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Kahn on changes in the airline business

The St. Petersburg Times asked a few questions of 86 year-old Alfred Kahn, the Cornell economist who deregulated the airline industry during the Carter administration. With bankruptcy facing one if not two major carriers in the near future, it's a good idea to seek him out and listen to what he has to say. Here's a snip:

Q. What's the short story of how the airline business has changed since deregulation?

It could be summarized as the widespread adoption of the hub-and-spoke operation . . . and the ability to maintain those operations (with fewer passengers) in the face of the recession, 9/11 and the Iraq war with great competition from the low-cost, point-to-point carriers.

The hub and spoke (brought) enormous benefit, not only increased convenience to get anywhere in the world, but convenient service for business travelers to go to a nearby city with a choice of flights in the morning and a choice of flights in the evening.

The advantages in the first 10 or 20 years seemed so great that every one of the carriers who came in to challenge the majors went bankrupt.

We began to worry that the country would be dominated by three to five carriers. These carriers came to dominate hubs with wonderful service, but people would pay a real premium for that wonderful service.

Then, Southwest began to come into various markets. Not directly - in Baltimore rather than Washington, in Providence rather than Boston. At the cost of inconvenience to people but with extraordinary low fares.

They began to take real market share away from the majors, which had to raise fares more and more on the business travelers to where it became really ridiculous. Then there was this falling off of traffic. And we began to fear for the survival of the hub carriers.

Like myself, Kahn is appreciative of great service he's received in the past by USAir. But they failed to meet the competitive challenges posed by the Jet Blues and Southwests of the current era, and must now undergo a painful process of reorganization. Maintaining high fares is not an option. As Kahn notes in the article, he balks at fares of $750 for short flights. "I like them (USAir), but I'm not insane."