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F4N
Topic Author
Posts: 507
Joined: Fri Mar 17, 2000 11:37 pm

Should US Airlines Be Re-regulated?

Sun Sep 12, 2004 11:22 pm

To all:

It would appear that the old model of the US airline industry is broken and no CEO/management has been able to fix it. The majors are either bankrupt or heading there. Labor, fuel, overcapacity and security costs seem to be endemic problems. There is absolutely no pricing power for any of the majors no matter how they try to disguise it. LCC's continue to proliforate. There does not appear to be a light at the end of the tunnel.

Would re-regulation help? Or some form of it? I fear that a major shakeout is inevitable but at what cost? I shudder at the thought of an "Air-Amtrak".

Thoughts & comments?

regards,

F4N
 
L-188
Posts: 29881
Joined: Wed Jul 07, 1999 11:27 am

RE: Should US Airlines Be Re-regulated?

Sun Sep 12, 2004 11:24 pm

Oh hell no.

You don't remember the high prices that they used to be able to charge.

Passengers should only pay for what they want.
OBAMA-WORST PRESIDENT EVER....Even SKOORB would be better.
 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: Should US Airlines Be Re-regulated?

Sun Sep 12, 2004 11:36 pm

I have thought about this issue as well. I do not think that deregulation (act I) has not quite finished yet even though it has been over 20 years.

I believe the bottom line is that consumers have benefitted from deregulation in the form of cheaper fares and more service.

All of the issues that contribute to the industry's chronic economic instability are ones for investors to consider before throwing their money in. As long as market entry/exit is relatively easy, I see no need for deregulation on the basis of economic stability.

The entry of LCCs and the possible (probable?) exit of a large legacy carrier indicates to me that market forces are working to provide more of the product that consumers want and less of what they do not want to pay for.

But I do think that the scale of the mammoth amounts of capital tied up in the industry (particularly among the large network airlines) and technical constraints (airport slots etc) act like molasses on market forces. But rather than have the government intervene, I would rather wait and see what the market will deliver.


 
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Starlionblue
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RE: Should US Airlines Be Re-regulated?

Sun Sep 12, 2004 11:37 pm

No.
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filler
filler
filler
filler
"There are no stupid questions, but there are a lot of inquisitive idiots." - John Ringo
 
Mainland
Posts: 277
Joined: Mon Jun 14, 2004 3:17 pm

RE: Should US Airlines Be Re-regulated?

Sun Sep 12, 2004 11:45 pm

The market for air travel has changed dramatically, and as such the players must learn to adapt. If this means the loss of a few airlines, sobeit; other airlines will learn from their downfall. However, the easy to come to knee jerk reaction of re-regulation at a time like this when some airlines are on the brink is misguided, IMO. These are natural market forces and they take time to develop. As such, the short term response of re-regulation would just lead to greater problems for consumers in the long run.
You don't need a passport to know what state you're in...
 
ScooterTrash
Posts: 553
Joined: Thu Aug 02, 2001 10:39 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 12:20 am

Very interesting topic. We had this very same discussion just the other night while cruising over the Northeast.

I will take a somewhat opposing stance to those who have already posted by saying I think some form of regulation MAY be necessary.

The reason that LCCs like Southwest and JetBlue are able to do what they do is that they "cherry pick" routes. They only fly what is going to offer the best profit margin. While this is good for them, I think it may be less than desirable from a macroeconomic prospective. If the LCC phenomena were to play itself out to its eventual ultimate conclusion (the death of hub and spoke), then many small and mid size communities would lose direct air service. These links are very important to them economically, and to the United States as a whole. If all airlines where operating like Southwest and JetBlue, the accessible air travel we have all come to know in the U.S. would disappear.

Price-wise, consumers have benefited from deregulation. If the industry consolidates into a few carriers (even if they are "low cost") do you really think that prices would remain low. It's supply and demand economics folks... Prices would rise as competition decreased and the government would eventually be pressured to institute some form of price control on the industry (maybe).

I am not advocating a return to pre 1978 economic policies. I am simply saying that a balance will eventually have to be struck between "hands off" capitalism and protecting the access of small and mid sized communities to the air transport infrastructure.

Scooter
 
supa7E7
Posts: 1360
Joined: Fri Aug 27, 2004 2:05 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 12:38 am

Scooter, I disagree about the "ultimate conclusion" of the present trends. You might notice that JetBlue is largely hub and spoke. So is Indy. They will be just like your airline in 5-10 years, complete with serious union cost issues. (YES, it will happen!)

Southwest is what you're really talking about. Southwest in unique, and no, they won't take over the entire US market. Look in 5 years; Southwest will not be the golden darling they are today. For one thing, their product is demonstrably less desirable than full-service LCC or legacy airlines. For two, they will see rising labor costs over time.

