Attention All Passengers, page 8
Consumer advocates point out the airlines have virtually unlimited resources, so those defending the rights of passengers are at a disadvantage What’s more, it’s been well documented that there’s a revolving door between the airlines and government service. In fact, one report from Public Citizen cited dozens of former higher-ups at the Department of Transportation, the Federal Aviation Administration, the National Transportation Safety Board, White House, and Congress who shilled for the airlines—and some who made the journey in reverse.
Make no mistake. Airlines constitute one of the most powerful of all Washington lobbies, totaling nearly six hundred individuals. In fact, from 1998 through 2011, air transport ranked fifteenth in the nation in dollars spent in an attempt to buy influence, amounting to a total of $793 million.1
That’s some army of lobbyists, and unfortunately they’re often laboring against the best interests of customers and employees. First of all, there are the one hundred or so folks working for Airlines for America. Then there are independents such as Linda Hall Daschle, former Miss Kansas, who has lobbied for aircraft manufacturers Boeing and Lockheed-Martin, and just happened to have served as acting administrator of the FAA (customers first!). Her husband, of course, is former senator Tom Daschle of South Dakota, the Democrat who served as Senate majority leader. That $15 billion bailout for the airline industry, rushed through the Senate just eleven days after the 9/11 attacks? Yep, at the time Linda was an airline lobbyist and Tom headed up the Senate. Her other clients have included American Airlines, Northwest, and L-3 International, a company the FAA paid for airport security scanners that, well, happened to leak radiation. After President Obama tapped Tom for a cabinet position (Daschle later withdrew), Salon.com profiled the couple as “The Daschles: Feeding at the Beltway Trough.” That article quoted Rolling Stone contributor Matt Taibbi: “In Washington there are whores and there are whores, and then there is Tom Daschle.”
Obviously there are also countless lobbyists working for individual airlines. And representing outsourced maintenance we now have the Aeronautical Repair Station Association staking its claim in Washington as well. ARSA recently launched the “Positive Publicity Campaign Plan,” which includes an allotment of $1 million annually for targeted public relations outreach and creating “a tactical plan to deliver those messages to key audiences” (including policy makers) over three years.
Hope and Change for Passengers?
During the second term of President George W. Bush I saw countless bumper stickers with the simple message 1-20-09. Yet only one month into the Obama administration I spotted a sticker touting 1-20-13. We seem to have entered an era of permanent teeter-totterism in American politics: the populace is perpetually angry with incumbents, and the next government-in-exile carps from the wings. Yet the most pervasive issue of our time—the wholesale purchase of democracy by corporate interests—is never discussed in a meaningful way by either party.
So does it matter which party is at the helm? I reached out to Ralph Nader for edification; after all, who better? He claimed it doesn’t matter if Democrats or Republicans are in power: “It’s a permanent government. The airlines and the manufacturers pick the head of the FAA. Have you ever noticed there is never a contentious hearing for the FAA administrator?”
During the 2008 campaign, the Teamsters were early and strong supporters of Senator Barack Obama rather than Senator Hillary Clinton or any of the Republican contenders, perhaps not surprising given both the Clinton and Bush records on free trade agreements such as NAFTA. In a letter addressed to the Teamster Aviation Mechanics Coalition, the future president stated: “The practice of outsourcing aircraft maintenance overseas raises security concerns and pits our skilled mechanics making a middle class living against less skilled, less well protected workers abroad. I applaud your efforts to organize a strong union at United Airlines, and look forward to working with you on the critical issue of outsourcing now and in the years ahead.”
Unfortunately, the outsourcing crisis has only gotten worse. As labor leader Tom Brantley says, “Senator Obama supported oversight of repair stations. President Obama doesn’t.” And let it be noted one year after inauguration, the forty-fourth president’s secretary of transportation tapped the chairman of United Airlines to head the FAAC Competition Subcommittee.
