Time for re-regulation

[Junkflyer]

The one with the crack pipe.

 

[JD2003]

.....

 

[ackattacker]

Forget goverment regulation....

what we need is the mafia.

Hear me out, here.

"Looka here boyz, the boss says youza tickets to maiyami isa gonna be four hundred clams or I breaka your kneecaps"

 

[ToiletDuck]

Which economist?

"Northeastern University economist Steven Morrison and Clifford Winston"

First ones www.google.com brought up. Along with the ones that teach at two of the universities I've attended.

 

[Publishers]

The fact is that a public transportation system is first and foremost for the traveling public. The public must be assured of reasonably priced transportation in a competitive environment. That is not what regulation offered.

Reregulation would cause just as much consternation as did deregulation. The biggest problem airlines face is that they are extremely capital intensive which is by its nature a long term situation and yet the have to deal with the vulgarities of a short term public and problems.

The biggest of them have become unwieldy and are encumbered with debt, regulation, and unions all of which remove any flexibility in dealing with the short term situations.

Had regulation continued, the price of travel in America would be obscene on some routes, essential air service would kill many smaller airlines, and there would be less pilots and fewer opportunity however they would be more stable and better paid than regionals.

An economist would look at the recent events as a major rennovation of the industry, nothing more.

 

[Vector4fun]

Well,

My idea of re-regulation would be this:

Somebody with knowledge and credibility sets a realistic hourly capacity number for every major airport, based on runway config, gates, ramp space, etc.; and then forces the airlines to adhere to it. The challange then becomes how to fairly allocate the hourly slots, recognizing each airline's investment in that facility. The result would be that at airports which are already severely over-crowded, like LGA and EWR for example, would have fewer flights and less destructive competition for a limited resource. Fares would go up at these airports of course. Then I'd tell each and every city that complained, if they want more flights and competition, they can pony up some matching $$s and Political will to upgrade their darn airports, OR tell their citizens they can commute to a releiver airport. Start-ups and Regionals can fly all they want to the NON-congested airports. I'm not talking about limiting growth and routes. Just limiting the destructive competition of $99 fares at horribly congested airports where the average delay is a joke and a big factor in passenger dis-satisfaction. A side benefit is it makes the larger aircraft like the 757-767 more viable/valuable domesticly. I think it would also, over time, improve service to the 2nd and 3rd tier communities and airports.

Pouting and waiting for the FAA to come up with an "automation" solution to a lack of physical space and concrete is a cop-out and a complete waste of time.....

 

[MDAutry]

What we need are the Pan Am Clippers and that way we won't have to build new runways.

No, we all know how little the average person understands aviation so why would we want some intern in Washington deciding where and when and what we fly? If you want to be out of a job and out of choices then beg for reregulation.

 

[ToiletDuck]

Well what they are doing now is not working. We know this. So why not move in a different direction?

 

[414Flyer]

Yea let us go back to the regulated industry like 1975, 75% less pilots flying, most guys hired by the majors are ex-military like about 85%. The regional industry, SWA outside of Texas, Air Tran, Spirit, do not exist. This means 3 out of 4 pilots presently would probably not have jobs. Is this what we really want?

Bingo, give the man a red star. He was flying at that time. Most here who advocate regulation, were not around flying then, but just read about it, without understanding it.

People who think that if we just start regulating the airlines like we once did, it would solve all of our problems remind me of Muslims who think that if move to a prosperous western country and then try to get Muslim law installed, that they can have BOTH prosperity and their religious law.

However just like those Muslims who do not realize it is exactly their religion and culture that keeps them in poverty, pilots do not realize regulation is very much a two headed monster.

You simply wont have a BOTH stability, and a large aviation system and many airline jobs if we went back that way. Yes fares were more expensive, but consequently airline travel was not a means of mass transit like it is now. Airline travel was more of a means of travel for the person traveling for business, or the upper middle class and upper class. There were far far far fewer airline jobs.

It is competition that gives us many of these jobs, and removing the competition aspect of it, will also remove many of these jobs, as will raising fares significantly will start will invariably remove part of the traveling public.

