Brookings for foreign carriers on domestic routes

[BobbyBiplane]

It seems that it is time to remember those who thought that airline deregulation was a good idea in 1978 ... full title: "An Act to amend the Federal Aviation Act of 1958, to encourage, develop, and attain an air transportation system which relies on competitive market forces to determine the quality, variety, and price of air services, and for other purposes." House of Representatives - Democrats in control, Tip O'Neil Speaker, Senate - Democrats in control, Walter Mondale presiding, President Jimmy Carter.

So much for the Democrats looking out for labor.

Bob

 

[BobbyBiplane]

The Deregulation Act of 1978 was about consumers, not employees. As noted by the "Father of Deregulation," CAB Chairman Alfred Kahn (Chairman 1977-1978) when reviewing deregulation in a 1993 paper:

"Nor has the intense price competition manifested itself in a substantial reduction in real wages ... Competition has evidently resulted in some relative decline in average airline wages and benefits—just as its suppression under regulation permitted a much more rapid increase than in the economy at large—but not, surely, to a degree even remotely worthy of public concern." A. Kahn, 1993

 

[Lear70]

The Deregulation Act of 1978 was about consumers, not employees. As noted by the "Father of Deregulation," CAB Chairman Alfred Kahn (Chairman 1977-1978) when reviewing deregulation in a 1993 paper:

"Nor has the intense price competition manifested itself in a substantial reduction in real wages ... Competition has evidently resulted in some relative decline in average airline wages and benefits—just as its suppression under regulation permitted a much more rapid increase than in the economy at large—but not, surely, to a degree even remotely worthy of public concern." A. Kahn, 1993

Of course he's going to defend it, he was one of the driving forces behind deregulation.

A much more true look at deregulation was perhaps best spoken by Robert Crandall a couple years back. He basically said that, while the consumer has indeed been the winner, overall for the industry deregulation was a monumental failure, as shown by the bankruptcy of almost EVERY major carrier at some point in the last 10-12 years, the trial of 9/11 notwithstanding.

Even SWA is starting to struggle with their costs and issues starting to mirror a Legacy carrier without new routes in which to undercut other carriers, nor the interest in doing so (SWA fares are, on average, pretty close to, if not MORE expensive than other carriers).

The model itself is broken, lending itself to constant bankruptcy and merger mania every time a new entrant with dramatically lower costs (because they're NEW) enters the fray (like Spirit and Allegiant) and eventually gets to "critical mass" in terms of size and ability to threaten the older carriers with higher cost structures. The choice is left to buy them (if you can) or to somehow artificially reduce your costs (bankruptcy).

That's not a good business model, but it's going to keep going this way pretty much forever if the model isn't changed. The fact that Kahn didn't think the destruction internally in the form of dramatically-lower wages is worth noting is likely because it didn't affect him.

I don't appreciate paying for a cheap seat for everyone who wants to fly for $39 each way at the expense of my wages and earnings/saving ability for me and my family.

 

[scoreboardII]

Lear you're confusing business model and industry model. Free enterprise is a good thing, this industry model is what's the problem, it's not truly free. It's being manipulated by marketeers, GE capital and such.

Imagine if the ice cream stores in your town had a very hi capital cost requiring financing to sell, these folks would be be holding to the likes of GE. Imagine price wars resulting in just one bankruptcy, but GE doesn't want their capital ice cream machine idled, so they make a deal to undercut this competitors costs (pay to keep the engines running), and that competitor now undercharges for its product, then others fail and so on. That in essence is what's happening in our industry.

Imagine if when a bankruptcy occurred, that business was truly liquidated or set back on its feet with true costs, not illusory lower costs because someone outside the business favored that business for their gains. Imagine if a bankruptcy actually required you to repay your debts. Imagine if a company once through bankruptcy was forbidden from trying it a second or third or as what's happened, a way of business, bankruptcy to control costs.

That is the problem, not the free market.

