Is Airline Re-Regulation Coming?

[DesertFalcon]

[font=arial,sans-serif][size=-1]Lou Dobbs: Heading for a crash landing
US News & World Report [font=verdana,sans-serif][size=-2]Mon, 29 Nov 2004 7:22 AM PST[/size][/font]
W hile everyone but Washington policymakers and regulators is watching, the entire airline industry in this country is on the verge of an outright collapse. The airlines are hemorrhaging cash and slashing jobs. [/size][/font]

 

[atrdriver]

I don't know that full re-regulation is the answer, but there needs to be a minimum ticket price between city pairs that would insure profitability. If an airline wants to charge MORE than the set price, they are more than welcome, but they must justify it with a service that the public will pay extra for. It isn't unreasonable to expect the airlines to make a profit. People that can't understand that, or afford the set price, can either drive or ride Greyhound.

 

[rvsm410]

Amen Brother!!!! I second the motion!

I don't know that full re-regulation is the answer, but there needs to be a minimum ticket price between city pairs that would insure profitability. If an airline wants to charge MORE than the set price, they are more than welcome, but they must justify it with a service that the public will pay extra for. It isn't unreasonable to expect the airlines to make a profit. People that can't understand that, or afford the set price, can either drive or ride Greyhound.

I have made quite a few posts over the last year touting the same Idea.....lots of work, but alot of costs can be averaged out others can be worked out to come to a "BASE PRICE" ticket...like buying a car. You can buy a Ford, or move up to a Mercury and if ya just got the cash get a Lincoln......

Every airline would have the same base price for a type of aircraft per hour or per city pair or what ever the baseline is. I know easier said than done, but it has to start somewhere, it cant get much worse than is getting now!

 

[LXJ31]

Hmmm....lets talk about cars.

How much would cars cost if there were triple the number of manufacturers there are now? Prices might fall to the point where no manufacturer was making money. Would the answer be to artificially raise the prices of cars, or to let some of the failing companies go out of business?

 

[NuGuy]

Hey all,

Lou Dobbs is a bright spot in an otherwise bleak journalistic landscape. A champion of the "common man", he is pretty quick and blunt when it comes to calling out Corporate America on it's blathering, reeking pandering to short term stock prices and bloated CEO/management salaries (why would you want to keep managerial talent that loses millions or billions of $$$), mostly at the expense of the people who do the actual production/coding/building/design/engineering/insert productive skill here.

Most, if not all of these management types belong on the "B" Ark.

Mr. Dobbs understands that outsourcing your production and talent off shore gets you a crippled industrial capacity, as well as a crippled economy because main driver of the economy, aka the middle class, has been outsourced into working for Walmart.

Now, looking at the airline industry, he sees the air transportation system as more that just a cheap seat, but as a driver of the economy. If everyone was Southwest or Jet Blue, then most of America, geographically speaking, would have no air service.

In the past, government has seen that any high capital cost industry that serves the public good should be regulated in some form, if only to provide a basic infrastructure. If you don't, then most people in rual areas get the shaft, with either no service or exhorbitant prices. It has always been understood that service to urban or metro areas cost less to serve per square mile simply because you serve more people per square mile. Their prices, however, go on to subsidize service in not-so-urban areas, and everyone pretty much agreed that was a good thing.

Nowadays, everyone is out to jack everyone else...commentary on our times, unfortunately.

Electrical generation and supply is one example of high capital cost, and telecommunications is another. Both examples have seen very bad things happen when you try to de-regulate half way.

Nu

 

[sqwkvfr]

What?

Who's gonna set the price and what's it gonna be? How about a $600 round trip from LA to New York?

How about $700? Or $800? I'll tell you what, let's just make it an even $3000. That way everyone can be happy and make all the money they want, right?

No, you say? Why not?!? If price fixing is the answer to our problem, why won't $3K from LA-NY-LA work?

You say that's too much? Who are you to say that's too much? If not you, who's gonna decide? Well, there's only one obvious answer...the government...right?

Who in the government is gonna set the price? What government branch do you want deciding how much your goods or services are worth? What are your goods or services worth?

We have people bitching on this board every day about the government's needless involvement in our everyday lives....why do you want to invite them in to control an industry that provides your livelyhood?

In how many other industries should we allow the government to control the means of production by controlling the price for which the product brings?

What about international routes? They'd be D@MN expensive. Are they just gonna go away when the international carriers undercut the artificially overpriced domestic carriers?

