Liberals rejoice! Re-regulation of the airline industry in Hawaii possible

[Poahi]

This legislation if passed, is a gift to Hawaiian and go!.


Intersting that Hawaiian testified AGAINST the bill.

I say that because the legislation is anti-competitive. Yes, I know that no airline is going to lobby for price controls. They don't work. It's up to Aunty Linda right now.

 

[Dan Roman]

It looks to me like Hawaiian would agree with you. I would think that it would benefit them the most, but perhaps they think they are better off competing with whoever else they have to deal with. On one hand you could argue that the fare wars have hurt Hawaiian, but on the other, the extreme competition inter-island has made Hawaiian a much stronger airline. They arose from a very weak position to a very strong one since the deregulation act of 1978. Actually, they were doing pretty good till deregulation, then they got their arse kicked and have now bounced back into a very strong airline.
Perhaps Hawaiian is thinking this would benefit Go (an awful airline compared to Hawaiian) more than it would benefit Hawaiian. If Hawaii was left, unregulated, Go would probably disappear. That said, a LOT of people in Hawaii do not like Go airlines (and not just other airline employee's) so even if fares were regulated, I don't think Go would have profitable load factors. Most people would choose Hawaiian over Go if the ticket price was the same.
In other words, it beats the hell out of me!

 

[Poahi]

It's an interesting situation. Right now, the prices between Hawaiian and go! are essentially the same and go!'s business is booming. I agree in general though, if the prices were the same, most passengers would choose Hawaiian - and it looks like Hawaiian has better than 80 percent of Aloha's former passengers, but there's that 20 percent that's keeping go! afloat. And I think go! is a lot closer to profitability right now.

If the legislation becomes law, it's going to force go! to use larger aircraft. That's why I think it was a mistake for go! not to take gates in the Interisland Terminal. If the State uses mainland routes to determine fares, one way tickets are going to jump to what? $120? Maybe more? That's going to make the local people want to scrap the law just like the gas cap. Then the Superferry goes to Kauai.

Here's what I don't get, Hawaiian settles with Mesa and fares haven't really changed. Everyone speculated that Ornstein wanted to push Aloha out and increase fares above pre Mesa levels, but that hasn't happened (yet). In fact, if you adjust for fuel prices, fares are probably lower now. On the other hand, fares to the mainland since Aloha left have about doubled.

I think go!'s concern is that at $54.00 passengers are less indifferent to chose between go! and Hawaiian, but at double that, they are going to opt for the service at Hawaiian and their 'low fare' model doesn't work in a price controlled market. They would have to focus on service and big shiny airplanes - otherwise, they fall in to the trap Aloha was in.

On the other hand still, this could be the Legislature's way out. Everyone was so surprised when Aloha quit flying, that the government had to do something. Now that they have potentially failed legislation (if the Gov. veto's it), they can say the people didn't want it and they did their job.

 

[waka]

What a bunch of BS. We get further and further away from a free market every day. If you think gas is a free market, I suppose you have never heard of OPEC, then. Or the military action that this country has undertaken to secure oil supplies (aka subsidies). You also forgot the "demand" part of the "supply and demand" model.

Where do you get this that it's been "proven" that a free market is "impossible" and delusion. All you have to do is get rid of the ridicuolous government laws that interfere and voila, a free market. It's not that hard. We had lots of free markets in the 19th and early 20th century and, naturally, America thrived.

The goal of the free market is to maximize utility. Where do you get this monopoly crap? Monopolies are CAUSED by government intervention, because the government creates barriers to entry preventing new companies from forming. Did you even read the posted article? Because that's exactly what Hawaii wants to do, they want to create barriers to entry and prevent new companies from forming!

And who taught you that a monopoly can charge whatever it wants? That's a total fallacy. It sounds like you are the one who's only education in economics is a high school lesson.

Hawaii is considering regulation why, because a new company came in and charged lower prices? Isn't that what the consumers want? If the consumers didn't want it then why did they buy their product? This is insane.

You obviously had the Spinmeister flavored Kool Aid.

 

[Raskal]

Excellent summation and good post. I didn't want to tackle it, because I don't have the gift of distilling complex ideas into pithy posts.

