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Airline Deregulation  
User currently offlineRAMPRAT980 From United States of America, joined Mar 2005, 600 posts, RR: 3
Posted (8 years 10 months 2 weeks 4 days 4 hours ago) and read 2639 times:

In 1978 the U.S. Government deregulated the airline industry. My question(s) are as follows.
1 - Why was the industry regulated ?
2 - What caused the industry to be deregulated ?
3 - Did deregulation acheive its intended goals ?
4 - Its been almost 30 years since deregulation happened. Would the
airline industry be going through such horrible times if they were
regulated ?
5 - Can the airline's be regulated again ?

Much appreciated for the replies.


With gun control there can be no democracy.. With gun control there can be no Freedom
14 replies: All unread, jump to last
 
User currently offlineAa757first From United States of America, joined Aug 2003, 3347 posts, RR: 8
Reply 1, posted (8 years 10 months 2 weeks 4 days 3 hours ago) and read 2603 times:

Quoting RAMPRAT980 (Thread starter):
1 - Why was the industry regulated ?

In the early days of aviation there were, of course, many accidents. The government thought that if airlines battled each other with prices, they would cut on maintenance, therefore the market was regulated.

Quoting RAMPRAT980 (Thread starter):
2 - What caused the industry to be deregulated ?

From what I understand, PSA and Southwest. People saw these intra-state carriers, and that they still provided safe transportation at a low price. Intra-state carriers were not subject to regulation. The airline industry was slowly deregulated.

Quoting RAMPRAT980 (Thread starter):
3 - Did deregulation acheive its intended goals ?

Yes, I think so. Air travel remains safe and it is much, much cheaper. A 1950s trans-Atlantic flight would cost about $1,200 in 2005 dollars. Now they cost about $600. If the industry were still regulated, very few people would be able to fly.

Quoting RAMPRAT980 (Thread starter):
4 - Its been almost 30 years since deregulation happened. Would the
airline industry be going through such horrible times if they were
regulated ?

No, of course not. When the industry was regulated, an airline had a minimum fare they could charge on a route and they only had one other carrier flying it. For example, Delta and US Airways would both fly LGA - MCO. There would be no other non-stop competitors and the minimum fare they could charge by law would be, say, $219. Now, Delta, US Airways, jetBlue, Continental and Spirit fly the route and charge as low as $89.

Quoting RAMPRAT980 (Thread starter):
5 - Can the airline's be regulated again ?

No. First of all, the only people who want it to be re-regulated are a few airline employees upset over their paycuts. No one would tolerate it.

AAndrew


User currently offlineCommavia From United States of America, joined Apr 2005, 11454 posts, RR: 61
Reply 2, posted (8 years 10 months 2 weeks 4 days 3 hours ago) and read 2590 times:

Quoting RAMPRAT980 (Thread starter):
Why was the industry regulated ?

Government loves control. Government loves bureaucracy. Government loves power. Regulation achieves all three.

Quoting RAMPRAT980 (Thread starter):
What caused the industry to be deregulated ?

There was a general consensus among academics of the time that the airline industry without government regulation would lead to more capacity, more choices, more competition and -- most importantly -- lower fares.

Quoting RAMPRAT980 (Thread starter):
Did deregulation achieve its intended goals ?

On every single count, yes.

Airlines today are far more responsive to what their customers want than ever before. While it may not always seem like it now -- airlines today, generally, do exactly what their customers tell them to. I don't mean necessarily what customers "want," because we all know that what airline passengers all "want" is a First Class seat, AVOD, a gourmet meal, and a $199 RT Orbitz fare. Customers tell the airlines what they "value" with their market choices, and in that sense -- the airlines are giving customers what they "value," or are willing to pay for.

In addition, the airline industry today is more competitive -- with more players, more flights, and more cities -- than at any other time in history.

Quoting RAMPRAT980 (Thread starter):
Its been almost 30 years since deregulation happened. Would the airline industry be going through such horrible times if they were regulated ?

Well, it depends on how you define "horrible."

