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The faltering finances of the legacy airlines won’t lead to the collapse of the hub-and-spoke system, but will result in a significant restructuring of the industry, experts told students May 12 during a panel discussion at the University of Chicago Law School.
“The larger carriers have been unable to push their cost structure down to compete with the low-cost carriers,” said Dan Kasper, JD ’70, MBA ‘71, managing director and head of transportation practice at Law and Economics Consulting Group, in an event sponsored by the University of Chicago JD/MBA Association and moderated by Douglas Baird, Harry A. Bigelow Distinguished Service Professor at the Law School. And since labor is the largest cost for these airlines, Kasper said, they are using bankruptcy, or the threat of bankruptcy, to get union wages and benefits in line with the market, which is now set by the low-cost carriers.
Sam Peltzman, Ralph and Dorothy Keller Distinguished Service Professor of Economics, said the concessions these airlines are seeking from unions are important, but won’t be enough. In order to survive, he said, the large carriers “will have to change their business model to one that keeps costs down. I think we’re headed toward a big, healthy, low-priced carrier sector and a healthy, more variably priced networked sector that has low costs.”
Susan Carey, a staff reporter for The Wall Street Journal who covers the airline industry, agreed that the hub-and-spoke network system of the legacy carriers “still has legs. Not everyone lives in New York or Chicago. People live in Tucson and want to go to Buffalo. Low cost carriers are going to go to the big cities, they aren’t ever going to be able to take somebody in a convenient way to Wichita—with their luggage.”
Jennifer Vanasco