This is a partial transcript of The Big Story With John Gibson, Dec. 10, 2002, that has been edited for clarity. Click here to order the complete transcript.
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JOHN GIBSON, HOST: United Airlines files for Chapter 11, tailing U.S. Airways into bankruptcy court. United is said to be hemorrhaging $20 million a day. Industry insiders are warning the full fare airline business may be headed for a crash.
A former American Airlines chairman spells out the problem... He says, "The airline industry's balance sheet now carries nearly 90 cents of debt for every 10 cents of equity, and that qualifies as a tailspin."
Robert Crandall joins us now.
That is a big problem, Mr. Crandall. What can the airlines do about it?
ROBERT CRANDALL, FORMER CEO, AMERICAN AIRLINES: Well, John, the airlines have simply got to reduce their costs dramatically. They've launched a number of initiatives. You've seen changes in the way the hub and spokes operate, you've seen changes in the kinds of airplanes they operate, you've seen changes in the internal configuration of the airplanes.
And the big item that they have yet to come to grips with is the labor contracts that cover a very large majority of their people. Those labor contracts have been built up over all the years since World War II, and they have driven productivity way down and costs way up. The consequence is that the full-service airlines, or the established airlines, or the legacy airlines, whatever you want to call them, have costs that are dramatically higher than the new entrant carriers.
GIBSON: So what...
CRANDALL: And that's got to be fixed.
GIBSON: ... what you're saying is, they got to get rid of people who are making good money.
CRANDALL: No, that's not what I'm saying at all. What I'm saying is that they can continue to pay people very well, but those people are going to have to give up some of the work rules that have reduced productivity. The measure isn't what you pay. Wage rates are not the issue. The issue is, what does it cost to produce one unit of output?
And that means that if people are going to be paid well — and I would emphasize that some of the new airlines pay people quite well, but they are very productive — they do not have work rules that restrict them from a full month's work and a full amount of effort. And that's what has to be fixed.
GIBSON: OK. If you were not in retirement, if you were dragged out of retirement and you were saddled with saving United, how would you do it?
CRANDALL: I think the only way that anybody's going to do it, John, is by sitting down and talking to the people of United and USAir. The people who lead their unions are going to have to look at the numbers and jointly accept that the work rules and practices that have characterized the business for the last 50 years simply have to be thrown overboard.
We have to start again. And we have to have contracts that reflect the kind of productivity that our new entrant, low-cost competitors are realizing. And when that happens, I think United will be successfully reorganized, and U.S. Airways will be successfully reorganized. That will be good for everybody.
GIBSON: Now, I know you think that the post-9/11 security apparatus is too onerous. But if it's too heavy a burden for United, why isn't it too heavy a burden for Southwest and some of the low-cost airlines?
CRANDALL: Well, in fact, it is. If you look at Southwest, John, Southwest has just barely maintained profitability. It has certainly, in recent times, not earned its cost to capital. The fact is that the security burden — this is a cost of the inclusive security that we have out there — benefits everybody in America.
There are 15 million jobs in America supported by travel and tourism. They all depend on a healthy, vibrant, growing airline industry. It's not something that airline passengers alone benefit from, and it is not something that airline passengers alone can pay for.
GIBSON: In other words, the government should pay for it.
CRANDALL: All of us should pay for it. The government is us, John.
GIBSON: Right, but you're...
CRANDALL: In my view, it should come out of the government's general revenues... because it benefits everybody in the United States.
GIBSON: All right. Now, if that happened, is that a quick fix for the airlines? Is that enough of a savings that the troubles we hear about would be quickly over?
CRANDALL: Well, no. I think the fact of the matter is that there's no single silver bullet. Labor contracts are going to have to be changed. Operating practices are going to have to be modified.
One of the things the government could do to accelerate that progress is to shift that burden from airline passengers to the general public. The result would be that fares would drop dramatically. The airlines, if they don't have to pass 25 percent of the fare along to the government, will drop fares to encourage more people to fly. And you would immediately see, I think, a resurgence of air traffic, which would certainly assist the airlines in fixing their problem.
GIBSON: Former American Airlines CEO Robert Crandall. Mr. Crandall, thanks for joining us. We appreciate it.
CRANDALL: John, thanks very much. Enjoyed being here.
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