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September 20, 2005 - Image 4

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The Michigan Daily, 2005-09-20

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4 - The Michigan Daily - Tuesday, September 20, 2005

OPINION

(jbe irbrlijwn f:9lI

JASON Z. PESICK
Editor in Chief

SUHAEL MOMIN
SAM SINGER
Editorial Page Editors

ALISON GO
Managing Editor

EDITED AND MANAGED BY STUDENTS AT
THE UNIVERSITY OF MICHIGAN SINCE 1890
420 MAYNARD STREET
ANN ARBOR, MI 48109
tothedaily@michigandaily. com

NOTABLE
QUOTABLE
Think of it
as Apollo
on steroids."
- NASA Administrator Michael Griffin,
announcing plans to restart missions to the
moon, on Monday, as reported by CNN.

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Grounded: America's ailing airlines
SAM SINGER SAM's C....

0

f 2004 presented
some financial
stumbling blocks
for the airline industry,
2005 brought a mine-
field. Climbing fuel
costs have combined
with slumping revenue
f and new security con-
nf cerns to turn even the
most resilient airlines
belly up. Already this year, three of the seven
major carriers have gone the way of United
Airlines, taking shelter from labor unions
and creditors in bankruptcy court. With Delta
and Northwest's uncoordinated but simulta-
neous Chapter 11 filings last week, more than
half the industry is now flying broke.
For those analysts already writing obituar-
ies, the sharp rise in oil prices after Hurri-
cane Katrina appears the generally accepted
cause of death. With a number of Gulf-area
refineries closed, processing bottlenecks sent
jet fuel prices through the roof. And because
high fares had already stretched customer
demand, airlines couldn't write off addition-
al costs with surcharges. Seeing no signs.of
oil tapering off, Northwest and Delta threw
in the towel.
But fuel prices don't tell half the story.
Expensive oil may have accelerated the pro-
cess, but these carriers were flirting with
insolvency long before the $60 barrel. In
fact, to the extent that it could influence
the Chapter 11 process, a focus on oil may
be counterproductive. Not only does it risk
shadowing some of the major airlines' more
serious problems - their chronic ineffi-
ciencies and dated operating models, their
vulnerability to price swings and oppres-
sive cost structures - but it pays heed to
the misguided idea that in a more favor-
able economic climate, these ailing carriers
could rise again.
Their troubles date back to the late 1970s,
when Congress passed the Airline Deregu-
lation Act, releasing the industry from gov-
ernment regulation and opening the skies

to a commercial market. Deregulation
exposed the decay of an industry that for
four decades had operated in the absence of
competition and market pressure. The gov-
ernment set all fares, routes and schedules,
ensuring profits for the select carriers that
were able to secure landing rights. It was
state-sanctioned monopoly, a government-
constructed vacuum where incentives were
reversed and inefficiency went unpunished.
Coinciding with this period were the golden
years of big labor. Unions, endowed with
a degree of political influence unknown to
them today, had mobilized every corner of
the labor pool. From engine mechanics to
sales clerks, complacent airline executives
signed off on some of history's most exact-
ing labor contracts, fixed costs that couldn't
be forgotten once the government's feeding
tube was removed.
The once-regulated major carriers entered
the free market half baked and inefficient, Big
Labor's noose resting securely around their
necks. For a while they survived by discounting
fares, swallowing short-term losses in order to
price new entrants out of the market. But some
competitors proved resilient, and low-cost car-
riers like Southwest Airlines surfaced from the
price wars with record earnings and fail-safe
operating models.
Instead of the traditional hub-and-spoke
system in which carriers route traffic
through regional hubs, Southwest adopted
a more flexible point-to-point model. While
United was shuttling half-empty jumbo jets
between O'Hare and JFK, Southwest was
overbooking gates in Phoenix and Orlando.
Southwest's routes became templates for
new firms, and the 1990s witnessed the
birth of an agile class of discount airlines.
It was these low-cost competitors - the Jet-
Blues, the Air Trans and yes, even Hooters
Air - not high energy costs that spelled
demise for "legacy carriers" like Delta and
Northwest - two of the last vestiges of the
regulation years.
In this light, a look at Southwest's bal-
ance sheet says as much about the compa-