Economics isn't called "the dismal science" for nothing. Yet when I read things like the post you're responding to, I can't help but think of how truly ignorant most people are about basic concepts of free markets, monopolies, and government regulation.

Required reading for anyone with an I.Q. over 90:

Basic Economics by Thomas Sowell

Interesting that Sowell is who you mention-he is a clasic laissez-faire economist. He is without question an intelligent writer, one who I don't disagree with when it comes to marxism and all its flaws (read Marxism: Philosophy and Economics and you'll probably like it). I haven't read basic economics, but I have it and will get around to it at some point.

I also have a hard time distilling ideas into brief posts but here goes: before you assume I'm a flat out communist-I'm not. I subscribe much more to the Keynesian side of econ theory. Basically a free market where public and private coexist rather than battle.

That government causes monopolies through regulation is complete BS, especially when applied to commodities. Take electricity. What would happen if there were no regulations at all on price beginning tomorrow? Do you think it would go down? Do you think the 'market' has any control at all on what the price the consumer would pay in this case?

Let's jump to airlines-what is happening right now? The answer to survival is to become bigger according to DAL and NWA, not to mention the investors driving the merger. What is the point of becoming larger? It's to control markets and raise the cost-not a bad thing in all respects, but still it is the goal. Airline deregulation started with 22 new airlines competing-how many are left? I think US Airways was the last of that time period...so much for competition in the classic sense.

What I'm trying to get across is that regulation IS needed, unfortunately our government does it like a rubber band, they over-regulate until they almost break the sector than completely set it free so the whole thing goes flying across the room and all the prices with it.

Trusting the 'market' to regulate itself is simply not realistic-you cannot remove the human factor of greed.

 

[dmspilot00]

I also have a hard time distilling ideas into brief posts but here goes: before you assume I'm a flat out communist-I'm not. I subscribe much more to the Keynesian side of econ theory. Basically a free market where public and private coexist rather than battle.

What theory of Keynes supports price and supply controls in a market for airline service? Keynesianism is a set of macroeconomic theories and I don't see how his ideas are even applicable to this discussion. Even then, the Keynesian school of thought began to decline decades ago after the associated theories being proven wrong innumerable times.

That government causes monopolies through regulation is complete BS, especially when applied to commodities. Take electricity. What would happen if there were no regulations at all on price beginning tomorrow? Do you think it would go down? Do you think the 'market' has any control at all on what the price the consumer would pay in this case?

Electricity in most markets is provided by a single firm which is a government-sanctioned monopoly. Bad example and just proves my point.

Let's jump to airlines-what is happening right now? The answer to survival is to become bigger according to DAL and NWA, not to mention the investors driving the merger. What is the point of becoming larger? It's to control markets and raise the cost-not a bad thing in all respects, but still it is the goal. Airline deregulation started with 22 new airlines competing-how many are left? I think US Airways was the last of that time period...so much for competition in the classic sense.

What I'm trying to get across is that regulation IS needed, unfortunately our government does it like a rubber band, they over-regulate until they almost break the sector than completely set it free so the whole thing goes flying across the room and all the prices with it.

Trusting the 'market' to regulate itself is simply not realistic-you cannot remove the human factor of greed.

Right now airlines are losing money. This implies there are possibly too many firms in the market and there is over-supply of airline seats (excess capacity). DAL and NWA are both losing money and would like to merge, consolidate, and reduce flights, opening up markets to increased competition--completely contrary to your argument. Here's an article that would be perfect for you, "The Myth of Predatory Pricing."

Since the deregulation act, airline fares have plunged and passenger loads skyrocketed. Where is the problem? And what does greed have to do with anything? A free market works in part because individuals act in their own best interest, not in spite of it.

 

[Soverytired]

Airlines don't lack regulatory oversight. Indeed, they are still heavily regulated; no price-colluding, how they run their maintenance, how they set their pilot schedules, etc.

So the real question is what sort of additional regulation are you advocating? Some sort of quasi government regulated industry like AMTRAK or the Post Office, where the federal government picks the winners and losers . . . and heavily subsidizes them via the taxpayer? Fine if you're the recipient of the handout, not so fine if you're the taxpayer or the airline that's not well-connected.