The main winners in regulation would be those who already are at an airline and significantly up in seniority, and then part 135 charter passenger companies, who would find they are suddenly more competitive.

Those who want an airline job, or are low on seniority, might find their airline job goals vanishing.

I think many of those who advocate increase government intervention, would be the loudest critics if other industries asked for it to

 

[coolyokeluke]

Question: What does the aviation fuel tax fund? Isn't it ATC and airport infrastructure? If it is dropped what will take the place to fund the missing dollars?

And TiredofTeaching, you pointed out SW is successful in the present environment but neglected to note that they would not be if they weren't hedged. Somebody else spoke of innovation by the likes of JetBlue. Let's see, JetBlue gets airplanes with cheap or deferred lease payments, has no senior workers and associated pensions, probably very little maintenance needed with new airframes, and picks off traffic only on the denser markets. Thus they take away business from the established carriers that serve more markets. The established carriers declare BK in order to drop pensions etc to compete. And once JB is an old enough carrier somebody else will come in and do the same because a newer business can do it cheaper. Is this the type of innovation you want? I'm not all for regulation and I don't only favor legacy carriers but this cycle of BK's every few years is clearly not in anybody's favor (investors or employees) in the long term.

 

[A Squared]

And TiredofTeaching, you pointed out SW is successful in the present environment but neglected to note that they would not be if they weren't hedged.

yes, but the point is that they DID hedge, and they are making money, and other airlines, run with less foresight are not making money.

Thats great that those companies are very fortunate in their current business practices. However, even comparing Southwest to any of the legacy carriers is like comparing apples to oranges. Southwest has always concentrated on keeping fares low and providing service within the US. The legacy carriers have expanded their reach to surround the globe and provided several levels of service such as coach, first, and business classes. That type of operation is vastly different than Southwest. So it is truely unfair to compare the two based on the fact they have night and day business models.

No it is not an apples to oranges comprison, it is as direct and as vadid comparison as could possibly be made. Southwest and the legacy carriers are both in the buisness of selling air transoprtation. Southwest uses a business model which works, and the legacy carriers use a business model which *doesn't* work. That it the whole point. The legacy model doesn't work, Southwest's does. You can talk all you want about global reach and various levels of service, but at the end of the day, thier business model isn't working, and Southwest's model *IS* working. For whatever reason the legacy carriers are clinging to a business model which is pretty clearly not workable, yet we keep propping them up and letting them stagger on.

It has allowed some companies to cherry pick while disallowing true competition.

No actually "cherry picking" as you put it is a fundamental element of competition, enter the markets which are profitable, don't enter those which are not. It's not some insidious evil, like scabbing or prostituting your sister, it's sound business practice, which the legacy carriers are not practicing. If "cherry picking" certain markets puts the legacy carriers in jeporady because it takes away revuene they need to sustain unprofitable routes, the question must be asked, "why are they flying those unprofitable routes?"

It's like a legacy sunscreen retailer complaing becuse some new upstart sunscreen retailer is "cherry picking" the lucrative florida and arizona sunsscreen markets, leaving them with the losses from thier unprofitable Ketchikan, Alaska sunscreen store (it rains 476 days in an average year in Ketchikan )

Hello, why on earth are you selling sunscreen in ketchikan whey you can't make money doing it???????? The problem is not the new upstart sunscreen retailers "cherry picking" in Miami and Phoenix, the problem is the business model which has you keeping a sunscereen store open in ketchikan which never sees the sun.

Maybe the key is to close your Ketchikan store and concentrate on being competitive in the sun belt, where the market is.

 

[Traderd]

And time keeps draggin' on.....

It's like a legacy sunscreen retailer complaing becuse some new upstart sunscreen retailer is "cherry picking" the lucrative florida and arizona sunsscreen markets, leaving them with the losses from thier unprofitable Ketchikan, Alaska sunscreen store (it rains 476 days in an average year in Ketchikan )

I have had a few of those years myself!

 

[ToiletDuck]

Yea let us go back to the regulated industry like 1975, 75% less pilots flying, most guys hired by the majors are ex-military like about 85%. The regional industry, SWA outside of Texas, Air Tran, Spirit, do not exist. This means 3 out of 4 pilots presently would probably not have jobs. Is this what we really want?