Some argue Obama has been an improvement, however, and point to DOT secretary LaHood’s passenger rights regulations as proof. “There’s been a decent amount of change,” says Paul Hudson of the Aviation Consumer Action Project. He asserts Republican views toward passengers were unduly harsh: “The DOT secretary would tell Congress that market forces would address all problems. Or else people don’t have to fly.”
There’s also no denying that some presidential administrations have been more proactive than others on airline safety. For example, an analysis conducted in 2010 by News 21–Center for Public Integrity found the NTSB “issued significantly fewer recommendations for improvements” under President George W. Bush. Here’s the tally of average annual NTSB recommendations for improvement under five consecutive White House staffs:
Carter 384
Reagan 445
G. H. W. Bush 417
Clinton 329
G. W. Bush 155
In response to how both Republicans and Democrats have served the interests of the airline industry rather than the interests of passengers, there is strong evidence such influence may affect even the most high-profile politicians. Industry veterans recall that Senator John McCain was an outspoken advocate for passenger rights reform in 1999 and sponsored the Airline Passenger Fairness Act; I can recall a telephone conference with him on the topic. Then, in June 1999, he suddenly switched course and supported a watered-down voluntary pledge from the airlines, and this Washington Post headline sums it up succinctly: “A McCain Crusade Faded as Airlines Donated.” Yep: that month the airline industry proffered $226,000 in “soft money,” including $85,000 from American Airlines for the National Republican Senatorial Committee. The Post also reported that Phoenix-based America West (now Phoenix-based US Airways) was “one of McCain’s top benefactors.” Hudson recalls being stunned by McCain’s actions: “He ditched the bill and said the airlines would address it themselves. Coincidentally he had gotten lots of donations from airlines. We’ve seen this movie before.”
Allegations of unlevel playing fields apply not only to airlines but also to commercial aircraft manufacturers. In March 2011 the World Trade Organization issued a lengthy “dispute settlement” in response to a complaint filed by Europe-based Airbus, finding that Boeing had been unfairly subsidized by a host of U.S. government entities, including NASA, the Department of Defense, and the states of Washington, Kansas, and Illinois. However, one year earlier the WTO had found that the European Communities and the nations of Germany, France, the United Kingdom, and Spain had unfairly subsidized Airbus. Clearly when it comes to corporations bending the rules, there’s plenty of blame to be spread on a global basis.
So how did a government of, by, and for the people suddenly become a government of, by, and for the S&P 500? “It’s all caught up in this free trade/free market mantra,” says airline academic Paul Dempsey. “You have high school graduates, blue-collar workers with no jobs. But that doesn’t matter. They’re told they can go flip burgers. What matters is that consumers are given lower prices.” Dempsey believes Oscar Wilde’s assessment of cynics also applies to economists: “They know the price of everything and the value of nothing.”
Predatory Behavior = Higher Fares
An industry executive once put it best: “The hub airlines are like badgers in their lairs. They won’t come out looking for you, but you’re in trouble if you go in and screw with them.” Many low-fare airlines have found this out—in some cases, too late. When a smaller airline starts flying on a major’s bread-and-butter route, the result can be all-out war—and passengers are the casualties, with less service and higher fares in the end. The weapons of choice can include predatory pricing—temporarily offering rock-bottom fares to drive out low-cost competitors—or the majors can even engage in dirty tricks, such as poaching passengers.
For those who thought the legacy airlines had moved beyond such behavior, in March 2011 the Business Travel Coalition pointed out it was déjà vu all over again, this time with Delta’s retaliation against low-cost Frontier Airlines for starting scheduled flights out of Delta’s hub at Minneapolis–St. Paul International Airport.2 Bob Harrell notes about predatory pricing: “You can smell a rat, but it’s hard to prove.”
Both the departments of Transportation and Justice have attempted to do just that. For context, it helps to review what the airlines are capable of, by illustrating how they have behaved until now. What’s more, the myriad ways in which major airlines have attempted—both legally and illegally—to bankrupt low-fare airlines further hurt consumers by dampening enthusiasm within the financial community to support start-up carriers.
