CURE SOUGHT FOR AIRLINE INDUSTRY

There are some sick industries in the United States, but few sicker than the airlines. The deregulation of air travel during the Carter presidency was supposed to generate a cascade of profitable competition between carriers, with lots of new companies entering the newly deregulated market. It didn't work out that way.

At the outset of deregulation, some new airlines did enter the fray but in due time were crushed. The notion evolved that the country only needed but three colossal and enormously profitable national carriers American, United and Delta and that over time the other smaller carriers would fade away. As Eastern, Pan American, Braniff and others expired, the theory of a dominant Big 3 became more and more credible, except...

Pesky competitors like Southwest Airlines, the only profitable company in the industry, proved that with skillful management and close attention to costs, a rebel carrier could flourish.

Collapsing airlines, like Continental, could jump into Chapter 11 and use the bankruptcy laws to slash costs. Generally speaking, a bankrupt airline pays no interest on debt; does not have to pay previous suppliers; does not have to pay any old taxes; and does not have to make post due rent. Cost-wide, a bankrupt airline has an enormous competitive advantage over a solvent one. The longer the carrier can remain bankrupt, the better for competition.

The Big 3. The airline industry has lost $10 billion over the last three years much of it incurred by the Big 3. The "genius" image of American, United and Delta was undeserved. They engaged in ruinous fare wars, took on excessively heavy debt, and kept or acquired unprofitable routes. For example, four carriers flew non-stop from Los Angeles to Sydney, Australia, usually with nearly empty planes. Only a week ago did Continental decide that this was an exercise in folly and pulled out. Some experts maintain that as long as there is a Big 3, they will remain unprofitable.

Now the deregulated airline industry wants to be saved from itself. A special airline commission appointed by President Clinton has made all sorts of recommendations for a bail out: tax breaks; more foreign ownership; private control over some air traffic control; a one-year limit on bankruptcy filings.

Clinton, aside from having other compelling things on his mind like NAFTA and health care, will have difficulty with some of his commission's recommendations. How do you cut taxes for airlines after you have just raised them on lots of other people? If the airlines can't run themselves, how are they going to run the air traffic control system? If a one year cap on the protection of the bankruptcy court is good for the airline industry, why not the same rule across the board for every company?

The never-ending airline saga moves on to the next, by no means final, chapter.