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\nThis is an audio transcript of the Behind the Money podcast episode: \u2018What\u2019s causing the US airline chaos?\u2019 Michela Tindera If you\u2019ve flown on a commercial airline in the US recently, this might sound familiar to you. Airline passenger 1 They won\u2019t have flights for the next three days. Airline passenger 2 You don\u2019t know what to do. The only flights are way too expensive. Airline passenger 3 Been stuck for, what, a good 18 hours now. Michela Tindera These clips are all from the last year. And it\u2019s no secret that it was a tough time to be an airline customer. Here\u2019s the FT\u2019s Chicago correspondent Claire Bushey. She reports on the US airline industry. Claire Bushey Nearly a quarter of the 9mn flights that were scheduled last year were either cancelled or delays. And if you put, like, an extremely conservative assumption that 120 people on each flight, that\u2019s nearly 25mn people who got their flights cancelled last year, that\u2019s 25mn people who are angry in an airport. Michela Tindera Twenty-five million people. That\u2019s a little less than the entire population of Australia all getting stuck and waiting for flights around the US. But Claire says the travellers aren\u2019t only upset about cancelled flights. Claire Bushey There\u2019s been an explosion in complaints to the Department of Transportation \u2014 missing baggage or airlines not refunding money in a timely manner. It\u2019s kind of astonishing. It\u2019s, like, five times more than before the pandemic. Michela Tindera But here\u2019s the thing about the airline industry today. Claire says these problems aren\u2019t just because of the pandemic or a broader economic slowdown. They\u2019ve been brewing for decades. [MUSIC PLAYING] Michela Tindera I\u2019m Michela Tindera from the Financial Times. Today in Behind the Money, we\u2019re taking a closer look at the US airline industry. We\u2019re gonna talk about how we got to where we are now and if there\u2019s any chance that we\u2019ll see a change in the future. [MUSIC PLAYING] Hi, Claire. Welcome. Claire Bushey Thank you. Nice to be here. Michela Tindera So, Claire, I\u2019m curious, have you flown recently? And how did that go for you? Claire Bushey Yes, I have flown recently, and I am happy to report that it did go smoothly. I visited my colleagues in the New York newsroom at the FT a couple weeks ago, and I was honestly quite worried, but ended up going smoothly. Michela Tindera Yeah, I flew for the holidays and I had, you know, a fair bit of nervousness, anxiety, because I was flying when there were a lot of cancellations. My flight did go smoothly, too. I felt like I dodged a bullet. Claire Bushey I think that there\u2019s a real feeling that air travel has become more unreliable. There was a Gallup poll that was done in August. They found that 37 per cent of Americans had an unfavourable view of the airline industry, compared to 27 per cent who viewed it favourably. And that was the first time in more than a decade that that had been true. Usually there\u2019s more people who are fans of the airlines than critics. Michela Tindera Right. So how did we get to where we are now? Claire Bushey When I was reporting, the theme that seemed to come out in interviews was that we didn\u2019t get here overnight. The United States started regulating air travel in the late 1930s. And it was, you know, it was very expensive (chuckles) to fly during the jet age and what we often think of as like the golden age of travel. [ADVERTISEMENTS FOR AIRLINES PLAYING] Claire Bushey But in the 1970s, President Gerald Ford wanted to take a crack at deregulating the industry. And then that cause was picked up by Democratic Senator Ted Kennedy because he argued that deregulation would lower fares and allow more people to fly. And President Jimmy Carter signed the bill deregulating it in 1978. And then essentially overnight, airlines could fly anywhere they wanted and they could charge whatever they wanted, whatever customers were willing to pay. Michela Tindera OK. And so back then, how did the airline industry react to the government\u2019s push for deregulation? They must have been thrilled, right? Claire Bushey So one of the things that I thought was really interesting when I started reporting this is that the airlines were actually extremely against deregulation. The Smithsonian has this essentially a pamphlet from Delta Air Lines from the 1970s. And the pamphlet says that deregulation would, and I quote, \u201c\u2009.\u2009.\u2009.\u2009result in concentrating the airline industry in the hands of only a few carriers, of causing service deterioration at smaller cities and in smaller markets, and of jeopardising the financing of airport developments\u201d. End quote. Michela Tindera How did that go once the industry was deregulated? What happened? Claire Bushey This, like, resulted in basically chaos. You had dozens of new airlines formed and they paid lower wages than the established carriers, allowing them to have a lower cost structure which allowed them to offer fares for much cheaper. And that in turn kicked off price wars among all the airlines, new entrants, old players, et cetera. And, you know, fares plummeted as airlines battled for market share because you had all this competition and instability and fighting on price. You had some major airlines go out of business, complete upheaval for like 15 to 20 years. News clip 1 More big problems for Pan Am today. The airline filed for bankruptcy. News clip 2 TWA would file for Chapter 11 bankruptcy on Wednesday. News