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12.13.02 @ 12:01AM

FLY RIGHT
Re: Michael Craig's Eat the Friendly Skies:

There are some misconceptions in Michael Craig's article about the
bankruptcy filing by United Airlines by that I think need correcting.

Mr. Craig claims that "The free market has broken down and can't fix things: the dominant players have developed an unsustainable economic model, but they are unable to change it and the profitable players are in no position to take over the market."

First, the free market has certainly not broken down; it is working as it should, forcing a poorly managed company, United Airlines, to enter bankruptcy. That is how it should be. In fact, Mr. Craig contradicts that assertion in the very next paragraph where he states "the government...wiping the slate clean so market forces can start to reshape it [airline industry]."

Secondly, as for the dominant players being unable to change their business model, this is simply not true. There is no law requiring that they operate a "hub and spoke" system where airplanes sit idle because connecting passengers can't make their flights. There is no law where employees cannot leave one airline to work for another one because they'll lose seniority, only an unspoken pact among airlines enforced through archaic and hands-tying collective bargaining agreements. Thirdly, the profitable players can fill the voids left by the failing dinosaurs: Just watch Southwest, Jet Blue and AirTran. They're doing so even today.

As to the employees who Mr. Craig states have the most to lose, he is certainly correct in that regard. But much of that is the fault of their own union leadership, especially in the case of United, where employees owned 55% of the company, and which had union leaders on the Board of Directors. The inherent conflicts of interest were a recipe for disaster from the get-go. There's nothing wrong with workers owning stock in their company, but plenty wrong when they have a controlling interest exercised by union leaders with no experience in running an airline.

Regarding employee salaries, Mr. Craig's question, "How can you overpay a pilot?" is silly. It certainly is possible to overpay a pilot, just like it's possible to overpay anyone. While safely piloting an airplane is of course a very important job, what would Mr. Craig pay? Half a million dollars a year? One million? Ten million? Surely Mr. Craig, as an investment professional, knows that market forces are the primary factor in setting wages in private industry. His argument recalls the nonsensical "comparable worth" controversy that was the rage a few years back. Besides, the evidence to the contrary is clear. Southwest, while still paying a respectable wage, pays its pilots less than the traditional carriers but has better service and a better safety record.

(This is not meant to begrudge a pilot his six-figure salary, as a Wall Street Journal column recently did. When the weather is at minimums and you're flying a coupled Category II ILS approach to get your jumbo jet into Frankfurt, Germany, with another airplane two minutes ahead and another two minutes behind, you want somebody in the cockpit who can operate under pressure. Throw in an emergency, like an engine out, and, well, you get the picture.)

No, union work rules , and employees' willingness to accept them, are the problem. While I can only speculate, I would offer that pilots and other airline employees would actually be paid more if the airlines had to compete for their services, as is the case in nearly every other private industry. But the unions and airline management have exploited the natural human desire for security, hence the seniority system (not that even it is a guarantee -- just ask all those former Eastern and Pan Am pilots.) But to paraphrase Franklin, those who would give up the freedom to work where they would be best treated for a little employment security deserve neither such freedom or security.

Cordially,
-- Paul DeSisto
Cedar Grove, NJ

Michael Craig replies:
Paul: Thanks for your careful and analytical response. Even when readers disagree, I appreciate that they consider the subject matter and my treatment worthy of discussion (though it would have been nice if you at least told me how clever my joke about United owing caterers $18 million was).

On the issues about the free market, let me start by clarifying my opinion, which I naturally consider "The Truth." I think the efficient economic operation of the marketplace generally leads to the best businesses, the happiest consumers, and the best solutions to society's problems. Generally. Someone who is 100% to the market as a solution would oppose safety regulations for airlines ("How much business will an unsafe airline be able to do after crashing a few planes?"), collective bargaining laws, unions in general, or bankruptcy protection from creditors. So my "free market" is, admittedly, a little convoluted. I simply think there are a few needs that don't get addressed in the best fashion by the profit motive, but the attempt to succeed in business usually works.

When I said the free market led to this result and is also the solution, I meant: (a) United is unable, without the intervention of the bankruptcy laws, to become profitable; (b) the Southwests and JetBlues of the world really can't -- and may not even want to -- replace United in the market; and (c) even if United disappears (as a real free marketer would say is the proper result), with air travel a necessity and no one to fill the need, it's a pretty reasonable compromise to have the bankruptcy court wipe the slate clean and give the market another chance.

I'd hesitate to blame the unions, other than the fact that they helped the employees get more money -- and paying them more money than Southwest's employees are paid seems to be a significant factor. These employees made concessions worth billions in exchange for the stock, and offered to give up more to help United get loan guarantees from the Air Transportation Stabilization Board. And that's the point I wanted to make: the employees are only the bad guys because they negotiated for, and got, more money than the employees of the low-cost careers. I'd have done the same in their position.

NOT A LOTT LEFT
Re: The Washington Prowler's The Whistling Dixiecrat:

Letter to the Editor

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