Megan McArdle on Airline Unions

by Robert VerBruggen

An excellent analysis of the problems facing American Airlines:

Legacy airlines are an almost uniquely terrible business to be in.  You’ve got an enormous fixed cost, in the form of giant, incredibly expensive planes, and landing slots.  Meanwhile, your product has practically no marginal cost — adding an extra passenger to a plane is a very small cost compared to getting the plane in the air.  And each passenger slot on a plane is a wasting asset: once the plane takes off, it’s worth nothing to you.

That’s a recipe for fierce pricing wars. . . .

Of course, that’s not unique to airlines — hotels are expensive to build, and an unrented room can’t be stored up to sell later.  But airlines do have another problem that’s special to them: their unions, which are both powerful, and plentiful. . . .

When there are three or four unions — pilots, flight attendants, mechanics, and baggage handlers — things get complicated.  All of those groups are completely necessary to make sure that the plane gets in the air.  If one of them doesn’t show up, you lose all the money on every seat.

Those unions are not just trying to get more money out of shareholders, or customers.  They’re also in competition with each other.  A single union that . . . errs on the side of claiming too little value can hope to get some of it back in future negotiations. But if the pilot’s union leaves money on the table, it’s all too likely to get picked up by the flight attendants.

Read the whole thing.

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