You're right assuming your numbers are accurate. But they are not. Between 1978 and 2004 there were 45% less employees than now. There has since been a 25% increase in population alone and you can't possibly assume that the amount of air operations going on wouldn't have grown had the gov still regulated. Between 1970 and 1978 there was an annual increase in employees of around 1.4% per year. Between 1978 and 2004 there was an increase in employees of about 1.7% per year. Not that much diff.

There was no big boom in the amount of flying going on before and after deregulation. It's pretty much linear growth which is expected as technology improves. Meaning that it would be reasonable to assume that more people would have kept flying and shipping things anyway and the airlines would still have kept growing. The difference being that smaller companies would not try to shoot in and under bid forcing some airling to operate under bankruptcy just to hang in there.

 

[414Flyer]

You're right assuming your numbers are accurate. But they are not and you can't possibly assume that the amount of air operations going on wouldn't have grown had the gov still regulated. There was no big boom in the amount of flying going on before and after deregulation.

Sure you can, because fares would be substantially higher, probably double to triple. While that might make some here jump for joy, it would invariably result in less passengers, and hence less flights.

 

[ToiletDuck]

Sure you can, because fares would be substantially higher, probably double to triple. While that might make some here jump for joy, it would invariably result in less passengers, and hence less flights.

During regulation the price airlines were able to charge was 12% over cost. So unless they just showed having a TON of cost because of being unorganized or something it shouldn't do that.

If you want to do a search here: http://www.bts.gov/xml/airline_financial/src/index.xml

I know it only goes back to 1990 but it's pretty sad when you plug in your own searches and look at the numbers. Agreed prices would be higher but it would be worth it. I just look at it that if something was $1000 and then one day you saw it for $650 you'd be happy. Take that same $1000 item, see it at $250, then it jumps up to $650 people would be really upset about it. I wouldn't consider it price gouging just business. And it's kind of like higher gas prices. People will still pay it because they have to drive to work. Well I think people would still fly and still mail their packages because they have to. It's become too important to society. Waiting 2 weeks for mail is just unacceptable now days. I think they'd do it.

The fact is that a public transportation system is first and foremost for the traveling public. The public must be assured of reasonably priced transportation in a competitive environment. That is not what regulation offered.

Of course it didn't. Airlines aren't public transportation. They are not paid for by the gov't and no taxes are taken to run them.. (Well outside of the gov stepping in and tossing some money so they don't up the unemployment rate really fast). That's like saying Grayhound and Taxi's are public transportation. They are companies and their goal is to make money.

Not trying to point anyone out or argue till blue in the face. I just think what's going on now isn't working. What's the worse that could happen with re-regulation? Everyone's already scratching by as is.

Just my .02 worth.

Resources for my information (and just some interesting reads):
http://www.bts.gov/programs/airline_information/number_of_employees/certificated_carriers/index.html
http://www.airlines.org/econ/d.aspx?nid=1032
http://library.findlaw.com/1988/Sep/1/129304.html (very interesting)

 

[pilotyip]

Adam Smith rules

Yes the businessman might still pay $650 for the ticket, but 25%-30% of the riders will not. The airlines complete with the private auto and the Greyhound Bus on the lower end. The price of an airline ticket goes up. Potential passengers shift from the airline the ground transport or they do not make the trip. Instead of flying to MCO for a vacation they drive to Six Flags over Ohio. 414 understnds the influence of Adam Smith. You can not mess with market forces when you are dealing in a commodity.

 

[cezzna]

Why are people worried about losing jobs through re-regualtion. they're disappearing anyway. the only new airline jobs are the crappy ones. This reminds me of when Clinton bragged about all of the jobs arkansas creates under his tenure. Most of the jobs were at chicken procesing plants paying peanuts.

If the people can't afford to fly to MCO then let them drive to six flags. Is your goal to make flying so affordable that every dirtbag in america goes on an airplane? Maybe US AIR should start taking food stamps so we can get the next tier of people in the planes. If XYZ airlines were allowed to do this by law, I guarantee some enterprising airline COO would start up the program. "Every food stamp dollar equals 2 miles at XYZ". The next week ABC airlines would start offering 3 miles per dollar thus undercutting XYZ. Sounds ridiculous right? If they were allowed to do it by law would it surprise you? It wouldn't surprise me.

