Flying with the Low Bidder

by

(Ed. Note: Please watch your PBS Station tonight at 9pm (8 Central) for the Frontline program “Flying Cheap” )

colgan-air-flight-3407There 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.

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5 Responses to “Flying with the Low Bidder”

  1. SteveInTransit Says:

    The demand for transportation is derived from the other activities it enables. It’s overhead for consumers- and the airlines respond by price competition. And price competition is not a long-term strategy- it’s a mechanism to drive out competitors and create monopolies that allow the recovery of losses. We the traveling public want to believe that the “natural” cost of a flight from Newark to Tokyo is $650 for instance- an amount which barely pays for fuel.

    Having once been a frequent business flier on http://en.wikipedia.org/wiki/Kiwi_International_Air_Lines I’ve seen firsthand how ongoing price cuts can impact safety- assuming that duct-taping broken doors on those drop-down oxygen masks can be considered a safety issue..! My flights from Newark to Chicago under Kiwi cost $180 – $320, but once Kiwi went under, Continental picked up the corridor immediately for $900 a RT for business travel, before bringing the ticket back down to around $400.

    So pricing seems a shell game also for airlines!

  2. jcalton Says:

    Try getting the airlines to tell you whether or not you are booked with them the whole way, or whether legs of the flight are with one of their outsource carriers.

    My wife and I have been burned more than once by airline partners (notably Delta’s ComAir) and vowed never to take ANY “partner” flights again…it is almost impossible for the average person to find that information and integrate it with travel plans.

    As it now stands, we generally opt for a 16 hour drive to Florida over flying.

  3. Eric Sprague Says:

    COLGAN O’BRIEN

    Miles, I consider you to be the nation’s foremost aviation journalist and one of the best news anchors of all time. I consider Frontline to be the best show on television and best source for in-depth news coverage anywhere, hands down. I give you tremendous credit for this and so many other stories where you have made the intricacies of the aviation (and space) world clearer to the audience.

    I want to share a bit of my inside knowledge of what it’s like to be a captain at Colgan Air, and call you out on a couple of elements of the story that I hoped you would have included.

    I was a classmate of Chris Wiken when we were both hired by Colgan, and we were both promoted to Captain on the SAAB 340 together during the same simulator session a short time later. The experiences of my three years at Colgan in many ways mirrored what you showed in your piece, and obviously you have proven all your points. But professional pilots like myself would want included a finer point here on our own deep feeling of disappointment at what happened here as well as the elephant in the room, the fact that Colgan Air (in the weeks before the crash) was just beginning to conform itself with the standard of a unionized company, and was essentially non-union at the time of the accident. Perhaps because of time limitations, I think you missed some of these big issues that are so relevant to understanding what happened.

    I have worked at smaller companies, as well as a major airline, and in my opinion, the training we got at Colgan was absolutely top notch. The standard to which we were held was extremely rigorous. And I know so many outstanding pilots who would never have failed those passengers so dismally in piloting skill (basic stall recovery) and judgement (fatigue and situational awareness). But we are only as strong as our weakest link. While you pointed out why this weak link can be explained to some degree by economics, expansion, falsification of records, and inept bureaucracy, you could have dug deeper. This Captain had flown long enough at Colgan that more people should have complained about him. As you illustrated, complaints lodged by a first officer can be met by retaliation from management at an non-union airline. Key words: NON-UNION. When a union is present, there is a critical balance in place to allow employees to file safety complaints and complaints about professional standards in such a way that nobody has to worry about repercussions. At a non-union carrier, first officers may have been afraid of losing their job, which adds up to losing their career. Furthermore, pilots working under union contracts have better rest rules, enough pay to afford better quality of life, and less fear of calling in sick.

    The testimony of Capt. Sullenberger to congress is also relevent to this case, and should perhaps have been mentioned or annotated.

    It’s unthinkable how badly this flight went, and you know this as a pilot. You could, given more time, have illustrated what a ridiculous thing it is to lose control in a stall. This makes his previous failed check rides so crucial to the story, and it’s interesting how he managed to hide this from everyone. A critical part of the new regulations forthcoming will be better tracking of failed checks. This is such a rare thing in my perspective, I don’t know how he slipped through the cracks.

    Perhaps by pointing out some of this stuff, you could have brought about some more support for making regional airlines a better place to work and therefore a safer way to fly. It is so relevant to the times in which we live, don’t you agree?

    Thanks for your excellent work, it’s so great to see you continuing in important and interesting subjects like this. I bet Rutan and Branson will get you into space, keep the faith (and bring me too)!

    P.S. I haven’t written anything to you since I sent a shot in the dark to your unpublished CNN email to praise your MIR deorbit coverage (an email to which you very graciously replied, to my great amazement), so you can tell this story is a big deal for me. Kudos!

  4. Erik Fowler Says:

    Funny,

    This sounds almost like the same debate in the health insurance reform debate: “What!? The primary goal of the airlines is to maximize profits, safety is (in practice and probably) secondary (in spite of claims to the contrary)?!”

    Great documentary, and sadly, none of this surprises me. As a business owener, pilot, and one who left the corporate world over a decade ago, the insatiable desire for profits-at-all-costs mentality is alive and well everywhere.

    Dare say I some things simply do not belong in the domain of the capital market? Just like in health care where some of the top medical facilities are non-profit (MD Anderson in Houston, Sloan Kettering in NYC), perhaps a non-profit airline with quasi-govermmental support (like it is now, ironically – the airlines would never support without taxpayer assistance) would not be a bad thing after all? Think of how much energy, brain power ande overhead are wasted in the pursuit of corporate profits, when all we need is safe, efficient air travel – first and foremost accountable to paying passangers and not necessarily to shareholders first? Food for thought . . .

    Erik Fowler

  5. jake brodsky Says:

    While I liked your piece on Frontline, Mr. O’Brien, I have to question why you felt that Ms. Schiavo deserved so much air time. If I recall correctly, the ValueJet crash was not due to anything the pilots or crew did. It was caused by people who mislabeled and failed to secure hazardous cargo properly. Yet she kept treating this accident as if it were somehow ValueJet’s fault.

    Ms. Schiavo’s views are irrelevant to me. She may be a competent attorney for all I know. However, her past and present campaigns she has run through the FAA and the public leave me with little doubt that she is nothing more than a fear-monger and a grand-stander of the very worst kind.

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