Deregulation has been a boon to the flying public. Fares dropped dramatically, pilot jobs boomed as airlines expanded to serve a huge amount of markets that never before had air service. So as a citizen-taxpayer and a member of the flying public (annd a one time regional pilot), deregulation is a great thing.

As a pilot, when I hear "Re-regulation", what I hear is pilots who want a guaranteed job, at a guaranteed salary, funded by the national debt if necessary. Sure, that sounds nice. Hell, everyone wants that, but we can't all work for the government, because someone actually has to produce something or everything falls apart. Not to mention the fact that I'm already deeply ashamed by how much debt we're foisting onto our kids and grandkids.

In any case, re-regulation or free market, in a world of $150-$200 barrel oil, the airlines are going to contract severely, the amount of cities served are going to shrink dramatically, the amount of people who can afford to fly will drop, and a lot of pilots are going to wind up on the streets.

It's scary, but inevitable if oil spikes that high. Regulation won't solve this fundamental problem.

AS FOR GREED: Define it. We can all agree that CEO's are way overpaid, right? So lets set up a federal panel and have them set a cap! Of course, most people think PILOTS are greedy and overpaid, so we'd better cap them at $60k/yr too, right? Welcome to government price controls.

That right there is the problem . . . in a free market, no one gets screwed, because both parties will only trade when the price is right for each of them. A transaction creates value for both parties. Clearly, there are plenty of pilots that are happy to work in the $50-$90k bracket, because there are plenty of them around.

(Oh . . I don't think you're a marxist)

That government causes monopolies through regulation is complete BS, especially when applied to commodities. Take electricity. What would happen if there were no regulations at all on price beginning tomorrow? Do you think it would go down? Do you think the 'market' has any control at all on what the price the consumer would pay in this case?

Let's jump to airlines-what is happening right now? The answer to survival is to become bigger according to DAL and NWA, not to mention the investors driving the merger. What is the point of becoming larger? It's to control markets and raise the cost-not a bad thing in all respects, but still it is the goal. Airline deregulation started with 22 new airlines competing-how many are left? I think US Airways was the last of that time period...so much for competition in the classic sense.

What I'm trying to get across is that regulation IS needed, unfortunately our government does it like a rubber band, they over-regulate until they almost break the sector than completely set it free so the whole thing goes flying across the room and all the prices with it.

Trusting the 'market' to regulate itself is simply not realistic-you cannot remove the human factor of greed.

 

[Raskal]

Airlines don't lack regulatory oversight. Indeed, they are still heavily regulated; no price-colluding, how they run their maintenance, how they set their pilot schedules, etc.

So the real question is what sort of additional regulation are you advocating? Some sort of quasi government regulated industry like AMTRAK or the Post Office, where the federal government picks the winners and losers . . . and heavily subsidizes them via the taxpayer? Fine if you're the recipient of the handout, not so fine if you're the taxpayer or the airline that's not well-connected.

Deregulation has been a boon to the flying public. Fares dropped dramatically, pilot jobs boomed as airlines expanded to serve a huge amount of markets that never before had air service. So as a citizen-taxpayer and a member of the flying public (annd a one time regional pilot), deregulation is a great thing.

As a pilot, when I hear "Re-regulation", what I hear is pilots who want a guaranteed job, at a guaranteed salary, funded by the national debt if necessary. Sure, that sounds nice. Hell, everyone wants that, but we can't all work for the government, because someone actually has to produce something or everything falls apart. Not to mention the fact that I'm already deeply ashamed by how much debt we're foisting onto our kids and grandkids.

In any case, re-regulation or free market, in a world of $150-$200 barrel oil, the airlines are going to contract severely, the amount of cities served are going to shrink dramatically, the amount of people who can afford to fly will drop, and a lot of pilots are going to wind up on the streets.

It's scary, but inevitable if oil spikes that high. Regulation won't solve this fundamental problem.

AS FOR GREED: Define it. We can all agree that CEO's are way overpaid, right? So lets set up a federal panel and have them set a cap! Of course, most people think PILOTS are greedy and overpaid, so we'd better cap them at $60k/yr too, right? Welcome to government price controls.

That right there is the problem . . . in a free market, no one gets screwed, because both parties will only trade when the price is right for each of them. A transaction creates value for both parties. Clearly, there are plenty of pilots that are happy to work in the $50-$90k bracket, because there are plenty of them around.

