> From its deregulation in 1978 to the end of 2025, the airline industry has cumulatively lost money: its net profit over those 47 years sits at negative $37 billion.
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits. My understanding is that before regulation, routes were allotted by the government. So an airline might own New York to Boston, so they didn't have to compete. Obviously de-regulation changed that.
The article doesn't go into it, but unions are also a challenge. Much of the airline industry is unionized. So you have situations where pilots that have been there a while get a lot more money. You have people doing essentially the same job but some are getting paid 3x as much just because they've been there a long time. In most industries, there is higher pay for senior talent, but that's because they're more effective at their job, and produce higher output. In this case it's just a legacy cost that makes some airlines incredibly uncompetitive through structural features.
Airlines are popular employers specifically because they offer a clear vision of future pay increases and better, more prestigious, schedules. People, especially pilots, are willing to put up with a lot early on because they are confident that sticking with the plan will eventually allow them to earn double and triple their early-career salaries.
Same thing happens in law, investment banking, etc... the hardest workers are often the youngest and least-paid. They do it because they know big money may come later.
> That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
It really depends on the market. In a potentially competitive market, deregulation can work as a function to drive down margins.
Air travel is such a market. Prior to deregulation, routes were set by government action and competition was limited. With deregulation, it's not that hard to setup a commercial scheduled airline, and new airlines popup relatively frequently to address routes where there is margin. It doesn't take that much capital to start an airline; you can lease the aircraft and contract out maintenance (might be part of the lease) and start with a single round trip per day. You don't need to start with a big network or a lot of aircraft. It's not so easy to get slots at busy airports, but you don't have to start there either.
Where deregulation ends up leading to outsized profits is where the market leads to natural monopoly and regulation provides an upper bound on margin, rather than a lower bound. Things like last mile utilities, where it's difficult to run multiple networks in the same space: ex water, sewage, electricity, telecom. In situations like that, to promote competition you want to do regulated unbundling, so there's one organization that runs the last mile and choices for service over the last mile: ex you pay the last mile for delivery of water per acre foot and also your water supplier who must deliver the same number of acre feet to the water network. (or probably a little more, water networks have shrinkage)
The article does discuss union collective bargaining agreements and labor cost structure in several sections.
> Labor costs might seem variable, but they’re actually not: pilot, flight attendant, and mechanic compensation in the United States is governed by the Railway Labor Act of 1926 (which was extended to airlines in 1936), which stipulates that collective bargaining agreements don’t actually expire but rather remain in force until they’re replaced. So even your wage bill is more or less fixed over multi-year horizons.
> Chapter 11 bankruptcy protection—which allows a company to continue operating while it restructures its debts under court supervision—is practically the only mechanism by which an airline can renegotiate its rigid cost structure, from aircraft leases to collective bargaining agreements. Oftentimes this renegotiation takes on a rather predatory character. When United Airlines filed for bankruptcy in 2002 in the aftermath of the September 11th attacks, it terminated its pension plan...
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole. For airlines, bankruptcy rarely culminates with liquidation; airlines that emerge from bankruptcy proceedings, having voided pension obligations and rejected aircraft leases, can operate at a fundamentally lower cost basis than their competitors. So bankruptcy doesn’t really restore the industry to a competitive equilibrium that can cover the cost of capital: it resets the floor at a lower level, from which a new round of ruinous competition can begin.
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
I've held the belief that an occasional bankruptcy is basically a sign of healthy competition within an industry: those companies going down literally didn't know how to be any more efficient or they could've survived.
Regarding airline business, a crapload of more people are flying now with better prices than before the industry was deregulated. Sure it must hurt someone at one end, eventually. Part of the business is standing through price wars because someone will always lose: the best companies can endure that. While airline industry probably fluctuates as described in the article there are plenty of other cyclic industries. Churn itself isn't anything new.
Fascinating article. One sentence jumped out to me:
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole
The American founders writing a uniform federal system of bankruptcy was a stroke of genius that's been paying dividends for 250 years now.