Hey I've got a better idea:

Why don't we just have the government take over the airlines entirely? Let's just completely eliminate competition and set whatever price we want? Hell if we're gonna invite them to impose price controls, we might as well just let them take over completely.


SQWK, what's up your ass? Why are you being so sarcastic?
--because what has just been suggested is price fixing. There are hundreds of anti-trust and anti-monopoly laws against price fixing. Price fixing runs contrary to the economic system in this country. Price fixing is anti-free market and anti-capitalist. In this country, the market decides the price....not the producer, not a union(despite what they think), and certainly not the government. The greatest things to come along in this country came from someone trying to build a better mousetrap...the free market has brought forth wonderful, incredible and amazing things...this country has rocketed to the world's only superpower in a little over 200 years because of a system in which price fixing has no place.

If you think that more government involvment and less competition is what's gonna solve what ills the airline industry, you're wrong.

 

[LXJ31]

<Adam Smith's Invisible Hand smacks sqwkvfr on the backside> "Nice job!"

 

[A Squared]

If everyone was Southwest or Jet Blue, then most of America, geographically speaking, would have no air service.

Uhhh, so what? Is air service one of those basic human necesseties, like shelter and food? Would life as we know it come to a grinding halt if there was no air service to Brookings, South Dakota, (population 25,000) and the folks there had to drive an hour and a half to Souix City to get on an airplane? There's a nice smooth, federally funded, interstate highway, that'll zip you there in pretty short order.

It's *nice* to have airline service conveniently close to your home, it's not *necessary*. Let's not confuse the two.

 

[Jmmccutc]

What?

Who's gonna set the price and what's it gonna be? How about a $600 round trip from LA to New York?

How about $700? Or $800? I'll tell you what, let's just make it an even $3000. That way everyone can be happy and make all the maney they want right?QUOTE]

how about this...the most common markup in the united states is 20%...so why not figure out what the average cost to fly a 737 from NewYork to Orlando is, just for the sake of argument...mark it up 20% and then divide the cost by the # of seats for each class...or just eliminate classes and make every one pay the same...then the individual airlines can charge more based on service, as previously stated, but no one can undersell the baseline cost...

just my $.02

 

[LXJ31]

You are going to have to re-read sqwkvfr's post, price fixing is not the answer in this country.

 

[A Squared]

sqwkvfr,

exactly, couldn't have said it better.

Interesting isn't it how many pilots who claim to be conservative, suddenly becomre downright pink, maybe almost a little red, when they start thinking about nice fat government guaranteed employment? Not trying to put left above right, or vice versa here, just making an observation on human nature. Principles are principles, until you start talking about *my* job, now that's different, that's an exception.

 

[100LL... Again!]

Because price-fixing will not work.

If the government sets the price, here is what will happen:

1) Severely reduced demand due to loss of free-market price structure.

2) Reduced demand causes failure of some carriers.

3) Continued low demand leads to no new carriers.

4) Pilot jobs as scarce as they were in the 70's.

You may not agree with this analysis, but that's not going to change market forces. Some people don;t think the earth is round either.The law of supply and demand will not be altered.


Suppose Virgin America hires guys at $75 per hour for the left seat and someone is willing to work for that - more power to them.

A lot of pilots think they are too special to be subject to economic reality, Too bad. The new reality is here. Adapt or fail.

Everyone thinks we can have our cake and eat it too.

 

[Big Duke Six]

I'm not completely certain, but I am fairly sure that the "old" regulation of the airlines included a minimum set price for a given route. This was done in the interest of safety, to ensure that companies would at least maintain their airplanes to an acceptable standard. And yes, service to certain smaller cities was required, and was subsidized in the same way that the government still subsidizes air service to cities deemed necessary. The problem with price fixing is whose price do you use? Whose labor cost numbers do you use? Whose bloated managment overhead do you use? Who is average? The problem with the industry is that today, at some point, someone is making money even with outrageously low ticket prices (SWA for ex.) The problem is that few other carriers can match it, which begs the question: do you even want the other carriers to attempt to match it? Do you (as the gov't) really want all the airlines in your country operating the way SWA does (great company guys, I'm just using it as an example here)? Probably not, which means you'd need to set the prices above what SWA's costs are, thus they would be making tons of money while UAL still hobbles along, not paying pensions. Or, just dictate the minimum price and let the carriers charge more if they can based on increased service levels etc. Either way, this whole argument ignores one basic reality - that passenger numbers are totally elastic. When the price goes up, the pax numbers go down. It's an economic reality that would mean jobs lost in a re-regulated world. That was the whole reason they de-regulated in the first place - to make air travel more "accessible".


