Airline Woes

It is strange. Just about all articles on Delta and other airline bankruptcy begin with deregulation. The Salt Lake Tribune blames the bankruptcy of Delta first and foremost on deregulation. The paper notes that the after degulation there was a brief time when Delta's fortunes soared and reached the valuation of six billion dollars a few months prior to 9/11.

The paper also makes minor notes about the 22% drop in traffic after 9/11 and massive new security costs. The paper even mentions the 66% increase in the cost of fuel that pushed the company over the brink.

But the blame, that ever delicious blame, falls squarely on deregulation.

The thing that stands out most in the Tribune's article is the massive number of mergers in the airline industry. The effect of mega-mergers is that they magnify economic effects. One of the least healthy trends we see in the economy is the mega merger of marginal companies. The basic idea is that the marginal companies must merge until they either gain economic dominance or they fail in a spectacular style.

The SEC almost always approves mergers of unhealthy companies. The problem is that this cycle can end up magnifying the harms that occur in a time of economic transition. This was seen quite clearly with Worldcom.

The final thing I noted about the collapse of Delta is that consumers really do prefer streamlined operations like JetBlue and Southwest. I've never flown Delta despite the fact that I live in a Delta hub city (SLC Air). I've always gotten better rates with other carries.
Businesses really do go through economic life cycles.

Anyway, the failure of Delta is laid squarely on deregulation. The post 9/11 drop in traffic, the massive new security costs, the rising cost of fuel and consumer preference are simply incidental.

I will continue to be a curmudgeon that reads papers skeptically. I will also continue to be an insensitive lout who thinks that businesses should fail and that our real problem is this game of marginal companies merging to the point that they create a crisis when they fail.

On the positive side of things, maybe Jetblue will expand in Utah ... that is until a better carrier replaces them.