ny's success as it does about the industry's
failure. While the major carriers teetered on
bankruptcy, Southwest stayed in the black,
operating profitably every year since 1973.
The company embodies business savvy, its
operating models and corporate culture the
fascination of business schools across the
country. In short, Southwest is everything
its outsized competitors aren't, a bench-
mark for the future in an industry haunted
by its past.
If they are to have any hope of revival,
the Chapter 11 proceedings can be noth-
ing short of a ransacking. Assets will have
to be sold off and liquidated, labor con-
tracts trimmed and abandoned. But even if
they return from bankruptcy a few pounds
lighter, Delta, Northwest and United will be
no more fit than the low-cost carriers who
landed them there in the first place. Taking
apart and rebuilding a company in court, as
we've learned from U.S. Airways - which
has been in and out of bankruptcy twice over
the last three years - has its pitfalls.
Regardless of the degree of reform, there
will be a great deal of pressure for the federal
government to stay involved, to cushion the
runway for Delta and Northwest, as it's done
for other carriers in the past. In particular,
the two airlines will be looking to unload the
lion's share of their pension responsibilities on
the Treasury Department. This can't happen.
Certainly federal resources should be used
to insulate the hundreds of thousands of air-
line workers waiting in limbo, be it through
federal pension insurance or other forms of
employment adjustment. But using taxpayer
dollars to prop up a fumbling industry at
a time when more carriers are staggering
closer to bankruptcy would set a costly and
irresponsible trend. If the government really
wants to do the industry a service, it will let
the market sort things out.
Singer can be reached at
singers@umich.edu. Discuss this column
with him on the Daily Opinion blog, which is
accessible from michigandaily.com.

0

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6

LETTERS TO THE EDITOR

'Twisted Western view' at
the heart of Quito Project
TO THE DAILY:
The article in yesterday's Daily (Students
travel to Ecuador to aid community, 09/19/05)
was imbalanced. It set a biased tone within the
first few paragraphs, which described Chillogal-
lo using inarticulate and oppressive language:
"Children are poorly educated, malnourished
and often abused, and parents struggle to make
a decent living.° Families are forced to live in
dirt-covered homes with only one room." What
did the reporter mean by "decent living" and
"poorly educated?"
And what is wrong with living in a home that
is not a three-story Victorian? Obviously, this
reporter's judgments were made using a twisted
Westerner's standards, because I am certain a
local from Chillogallo would portray his com-

munity in a very different way.
The same twisted Westerner's view, that
people living in less economically advanced
countries need to be "saved" by outside experts
who believe they are smarter and have bet-
ter standards of living, was promoted in the
article through affirmative, one-sided report-
ing on the University team that visited Chillo-
gallo. Throughout the story, those who "aided"
made comments on how great it was that the
community members "helped" them and how
efforts were made to include the villagers; this
is precisely the problem with so many "develop-
ment" projects. People should not be "included"
as an afterthought - it should be the commu-
nity members who initiate development projects
because they are the experts on their own health
and education. They know what they need.
An approach with more integrity might consist
of a team from the University providing resources

that local leaders requested in order to attack root
problems they had identified, not things Universi-
ty students who grew up thousands of miles away
had decided were the community's "problems."
The first step toward implementing legiti-
mate aid programs or writing good descrip-
tions of villages is to become conscious of
individual biases. The leaders of the Quito
Project and the Daily reporter who covered it
failed to take this primary step.
Clara Hardie
RC senior
Daily cartoons suck
To THE DAILY:
The cartoons on the Opinion page suck this
year. Please fix this problem.
Thank you.
Gideon D'Assandro
LSA sophomore

VIEWPOINT
Third-world aid crosses southern border

40

By DAN SKOWRONSKI
The footage of Mexicans illegally cross-
ing the border to "unjustly" steal blue-col-
lar jobs from Americans may be the only
material that conservative news networks
(Fox News) tend to focus on, but I would
like to place more emphasis on the undeni-
able good that was lost in the headlines and
came from the South and a different Fox.
Despite a summer of controversy surround-
ing the printing of Mexican stamps featur-
ing cartoon character Memin Pinguin, who
arguably has stereotypical black features,
Mexican President Vicente Fox re-emerged
from his seemingly sedentary August by

dent Bush's initial delay in sending aid to
New Orleans and the delay in pushing his
$51.8 billion relief bill through Congress.
Unlike Sept. 11, when Bush traveled to the
city and proclaimed that there would be a
tomorrow, it appears as if one of the main
reasons voters re-elected him - the vigor
needed to pull the country through a disas-
ter - has been lost. To any staunch conser-
vative who still holds on to this belief, I'd
ask you to turn on the television today and
see the angered and desperate faces in New
Orleans. Clearly, some of Bush's strong
resolve has been lost.
Not only did Fox's move make me ques-
tion the United States's hurricane relief

the relief effort.
Although questions remain about Amer-
ica's current generosity, a country such as
Mexico, with nowhere near the resources
our country has, still decided to help a
superpower that has somewhat lost its rep-
utation for giving. I can only wonder if in
light of the tsunami debacle, Fox ever pon-
dered whether the United States would be
as quick to send aid as he was. It appears
that he put the issue aside and decided to
act with graceful leadership, taking the ini-
tiative to use whatever means his country
had to help.
As more illegal Mexicans pour into our
country, acts such as Fox's might go unno-

Editorial Board Members: Amy Anspach, Amanda Burns, Whitney Dibo,
Jesse Forester, Mara Gay, Jared Goldberg, Eric Jackson, Brian Kelly, Theresa Kennelly,
Rajiv Prabhakar, Matt Rose, David Russell,,Dan Skowronski, Brian Slade, Lauren

I

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