I think if they would just stop letting bankrupt air carriers engage in predatory pricing ( no matter how badly they "need the cash") then the entire industry would be better off. Then, at the bankrupt air carrier only, they could set a cost for each route and not let them charge below that number. It makes sense - why let a bankrupt carrier continue to operate at a loss? This would force all carriers to get their costs squared away in advance of going bankrupt. What a concept. The negative impact of bankrupt carriers operating below their own costs is profound, and we're ALL paying the price for it.

 

[sqwkvfr]

how about this...the most common markup in the united states is 20%...so why not figure out what the average cost to fly a 737 from NewYork to Orlando is, just for the sake of argument...mark it up 20% and then divide the cost by the # of seats for each class...or just eliminate classes and make every one pay the same...then the individual airlines can charge more based on service, as previously stated, but no one can undersell the baseline cost...

OK, let's say I run "sqwkvfr airlines."--the "Pride of Phoenix " My cost for the NY to Orlando route is $100 a seat and I charge above that based on the market price....just like the real world.

You run "sqwkvfr sucks! airlines." Because of your ability to steamline operations and "build a better mousetrap," your costs on the same line are $80 a seat.

So I go the the "Federal Airline Rate Transportation authority" (FART) and tell them that "sqwkvfr airlines" can't survive on a ticket price of less than $120. You tell them "sqwkvfr sucks!" can do it for $95.

Who gets their way? If the government (first of all, keep in mind that this would take forever since all government processes are extremely slow) sets the price at $120, what's the incentive for providing better service or investing in new technology that lowers costs when your investment goes unrewarded? AND...why would you work to improve your operations, methods and systems when all you have to do if your airline becomes unprofitable is go to FART and lobby for a baseline price increase?

-Why would we not allow the market to reward "sqwkvfr sucks!" for finding a way to provide lower cost service through inventive means?
-Why would we reward otherwise unprofitable airlines for bad choices and poor performance?
-Why on earth would we single out one industry and deny it's companies the chance to compete in a free market system?
-Why would we require the American public to fly at artificially high rates just to keep a few otherwise unprofitable companies afloat?

Now I know what you're thinking, why didn't he use the average cost....$90 a seat?......let's touch on that:
"sqwkvfr airlines" would have to go out of business or find a way to cut back...never mind that under their former way of doing business, they were profitable at $120 a seat because of a customer base that was used to better service, tastier in-flight meals, wider seats, whatever. Either way, you've got problems.

The system you propose would encourage, nay; reward mediocrity and destroy consumer choice. There is an element of the public that chooses to pay more for better service and another that chooses strictly by price. The point is, there are choices and the system, while it has it's ups and downs, works.

No amount of government involvement can improve a system that works just fine without the government's help.

 

[atrdriver]

I love the discussions that start with SWA does....

SWA is a great company, and they, like JB and AT are making money. They also don't fly to all the cities that the legacy carriers fly to. And you're right, air transportation isn't a right. But it is a fundamental part of our ecomony. The way I see it, we can continue as we are, and a lot of people are going to end up out of jobs, and a lot of airports will ultimatly lose service. Or we can re-regulate to some extent, and while demand may in fact go down somewhat, it will stabilize at a point that we can live with. All the demand for air travel in the world doesn't do us any good if that demand is being driven my tickets that are sold for less than they cost. 100% load factors are worthless if the yield isn't sufficient to make a profit.

 

[Bandit60]

I have made quite a few posts over the last year touting the same Idea.....lots of work, but alot of costs can be averaged out others can be worked out to come to a "BASE PRICE" ticket...like buying a car. You can buy a Ford, or move up to a Mercury and if ya just got the cash get a Lincoln......

Every airline would have the same base price for a type of aircraft per hour or per city pair or what ever the baseline is. I know easier said than done, but it has to start somewhere, it cant get much worse than is getting now!

Humm..maybe there should a base price for oil. The oil companies can set a price and then raise it from there.

I bet the airlines wouldnt like that. Oh yea thats what the oil companies do isnt it.

