flight service, and, as we found out, prohibiting cigar and pipe smoking.
Today there are efforts in political circles to reregulate the airline industry and occasional op-eds advocating the move. The theory is that airport congestion, crowded planes, ancillary fees, and pretty much all air transportation ills are the fault of deregulation. For example, in response to airlines squeezing in an increasing number of seats, the federal government is considering requiring a minimum seat pitch. In response to airlines installing lavatories that a small adult can barely fit into, the government is considering requiring potties that can accommodate wheelchairs and people with disabilities. In response to extended delays, the Department of Transportation now requires compensation to be paid under certain circumstances.
Yes, there’s no doubt that the freedom to set fares, fees, and airplane configurations are rooted in deregulation, but this is what competing in a free market and its benefits are all about. As for crowded airports, this is a problem rooted in the historical lack of adequate funding by Congress. Fortunately, these calls for reregulation have been made in the wilderness, and I hope they stay there.
This trend, if that is a fair word, toward reregulation isn’t happening in a vacuum. Today, airline labor unions are seeing a resurgence, alongside the resurgence of unions generally. Pilots won big, big wage hikes at American, Delta, and United. Later, Southwest and Alaska followed with hikes not as large but still quite substantial. Airline unions are doing fine in today’s deregulated environment, but we can only assume they would be delighted to see a return to the regulated days— if the egg could somehow be put back together.
I have also been questioned about the legacy I left in the industry after my Continental days. Certainly, I have left more than just a lesson in how to reduce labor costs in a deregulated industry. I have no special secrets for that. In fact, Frank Hulse, the founder of Southern Airways, faced off with his ALPA pilots by hiring nonunion pilots during a strike long before I arrived on the scene. A long pilot strike doomed Mohawk Airlines, leading to its acquisition by Allegheny. Despite the reputation and unreasonable vilification received for being anti-labor, I feel that a larger price is often paid over time if the problem is just kicked down the road. I also feel that confronting the obvious issue up front allows a company to be honest with its employees about their futures and to move on to other critical areas. For example, we were able to build two new major strategic hubs, Houston and Newark, after we got our difficult times behind us, opportunities that other carriers would have jumped on had they been able to.
As I reflect on my airline career, I remember wanting to get involved with airlines even when I was a teen. Not aviation generally, mind you, but airlines. Perhaps it all got started when I planned and bought tickets for—with Dad’s cash, of course—the trip to Europe I took with my family the summer after I turned fifteen and we went to see my brother, stationed in Germany, and explore the Continent. That was my—and my parents’—first experience on an airplane. For the following three summers, I sought a job with TWA, the airline we had flown to Europe on, and each year I was politely rejected by its personnel office until finally, when I was eighteen, TWA asked me to come in for an interview. I had been bitten by the airline bug, it would seem.
When I was in my early twenties, I tried other types of businesses— working for a brokerage firm, L. F. Rothschild & Co., during the summer of my junior year in college and applying to and being interviewed by American Can Company. I also interviewed with the auditing firm Haskins & Sells after college so I could consider the field of accounting while I was waiting for my hoped-for Harvard Business School acceptance. As a student at HBS, during the summer, I went to work for Kaiser Aluminum in California, but I realized there what it was that I really wanted to do. I only liked aluminum when it was part of an airplane. Hence my first job at TWA—but even that was after I turned down a Boeing offer following a trip to Seattle upon my HBS graduation.
If anything, my experience shows the value of pursuing your calling. My goal was building airlines. Most days for me did not seem like work—and I believe everyone should do what they love so they can feel this way. I always encourage young people heading out into their careers to follow their passion.
Later, when I was fifty, I also found pleasure in a field far removed from the airline business—the world of investing, which since then has also become a passion. I was exposed to investing at an early age. I can still picture my dad listing his stock purchases in a book each day, and I even recall some of the stocks he owned. When we were teenagers, he would ask my brother Val or me to walk down to the subway station on 63rd Drive in Rego Park after 6:00 p.m. and pick him up a copy of the closing edition of the New York World-Telegram and Sun, which listed the day’s stock market prices. Sometimes it’s easy to know where your passion comes from—all you have to do is remember what you love.