FN FAL
Freight Dawgs Rule
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- Dec 17, 2003
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Deregulation crashes, burns
Published on: 09/09/04
I see Delta Air Lines as the next airline going bankrupt.
Each time I see another airline bankruptcy, I remember Alfred E. Kahn. He looked like the original "nutty professor." He was, indeed, a real-life professor who came up with a nutty idea in the 1970s. At the time he was the chairman of the Civil Aeronautics Board during Jimmy Carter's administration.
Kahn thought that if we deregulated the airlines, a thousand flowers would bloom from heightened competition. Airfares would plunge and service would improve through competition.
In college I was taught that certain industries are better regulated than unregulated. This was to avoid uncontrolled monopoly or oligopoly in industries where few competitors could survive because of the huge costs involved in operating companies such as airlines and utilities. Today, this would be considered heresy, if not socialism.
My professor taught that after the deregulation of such industries there would be an initial burst of competition producing lower prices. This would be followed by a winnowing process in which the weak companies would fail, even if they were large.
Ultimately the industry would consolidate either into monopoly or, at best, oligopoly. Prices would then rise as service deteriorated due to lack of competition. The airline business has followed that model in the way my professor taught me.
When Kahn unveiled his plans to deregulate airlines it was very popular with both parties. This was the beginning of the era when "government regulation" was becoming a disreputable concept because of the inflationary economic policies of Carter's time. Republicans had demonized all government regulation as one of the roots of the inflationary evils of that time.
So when Kahn came up with the idea of deregulating the airlines, he had strong bipartisan support for a concept that my professor had taught was doomed to failure. Just as taught, everything went swimmingly at first. People's Air, a small East Coast carrier, established itself with low-fare marketing. The big airlines were forced to match them and prices went down — for a while.
The only problem was that the winnowing phase followed soon after. Eastern Airlines and Pan Am went bankrupt. People's Express was eventually run out of business by bigger companies with more money to survive fare wars. So don't get too excited about Jet Blue, the latest low-fare darling.
Consolidation followed. Allegheny Air swallowed up Piedmont Air to produce the fare and service mess that we now know as US Airways. It goes bankrupt every year or two despite its monopoly at many different airport hubs. We aren't ending up with a nationwide monopoly. But anyone who travels knows that most hubs are monopolized by one dominant carrier.
There is little price competition on a trip to or from Charlotte. Its fares are high and local businesses and consumers despise US Airways, the dominant carrier. It handles 97 percent of the flights in and out of Charlotte, and it still doesn't make money. It also has huge hubs in Pittsburgh and Philadelphia.
US Airways received a $900 million guarantee of new loans, courtesy of the federal government, as part of its bailout when it went bankrupt.
Guess who really guaranteed that? You, the taxpayer.
Delta, one of the premier airlines in the country and one of the best managed, is now on bankruptcy's doorstep. It is being forced to close its Dallas hub. Isn't that a great benefit to consumers? Seven thousand jobs lost. Don't tell those employees that this is merely the wonderful "creative destruction" of capitalism.
We cannot live without air transportation, but we can try to regulate some sense back into the system. Recently, the Federal Aviation Administration was forced to re-regulate flight schedules on a de facto basis because there were close to 50 flights scheduled at the same time.
The latest trend in airline bankruptcies? Dump their workers' pension plan liabilities. By the way, we guaranteed those also. I'm glad we did for the workers' sake. I'm not glad we did it at the altar of the deregulation "miracle."
The severe dislocation of workers' lives wouldn't have been necessary if the industry were properly regulated.
Published on: 09/09/04
I see Delta Air Lines as the next airline going bankrupt.
Each time I see another airline bankruptcy, I remember Alfred E. Kahn. He looked like the original "nutty professor." He was, indeed, a real-life professor who came up with a nutty idea in the 1970s. At the time he was the chairman of the Civil Aeronautics Board during Jimmy Carter's administration.
Kahn thought that if we deregulated the airlines, a thousand flowers would bloom from heightened competition. Airfares would plunge and service would improve through competition.
In college I was taught that certain industries are better regulated than unregulated. This was to avoid uncontrolled monopoly or oligopoly in industries where few competitors could survive because of the huge costs involved in operating companies such as airlines and utilities. Today, this would be considered heresy, if not socialism.
My professor taught that after the deregulation of such industries there would be an initial burst of competition producing lower prices. This would be followed by a winnowing process in which the weak companies would fail, even if they were large.
Ultimately the industry would consolidate either into monopoly or, at best, oligopoly. Prices would then rise as service deteriorated due to lack of competition. The airline business has followed that model in the way my professor taught me.
When Kahn unveiled his plans to deregulate airlines it was very popular with both parties. This was the beginning of the era when "government regulation" was becoming a disreputable concept because of the inflationary economic policies of Carter's time. Republicans had demonized all government regulation as one of the roots of the inflationary evils of that time.
So when Kahn came up with the idea of deregulating the airlines, he had strong bipartisan support for a concept that my professor had taught was doomed to failure. Just as taught, everything went swimmingly at first. People's Air, a small East Coast carrier, established itself with low-fare marketing. The big airlines were forced to match them and prices went down — for a while.
The only problem was that the winnowing phase followed soon after. Eastern Airlines and Pan Am went bankrupt. People's Express was eventually run out of business by bigger companies with more money to survive fare wars. So don't get too excited about Jet Blue, the latest low-fare darling.
Consolidation followed. Allegheny Air swallowed up Piedmont Air to produce the fare and service mess that we now know as US Airways. It goes bankrupt every year or two despite its monopoly at many different airport hubs. We aren't ending up with a nationwide monopoly. But anyone who travels knows that most hubs are monopolized by one dominant carrier.
There is little price competition on a trip to or from Charlotte. Its fares are high and local businesses and consumers despise US Airways, the dominant carrier. It handles 97 percent of the flights in and out of Charlotte, and it still doesn't make money. It also has huge hubs in Pittsburgh and Philadelphia.
US Airways received a $900 million guarantee of new loans, courtesy of the federal government, as part of its bailout when it went bankrupt.
Guess who really guaranteed that? You, the taxpayer.
Delta, one of the premier airlines in the country and one of the best managed, is now on bankruptcy's doorstep. It is being forced to close its Dallas hub. Isn't that a great benefit to consumers? Seven thousand jobs lost. Don't tell those employees that this is merely the wonderful "creative destruction" of capitalism.
We cannot live without air transportation, but we can try to regulate some sense back into the system. Recently, the Federal Aviation Administration was forced to re-regulate flight schedules on a de facto basis because there were close to 50 flights scheduled at the same time.
The latest trend in airline bankruptcies? Dump their workers' pension plan liabilities. By the way, we guaranteed those also. I'm glad we did for the workers' sake. I'm not glad we did it at the altar of the deregulation "miracle."
The severe dislocation of workers' lives wouldn't have been necessary if the industry were properly regulated.