 

[LXJ31]

Oil is a scarce commodity as opposed to airline seats. Apples and oranges. Because of the geopolitical situation, the U.S. like most of the world, has to dance to OPEC's tune.
The main reason, using sqwkvfrs argument, that airlines have high load factors and are losing money is that the government is letting bankrupt carriers continue to operate without having to pay some bills. Because of that, the tickets right now are artificially low. So either the bankrupt carriers either have to get healthy enough to emerge from bankruptcy and lose their competitive advantage, or they need to go under.

What would happen if USAir disappeared tommorow? Their assets would be auctioned off to other potential businesses and maybe two or three new companies would sprout from the ashes of USAir, or maybe not. The market would dictate how much and what kind of new seats and service would be demanded and where. It sucks, but aviation is not immune from hardworking people not getting the happy ending they envisioned in their careers. Just like telecoms, energy companies, clothing factories etc etc etc. You might just say, "thats life."

 

[GogglesPisano]

The market works. Ask any economist. If it's it not safety-related, it shouldn't be regulated.

 

[Publishers]

There is no chance, let me say that again, no chance that re-regulation will occur.

You are missing one of the most basic concepts here. Airlines were de regulated to get a better value for the traveling public. The consumer is first, not a question of trying to keep airlines in business. The concept is not employment of pilots but of service to some communities and providing options ot consumers for which there were few under regulation.

If they all fail, there will be new ones.

 

[Jmmccutc]

Publishers, i don't think that people necessarly disagree with you, i think this is a matter of "hypotheticals" a discussion of what if...

carry on

 

[pilotyip]

Not to mention more pilot jobs

There is probably 5-6 times the number of airline jobs today than there were in 1977 when de-reg went into effect. Which 5 out 6 pilots will give up their jobs to make the re-regulated airlines a scarce commodity with high price tickets. Also back then military pilots made up 80 to 90% of airline hiring, who wants to go back to that. As publishers said there is no going back.

 

[100LL... Again!]

pilotyip sums up what I was intending to say quite well

 

[NuGuy]

Uhhh, so what? Is air service one of those basic human necesseties, like shelter and food? Would life as we know it come to a grinding halt if there was no air service to Brookings, South Dakota, (population 25,000) and the folks there had to drive an hour and a half to Souix City to get on an airplane? There's a nice smooth, federally funded, interstate highway, that'll zip you there in pretty short order.

It's *nice* to have airline service conveniently close to your home, it's not *necessary*. Let's not confuse the two.

Well, I suppose that this is the decision that needs to be made at some point. Certainly air travel is not a life or death item, but then again, neither is telephone or electrical service. We've only had residential electrification and telephone service across the board for only a bit longer than air service in the big scheme of things.

Certainly enough people thought that air service was "essential", economically or otherwise, that when it came to ditching economic regulation of airlines they set up the "essential air service" program, of which BKX was a recipient.

Besides, not everywhere has a nice smooth Interstate Highway going through it. In the same state, Pierre, the capital, is in the middle of nowhere, with no Interstate. Population 13,000...maybe they can just take the train....

Nu

 

[414Flyer]

So should ever industry that has hard times, or that has a problem making a profit, be able to conduct price fixing and remove competition?

If its "good" for airlines, would it be good for every industry, and for the country as a whole, to go to a centrally planned economy?

 

[sqwkvfr]

Well, I suppose that this is the decision that needs to be made at some point. Certainly air travel is not a life or death item, but then again, neither is telephone or electrical service. We've only had residential electrification and telephone service across the board for only a bit longer than air service in the big scheme of things.

The difference is that the infastructure for telephone and electric services already exists and if you were to amortize the costs of building the systems over the time that they've existed, the initial costs have been recovered in some areas and are being recovered in less populated areas. Air service is not the same in the respect that the infastructure is in place, and continuing to use it is relatively inexpensive.

Certainly enough people thought that air service was "essential", economically or otherwise, that when it came to ditching economic regulation of airlines they set up the "essential air service" program, of which BKX was a recipient.

A squared must have a little knowledge about the Brookings plight. Brookings, Watertown, Aberdeen, Huron and Pierre have all been recipients of "essential air service" funds for some time, often thanks to SD's Senator, who happened to be Senate Minority/Majority leader. When Brooking's essential air finds were in peril because of they were within 200 miles of a major hub (MSP, by something like 2 miles), the city council had a FIT. Some of them even went so far as to drive the route themselves and report what THEIR odometer/tripometer said (which, of course, was different than the official measurement).

In the meantime, one of Brooking's city councilmen was lobbying for the FAA to put a control tower at BKX AND wasn't satisfied with the "prop plane" (beech 1900) that served the airport. HE wanted a regional jet...despite the fact that the city's daily boardings were something like 8 or 12 a day.