In 1993 an influx of predatory pricing charges were leveled by new-entrant airlines against hub-and-spoke majors. That July, Houston-based UltrAir shut down, claiming “illegal, anti-competitive, monopolistic, and predatory behavior” by the other hometown carrier, Continental; similar charges were leveled against Continental at Newark, New Jersey, by KIWI. Soon after, the Justice Department investigated claims that Salt Lake City–based Morris Air was being penalized by Delta’s override policies, which rewarded travel agents for steering customers away from Morris. And the transportation secretary personally intervened when Reno Air cried foul against Northwest. The obvious irony is that all four of those start-ups soon went through mergers or bankruptcies (then again, so did Continental and Northwest).
An industry white paper by Clinton V. Oster Jr. and John S. Strong, “Predatory Practices in the Airline Industry,” illuminates the Reno Air–Northwest brawl. The new guys began service between Reno and Minneapolis–St. Paul in 1992. Northwest had abandoned the same route one year earlier, but after Reno Air met with success Northwest announced new service. Pulling out all stops, Northwest also said it would match the low-cost carrier’s fares; it offered bonus frequent flyer mileage, and those overrides for bookings out of Reno. Then Northwest lowered its nonstop fares between Minneapolis and the West Coast, an obvious effort to attract Minnesota-to-California-bound customers flying Reno Air’s connecting service through Reno.
So far it seemed like good old-fashioned bare-knuckle capitalism. To the surprise of no one, the big guy won, and Reno Air discontinued its flights in June 1993 (by 1998, it was acquired by American). But that’s where “free marketism” crosses over into “illegalism.” Once Reno Air pulled up stakes, Northwest’s fares on those routes began climbing. And climbing. In fact, they not only returned to pre–Reno Air levels but surpassed them. According to Oster and Strong, Northwest’s average fare between Minneapolis and Reno in April 1993 was under $100; within six years the ticket prices ranged from $345 to $1,476.
Overall, the DOT received thirty-two complaints of unfair competitive conduct from new-entrant airlines between 1993 and 1999. Then the Transportation Research Board convened a panel of experts—including Alfred Kahn, the Father of Deregulation—to examine this phenomenon and concluded four major airlines were still engaging in practices to drive out new competitors.3 The research board also defined “predatory pricing” as actions designed to drive out or suppress competition with the intention of later increasing prices.4
Back in 1983, Time trumpeted “Dirty Tricks in Dallas,” detailing the Justice Department’s federal suit against American Airlines and a taped conversation in which CEO Bob Crandall spoke to Braniff CEO Howard Putnam about both carriers raising fares. Other allegations, according to Time, included American pilots causing delays on runways to disrupt Braniff flights and American taking its time delivering $9 million for interline ticket agreements. The Harvard case study also cited ticket agents encouraging customers to fly American instead of Braniff and fabricating technical problems with American’s aircraft so Braniff made costly plans by scheduling additional flights to accommodate passengers who never showed.
Another weapon in the majors’ arsenal is their grandfathered right to operate at overcrowded, high-density airports where they charge higher fares, such as LaGuardia, JFK, O’Hare, and Washington National. Because major airlines control most of the takeoff and landing slots, they can use these rights to their advantage, even swapping them among one another, as Delta and US Airways did in 2011.
The Dirty Secret of Airfares: Bias
In the 1980s the computer reservations system Sabre, sister company to American Airlines, was accused of blatantly biasing screens for travel agents so American’s competitors were listed below it. (An earlier study by American found that travel agents overwhelmingly booked the first carrier listed and rarely shopped on a second screen, a practice that still holds today among consumers surfing travel sites.) Former CEO Crandall tried to defend such practices before Congress by saying, “The preferential display of our flights, and the corresponding increase in our market share, is the competitive raison d’être for having created the system in the first place.” But not surprisingly, biased displays were banned.
