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Legacy carrier

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In the United States, a legacy carrier is an airline that was once economically regulated by the Civil Aeronautics Board (CAB) during the period of airline regulation 1938–1978 or can trace its origin to one that did. The CAB was a now defunct federal agency that tightly controlled almost all US commercial air transport during that period. As related below, many features associated with the legacy airline business model were actually developed not during the regulated era, but instead in the first decade or so of the deregulated era, as legacy carriers adapted to an unfamiliar competitive environment.

As of 2024 there are five surviving legacy carriers, but note that Alaska and Hawaiian are currently seeking approval for a merger:[1]

Legacy carriers do not include:

  • Any airline founded after the regulated era. A few prominent examples of such carriers include America West Airlines, ValuJet, JetBlue and Spirit Airlines.
  • Any US airline with a pre-1979 origin which was not regulated by the CAB. There are two significant US airlines today that operated pre-1979 but were not regulated by the CAB. The most prominent is Southwest Airlines, which started operations in 1971 but was never subject to CAB regulation because it was an intrastate airline and thus was subject to less regulation. For that reason, Southwest has never been counted as a legacy carrier. As related below, the term "intrastate airline" meant more than simply operating within a single state. Prior to 1979, Hawaiian Airlines operated only within the state of Hawaii, yet was CAB-regulated.

While the term "legacy carrier" is most often used in a US context, it is possible to speak of legacy carriers elsewhere, since tight airline regulation was once the global norm and following US airline deregulation, many other countries went through some kind of airline deregulation. Non-US carriers with origins that precede liberalization can be viewed as legacy carriers. For instance, in Europe, flag carriers such as British Airways, Lufthansa and Air France (with origins well before the liberalized era) can be viewed as legacy carriers in contrast to airlines such as Ryanair, Wizz Air and so forth.

Significance

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Prior to 1979, the CAB regulated its carriers as a cartel,[2] strictly limiting competition between them and setting uniform fare levels nationally. Such fare levels were above those that would prevail in a free market, as proven by comparison with fares charged by less-regulated intrastate carriers during the regulated era.[3] CAB carriers thus entered deregulation with a legacy of high costs. The history of the legacy carriers following deregulation is in significant part the story of their struggle with this legacy, their efforts to cut costs and to compensate for such costs with through various business model adaptations. One indication of this long-term struggle is that of the surviving US legacy carriers, all have gone through bankruptcy since 1978 with the exception of Alaska Airlines.

Context

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A complete list of CAB-regulated scheduled airlines in 1978, the last year of the regulated era, is available in the Civil Aeronautics Board article. Those are the legacy carriers as of the start of the deregulated era. For completeness, there is also a list of the charter carriers from the same year (known as "supplemental air carriers"). Whether the supplemental airlines count as legacy carriers is largely moot since they had little impact on the industry after deregulation.

Of the 1978 scheduled passenger CAB carriers, as shown in the table referenced above, 23 flew jets:

Airlines not regulated by the CAB

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Main article: Intrastate airline

During the 1938–1978 regulated era, intrastate airlines were those that minimized participation in interstate commerce, most obviously by operating only within a single state, but also by measures such as not selling joint tickets with other carriers for itineraries that crossed state lines, not selling tickets in other states and so forth. By doing so, they sidestepped regulation by the CAB and were able to be economically regulated instead by an agency of their state, most of which were more flexible than the CAB. However, despite not flying outside of Hawaii, Hawaiian Airlines and Aloha Airlines were CAB-regulated carriers during this era, and participated in the interstate airline system by, for instance, selling connecting tickets to elsewhere in the US. For many reasons, neither airline was an intrastate carrier. For instance, it was determined in the courts that an intrastate carrier was essentially legally impossible in Hawaii. Federally-controlled waters start three miles offshore, which made most flights between islands subject to federal regulation.

Main article: History of Southwest Airlines

Southwest started operations in 1971 and from 1971 thru 1978 was a Texas intrastate carrier, escaping CAB regulation. It was, in a sense, a carrier that was deregulated even before deregulation. Other important intrastate carriers included Pacific Southwest Airlines, Air California (later AirCal) and Air Florida, none of which survived the 1980s.

Main article: Civil Aeronautics Board § Air taxis

While the CAB was legally unable to regulate intrastate carriers, from 1952, it chose not to regulate airlines flying "small" aircraft, leading to the growth of a deregulated air taxi or commuter airline segment decades before wider deregulation. Any US airline that was a commuter carrier before 1979 therefore also escaped CAB regulation.

Main article: SkyWest Airlines

A prominent example of a CAB-era commuter carrier survives today: the large regional airline SkyWest, which first started operating in 1972 as a commuter carrier.

