AMR Filing Shows Airline Deregulation Failed: Ex-CEO
Special to CNBC.com
AMR's Chapter 11 bankruptcy protection filingshows airline industry deregulation was a mistake, said former chief executive Robert Crandall.
The 1978 regulatory changes have not paid off for the industry, Crandall, a CNBC contributor, told CNBC Tuesday after shares of AMR , parent of American Airlines, opened for trading at 23 cents a share.
"Deregulation can be viewed through various prisms," he said. "If you want universal airline service around the country, this isn’t the way to do it. I suspect some middle ground between the regulation we had prior to 1978 and what we have today is probably better public policy."
He added: "If you go back and make a list of all the cities in the country that have lost scheduled airline service, you’re going to have a very lengthy list, and that list grows all the time."
Lower fares and increasing costs, including rising fuel prices, helped make AMR the latest member of the airline bankruptcy club. Other members include competitors United, Delta Air Lines and Continental. United and Continental later merged to form United Continental Holdings.
But Crandall laid the blame for the bankruptcy filing on AMR's unions, after the failure to win a deal to cut labor costs.
"The problem is AMR did not get its costs down low enough to be competitive with the carriers that went through bankruptcy," he said. "The consequence is after five years of trying, [AMR] could not get the unions, particularly the pilots union, to make a deal that would yield costs equal to those of the other carriers. This [filing] appears to be the only way to preserve the company."
Crandall thinks consolidation has "played out in the industry" and discounted rumors the company would be bought by partner British Airways.
"American is big enough to be a standalone carrier," Crandall said, adding a "cross-border" merger would not be possible under U.S. law.
He thinks AMR will come back stronger as a result of the bankruptcy reorganization, but added that he is "disappointed that it had to come to this. By the same token, those who want to save the institution are glad they’ve done it, because without competitive costs the institution is going to fail."