Even so, airlines have found other ways to game the system. One method seems to be with third-party travel sites, so that biased displays were carried over from reservations systems to travel sites. Shortly after I became editor of Consumer Reports Travel Letter in 2000, I decided to test such rumors by repetitively searching for identical fares on competing sites in real time, and benchmarking the fares through analyst Bob Harrell, who had access to Sabre and could simultaneously retrieve computer reservations data. Our first test, in October 2000, examined Cheap Tickets, Expedia, Lowestfare, and Travelocity and found “disturbing evidence of bias,” including advertised airlines dominating flight listings and bogus itineraries listed first. In June 2002 we tested again—this time with six sites, including Orbitz—and confirmed they all received some compensation from airlines. But then and now, it’s difficult to know how such payments affect displays.
Starting in 1995, airlines began cutting base commissions to travel agencies, from 10 percent down to 0 percent. However, many airlines continue to pay TACOs, travel agency commission overrides. These secret agreements can be tied to an agency’s total booking volume for an airline, an increase in such volume, or even its volume in conjunction with a rival airline’s volume. The danger to consumers, as the Oster-Strong report stated, is that overrides are often not revealed to them, so travel agents have an incentive to withhold information on competing flights.5 Both the General Accounting Office and the DOT’s inspector general also criticized the practice.
In 2001, we decided to test this theory at CRTL. We transferred our apples-to-apples testing methodology and applied it to brick-and-mortar travel agencies. While contacting 840 agents throughout the country and requesting flight and fare information on routes with low-fare competition, in real time we benchmarked through Harrell’s reservations system. The results: Only 51 percent of agents provided complete airline and pricing information upon first request, and only 63 percent provided it when asked a second time. Overall, 25 percent of the agents failed to mention all the low-fare alternatives, and 12 percent didn’t mention them at all.
By Any Other Name: Codesharing Deception
In the mid-1990s, travel advocate Bruce Bishins filed a regulatory complaint against codesharing that stated: “Ours is the only industry which permits Coke to be poured into Pepsi bottles and still sold as Pepsi.” And Dr Pepper as well.
Every air carrier has a two-letter code issued by the International Air Transport Association: AA for American, DL for Delta, etc. That code is coupled with a flight number. But in the case of codesharing, two—or more—airlines can sell tickets on a flight operated by a single carrier, and usually such agreements are reciprocal, so in other regions that carrier sells tickets on flights operated by its partner(s). Today codesharing is found in three prevalent forms: between mainline carriers and their regional partners; between domestic competitors, such as United and US Airways; and within international marketing partnerships, particularly the three global alliances—oneworld, SkyTeam, and Star Alliance.
Not surprisingly, codesharing began with a regional carrier. Way back in 1967 a Henson Airlines flight from Hagerstown, Maryland, was linked in Washington, D.C., to Allegheny Airlines.
Ironically, those companies that most benefit from codesharing today were among the early detractors. When Bob Crandall was chairman of American, he vocally criticized the practice and later called it “bad for the industry and worse for the public interest.” Back in 1984 the New York Times reported that a spokesman for United had assailed codesharing by saying, “It misrepresents two airlines with different levels of service which are indicated as one airline. We think it misleads the public.” Today, of course, United is one of the most aggressive proponents of codesharing and a member of Star Alliance.
So who benefits from codesharing and international alliances? Unsurprisingly, it’s not the passengers, because the practice increases airfares as well as airline profits.
In 2010 I cooperated with the DOT Inspector General’s Office on an audit of codesharing practices and how they affect consumers. One inspector told me the goal was to bring attention to such policies, so there are no gaps or opt-out opportunities. The inspector general also agreed with my recommendation to the FAAC that the Transportation Department’s Monthly Air Travel Consumer Report be reorganized with regional airlines aligned beside their mainline partners, so therefore consumers could easily see how all domestic airlines perform in the rankings each month.
