The Great Airline War
Will IT’s “whiz kids” fizzle?! Will sexy Southwest conquer all?! Will Braniff lose its routes?!
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The litigation between Southwest and TI is likely to drag on until the pages of the magazine have turned to dust, and many of the disputes are quite recondite and confusing. If the case were to be distilled to familiar clichés, however, each side would be saying roughly the following: TI tells Southwest that this town ain’t big enough for both of them—that TI can’t compete with Southwest’s fares, and so one or the other of them must get out of town. (“Town,” in this case, is the airports at Harlingen and McAllen; TI now serves both cities, while Southwest flies only into Harlingen.) Southwest, on the other side, contends that a growing pie means bigger slices for all. In its court case and in its appearances before the TAC, Southwest had produced dozens of the Little People of the Valley, citizens of modest wealth who testify gladly that Southwest—with its $25 fare, compared to $40 for TI—has given them wings out of the Valley: they fly to Houston to be treated by Dr. Cooley (how they pay for that is another question), they fly to San Antonio to visit their long-lost children. For those who like numbers, Southwest also has one particularly impressive piece of evidence; in 1973, before Southwest got into the picture, TI was carrying an average of 305 passengers each day out of its two airports in the Valley; in 1974, the average was 331. During August of 1975, Southwest alone carried 785 passengers a day out of its one airport at Harlingen. Southwest, which can afford such sentiments, has a live-and-let-live attitude about the Valley. “TI’s own estimates show that sixty per cent of the traffic out of the Valley is connecting on for out-of-state flights,” says Lamar Muse. “We’re not allowed to carry those people. Anyway, they want to fly to DFW and not Love Field. If TI would just get on the ball and put on two daily nonstop between Harlingen and DFW, they could make $985,000 each year on that route.” To this, Lorenzo replies, “Mister Muse is full of S-H-I-T. He knows very well that there’s no single flight that will cater to the needs of that market. He also knows that we are operating that very flight during August and couldn’t make a fifty per cent load factor on it. So he is just spewing smoke.” Nonetheless, TI’s diffidence about his kind of competition is only one of several illustrations that airlines aficionados cite to show that Lorenzo and company, while decent and honest, just haven’t figured out how to give their airline a winning image.
Far from digging into the competition with Southwest, TI feels so spurned by Southwest, the TAC, and the ungrateful cities of the Valley that is has decided to turn its back on the “Texas Philosophy.” The “Texas Philosophy” was TI’s dream, at least expressed to local chambers of commerce. Lorenzo told them that the airline would give first allegiance to the state, that the Lufkins and Brownwoods would prosper under its aegis. Now, Lorenzo says, “We’ve had to make a wholesale change in the business strategy of the company during the last six months. We have to change in order to allow the company to operate as a viable concern in the business environment of the state [for “business environment,” read “competition from Southwest”]. It’s made us de-emphasize Texas. We had announced service between Hobby Field and Austin. If you look out at Hobby, you’ll see a nice facility that’s never been used. We decided not to offer the service. The current environment prohibits us from making business investments in the state of Texas, if they can be snapped up by someone with different costs and incentives than we have.” And so TI is broadening its horizons, looking toward Las Vegas, La Paz, and Mazatlán, rather than to Longview, McAllen, and Austin. October was the first month that TI’s “revenue passenger miles” pulled ahead of the previous year’s level; and that, says Lorenzo, is because “we’ve succeeded in redeploying the aircraft outside of the state of Texas.” Southwest, meanwhile, is preparing to expand, filing for service to Austin, Corpus Christi, El Paso, Lubock, and Midland-Odessa.
From a profit-and-loss point of view, it is hard to fault Lorenzo’s decision. For more than a decade, the old local service carriers have been trying their best to become the baby trunk lines. When the government got tired of paying exorbitant subsidies to lines like TI, it decided to give the feeder lines a few plums to offset the lemons they’d been assigned to handle: that is why TI got its routes to Los Angeles, Denver, and Mexico City. Seeing that these big cities make money while Waco continues to be a loser, TI, like many other feeder lines, is drawing the obvious conclusion: why bother with the Wacos at all?
It is difficult to have an evil thought about TI. It wears its heart on its sleeve, it puts the state’s name right there on its airplanes. It is trying very hard. Its managers are so appealing, and much more savory than the hard-boiled toughies at the top of Braniff. Its predicament is so touchingly similar to that of the corner candy store being muscled out of the existence by the new, shiny, soulless emporium of a national chain supermarket. Still, the question remains: why is TI still in business? What purpose remains for it to serve?