(Oh . . I don't think you're a marxist)

Actually, I'm not in favor of re-regulation in the classic sense. I don't think it would work well in today's environment-the industry is too different from what it was. I was using the deregulation as an example of bad regulation by the government.

As for greed, I am also not saying to cap anyone's pay-that is a job for boards of directors (who are often all friends/aquaintances) which brings up the root of the problem-influence.

The problem with the classic 'free' market assumes no government intervention. That is simply not a reality that is acheivable today-even if libertarians were put in office.

Companies are often made or destroyed by the amount of political influence they can muster to gain a competetive edge. Allowing the market to go free would not eliminate that problem. It may make it worse, for only the well connected would succeed.

This is the entire problem with ecomomic theory, it's similar to physics, everything is figured in a vacum. My thought is to find a middle ground of regulation (more in some industries and less in others, with still others that should fall under the public envelope that currently aren't).

Parting thought-take the Bear Stearns issue. In a free market the collapse would have been allowed, supposedly bringing down a significant part of the financial sector. I'm not sure I buy that, the whole thing reeks of the wealthy bailing out the wealthy. When JP Morgan stepped in to buy the shares of a failed company the shareholders somehow got JP to raise their price 5 times over. Remember, this is a failed company...who are the shareholders to demand anything? Of course, the fed said ok. So, where in economics does this fall? It seems the free market didn't do its job, nor does it seem the government handled it in any way that made sense either. Where do you guys come down on that?

 

[dmspilot00]

Actually, I'm not in favor of re-regulation in the classic sense. I don't think it would work well in today's environment-the industry is too different from what it was. I was using the deregulation as an example of bad regulation by the government.

Then what regulation do you want?

The problem with the classic 'free' market assumes no government intervention. That is simply not a reality that is acheivable today-even if libertarians were put in office.

A 100 percent free market is only not achievable because of a misinformed public and power-hungry politicians that continually desire more and more regulation. That doesn't mean we shouldn't try to move in that direction. A free market is the most efficient means of allocating resources, so it follows that a more-free market would be more efficient than a less-free market.

Companies are often made or destroyed by the amount of political influence they can muster to gain a competetive edge. Allowing the market to go free would not eliminate that problem. It may make it worse, for only the well connected would succeed.

This claim that a free market would result in companies gaining unfair advantages through political influence is a contradiction. If the government has no influence on a market, how can a company's influence on the government affect the market? It doesn't make sense.

This is the entire problem with ecomomic theory, it's similar to physics, everything is figured in a vacum. My thought is to find a middle ground of regulation (more in some industries and less in others, with still others that should fall under the public envelope that currently aren't).

It's a problem with the perfect competition model, but you don't have to have perfect competition in order for a free market to work.

Parting thought-take the Bear Stearns issue. In a free market the collapse would have been allowed, supposedly bringing down a significant part of the financial sector. I'm not sure I buy that, the whole thing reeks of the wealthy bailing out the wealthy. When JP Morgan stepped in to buy the shares of a failed company the shareholders somehow got JP to raise their price 5 times over. Remember, this is a failed company...who are the shareholders to demand anything? Of course, the fed said ok. So, where in economics does this fall? It seems the free market didn't do its job, nor does it seem the government handled it in any way that made sense either. Where do you guys come down on that?

This isn't really relevent to the airline industry, but if the free market determines that a company should fail, there is a good reason. When you have government or a government-sanctioned central bank bailing people out, it sends the wrong message and encourages the very behavior that the market doesn't want.

 

[AC560]

Even if it were to pass in Hawaii the Fed's have to sign off on it and it would be doubtful that would happen with current Administration.

Would be great deal for Mesa though. Put Aloha out of business then get the market regulated so they can make a killing.

 

[JustaNumber]

Trusting the 'market' to regulate itself is simply not realistic-you cannot remove the human factor of greed.

Interesting discussion. I would argue that in response to the above quote, "greed" is what motivates the best parts of a totally free market.

My favorite example of the effects of government regulation concerns anti-"price-gouging" laws. Looking at the results of a simple situation with and without government price controls is very informative.