While it is almost guaranteed that if the airline industry were regulated, the airlines would not be losing as much money as they are now, and the industry would not be quite as chaotic or be in quite as much turmoil, it is also almost guaranteed that if the airline industry were regulated, air travel would probably be more "horrible" for customers -- they would have fewer airlines and fewer flights to fewer cities to choose from, and fares would almost certainly be higher.

Quoting RAMPRAT980 (Thread starter):
Can the airline's be regulated again ?

IMO, no. While some Congressional Democrats have recently raised the issue of reregulating the industry (largely because they are pissed that their district is losing some air service or another) the reality is that free market economics continue to prevail in America and I doubt American consumers would stand for government control of prices, schedules or capacity in the U.S. airline industry ever again. They much prefer low fares, which reregulation would pretty much take away.


User currently offlineScamp From United States of America, joined Aug 2005, 533 posts, RR: 0
Reply 3, posted (8 years 10 months 2 weeks 4 days 3 hours ago) and read 2587 times:

Quoting RAMPRAT980 (Thread starter):
5 - Can the airline's be regulated again ?



Quoting Aa757first (Reply 1):
No. First of all, the only people who want it to be re-regulated are a few airline employees upset over their paycuts. No one would tolerate it.

Yeah, I'm with AAndrew on this one. I have never heard of an industry that has been deregulated only to be reregulated again in the future. I think there are far too many industries out there that would have a coronary if the airlines were reregulated to save them.

Although, what I do think would be delightfully twisted is if there is such a wave of airline failures and consolidations that there are only a handful left, thus defeating the concept of a wide variety of companies and thus defeat competition. I don't see it happening, but then I don't see much of alternative either.



If it pisses off the right, I'm all for it.
User currently offlineSpacecadet From United States of America, joined Sep 2001, 3611 posts, RR: 12
Reply 4, posted (8 years 10 months 2 weeks 4 days 1 hour ago) and read 2562 times:

I don't agree with most of the answers given so far, especially as they come from people who were not even alive during regulation (unless they're lying on their profiles), so I'll answer myself:

Quoting RAMPRAT980 (Thread starter):
In 1978 the U.S. Government deregulated the airline industry.

Airline deregulation was started in 1978. It was not actually completed until the 1980's.

Quote:
1 - Why was the industry regulated ?

To promote industry growth by basically guaranteeing profitability. This was back in the days when the railroads still controlled transportation in this country. Without government intervention at that point, airline industry growth would have been much, much slower and may have even stagnated completely. The railroads would have done whatever they had to do to maintain their monopoly on transportation.

Quote:
2 - What caused the industry to be deregulated ?

a) it was perceived as no longer necessary
b) it was perceived as stifling competition
c) it was perceived as artificially inflating prices (which it did)
d) it was perceived as limiting customer choice

Basically, it outlived its usefulness. 1978 was also a time of massive political backlash against the liberal policies of the Carter administration, and it was the start of a major conservative shift in this country. Privatization and conservatism were the buzzwords of the day. Ronald Reagan would be elected just two years later, and deregulation of all industries was one of his trademark issues.

By 1978, there were a lot of large and fairly stable airlines in this country. Many of them wanted access to routes that they were not allowed under regulation. They were not allowed to expand. At the same time, deregulation was seen as helping the economy because it would lead to more competition on each route and that would drive down prices for consumers. Get more people to fly for less money, and you'll have more overall economic activity as people move more freely around the country.

Quote:

3 - Did deregulation acheive its intended goals ?

Mostly, but it has been a much more painful process than its proponents at the time led everybody to believe. It's also highly debateable whether or not it's benefited the airline industry itself - I would argue that it has not. It has benefited the overall economy, which was probably the main goal, even if that's not the way it was really promoted at the time. (It was promoted as a way to help the airlines, because without their support it would never have been passed.)

Basically, it created a huge free-for-all in the industry, and that's still shaking itself out. We've lost Pan Am, we've lost TWA, we've lost Braniff, we've lost a bunch of other regional and smaller national and international airlines. In that sense, deregulation has been a failure, because it has led to consolidation of the industry, which is the opposite of the intent of a free-market system. (Fewer airlines means less competition, not more.)