This is connected to the large question now making the rounds in Washington, which is: what lies ahead for regulation of the airline business? Hearings have been held, reports prepared, and, in the inimitable government fashion, detail amassed in quantities sure to stun all inquiring outsiders. The only trend clearly visible through the chaos is that the CAB is going to get it in the neck. A good number of politicians have decided that the airlines can now be portrayed as a conspiracy against the public, and so the CAB and its clients are the more and more frequent targets of rhetorical abuse. Last spring, for example, Senator Edward Kennedy held a long series of hearings, during which he lost no opportunities to point out the differences between the low fares of Southwest and the high fares of the CAB’s carriers.
On their side, the airlines men do make several plausible points. The first is that the American airline system is, as Russell Thayer of Braniff puts it, “the most remarkable system of transportation in the history of mankind,” and that the “high” fares it charges are only half as high as those charged everywhere else in the world. Anyone who has ever invested a year’s savings in a short flight from, say, London to Rome, knows the truth of this statement. The second point the industry makes is that reduced fares—which are the main goal of “deregulation”—really make very little difference to most travelers. On Braniff, for example, some 70 per cent of the customers are businessmen, traveling on expense accounts; for them, convenient scheduling and speedy flights are far more important than price. One of Thayer’s prize examples of this point is the record of the “Bi-Centennial” excursion fares which United Airlines introduced last summer, and which the other lines reluctantly tagged along with. This special deal offered a twenty per cent reduction on certain journeys; during the first few weeks it applied, Thayer gleefully points out, its most common use was by people who had already traveled and turned their tickets back in for refunds. Even now, he says, it has not enticed many more passengers to fly; it has only allowed the ones who would have flown anyway to fly cheaper.
Even Lamar Muse would agree with this proposition—that modest fare cuts make no substantial difference in the market. “Twenty per cent’s not enough,” he says, “you have to cut the fare by half.” And, short of dismantling the scheduled airline system or bringing on the transportation anarchy that the industry spokesmen constantly warn against, there should be some ways to bring the fares down. Charter flights, group travel free of the awkward administrative burdens that now restrict it—these are the ways to benefit the customers not traveling on expense accounts who pay some attention to price. All CAB fares are now set on the assumption that the average “load factor” on the trunk lines will be 55 per cent—that is, that 45 per cent of the available seats will be empty, carried for free. (In practice annual average load factors fall below that level.) This means, in effect, that the passengers who do travel must pay almost twice as much as they would if the airplane were completely full. Russell Thayer, among others, contents that lines like Braniff, with all their intricate interconnections, could not tolerate a load factor any higher than 55 per cent; if they did, bottlenecks would start developing all over the system. That may be true. But there seem to be clear opportunities for additional service where passengers would trade inconvenience worse scheduling for the benefit of half-price fares. The popularity of the old student standby fares and constant demand for charter flights on long hauls from coast-to-coast or to Europe seem to support this principle. (The restrictions against charters often leave the CAB in the grotesque position of spending most of its energy keeping non-bona-fide group members from stealing aboard a cut-rate flight, rather than encouraging the trunk lines to find more efficient ways to carry the passengers.)
The inertia of vested interests means that few of these changes, if they come at all, will come very soon. The CAB, tired of being the most maligned agency in Washington, announced last fall the beginning of an “experimental” program of freer competition that would allow the existing trunks to cut fares by modest levels—ten to twenty per cent—and to add or drop routes, also within modest limitations. This is what radicals used to call incremental change; it is hardly enough to satisfy the doughty theorists of Southwest, who would like to see the entire business thrown open to competition. The strong would survive, the weak would die, and for several years there would be chaos in transportation. But, when the dust had settled, passengers would be riding in inexpensive splendor—so this theory goes. Sadly, it seems at least as probable that three or four large trunks would squeeze everybody else out of business, and then impose an oligopolistic control over pricing like that of the guardians of the public’s automotive interest in Detroit. Even Braniff might be too small a fry to survive in this sort of free market. “What you’ll see under President Ford’s proposals,” says Francisco Lorenzo, “is two types of airlines. You’ll see United Airlines, and you’ll see some lines like Southwest.” Braniff, TI, and all other inhabitants of the middle tier would be squeezed out of the market.
In the short run, it may not be necessary to make such dire predictions. The deliberate, not to say glacial, pace of governmental reform virtually guarantees that such changes as come at the CAB will come very slowly. But in the longer run someone will win in the national airline war, and the outcome will be presaged in Texas.
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