Osler's Razor

American Airlines announced today that they will both stop running 11-12% of their flights and begin charging passengers $15 to check a bag. As for the first idea, well, given American's flight-cancellation problems, they may have already done this without us noticing. On the second, I can imagine that is going to bug some people.

Naturally, all of this is blamed on oil prices, and that certainly does have all of the airlines in a bind. American's management, however, made some poor decisions that are exacerbating the pain. Over the past few years American has tried to become more profitable by not buying new planes, instead relying on out-of-date and fuel-guzzling MD-80's. During those years, they could have financed more efficient jets, but did not.

Now that the oil shock has hit, the credit market has also dried up, meaning they cannot easily finance those new jets that now look like a much better idea. Instead, they are going to retire some of the old fleet and just not fly those routes anymore. So the remaining planes will be more crowded, the fliers will be upset about paying to check luggage, and there will still be no food available. Sigh.

Will we respond by flying less, or flying on a better airline, like Southwest? If we do, American will slip into bankruptcy, and the government may well bail them out instead of letting them die, which would be the better fate in terms of economic policy, just desserts, and ultimately, good air service.

As I have said before, I think you can bail out companies, or you can deregulate, but you shouldn't do both-- the theory of deregulation is letting the market work, and if you save failing companies, you are not letting the market work.