A question for someone out ther who knows. Where do these airlines find financing to operate under chapter 11. I can see where they would get money from someone out of the gate under the new business plan, but then after that, where do they get it? They have no equity in anything to leverage. After they fail to emerge time and time again, they still find investors. Where? How does GE capitol sell this to their board of directors? I would think anybody giving us Air any money right now would be committing career suicide.

 

[Icelandair]

The LCA's do like to cherry pick. Tell me how you would get from Lewiston, ID to Grand Forks, ND on Southwest? Well to even get to an airport w/ southwest service, you have to drive 4 hours down to Boise. Soutwest doens't even serve MSP, i'm not sure what the closest airport is to Grand Forks, but you can be assured it is several hours driving distance away. So let the legacies go away, and who is going to serve these places? Or are you going to tell the governors to go rot? No major air service is a huge blow to a region's economy, and it becomes an endless circle. Nobody new wants to build a plant/office/hq there, because its inaccessible. Nobody new there, means no new jobs there other than maybe a few new gas station attendants, means no growth for the region. No growth, equals no air service, which starts the circle again. So if everyone followed the SWA model and offered service from only large profitable city to large profitable city, you can be assured most of red America would end up in a world of economic hurting. What about essential air service? That seems like government regulation though, i thought the objective was to get away from that. So go rot, Lewiston and Grand Forks.

 

[Publishers]

"During regulation the price airlines were able to charge was 12% over cost. So unless they just showed having a TON of cost because of being unorganized or something it shouldn't do that"

One problem with this is that it did not work. It is the same problem that we have with utilities today. First, there is little incentive to manage costs. That is how union pushed up to where they were when deregulation occured. Secondly, airlines like utilities tended to put money into other ventures that had nothing to do with the base business.

The fact is that of the legacies, only American saw the reality of deregulation correctly, managed themselves very well under Crandall, and emerged a power house. Companies like Braniff and those who rushed to get into every market on the planet died under their own greed. American's success can be directly tied to the A B scale that Crandall implemented.

You not only have the regulation deregulation discussion, there is the hub and spoke concept and point to point discussion that was a fundamental shift in airline thinking.

In addition, international flying airlines have another whole set of issues that impact them that do not with US only carriers.

What some of you would like is to ignore all the business factors and concentrate on your position.

 

[ToiletDuck]

"During regulation the price airlines were able to charge was 12% over cost. So unless they just showed having a TON of cost because of being unorganized or something it shouldn't do that"

One problem with this is that it did not work. It is the same problem that we have with utilities today. First, there is little incentive to manage costs. That is how union pushed up to where they were when deregulation occured. Secondly, airlines like utilities tended to put money into other ventures that had nothing to do with the base business.

The fact is that of the legacies, only American saw the reality of deregulation correctly, managed themselves very well under Crandall, and emerged a power house. Companies like Braniff and those who rushed to get into every market on the planet died under their own greed. American's success can be directly tied to the A B scale that Crandall implemented.

You not only have the regulation deregulation discussion, there is the hub and spoke concept and point to point discussion that was a fundamental shift in airline thinking.

In addition, international flying airlines have another whole set of issues that impact them that do not with US only carriers.

What some of you would like is to ignore all the business factors and concentrate on your position.

I agree with pretty much everything you are saying there. Makes perfect sense. Deregulation also saw it's pitfalls too, such as firing everyone and hiring new people to dodge unions... So what happened after this was done a couple times? Rules were made so that they couldn't do it anymore... Maybe regulation wasn't perfect but with a few extra rules added in to limit what can be regulated and how it should be regulated would make a huge difference. It's not impossible to find a group of people today that actually know what they are talking about that could devise a plan of action. Re-regulation could include just regulation on little things like domestic flights only with "X"% of pass/seats get certain tax breaks or something like that. Making those "sunscreen in alaska sellers" stop trying to sell there. Regulation could consist of only job security. Say you have to keep XX pilots and the airlines would have to start raising prices a little to compensate that. I'm not saying they have to tripple their price. But a gradual 15% or so increase would help a lot of people.