Now because so many remaining airlines compete on all the same routes, they operate on margins so thin that something like a short-term increase in fuel prices can push four major airlines into bankruptcy simultaneously. That was basically impossible under the regulated system.

Many people believe we need to lose one or two more major airlines before we start to reach a state of equillibrium. What we're going to end up with is just a few humongous airlines that are part of these few alliances - you will see monopolies develop. Again, this is exactly the opposite of the intent of a free market system. So in that sense too, deregulation is shaping up as a failure. In the short term it led to increased competition, but in the longer term it is leading to monopolies.

From the customer perspective, it has been a mixed bag but I think most people would see it as an overall success. Obviously, the level of service is not nearly what it once was due to cost cutting. But on the other hand, there are a lot more flights these days and prices are much lower.

I do think it has helped the overall economy grow faster as people have more freedom of movement.

Quote:
4 - Its been almost 30 years since deregulation happened. Would the
airline industry be going through such horrible times if they were
regulated ?

Obviously not. But the overall industry would also be much smaller, prices would be higher, and people wouldn't be flying as much. You could probably shave a point or so off our GDP growth for every year since deregulation too.

Quote:
5 - Can the airline's be regulated again ?

Yes. The people who have answered before you seem to take regulation as an all-or-nothing thing. That's not the way it has to work and it's not the way it will work. Will there ever be another Civil Aeronautics Board handing out routes and setting prices? That's highly doubtful. But there are already various forms of government regulation still affecting the industry (safety regulations, slot limits at certain airports, etc.), and the trend since deregulation has been to add more of these, not less.

Bankruptcy is itself a form of regulation, and we've got four (well, soon three) major airlines in bankruptcy right now. When an airline enters into bankruptcy, they are saying "we can't make any money, so you tell us what to do so that we can make money." They are basically throwing themselves on the mercy of the court and asking the court to help them come up with a plan to be profitable. That plan is then subject to the court's (in other words, the government's) approval. So in a sense, we already have a voluntary system of CAB-style regulation; it's just called bankruptcy.

With so many majors in bankruptcy you're seeing a lot of calls lately for some sort of change to the system. It's become a pretty common thing for airlines to be in and out of bankruptcy these days, and this is not what the system was designed for. So my guess is at some point, you will see legislation introduced to deal with the industry's problems, and part of that will be a reform to the bankruptcy laws coupled with increased government oversight into the industry's affairs. It will be a return to real regulation, although not to the extent of the old days and it will never be promoted that way - it will be promoted as corporate bankruptcy reform or something else that sounds good to the American public. You will never hear the word "regulation" mentioned.

But it's going to take a long time for everything to shake out. What deregulation did was throw the industry into a state of flux that it's still in, and that it will be in for the forseeable future. The government right now has bigger things to worry about, but once stuff overseas calms down a bit and we recover from Katrina, I think they'll visit the issue. (Of course, by then we'll have a Democratic president and a Democratic congress, and bills like this will pass more easily.)



I'm tired of being a wanna-be league bowler. I wanna be a league bowler!
User currently offlineRAMPRAT980 From United States of America, joined Mar 2005, 600 posts, RR: 3
Reply 5, posted (8 years 10 months 2 weeks 3 days 22 hours ago) and read 2532 times:

Quoting Aa757first (Reply 1):
The government thought that if airlines battled each other with prices, they would cut on maintenance, therefore the market was regulated.

I personally feel that any U.S. based airline should have tougher rules in place as far as the maintenance of aircraft. Some are taking their planes overseas, to some 3rd world country, having their planes worked on by an "engineer" who is probably less qualified to fix a bicycle let alone an aircraft. Is this a form of regulation ? Of course it is. But it is a necessity that regulators should not turn their backs on. I would rather have an AC maintained here in the states because it would keep the airlines, to a certain extent, honest.