I'd never given a lot of thought but the proliferation of budget airlines creating a race to the bottom always made it seem like airlines were a bad investment.
How much of this is related to the pilots union? It seems like they capture all excess profit in the system during the good times, and fight vigorously to keep their inflated earnings even during the bad times.
The article touches on this. Pilot wages are very similar across major US airlines due to heavy unionization and pattern bargaining, so labor is more-or-less a fixed cost (and not the biggest fixed cost).
Additionally, pilots can and do take pay cuts in lean times. The pilots at my own airline saw a 20% pay cut in the contract following 9/11 and very reduced wage growth for a decade after that. Management took something like a 5% cut and kept the retirement benefits we lost.
Edit: I thought I recognized your name, I see we discussed pilot unions together on HN a few years back. Can I ask what you have against us? Out of genuine curiosity.
How much of your earnings are inflated? Do you safely do a job that potentially risks several hundred people's lives every single day?
Do you realize you are infinitely closer to a pilot than a billionaire or a founder or whomever it is you seem to care more about than working people?
Class consciousness, solidarity, and workers literally fighting and dying earned you an 8 hour day, social security, and all the workplace protections you probably take for granted.
I submitted https://www.thebignewsletter.com/p/who-killed-spirit-airline... but it failed to get traction. tl,dr: Jetblue pulled some illegal moves, Trump's trip to Iran caused gas prices to go up, the big four legacy airlines did a thing, and regulators.
One thing it leaves out. For bankruptcies that result in reorganization rather than liquidation, it offers the airline an "out" on its many labor contracts. And freedom to renegotiate that contract with a lot of leverage. Labor is the highest cost they have, other than fuel.
It might not be that significant of a cost all things considered, but I have always felt the peculiar existence of "professionally happy" cabin crew, in-flight meals, screens and other pointless "comforts" glaringly unnecessary in what's generally meant to be just 2-3 hours of sitting on an average for the passengers. You could just operate a plane like a dumb bus and save up on a lot of costs and turn it into competitive advantage.
The more interesting question is why airlines go bankrupt in such spectacular fashion.
Every airline that goes belly up always does it with a bang. All flights cancelled, effective immediately. Stranded customers. Tens of thousands of jobs instantly lost. Every time.
It's not like startups or even established companies wherein the time of death takes forever to get to, despite EVERYONE knowing that the body is a corpse.
Maybe we need Uber for airlines. Pilots don't lose their skills, passengers always have demand, the issue is that pricing is too predictable. You could see this with skiplagged, there really is room for fare pricing innovation. Start by capturing the private luxury market, work down to commodity.
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[ 3.1 ms ] story [ 36.3 ms ] threadThat was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits. My understanding is that before regulation, routes were allotted by the government. So an airline might own New York to Boston, so they didn't have to compete. Obviously de-regulation changed that.
The article doesn't go into it, but unions are also a challenge. Much of the airline industry is unionized. So you have situations where pilots that have been there a while get a lot more money. You have people doing essentially the same job but some are getting paid 3x as much just because they've been there a long time. In most industries, there is higher pay for senior talent, but that's because they're more effective at their job, and produce higher output. In this case it's just a legacy cost that makes some airlines incredibly uncompetitive through structural features.
https://www.thrustflight.com/united-airlines-pilot-salary/
Same thing happens in law, investment banking, etc... the hardest workers are often the youngest and least-paid. They do it because they know big money may come later.
It really depends on the market. In a potentially competitive market, deregulation can work as a function to drive down margins.
Air travel is such a market. Prior to deregulation, routes were set by government action and competition was limited. With deregulation, it's not that hard to setup a commercial scheduled airline, and new airlines popup relatively frequently to address routes where there is margin. It doesn't take that much capital to start an airline; you can lease the aircraft and contract out maintenance (might be part of the lease) and start with a single round trip per day. You don't need to start with a big network or a lot of aircraft. It's not so easy to get slots at busy airports, but you don't have to start there either.