Let's say a hurricane wipes out power to thousands of people in Florida. In a scenario with government price controls, the government would say that "price gouging" (a term the jealous and uneducated use to describe the free market at work) is illegal, and generators cannot be priced higher than prices in the rest of the country, let's call it $1000 per generator.

A very few people might try to sell some on the black market, but since their risk is high, they price generators accordingly, at $10,000 each.

Net result of price controls: massive shortages of generators (who has incentive to bring in huge quantities at minimal profit?), with a few for sale at astronomical prices.

Compare that to the same situation, but in which the free market is allowed to work. Joe Blow figures he can make a lot of $$ by loading up a UHaul with Georgia generators, and selling them for $2000 each. Net result: more generators on the market.

But it actually gets better. Now every Billy, Bob, and Bubba hear about all the $$, so they load up their pickups with generators to get in on the action. Since someone on every street corner in Florida is now selling generators, they have to lower their prices, to maybe $1100 each, just to unload them. End result: Lots of generators for sale, at a price that works for the sellers AND the buyers. So free market capitalism actually creates supply to balance demand (and vice-versa). It all works great unless the government tries to get involved, in which case it all gets messed up.

 

[rogerwilcoout]

100% government mandated price controls would mean poverty on a scale never seen in the US.

A free market has no relevance on the formation of unions. Especially for skilled labor unions.

Yeah and we all see how beneficial being in a union has become for this industry.....NOT ! Why do these people still keep their heads in the sand over unions? THEY ARE INEFFECTIVE !

 

[rogerwilcoout]

Hasn't this been proven over and over and over again to not be possible? There is no such thing as a free market...it's complete delusion.

What is the goal of a free market? Isn't it to become the monopoly so you can charge what you want? Um, GO...remember that?

A real, tangible free market is a pipe dream. We are closer to it than ever before, look at gas. Supply down? No. Production down? No. Price up? Yes. It is driven up by your beloved 'free market' in the name of speculation from commodities traders...and no other reason.

You keep hanging on to that high school lesson on lassez-faire econ. and you will continue taking it up the rear from every company that can control a market.

Well said. Every since oil went on the futures it has been a ripoff for the American public.

 

[Poahi]

Well said. Every since oil went on the futures it has been a ripoff for the American public.

So has Southwest been 'ripping off' the American public for all these years?

 

[Soverytired]

For those arguing for regulated airlines, please answer the question:

"What would your optimally regulated US airline industry look like?"

You can have regulation (government sets prices), you can have some profitability, and you can have cheap air travel available to the traveling public, but I don't think you can have all three simultaneously.

Airlines like Ryanair, Easyjet, and Southwest aren't regulated in the sense that you're probably hoping for in the US, yet they're very successful. And they don't pay their pilots peanuts (aka Skybus) either.

 

[Hamburger]

Actually, the vast majority of Liberal doctrines are opposed to government restrictions on economics and are proponents of the free market. Liberals place an emphasis on the importance of Individual Liberty, Governmental price fixing infringes on this.

From Websters: "b: a theory in economics emphasizing individual freedom from restraint and usually based on free competition, the self-regulating market, and the gold standard. "

Some schools believe that the government should take a roll in education, health, and staving off of poverty, but otherwise want it out of everyone's business.

Funny to watch people use the word as such an insult. Isn't Individual Liberty something all Americans find quite important?

 

[Soverytired]

Actually, the vast majority of Liberal doctrines are opposed to government restrictions on economics and are proponents of the free market. Liberals place an emphasis on the importance of Individual Liberty, Governmental price fixing infringes on this.

From Websters: "b: a theory in economics emphasizing individual freedom from restraint and usually based on free competition, the self-regulating market, and the gold standard. "

Some schools believe that the government should take a roll in education, health, and staving off of poverty, but otherwise want it out of everyone's business.

Funny to watch people use the word as such an insult. Isn't Individual Liberty something all Americans find quite important?

I know you probably meant this sincerely, but I think what you're referring to is the classic "liberal" position of the 1700-1800's.

No serious person would suggest that modern liberals are interested in less government regulation or promoting "individual liberty".

 

[Poahi]

Isn't Individual Liberty something all Americans find quite important?

Yes and that tradition is a very conservative idea which doesn't require the liberal notion of reform or protection.