With gun control there can be no democracy.. With gun control there can be no Freedom
User currently offline2H4 From United States of America, joined Oct 2004, 8955 posts, RR: 60
Reply 6, posted (8 years 10 months 2 weeks 3 days 21 hours ago) and read 2526 times:
AIRLINERS.NET CREW
DATABASE EDITOR




Quoting Spacecadet (Reply 4):
a) it was perceived as no longer necessary
b) it was perceived as stifling competition
c) it was perceived as artificially inflating prices (which it did)
d) it was perceived as limiting customer choice

Basically, it outlived its usefulness.



Hmmm...that sounds sooo familiar......












Ah yes...












2H4





Intentionally Left Blank
User currently offlineAa757first From United States of America, joined Aug 2003, 3347 posts, RR: 8
Reply 7, posted (8 years 10 months 2 weeks 3 days 20 hours ago) and read 2512 times:

Quoting Spacecadet (Reply 4):
In that sense, deregulation has been a failure, because it has led to consolidation of the industry, which is the opposite of the intent of a free-market system. (Fewer airlines means less competition, not more.)

I would say the intent of a free-market system is not to have more airlines. I would say it is the strong survive and the weak die. If that means there are two carriers, it is part of the free-market system.

Quoting Spacecadet (Reply 4):

What we're going to end up with is just a few humongous airlines that are part of these few alliances - you will see monopolies develop. Again, this is exactly the opposite of the intent of a free market system.

And then new airlines will spring up fighting the monopolies.

Quoting RAMPRAT980 (Reply 5):

I personally feel that any U.S. based airline should have tougher rules in place as far as the maintenance of aircraft. Some are taking their planes overseas, to some 3rd world country, having their planes worked on by an "engineer" who is probably less qualified to fix a bicycle let alone an aircraft. Is this a form of regulation ? Of course it is. But it is a necessity that regulators should not turn their backs on. I would rather have an AC maintained here in the states because it would keep the airlines, to a certain extent, honest.

I agree yet I disagree. If they are being fixed in the United States, I know the guy working on that plane knows what he is doing as he has been FAA certified, and same with any other industrialized nation, like Canada. But I doubt an airline is going to pawn their aircraft of to an unsafe country for maintenance. A crash is more expensive than a trained A&P.

AAndrew


User currently offlineExFATboy From United States of America, joined Jul 2003, 2974 posts, RR: 9
Reply 8, posted (8 years 10 months 2 weeks 3 days 20 hours ago) and read 2490 times:

Quoting Aa757first (Reply 1):
Intra-state carriers were not subject to regulation.

Not entirely true. Intra-state carriers were not subject to CAB regulation. State agencies could, and did, regulate intrastate airlines like PSA and Southwest to some degree prior to the Airline Deregulation Act. For example, this PSA history page cites PSA acquiring "permanent authority from the California Public Utilites Commission to serve South Lake Tahoe from Southern California and San Francisco" in 1977.

Quoting Commavia (Reply 2):
Quoting RAMPRAT980 (Thread starter):
Did deregulation achieve its intended goals ?

On every single count, yes.

Everywhere other than Dallas...  stirthepot 


User currently offlinePetazulu From United States of America, joined Jan 2003, 701 posts, RR: 1
Reply 9, posted (8 years 10 months 2 weeks 3 days 19 hours ago) and read 2491 times:

For the people here who think eventually there will be 2-3 large carriers and nothing else, I beg to differ. The barriers to entry are low enough- that any weakness in any large airline will cause the emergence of lots of new airlines (See, Jetblue, Frontier, AirTran, Spirit, ATA, WestJet). I would rather have lots of young, nimble and lean carriers than the big bloated and lethargic legacy carriers we have now in bankrupcy court! Let those legacy carriers die!

User currently offlineScamp From United States of America, joined Aug 2005, 533 posts, RR: 0
Reply 10, posted (8 years 10 months 2 weeks 3 days 4 hours ago) and read 2414 times:

Quoting Spacecadet (Reply 4):
I don't agree with most of the answers given so far, especially as they come from people who were not even alive during regulation (unless they're lying on their profiles), so I'll answer myself:

Well, I don't necessarily agree with your thought process here, but I sort of get your logic. However, you don't have to have been alive when something happened in order to know a lot about it. I've read a lot about the "Titanic" and could probably tell you anything you wanted to know about what happened, but I certainly wasn't alive in 1912.