Where deregulation ends up leading to outsized profits is where the market leads to natural monopoly and regulation provides an upper bound on margin, rather than a lower bound. Things like last mile utilities, where it's difficult to run multiple networks in the same space: ex water, sewage, electricity, telecom. In situations like that, to promote competition you want to do regulated unbundling, so there's one organization that runs the last mile and choices for service over the last mile: ex you pay the last mile for delivery of water per acre foot and also your water supplier who must deliver the same number of acre feet to the water network. (or probably a little more, water networks have shrinkage)
> Labor costs might seem variable, but they’re actually not: pilot, flight attendant, and mechanic compensation in the United States is governed by the Railway Labor Act of 1926 (which was extended to airlines in 1936), which stipulates that collective bargaining agreements don’t actually expire but rather remain in force until they’re replaced. So even your wage bill is more or less fixed over multi-year horizons.
> Chapter 11 bankruptcy protection—which allows a company to continue operating while it restructures its debts under court supervision—is practically the only mechanism by which an airline can renegotiate its rigid cost structure, from aircraft leases to collective bargaining agreements. Oftentimes this renegotiation takes on a rather predatory character. When United Airlines filed for bankruptcy in 2002 in the aftermath of the September 11th attacks, it terminated its pension plan...
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole. For airlines, bankruptcy rarely culminates with liquidation; airlines that emerge from bankruptcy proceedings, having voided pension obligations and rejected aircraft leases, can operate at a fundamentally lower cost basis than their competitors. So bankruptcy doesn’t really restore the industry to a competitive equilibrium that can cover the cost of capital: it resets the floor at a lower level, from which a new round of ruinous competition can begin.
I've held the belief that an occasional bankruptcy is basically a sign of healthy competition within an industry: those companies going down literally didn't know how to be any more efficient or they could've survived.
Regarding airline business, a crapload of more people are flying now with better prices than before the industry was deregulated. Sure it must hurt someone at one end, eventually. Part of the business is standing through price wars because someone will always lose: the best companies can endure that. While airline industry probably fluctuates as described in the article there are plenty of other cyclic industries. Churn itself isn't anything new.
I always wondered why airlines were always running bankrupt… Now I know.
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole
The American founders writing a uniform federal system of bankruptcy was a stroke of genius that's been paying dividends for 250 years now.
Edit: I thought I recognized your name, I see we discussed pilot unions together on HN a few years back. Can I ask what you have against us? Out of genuine curiosity.
Do you realize you are infinitely closer to a pilot than a billionaire or a founder or whomever it is you seem to care more about than working people?
Class consciousness, solidarity, and workers literally fighting and dying earned you an 8 hour day, social security, and all the workplace protections you probably take for granted.
The ones that make money operate as financial services from selling points to their partners via their frequent flyer programs.
Every airline that goes belly up always does it with a bang. All flights cancelled, effective immediately. Stranded customers. Tens of thousands of jobs instantly lost. Every time.
It's not like startups or even established companies wherein the time of death takes forever to get to, despite EVERYONE knowing that the body is a corpse.
It's as hilarious as it is depressing.
article:
> its net profit over those 47 years sits at negative $37 billion
EPA social cost of carbon: $190/ton [1]
US aviation annual emissions: 200 million tons/year
Global warming impact of aviation emissions is leveraged[3] 1.7x because burning it in upper atmosphere is worse.
cost: 190 x 200M * 1.7 = 64600M = or ~65 B / year.
And the articles calcualted loss was over the whole 47 years.
(The 190 per ton cost is for today, it's projected to go up as things get worse.)
[1] https://www.epa.gov/system/files/documents/2023-12/epa_scghg...
[2] https://www.eesi.org/articles/view/u.s-and-international-com...
[3] https://ourworldindata.org/global-aviation-emissions#non-co2...
I wonder if empty core will apply to the AI business.