Main article: Empire Airlines (1974–1986)

One CAB-era commuter airline made a post-deregulation impact at a mainline level and merged into a legacy carrier: Empire Airlines started in the mid-1970s as a commuter airline in Upstate New York, was certificated in 1979 and transitioned to jets shortly thereafter. It merged into Piedmont in 1986.

Legacy carrier post-deregulation adaptation

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1979–1991 was a highly turbulent time for legacy airlines – during this time 13 of the original 23 passenger jet legacy carriers vanished through merger and collapse as they struggled to adapt to the new environment. During this period, many legacy airline features developed as an adaptation to deregulation. Legacy carrier strategies included:

  • Mergers. By the end of the 1980s, two of the 10 former trunk carriers had merged out of existence (National into Pan Am[4] and Western into Delta[5]) as had seven of the eight former local service carriers: Frontier and Texas International into Continental[6][7]; Hughes, North Central and Southern into Republic[8][9] which merged into Northwest[10]; Ozark merged into TWA[11]; and Piedmont into USAir.[12] Some of these mergers were motivated by desires to reduce competition and were judged anticompetitive by the US government before nonetheless being approved by the US Department of Transportation.[13][14]
  • Expansion: All other things being equal, airline expansion drives down average costs by reducing average employee seniority (as new employees are hired), so average employee pay drops. An example of successful post-deregulation expansion was Piedmont, which expanded up and down the east coast and was profitable every year after deregulation until it merged into USAir.[15] The rapid expansion of Braniff, on the other hand, lead to its collapse in 1982,[16] the first legacy jet carrier to cease operation (the first former CAB carrier overall to cease operation was turboprop airline Air New England in 1981).[17]
  • Use of bankruptcy law to abrogate labor agreements and impose lower market wages as pursued by Continental Airlines in its 1983 bankruptcy.[18]
  • Lower pay scales for new hires (retaining higher pay scales for legacy employees), as pioneered by American Airlines in 1983.[19][20]
  • Loyalty programs. Frequent flyer programs as we know them did not exist prior to the introduction of the American Advantage frequent flyer club by American Airlines in 1981. This allowed legacy carriers to leverage their greater size.[21]
  • Development of complex fare structures overseen by revenue management programs, including reliance on price discrimination (selling the same seat for much more to a price-insensitive business traveler, and much less to price-sensitive personal travelers through mechanisms such as an advanced nonrefundable purchase, a required round-trip purchase with a Saturday night stay to obtain the lowest prices) - again, led by American in 1985.[22]
  • Hub-and-spoke systems. Delta had a well-developed Atlanta hub prior to 1979,[23] and the advantages of hubs were understood by many, but most airlines did not have the opportunity to develop hub-and-spoke systems prior to deregulation in 1979 because they could only fly where the CAB let them. Thus hubs were, for the most part, a post-deregulation development.[24]
  • International expansion: pre-deregulation the domestic trunk airlines were largely that – mostly domestically focused. Legacy carriers made a concerted effort to expand internationally, since such flights were important to business travelers and less subject to low-cost competition. United bought Pan Am's Pacific routes,[25] American bought Eastern's Latin American routes (previously those of Braniff before it collapsed),[26] Delta bought Pan Am European routes and so forth.[27]
  • Alignment of commuter airlines (later called regional airlines) with legacy carriers. Allegheny pioneered this in the 1960s in the CAB era, developing the Allegheny Commuter system of commuter carriers under common branding and liveries. For Allegheny it was in part a way to cease operating smaller routes itself.[28] In the mid-1980s, the government permitted legacy carriers to code-share with commuters. This resulted in the quick alignment of commuters with legacy carriers as it became difficult for independent commuter carriers to survive, with commuters taking on the identity of the legacies with whom they were aligned. Some carriers, like American and Continental, bought some of the commuters with which they aligned.[29]

Eastern and Pan Am proved unable to adapt, each collapsing in 1991.[30][31] Including the earlier shutdowns of Braniff in 1982 (see above) and Wien Air Alaska in 1984,[32] by 1991, four former CAB jet passenger airlines ceased operating. Added to the nine legacy jet carriers that merged and 13 of the 23 CAB legacy jet passenger airlines exited by 1991, leaving only 10 left, of which three were small (Alaska, Aloha and Hawaiian):

  • Alaska
  • Aloha
  • American
  • Continental
  • Delta
  • Hawaiian
  • Northwest
  • TWA
  • United
  • USAir