If it pisses off the right, I'm all for it.
User currently offlineCommavia From United States of America, joined Apr 2005, 11454 posts, RR: 61
Reply 11, posted (8 years 10 months 2 weeks 3 days 3 hours ago) and read 2406 times:

Some reading on the subject from the "father of deregulation," Alfred Kahn:

http://www.econlib.org/library/Enc/AirlineDeregulation.html


User currently offlineCTHEWORLD From Mayotte, joined Dec 2004, 478 posts, RR: 2
Reply 12, posted (8 years 10 months 2 weeks 3 days 3 hours ago) and read 2391 times:

Quoting Commavia (Reply 2):
On every single count, yes.

Strange you would answer that way, because Alfred Kahn was quoted as saying "Deregulation hasn't turned out the way we envisioned it" as a matter of fact, since deregulation, more airlines have gone BK than in the entire 52 year span prior to deregulation and more money has been lost by the industry since deregulation compared to the 52 years leading up to deregulation. Remember, Alfred Kahn's vision was to have HUNDREDS of airlines flying to thousands of airports...doesn't look like it will shake out that way. As a matter of fact, the industry is slowly turning back in to what it was prior to deregulation, a couple of majors flying international long haul, with a bunch of national carriers providing the lift within the country.

One last thought, did the Government really deregulate? Many postulate that they didn't that they only removed route authority and price controls. True, full deregulation would not have tied the airlines to the antiquated ATC system, would not have subjected airlines to anti-competitive legislation. True deregulation would have let airlines build their own airports and infrastructure, and the best and biggest player would win for having the best facilities, and safest infrastructure, instead, the government removed the curbs, and only steps in when they think someone is pricing uncompetitively. The industry is not deregulated, it just has looser, haphazardly applied regulations.

One last thought, has anyone worked out the numbers to see what the % of U.S. carrier international seats are being flown by airlines in protection, and has anyone asked the DOD how much of their civilian lift is now being provided by carriers in protection and if they are concerned about that? Last time I checked, jetBlue or WN's narrow bodies weren't carrying our soldiers half-way around the world.

C

[Edited 2005-09-18 20:36:08]

User currently offlineCTHEWORLD From Mayotte, joined Dec 2004, 478 posts, RR: 2
Reply 13, posted (8 years 10 months 2 weeks 3 days 2 hours ago) and read 2380 times:

Quoting Petazulu (Reply 9):
The barriers to entry are low enough-

Short of a PanAm like international route authority and system sale, how are the barriers to entry to become an international carrier low? I do agree that the barriers to entry in the U.S. domestic market are low, too low perhaps. Someone with the health of the industry in mind should have looked at Independence Air's business plan and said "no dice, your plan doesn't work and you will only serve as a spoiler, causing more turmoil in an already screwed up industry who's problems will eventually fall back on the tax payer...sorry, try again", but no, in this quasi-deregulated industry, that wouldn't have worked.

BTW folks, why do you think LH, BA, SQ and QF are doing so well when the U.S. carriers can't? Is their fuel cheaper? NO! Is their labor cheaper? Not really. Is it that they aren't faced with overcapacity and no pricing power? YES, and you know what, Germans, Singaporans, Australians and The British aren't wandering the earth as people oppressed by high airline prices and poor service!!!!


User currently offlineCTHEWORLD From Mayotte, joined Dec 2004, 478 posts, RR: 2
Reply 14, posted (8 years 10 months 2 weeks 3 days 2 hours ago) and read 2374 times:

Quoting Spacecadet (Reply 4):
From the customer perspective, it has been a mixed bag but I think most people would see it as an overall success. Obviously, the level of service is not nearly what it once was due to cost cutting. But on the other hand, there are a lot more flights these days and prices are much lower.

This is debatable, the number of passenger complaints filed under dergulation, as a % of passengers flown, far outpaces what the amount filed when regulated. Additionally, I think it is hard to argue that anyone's flying experience in 2005 is better than it was in 1975 (ceteris parabis, of course).


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