I flew to Thailand and stayed a week for cheaper than what renting a room at the Hilton and staying 3 days in Houston attending 6 flags would cost. I think there is still room for travel for those who want it. I like some of the other guys ideas that they posted here on the regulation part of it.

 

[Publishers]

Well we could still be using trains if we wanted to regulate everything. The sophistication of yield management, fleet management, cost containment, labor negotiations, were not part of a regulated system. Much more time was spend lobbying Congress and the CAB for a good route. Running the airline was even more political.

 

[pilotyip]

Pubs stop that, you are dealing with reality. This is a pilot board it does not deal with reality.

 

[A Squared]

The LCA's do like to cherry pick. Tell me how you would get from Lewiston, ID to Grand Forks, ND on Southwest? Well to even get to an airport w/ southwest service, you have to drive 4 hours down to Boise. Soutwest doens't even serve MSP, i'm not sure what the closest airport is to Grand Forks, but you can be assured it is several hours driving distance away. So let the legacies go away, and who is going to serve these places?

Ummm, heloooooo , you're just not getting it, if it's not profitable to run airline service on a city pair, then it shouldn't be done. Thats the whole concept, and it just apparenty keeps bouncing off your skull. If a route doesn't make money by itself, and it doesn't add revenue to the airline in the larger picture (example: feeding a hub, resulting in additional revenue) then **DON"T FLY IT** it's that simple. That's what Southwest is doing, and it's not a crime, yet you keep referring to it as if it's some sort of unspeakable practice.


Look, there is no air service between Dover-Foxtrot, Maine and Grandpa's Knob Vermont, and if you want to get there it will take more than 4 hours of driving.....but so what? and yes I think essential air service to rural towns with highway access are a complete waste of my money. Yes I've seen the empty Metros land and take off in Glasgow Montana and I've seen that no-one gets on and ono-one gets off, And I think it's high time we pulled a plug on that waste of money.


To expand my sunscreen store analogy, it's as if you think that it is mandatory that anyone who wants to sell sunscreen, must open a sunscreen store in Ketchikan, to be open 24 hours a day, 365 days a year, just for that one cruise ship passenger a year who is going to Jamaica next and wants to buy a tube.

 

[ackattacker]

Look, there is no air service between Dover-Foxtrot, Maine and Grandpa's Knob Vermont, and if you want to get there it will take more than 4 hours of driving.....but so what? and yes I think essential air service to rural towns with highway access are a complete waste of my money. Yes I've seen the empty Metros land and take off in Glasgow Montana and I've seen that no-one gets on and ono-one gets off, And I think it's high time we pulled a plug on that waste of money.

The EAS concept is based on sound economic principles, although it's a bit complex and not always perfect. In theory, providing air service to rural communities pays for itself by improving the economy in the area, increasing the tax base, and therefore increasing tax revenue.

 

[A Squared]

The EAS concept is based on sound economic principles, although it's a bit complex and not always perfect. In theory, providing air service to rural communities pays for itself by improving the economy in the area, increasing the tax base, and therefore increasing tax revenue.

Yes, I understand the theory behind EAS, the thing is the theory is fundamentally flawed. In Theory, if you provide air service it will attact industry to the area and htat will build economic prosperity with jobs and taxes. Here's the reality, if goodyear wants to build a tire plant they're going to build it, now if there airline service to Glasgow, they might build it in Glasgow, if not, guess what, they're still going to build it somewhere, and there will stll be the same number of jobs and the same amount of increased tax revenue, it just won't be in Glasgow. tell you what go to Glassgow and look around, it's a run-down depressed cow town, with no industry. The daily airline service seems to have really accomplished a great deal there.