clip 3 United Airlines declared it may go bankrupt as early as this fall. News clip 4 American Airlines filed for bankruptcy today. Claire Bushey Those bankruptcies really caused the airlines to focus on cost-cutting, not investing in their operations, not investing in their people, not investing in IT systems. Just, you know, cut, cut, cut. Michela Tindera That\u2019s kind of when we start to think of the airlines seat growing smaller and smaller. Claire Bushey Yes, it is definitely not your imagination. Although, you know, that\u2019s really more on the revenue side because at the same time as they were, like, cutting back on things, they also needed to increase revenue and one way that you can increase revenue is by putting more people on the plane. And so if you want to have more seats on the plane then those seats will get smaller. Michela Tindera OK. And emerging out of these bankruptcies in the 1990s and 2000s, airlines were looking to cut costs and they moved into this new era of consolidation, right? Could you talk a bit more about what happened with that? Claire Bushey Yeah. Consolidation swept through the sector as these airlines were trying to find a way to financial stability. And so you had lots of mergers in general, but you also had these three mega mergers in which United, Delta and American all basically swallowed someone who was about the same size as they were. And so you had fewer options. One of the consumer advocates that I spoke to said that between the four major carriers \u2014 which is United, Delta, American and Southwest \u2014 and their affiliated regional operations, they control 80 per cent of the flights in the United States. Michela Tindera So then over the last decade, it\u2019s kind of been this era of consolidation that we\u2019re now living in. Claire Bushey Yes. Michela Tindera So what does that look like for these companies, their financials and for investors during this time? Claire Bushey For much of the last decade, the financial picture for the airlines has been improving. And it has been improving to the point that they can buy stock back from investors, which of course, investors love. Between 2014 and 2020, they spent 115 per cent of their free cashflow on buying back shares. So if you\u2019re spending money on buying back your stock, that is money that you don\u2019t have to invest in operations. Running an airline is a really difficult operation and it requires capital. And you\u2019ve got to buy planes, for the love of God. So it\u2019s a capital-intensive industry. And if you\u2019re prioritising giving money to investors, you are going to have less money for other priorities. Michela Tindera Right, yeah. And so, as you said, there were these massive stock buybacks in the years leading up to 2020 and then, of course, the pandemic hit. So how did that impact airlines\u2019 financials? Claire Bushey The Covid-19 pandemic devastated so many industries, but I feel like you\u2019d be hard-pressed to point to one that was harder hit than the airlines. In the United States, traffic of air travellers fell by 90 per cent in April 2020. It was existential for the industry and the chief executives for all the major US carriers went hat in hand to Capitol Hill and said the US airlines are essential to this country. They are the backbone of the economy. And legislators agreed. They gave them like an initial $54bn so that they could survive. And they told them, you cannot lay off people. And they adhered to that. But they encouraged early retirements and voluntary leave, and then demand rebounded faster than expected. In 2021, people started to fly again in the US and you started seeing operational problems then, and it has only continued and worsened. Michela Tindera Right. And so just to recap everything we\u2019ve gone over so far: the US airline industry has gone through periods of regulation, deregulation, bankruptcies, consolidation and a pandemic. These massive bailouts helped to keep the industry afloat when demand was plummeting. But now the demand is back and surging, airlines haven\u2019t been in a place to meet it. So it\u2019s important to say that on top of the airline industry\u2019s problems, the industry regulator, which is the Federal Aviation Administration or FAA, is in rough shape, too. Claire, what\u2019s been their role in all this? Claire Bushey So the FAA is part of the Department of Transportation, and they are responsible for everything to do with civil aviation. They run air traffic control, which is probably the biggest deal. And they also certify aircrafts to make sure that they\u2019re safe. Unfortunately for the FAA, their staff has been shrinking at the same time that their job has been growing. Civilian airspace is simply more crowded. There are more flights and they don\u2019t have as many people to oversee the airspace as it\u2019s becoming more crowded. Michela Tindera OK, then what\u2019s the problem here? Is it that they don\u2019t have enough funding? Claire Bushey The FAA does not receive its funding on any sort of regular basis. It receives its funding when there is an FAA reauthorisation bill. And getting that passed in Congress can take any amount of time, and it doesn\u2019t necessarily fund them for very long. They\u2019ve only had five years\u2019 worth of funding approved at one time, once since 1982. And the problem is, when you\u2019re an agency that funds large infrastructure projects, a five-year horizon is sort of important because no contractor wants to work with an agency that has one-year funding for a project. It also has had to deal with the fact that as anti-government