From ten in 1991 to five today

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  • In 2001, bankrupt TWA merged into American Airlines.[33]
  • In 2005, bankrupt US Airways was bought by America West, which adopted the name of the larger carrier. The resulting carrier was considered a legacy airline, given its heritage was a majority legacy carrier.[34]
  • In 2008 Aloha collapsed.[35]
  • In 2008 Northwest agreed to merge with Delta.[36]
  • In 2010 Continental agreed to merge with United.[37]
  • In 2013 US Airways agreed to buy bankrupt American Airlines, but adopted the name and headquarters of the larger carrier.[38]

See also

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References

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  1. ^ "Alaska Air to buy Hawaiian Airlines in a $1.9 billion deal that may attract regulator scrutiny". apnews.com. Associated Press. Retrieved 25 July 2024.
  2. ^ McCraw, Thomas K. (1984). Prophets of Regulation. Cambridge, Massachusetts: Belknap Press. pp. 262–265. ISBN 0674716078.
  3. ^ McCraw 1984, p. 267.
  4. ^ Pan Am Acquires Stock Majority In Contest for National Airlines, New York Times, 27 July 1979
  5. ^ Delta And Western Airline Merger Agreed To In $860 Million Deal, New York Times, 10 September 1986
  6. ^ Airlines' merger takes effect, Green Bay (WI) Press-Gazette, 31 October 1982
  7. ^ Petzinger, Thomas, Jr. (1996). Hard Landing: The Epic Contest For Power and Profits That Plunged the Airlines into Chaos. Random House. pp. 321–322. ISBN 9780307774491.{{cite book}}: CS1 maint: multiple names: authors list (link)
  8. ^ Corporate Sales and Earnings Reports, New York Times, 30 August 1979
  9. ^ Corporate Sales and Earnings Reports, New York Times, 30 August 1979
  10. ^ "Northwest Orient will buy Republic to become third largest airline". Deseret News. UPI. January 24, 1986. p. 4A.
  11. ^ Ozark Air and TWA merge, San Francisco Examiner, 2 March 1986
  12. ^ Salpukas, Agis (1987-03-10). "PIEDMONT ACCEPTS USAIR BID". The New York Times. ISSN 0362-4331.
  13. ^ U.S. Agency Clears Sale of Republic Air, New York Times, 1 August 1986
  14. ^ U.S. Approves Merger Of USAir and Piedmont, New York Times, 31 October 1987
  15. ^ Now Even Piedmont Flies In The Fast Lane, 31 August 1986
  16. ^ Braniff's Putnam Faces The Death Of An Airline, New York Times, 25 December 1982
  17. ^ Airline serving City going out of business, Rochester (NY) Democrat and Chronicle, October 23, 1981
  18. ^ Petzinger 1996, p. 208–216.
  19. ^ Petzinger 1996, p. 131.
  20. ^ American Airlines flies with financial strength, Tampa Tribune, 8 December 1983
  21. ^ Petzinger 1996, p. 139–141.
  22. ^ Petzinger 1996, p. 270–273.
  23. ^ Lewis, W. David; Newton, Wesley Phillips (1979). Delta: The History of an Airline. Athens, Georgia: University of Georgia Press. p. 398. ISBN 9780820304656.
  24. ^ Petzinger 1996, p. 419–420.
  25. ^ Pan Am Plans Sale Of Pacific Routes To United Airlines, New York Times, 23 April 1985
  26. ^ American's Big Plans For New Latin Routes, New York Times, 29 June 1990
  27. ^ Pan Am Creditors Back $1.7 Billion Offer From Delta, New York Times, 12 August 1991
  28. ^ Davies, R.E.G.; Quastler, I.E. (1995). Commuter Airlines of the United States. Washington, DC: Smithsonian Institution Press. pp. 55–57. ISBN 9781560984047.
  29. ^ Davies-Quastler 1996, p. 134–150.
  30. ^ Eastern Airlines Is Shutting Down And Plans to Liquidate Its Assets, New York Times, 19 January 1991
  31. ^ Its Cash Depleted, Pan Am Shuts, New York Times, 5 December 1991
  32. ^ Wien Air Halts Operations, New York Times, 3 November 1984
  33. ^ American takes over with fanfare, a few jitters, St Louis Post-Dispatch, 10 April 2001
  34. ^ Airline employees switch gear to US Airways name, Arizona Republic, 28 September 2005
  35. ^ McAvoy, Audrey (March 30, 2008). "Aloha Airlines halting passenger service". Associated Press – via Seattle Times.
  36. ^ Delta, Northwest connect, Chicago Tribune, 15 April 2008
  37. ^ United, Continental connect, Chicago Tribune, 3 May 2010
  38. ^ American and US Airways Announce Deal for $11 Billion Merger, New York Times, 13 February 2013
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