 

[ackattacker]

Yes, I understand the theory behind EAS, the thing is the theory is fundamentally flawed. In Theory, if you provide air service it will attact industry to the area and htat will build economic prosperity with jobs and taxes. Here's the reality, if goodyear wants to build a tire plant they're going to build it, now if there airline service to Glasgow, they might build it in Glasgow, if not, guess what, they're still going to build it somewhere, and there will stll be the same number of jobs and the same amount of increased tax revenue, it just won't be in Glasgow. tell you what go to Glassgow and look around, it's a run-down depressed cow town, with no industry. The daily airline service seems to have really accomplished a great deal there.

It's true that Goodyear could build their plant anywhere... but if they build it in an area that's already prosperous then they pay more for labor and land, make less money, and pay less taxes. So it's better that they build it in a more rural area.

I didn't mean to get into the position of defending a goverment handout program... but the issue is more complex than you've made it seem. There are plenty of very good reasons to fight the povertization of rural america. It's not enough to move all the jobs to New Jersey and leave it at that. If you leave communities behind, you end up with abject poverty which ends up as a economic and social anchor. Witness New Orleans. Poor areas increase crime and cost billions in law enforcement, medical, and social security programs.

Also, bringing prosperity to an already prosperous area has less net social effect, sort of a law of diminishing returns. The prosperity a Goodyear plant brings to community like Glasgow will vastly improve the infrastructure, education, and upward mobility of its residents. The prosperity a Goodyear plant brings to, say, Boulder Colorado is a few more SUV's and rising housing prices. Guess which one mays more dividends in the long run?

 

[ToiletDuck]

Wouldn't the airlines have to recieve all the taxes though to make it work? If it helps the local governments and such yet they don't get the money from the taxes then they will still lose money.

 

[A Squared]

Wouldn't the airlines have to recieve all the taxes though to make it work? If it helps the local governments and such yet they don't get the money from the taxes then they will still lose money.

there's two differnet things being discussed:

1) Whether airlines have an obligation to fly routse which aren't profitable, which is more or less related to the topic ofhte thread.
and

2) Essential Air Services contracts, in which the government pays airlines to provide airline service to places which will never make money. This part is a little off the topic of the thread. The example I gave was Glasgow Montana which is served by Big Sky, Glasgow is a miniscule town of a little over 3000 people, with a very few much smaller towns in the area. (Frazier, pop 403, Nashua pop 375, Vandalia, pop. 35, FOrt Peck pop 325) Bear in mind that this isn't some roadless town in the wilderness where the only way to get there is by air or dogsled. Glasgow has an Interstate highway running right through it. Yet, our Tax Dollars pay for this airport, serving maybe 4000 people to have twice daily airline service during the week, and once daily during the weekend. How much does this cost? THe EAS contract for Montana was costs 5.7 million dollars, for service to 8 towns. If you divide equally that's $710,000 dollars we pay so a town of 3000 can have twice daily air service. All so thye don't have to drive a few hours on hte interstate.

Like I said in a previous post, on the few occasions I have been through Glasgo, I was present each time when the flight arrived, and like I said, it was empty, (except for the pilots of course)


To answer your original question of whather the airline makes money or not, yes they make money by flying empty airplanes around, it's like magic. Big Sky wins, GLasgow wins, Montana's Congressmen win, the only loser is the taxpayer who is footing the bill.

 

[414Flyer]

When I was in Gallup, Mesa came in there because of EAS funding. But like others have said, how many people are going to use it, when the airport is adjacent to an interstate highway, and then 2 hours from a major city like Albuquerque. Why spend money to go to the airport, check in, get on a flight which goes to ABQ, and then get your luggage, and then be without a car, when in reality, if someone had just got in their car and went, would probably have needed less time in the end, would have a car and spent less money.

They had more flights in a month, than they actually had passengers in that month.

 

[Publishers]

The concept of EAS was born of the concern with deregulation that airlines would not serve smaller towns and that air service was a right for these cities.

OK, then we will pay the airline from taxes to fly aircraft and keep the communities happy. Think postal system.

The problem with this and with the thread here is that when you introduce artificial components in a free market, things have consequences you may or may not have thought of. We also have costs associated with the airport and maintaining an airport with scheduled service which is another issue.

Should we abandon these cities, and as to the airports, there is not one in the country that does not feed at the Federal feed trough. The thing is that these decisions then become political footballs and away we go. This is what was wrong with the CAB in the end.