Taking it a step further, if regulation did return, how much air service would be eliminated? I wager well over 50%. Why, because if you have a monopoly, and can pretty much charge what you want, if you do, you lose share, so instead, you reduce capacity to the point which a comfortable profit margin exists.

Pre deregulation only fifteen percent of the US population had flown a plane, that figure is now 85%. Somewhere between those two numbers 15 and 85 is where a regulated industry would thrive and be controlled. Now, are you in favor of losing half our jobs so companies have a monopoly?

 

[Dan Roman]

Two very good posts by Lear and Scoreboard. I'll throw in that while Score made a great analogy using the Ice Cream business, something to consider, if ice cream was considered a national necessity like air travel is, than they too would get more Government intervention. That's what makes airlines so unique and what makes it hard to draw a distinction between the need for Government regulation and the benefits of deregulated free enterprise.

Something else that distorts reality is the public perception that the cost of air travel should lag way behind inflation. It's a joke what people think they should pay for an airline ticket.

 

[BobbyBiplane]

I am sorry, I guess my point was not clear. Before the deregulation act was passed, Kahn was clear in his belief that it was not the resposibility of government to prevent airlines from failing. Speaking to this point (beforehand), Kahn stated “We cannot agree to define healthy competition as that state where the fortunes of the competitors fluctuate but no competitor ever goes to the wall.” Kahn expected airlines to fail as competition increased. Additionally, in numerous instances Kahn stated that airline pilots at interstate carriers were overcompensated and deregulation would solve this inequity.

As noted by numerous economists, when the price point of a service falls, due to new entrants or more efficient suppliers,the remaining service providers must either increase efficiency to meet the competition or find a nitch (to be read "underserved corner of marketplace where consumers will pay a premium for the service). As we have seen over and over again, nitch suppliers tend to fail.

The situation we see today was fully predicted in 1978. I, and many along with me, viewed deregulation as a force to grow the domestic market and it did, just not the way I had desired.

Given the history of Congress and "consumer protection" regulations, I will be very surprised if it does not, across time, permit foreign carriers to operate in the US (think trucking and shipping, both national necessities). This, coupled with consumer behavior, will continue to drive the price point lower and lower with new entrants reaping short term benefits with cheap labor.

Sorry, this isn't the business I started in back in 1973 and, given Congresses past behavior, it is not going back.

Bob

 

[Dan Roman]

Sorry, this isn't the business I started in back in 1973 and, given Congresses past behavior, it is not going back.

Bob

Ain't that the truth! Your point was clear though and it was a good one.

It's interesting that the Brookings guy somehow thinks letting airlines like Singapore cherry pick our domestic route structure would improve air travel in the U. S. Granted, they provide superior service than U.S. carriers. But they are able to do it because they are subsidized by their Government. They also are routinely guilty of what is legally defined as age discrimination in the U.S. They fire F/A's solely based on age.
The results on air travel throughout the country would hardly be improved by letting foreign carriers skim the cream off the top and expect U.S. carriers to improve service elsewhere.
I agree with your post though, I could easily see our Government screwing this up as they so often do.

 

[IBNAV8R]

The problem, or should I say the advantage, of a free market is that the strongest companies survive and the weakest fail. Much like Darwin's theory, the remaining industry is stronger and healthier.

The trouble is that airlines scream about the importance of a free market. But, when they're down, they scream for protection against those very market forces and their own failures. Now they get to compete by forcing concessions, abrogating contracts, etc. But now, other companies must follow suit to stay competitive and the entire industry then gets weaker. Meanwhile, the problem(s) that caused initial weakness never got fixed and the same buffoons are still running the company(ies).

 

[CEO silly sap]

Is BA still code sharing with Aa?
At least that Star alliance will keep
American jobs with ameicans.

 

[flyburg]

Well, I really don't care too much and no intention to get involved but I guess there are two sides to every argument!

http://www.pprune.org/freight-dogs/496323-help-us-keep-our-european-cargo-jobs.html