AUTOPILOT.(The Talk of the Town)

Capitalism is supposed to be revolutionary: demolish the old and usher in the new, without regard for tradition or custom. The free market, as Marx and Engels wrote, is a place of "everlasting uncertainty and agitation," where "all fixed, fast frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away." But, even in America, fast frozen relations have proved to be very tenacious. Bad practices linger, even when the consequences are dire. Companies, like people, don't much like to change.

Of all the stubborn companies, the airlines may be the most mulish of all. In the past three years, the major carriers have lost more than twenty billion dollars, and a huge portion of their business has gone to low-cost competitors like Southwest and JetBlue. With too many expensive planes flying too many places at too high a cost, some airlines lose money every time they fly. US Airways and United went bankrupt in 2002. American nearly did in 2003. And now Delta, which burned through three-quarters of a billion dollars in cash in the first half of this year, seems headed for insolvency, too. It's not exactly news that running an airline is a lousy way to make a buck. People in the industry have known it for years. What's startling is that only now, with the business in shambles, are they doing anything about it.

When the airlines came of age, in the sixties and seventies, the industry was regulated. The government controlled prices and determined which routes the airlines could fly. There were few price wars and, in most cities, few carriers. Airline executives didn't have to think much about fending off competition, and employees were able to carve out a nice life for themselves. Because the carriers were concerned mainly with planes in the air, and could pass cost increases along to customers, they rarely took a hard line with the labor unions. So mechanics and pilots, in addition to being well paid, benefitted from a raft of complex work rules, which gave them a great deal of control over things like scheduling, job assignments, and outsourcing. United, for instance, had to put three people in the cockpit of every 737, even though the plane was designed to be flown by two people. And it had to have a fully qualified mechanic at the gate just to wave the plane away.

After deregulation, in 1978, this cozy arrangement became an affliction. Prices are lower now, and there is genuine competition. You can't reliably pass on cost increases to your customers. The only way to make money is to be more productive, to get more done with less work--hardly a radical concept. Still, the major carriers have had a remarkably difficult time adjusting to it. They are sometimes called "legacy carriers," because they were around before 1978. The label fits all too well; the legacy of regulation haunts their approach to business. They are still ...