Flying with the Low Bidder

There is an old, apt bromide in flying world: It’s easy to end up with a million dollars in the aviation business…just start with twenty million.

And so it has gone for the airline industry. Since the airline business began nine decades ago, airline companies have collectively not made a dime.

And these days the business is as bad as it ever has been. Facing high fuel costs, restrictive labor contracts, an epic recession and intense pricing pressure, the are grasping for ways to make a buck. We all know this – after all we are getting tenned and twentied to death to fly our bags, get some chintzy headphones, a flimsy pillow and thin blanket or a microscopic snack. How far off can pay toilets be?

I always assumed (perhaps it was denial) that this dysfunctional business model did not mean the safety bar was lowered an iota. But over the past nine months, while working on the PBS Frontline documentary “Flying Cheap”, I have learned that is not the case. Airline flying in the United States may be the safest means of travel ever devised since the invention of the wheel, but it is often not as safe as you maybe led to believe.

Over the past twenty years, the airlines have been doing what is common on so many other industries. They have been outsourcing.

The idea has its roots in deregulation. When Jimmy Carter took the government out of the business of dictating airline routes and rates, it was not too long before the airlines cooked up a new operating model we now call hubs and spokes. The idea: gather up passengers from smaller cities – get them to the larger airports – and stuff them into bigger planes for the longer hauls.

Hamstrung by expensive, restrictive union contracts, the big ”legacy” carriers were not structured to efficiently fly short runs in little airplanes. So they started hiring others to jump the puddles and came up with a scheme called “code sharing”. The legacy airlines paid commuter carriers to fly a certain number of flights to their hubs. The smaller carriers borrowed the name and livery of their clients – who would sell the tickets. These airborne contractors were paid by the completed segment (on time) – regardless of the number of passengers on board.

For passengers it made life much more simple. They could buy one ticket form a familiar brand name airline to take them from Peoria to Paris. Most of us would assume that the smaller airline would operate the same way as its larger customer.

But in fact the big airlines generally go out of their way to stay out of the business of their contractors. They point the finger at the FAA and say it is responsible for the maintaining “one level” of safety in airlines large and small. And that is technically true. But the legacy carriers exceed FAA minimums in almost every regard. They have discovered enhancing safety, maintenance and training programs actually accrues to the bottom line. Flying safer also means flying more efficiently.

But all of this requires some significant up front investments – which would put the smaller carriers at a competitive disadvantage. After all they win those flying routes by being the low bidder.

The major airlines do not send their maintenance and training experts – or their Sully’s -to to their regional contractors – because they prefer keeping a thick firewall between the operations.

Perhaps they are listening to their lawyers too much. As it stands right now, the big airlines are not liable when one of their outsource carriers crashes. If the laws were passed forcing that liability to be shared (“joint several liability” is the legal term of art), things would change about as quickly as Continental/Colgan 3407 went from a routine flight to a horrible disaster.

They say this industry has a “tombstone mentality” – meaning people have to die before things change. Let’s hope the souls we lost a year ago did not die in vain.