Airline Regulation

101 9
The airline industry operates like the veins of the United States by pumping precious cargo throughout the country.  Most young people don’t realize how different the airlines were a few decades ago.  The entire industry was regulated by the government.  Regulation is usually considered a more socialistic liberal idea that is opposed by conservative capitalists.  Although I personally believe in a government with a small limited roll in our daily lives, I have come to the conclusion that the airline industry is a rare exception that needs to return to regulation which would benefit the airlines and the consumers in numerous ways.

            In the days of regulation the government had total control of routes, fares, gates and almost anything necessary to operate an airline.  It also created many barriers to entry which would prevent any new start up airline.  All the government would have to do is not allow them at any airports or not approve of any route application.  Economists complained that regulation was inefficient so in 1978 the Airline Deregulation Act was passed allowing the free market to dictate airline prices and schedules.

            The following thirty years have proved this to be a terrible mistake.  There are a wide range of facts when looking for the change in price of a ticket today compared to the airlines under regulation.  Some say the tickets are 20 % cheaper.  Others claim there is hardly a difference because one must account for the 10% travel agent fee that is avoided with today’s online booking.  So there is clearly no great ticket price benefit due to deregulation.  However in the past tickets were fully refundable and you could change your destination without numerous penalties.  Today people scour the internet for a discounted ticket which will usually mean a few stops along the way that may not be in the general direction of their destination.  Some passengers may have to fly into alternative airports to receive a discount.  Southwest airlines now flies into most major airports just as the legacy airlines do, however, in Southwest’s early days they broke into the freshly deregulated industry by basing their operation out of LUV field Dallas (not Dallas Ft. Worth International Airport) and flying to locations such as Burbank, CA.  The reason for this was because it is much cheaper to operate out of these airports to avoid paying high prices for gates and other airport fees.  Southwest also undercut the pay scales across the board.  They were the first low cost carrier.   By saving all this money they would be able to provide cheaper tickets to customers and the free market was beginning its control on the industry.  This started the domino effect of airlines entering the market.

            With a few major airlines doing most of the long haul flights many commuter airlines have started business with 100 seat type jets.  Most people will see US Airways Express and think it is a division of US Airways; however that airplane might be one of 4 or 5 airlines that fly under the US Airways paint scheme.  The air is absolutely saturated with all of these small jets. The air traffic control system needs to be upgraded because of this.  Instead of having 737’s make two or three  flights  a day on a short haul trip say from Philly to Buffalo, they will have these 100 seat regional jets make 5 or 6 flights a day.  With fuel prices soaring this does not seem efficient.  Safety of the consumer is also being endangered.  For the last year or so many small regional airlines were hiring a large amount of pilots due to a shortage.  The minimum flight time qualifications were dropped lower than they have ever been before.  Some new hires are getting in the cockpit with as little as 300 hours.  The average airline pilot has several thousand hours.  With flight training declining every year due to the high cost, commercial pilots are becoming scarcer.  When you add more airplanes while fewer pilots are being trained it creates a huge shortage.  The Federal Aviation Administration pushed the mandatory retirement age to 65 adding 5 more years to a pilots career if he chooses to stay which many aren’t and won’t, due to the terrible state of the industry and conditions they have been working in.  This is just a temporary fix that might stave off the shortage for a few years but hiring will start again and there won’t be enough pilots let alone enough experience pilots to fly all of these airplanes.

            Under regulation when oil quadrupled in the 70’s, the price was passed onto the consumer by raising ticket prices.  This is unfortunate but it is a part of the way our economy works.  Today with prices rising, the airlines will not raise prices and instead try to run other companies into the ground by lowering prices.  This is not healthy competition.  The airline industry lost 25 billion dollars from 2001-2005.  During that period airfares dropped 15 percent while 20 airlines went bankrupt.  US Airways and Northwest Airlines have removed their obligation to their pension funds by pleading in bankruptcy court that they couldn’t operate with out doing so.  This wiped out over 8,000 pilots retirement funds between the two of them.  Over 7000 Delta pilots have also since lost their retirements.  Pilots have conceded roughly 30-40% pay cuts along with losing their retirements in order to keep these airlines afloat and ensure the passenger gets a good deal on their ticket. 

            Within the past few weeks Aloha Airlines joined the ranks and went out of business continuing the downward spiral of the airline industry specifically over the last 10 years.  Delta and Northwest announced on April 14th a plan to merge which would create the largest airline in the world. There is also speculation of many more mergers and or bankruptcies to come.  Mergers are a sign of these companies being better off working together than separate.  That is certainly not the healthy competition the lawmakers of the 60’s and 70’s envisioned while forming this plan.  There has been recent talk of law makers on Capitol Hill revisiting the regulation idea due to the horrible state of the industry.  Hopefully they will work quickly and save the sinking ship before it’s too late.

Bibliography

1. L. Smith Jr., Fred. "Airline Deregulation." Library of Economics and Liberty 25 Nov 2008 <http://www.econlib.org/library/Enc/AirlineDeregulation.html>.

2. Barnum, John. "What Prompted Airline Deregulation 20 Years Ago? What Were the Objectives of That Deregulation and How Were They Achieved?." Find Law Library 08/15/1998 25 Nov 2008 <http://library.findlaw.com/1988/Sep/1/129304.html>.

3. Bailey, Elizabeth E. “Airline Deregulation Confronting the Paradoxes.” Regulation: The Cato Review of Business and Government 15, no. 3. Available online at: http://www.cato.org/pubs/regulation/regv15n3/reg15n3-bailey.html.
Subscribe to our newsletter
Sign up here to get the latest news, updates and special offers delivered directly to your inbox.
You can unsubscribe at any time

Leave A Reply

Your email address will not be published.