Really nothing will change; the airline biz will continue to be unstable. But any town that supports profitable air service will continue to attract it, even if express carriers must hook up with Jetblue... or whatever.
"Who's to say spaceships aren't fine art?" - Phil Lesh
 
srbmod
Posts: 15446
Joined: Tue Mar 20, 2001 1:32 pm

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 12:41 am

The CAB regulated the fares and who could operate what routes. You could have three airlines running the same route, the only difference was the service that the airlines gave, since every airline was charging the same fares, airlines had to use gimmicks to entice a traveler to fly them. Airlines would hype having meals that were developed by such and such restaurant (Hey, they still do this!), saying we've use such and such brand china for our meal service. This is also where the early codeshares (interchanges) started from, as one airline may have the route rights to say ATL-DAL, but not the rights to say DAL-LAS. So you could fly ATL-DAL-LAS without changing a/c, just crew changes, from say Delta on the first leg, to Braniff on the second. Another example was Delta and Pan Am's interchange ATL-IAD-LHR.

Full reregulation would not work, as it would stymie growth in some markets and would impact not only the legacy carriers, but also the LCCs. What needs to happen in order to bring some order back into the airline industry is some consolidation and foldings. Some routes are overserved, and the fares are low, while others are underserved and overpriced. It's these high fares that help subsidize those low yield routes. In many cases, without these high fares, some cities would have no service at all.
 
captaingomes
Posts: 6251
Joined: Tue Feb 13, 2001 1:33 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 12:51 am

LCC's continue to proliforate

This is evidence of deregulation at work. Consumers want cheap fares to take them from A to B. By regulating the industry and forcing airlines to serve certain markets, the higher fares being charged on most routes will mean subsidizing the fares for passengers in non-profitable routes. I don't think it is fair that I would have to subsidize anybody's air travel.

Look at it another way. There is still plenty of demand for full-service airlines flying hub and spoke networks. This is evidenced by these full-service airlines maintaining a strong market share, despite the proliferation of the LCC's. I am definitely willing to pay a premium for better service with fewer stops and greater comfort. I am also very intrigued by the newcomers offering greater comfort and low prices, such as Jetblue. It is fantastic to have these choices available, which would be limited were the industry regulated again.


"it's kind of like an Airbus, it's an engineering marvel, but there's no sense of passion" -- J. Clarkson re: Coxster
 
slider
Posts: 7617
Joined: Wed Feb 25, 2004 11:42 pm

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 12:57 am

This is a ludicrous thread, IMHO.

First, the industry is already over-regulated in terms of all the FAA, TSA, DOT mandates that we have to comply with. It's already an artificial restraint on the business itself, not to mention the extreme taxation on revenue.

Second, the industry model is NOT broken. There are too many people that buy into that flawed conventional wisdom that the talking heads spew unchecked.

The model needs tweaking, no doubt. But hub carriers remain the best way to consolidate traffic. And without them, a great deal of a great number of cities' air service disappears.

Costs are still a factor, and pensions as we know them need a serious revamping, as the pension funding will be one of the biggest issues moving forward.

But this is a naturally oligopolistic industry, and it doesn't need to be, nor should it be, re-regulated in the context of the past.
 
txagkuwait
Posts: 1388
Joined: Fri Aug 27, 1999 7:39 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 1:08 am

Bottom line up front: no re-regulation. bad idea. bad bad bad.

Scooter says:>>"The reason that LCCs like Southwest and JetBlue are able to do what they do is that they "cherry pick" routes. They only fly what is going to offer the best profit margin. While this is good for them, I think it may be less than desirable from a macroeconomic prospective. If the LCC phenomena were to play itself out to its eventual ultimate conclusion (the death of hub and spoke), then many small and mid size communities would lose direct air service. These links are very important to them economically, and to the United States as a whole."<<

My replies to Scooter:

#1 The cherry picking argument really doesn't wash. You see WN in a lot of places that legacy carriers don't want to serve, serve only with RJs, or would serve only by forcing people to connect through hubs.

Examples: A - cities off the beaten path that would have only commuter-type service without WN: Harlingen, Lubbock, Midland-Odessa, TX.


B - city pairs that would be forced to fly thru a hub if not for WN: Oklahoma City to Kansas City. New Orleans to Birmingham. Birmingham to Nashville. Las Vegas to Albuquerque. While those are good sized cities, and pretty well traveled routes...it may surprise you to note that when WN inaugurated service between those city pairs, there was NO nonstop service in those markets.

#2 Small to medium size cities who have an economic need for air travel. Okay, fine. If they have a need for economic air travel, let them pay for it. There is no reason why a passenger flying from Dallas to Houston or Los Angeles to Oakland should subsidize the travel of someone flying from Franklin/Oil City, PA to Manhattan/Junction City, Kansas.

I realize it sounds sort of Darwinistic but the ultimate real deal is that if a market has a need for air service, they will find a way to pay for it. If they can't pay for it, then they don't need it. Governments have done many things over the years but they have never found a way to repeal the laws of supply & demand.