forces in the Republican party have become more vocal over the last few decades, there have been many more threats of government shutdowns. And when there is a threat of a government shutdown, the FAA has to stop whatever it\u2019s doing and plan for how air traffic control will operate. Michela Tindera Wow. This all sounds like a mess. I mean, there\u2019s issues with the private side, these airline companies, which we have talked about earlier. And then there\u2019s issues with the public side, with the FAA. Is anyone trying to fix any of this? Claire Bushey I mean, we didn\u2019t get into this overnight. You know, it\u2019s gonna take a long time to fix. However, there do seem to be some efforts that have come up recently and seem to be gaining a little more traction than they have in the past. For example, there are consumer advocates who are pushing for tighter regulation of the airline industry. That\u2019s people like William McGee, who is a senior fellow for aviation at the American Economic Liberties Project, which is an anti-monopoly think-tank. And he wants to see airline passengers have the right to sue airlines over consumer issues. Because right now, the Department of Transportation is actually the only regulator that can administer any sort of punishment to airlines when they screw up on things like having mass flight cancellations that they are responsible for. There are also a couple of Democratic senators, Richard Blumenthal and Edward Markey, who have introduced bills calling for an airline passengers\u2019 bill of rights, and that would entitle passengers to some compensation when there are cancellations and delays or if people are involuntarily bumped from a flight. And we\u2019ve also seen the Department of Transportation take a more active role in the regulation of airlines because they sort of are the only sheriff in town. The DOT launched an investigation to Southwest for potentially having unfair and deceptive practices by publishing schedules that it knew it was unable to fly. Now, Southwest disputes this but the fact that the DOT has launched this investigation is\u2009.\u2009.\u2009.\u2009it is meaningful in that it is showing some signs of life. Michela Tindera This legislation that you mentioned that Senators Markey and Blumenthal are working on, if this gets passed, how do you think it could change the industry? Claire Bushey If this legislation is passed, it would be a huge deal. It would allow consumers to sue airlines, it would allow attorneys generals to sue airlines. It would give compensation to travellers. Michela Tindera So how likely is it that this does pass in Congress? Claire Bushey It\u2019s very important to point out that as of now, this bill has no (inaudible) support. Similar versions have been introduced before. They have not passed. And so it is possible, same thing happens again. What might be different this time is we have people who are angry about being stuck in airports. And you know, Senator Markey said that he thinks the incidents are going to keep happening and that that public anger is going to continue to build and create pressure to actually get this legislation passed. And also, Republican legislators fly too, is something that he pointed out and also something that the head of the flight attendants\u2019 union pointed out: that most senators and congressional representatives commute by air to their home district. Michela Tindera And what do airlines think of this? I mean, I know the major airlines have all recently reported their quarterly earnings and held calls for that. Were they addressing these sorts of issues during those? Claire Bushey I was honestly surprised it did not seem to come up that much on the earnings calls. I asked the chief executive of American Airlines if the perception that air travel was increasingly unreliable, if that worried him, that it would lead to greater government regulation. He noted, you know, the airline would work with government authorities on customer care. And he told people on the earnings call, quote, \u201cOur primary focus is making sure that we run the best airline we possibly can. That\u2019s the way that ultimately we address customers\u2019 needs and ensure our customers are being treated fairly.\u201d Michela Tindera So do you see things going back to the way they were before 1978 any time soon with the airline industry? Claire Bushey I do not see us going back to a pre-1978 level of regulation. I think it\u2019s possible that there could be greater regulation of the industry than we have now. I think that consumer advocates got fortunate in their timing and you\u2019re seeing a confluence of public anger, a vehicle to focus it. That\u2019s the FAA reauthorisation. And the very recent memory of exactly how much money the airlines received from taxpayers during the pandemic. So I think it\u2019s possible the game could be different this time. [MUSIC PLAYING] Michela Tindera Well, thanks, Claire, for being on the show. Claire Bushey Thank you for having me. [MUSIC PLAYING] Michela Tindera Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz and Manuela Saragosa are executive producers. Sound design and mixing by Sam Giovinco. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.<\/p>\n","protected":false},"excerpt":{"rendered":"
Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More …<\/p>\n","protected":false},"author":1,"featured_media":3385,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[98,102],"tags":[],"class_list":["post-3382","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-companies","category-featured-en"],"yoast_head":"\n