Besides, not everywhere has a nice smooth Interstate Highway going through it. In the same state, Pierre, the capital, is in the middle of nowhere, with no Interstate. Population 13,000...maybe they can just take the train....

And I would guess that Pierre's daily boarding (with the exception of the month that the legislature is in session) is less than Brookings. (by the way, it's a 45 mile drive to Sioux Falls, which is bigger than Sioux City...hell, it takes me the same amount of time to get to PHX and I live IN TOWN!)

I just think that it's funny how "essential" these cities think this air service is. It be funny to watch them backtrack on their positions if they suddenly found themselves footing the bill.

 

[A Squared]

Certainly air travel is not a life or death item, but then again, neither is telephone or electrical service. We've only had residential electrification and telephone service across the board for only a bit longer than air service in the big scheme of things.

Hmmm ok, so you're proposing time in existence as a measure of a commodity's necessity? OK, moving pictures have been around for as long as electrification and phone service, does that make it essential also? If that wasn't your point, what exactly is was your point?

As far as comparing it to Electricity and telephones;

Shut down the electricity (including back-up generators) to a large hospital, and count how many people die.

Shut down the telephone system in your city and see how long it takes the fire department to get to your house when it's on fire.

Shut off scheduled air service (I don't mean close the airport, or stop medivac service, or charters, or Part 91 aviation, just the scheduled airline service) and what? people die? houses burn down? no, you gotta drive a little farther. Oh, ,the humanity. That doesn't sound terribly essential to me.

Certainly enough people thought that air service was "essential", economically or otherwise, that when it came to ditching economic regulation of airlines they set up the "essential air service" program, of which BKX was a recipient.

Ummmmm, buddy, you appear to be advancing the notion that federal funding is proof of something's value. Sorry, that is just about as worthless a measure as one could propose. By that logic, the photography of Robert Mapplethorpe is an essential service, as it was funded by the National Endowment for the Arts. It's always easy to spend someone else's money on something that's you think would be pretty nifty. Perhaps a better test would be "are you willing to pay for it out of your own pocket?"

OH, BTW, I meant Sioux Falls, not Sioux City.

 

[DesertFalcon]

Some good news to report.

The Saudis are going to increase oil production by 37%!
This should take some of the pressure off of the airlines.

Remember, "You were there"!

 

[JohnDoe]

quote from sqwkvfr:
"...the free market has brought forth wonderful, incredible and amazing things..."


Sorry, but I gotta laugh at this comment once again. With respect to airlines, there is no "free-market." If there was, an airline would not be able to "hide" in chapter 11 protection for 2 years, going to a judge at-will to get all of their contracts changed and prevent creditors from repossessing aircraft that have not been paid for, etc..

In a way, the government is already re-regulating the airlines by allowing this to happen, and preventing the supposed free market effect from happening.

 

[Publishers]

Free but controlled. The thing that keeps airlines going is not the government, it is the size of the dinosaur. The rules and regulations that keeps them upright long past when it should are the rules and regulations designed for all business, not airlines.

In this country, we have given bankruptcy judges great powers, some think too much power, to step in and manage the business using legal power and not taking into consideration the industry as a whole.

Answering something said before, regulation did not set minimum fares when it existed. It just prevented competition on a particular route and that kept the fare up. Back then, there were not hub and spoke operations and so today it would be difficult to ever even try to assign a route minimum value due to all the interconnect.

There is a good parallel here between the bitching about Netjets contract and bitching about regulation. If things were not the way they were, there would be considerably less pilots employed. My educated guess is about 25% of the current pilot force.

 

[JohnDoe]

quote from publishers:
"The thing that keeps airlines going is not the government, it is the size of the dinosaur. The rules and regulations that keeps them upright long past when it should are the rules and regulations designed for all business, not airlines."


It's not the government??? Who is responsible for keeping the "dinosaur" the size that it is? The government is by allowing them to hide in chapter 11 for years on end. If they weren't allowed to do so, the dinosaur would be smaller by roughly 2 airlines by now.........

And yes, the rules apply to all business, not just airlines. So, again, we don't really have a true free-market economy when the government can step in and declare that creditors cannot repo assets that are not being paid for. The government is totally responsible for this via the bankruptcy laws. They are basically requiring the creditors to subsidize a failing companies business by not allowing them to cut their losses and run away.