Supa7E7 says >>"Southwest is what you're really talking about. Southwest in unique, and no, they won't take over the entire US market. Look in 5 years; Southwest will not be the golden darling they are today. For one thing, their product is demonstrably less desirable than full-service LCC or legacy airlines. For two, they will see rising labor costs over time"<<

Folks were saying that about Southwest 10 and even 20 years ago. I won't argue that they will face cost pressures....they have always faced cost pressures. It surprises many to realize that Southwest employees are already among (if not the, depending on job classification) highest paid airline folks out there. They are VERY well paid when the profit sharing is figured in. By the same token, they are productive. The company has always focused on cost control and the next 5 yrs should be no different than the last 33. Southwest has structured themselves to be low cost even while paying very competitive wages. What will be really interesting to see is if other LCCs can keep a lid on costs as wages rise, as they inevitably do. And as far as their product being less desirable...speak for yourself. There are quite a few people who, for business or pleasure, are always in Coach. When it comes to Coach product, Southwest's is arguably better than any of the legacy carriers.....American's comes closest due to MRTC, but cabin service, flight frequency, and FF programs tip the scales (depending on what criteria you wish to use.) Succinctly put, there are a lot of other airline managers out there who have gotten themselves and their companies in a lot of hot water by underestimating Southwest's product.

 
kith
Posts: 312
Joined: Sun Mar 21, 2004 1:26 pm

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 1:21 am

I think the airline industry might go back to how it was right after deregulation. With a lot of the express carriers flying to major hubs such as JFK/BOS but with no specific airline affiliation. From the hubs you could connect on a legacy to go to internationally or on an LCC to go domestically. Could this happen? -Matt in KITH
 
beachthing
Posts: 71
Joined: Thu May 27, 2004 1:32 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 9:20 am

I think it should be left free-market. Let the badly run airlines fail. In the LONGEST run, the consumer still benefits.

Less government = better.
 
sccutler
Posts: 5839
Joined: Thu Jan 27, 2000 12:16 pm

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 10:20 am

Man, I gotta meet you, TxAg, you always nail it.

Supa7E7 wrote:

" For one thing, their [Southwest's] product is demonstrably less desirable than full-service LCC or legacy airlines."

Funny. I would contend that WN's product is demonstrably better and more desirable than the legacy carriers.

But, since I am usually stuck paying for my own air travel, and since every minute of my time that is wasted, costs me money, I might have a different perspective.
...three miles from BRONS, clear for the ILS one five approach...
 
jc2354
Posts: 609
Joined: Sat May 01, 2004 9:56 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 10:24 am

One of my favorite topics.

Regulation would only protect, if not encourage, incompetent management.
If not now, then when?
 
AZjetgeek
Posts: 229
Joined: Thu Jul 22, 2004 1:53 am

RE: Should US Airlines Be Re-regulated?

Mon Sep 13, 2004 10:46 am

I stand on the side of both TxAgKuwait and Slider in saying that while there are still problems in the industry since De-Regulation, the industry still remains better off now than before 10/24/78.

The first major airline that went under following De-Regulation was Braniff. Braniff's collapse was due largely in part to VERY BAD management of the airline. Harding Lawrence acted like a kid in a candy store with a hundred bucks in his pocket when the De-Regulation Act was signed by Jimmy Carter in 1978. He added more than 60 destinations within just a few weeks of the bill's passage. He bought 747's that he did not need. Lawrence's eyes were bigger than his stomach, so to speak.

PeoplExpress' founder Don Burr went to Herb Kelleher and observed how Southwest's operations ran. He apparently believed he could do a better job, and succeeded in ruining what could have been a successful airline. Burr was a protege' of Frank Lorenzo. He tried so hard not to be "like Frank" that he took the other extreme.

The industry as a whole was decimated in the 1980's by political gamesmanship of then Sec. of Transportation Elizabeth Dole, and the hijinks of the junk-bond kinds, especially Milken. Dole allowed the Texas Air buyout of Eastern, a move that should never have been allowed. She also allowed Carl Icahn to acquire TWA. Another incredible blunder. She permitted United to buy up Pan Am's Pacific routes when she should have facilitated Pan Am being able to get into the domestic market.

To his credit, George H.W. Bush's administration attempted to put the clamps on some of the wild LBO's and mergers that were so rampant during the Reagan years, but by then, the horses had escaped from the barn and there was no one around able to round them up.

IMO, politicians and scoundrels (such as Lorenzo and Icahn) sabotaged De-Regulation. Alfred Kahn had the right idea, but he entrusted it to the wrong people. I still say De-Regulation was the right thing to do, but I pray that those in the industry will start taking responsibility for some of the failures rather than try to blame them on forces outside their control.

Long live the RJ!

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