Silly Arguments for Re-Regulating the Airlines

AirFareWatchdog thinks there’s a compelling case to re-regulated the airlines.

In this view, he cites at length a press release about a study co-authored by liberal American Prospect editor Robert Kuttner. That study is either incredibly ignorant about the manner in which the airline industry was and is regulated, or is incredibly dishonest – conflating issues and blaming things on deregulation that have nothing to do with it whatsoever.

When we talk about airline deregulation we mean that airlines are now permitted to decide for themselves the routes they fly and the prices they charge. That’s it in a nutshell.

The government is no less involved in safety regulation. And on the whole the aviation remains one of the most heavily government-infused industries in the country — flying almost exclusively between government airports, following government mandates on maintenance, procedures, and inspections, with traffic directed by the government, and suffering under heavy taxation — of airline tickets, for airports, and for the TSA’s version of security theatre.

The press release for the study begins getting attention from the Colgan Air crash, but this has nothing to do with deregulation of routes or pricing.

In 1977, the year before airline deregulation, there were 6.2 accidents and 195.1 fatalities per million departures.

In 2004 (chosen as the most recent year from the first data source I pulled up on Google), there were 0.9 accidents and 23.29 fatalities per million departures.

It’s hard to argue that airline deregulation has made flying less safe.

The authors highlight that regional carriers now account for roughly 35 percent of all flight-hours, more than double the 16 percent share that these companies held at the beginning of the decade. At that time, the report shows, two-thirds of all heavy aircraft maintenance was performed in-house, while today more than 70 percent of the work is outsourced, leaving federal inspectors scrambling to keep up with nearly 5,000 repair facilities in the U.S. and abroad.

Fair enough, regional airlines have grown as the legacy carriers with legacy cost structures have sought to grow. But it’s illogical to think that if the major carriers flying larger aircraft had grown their flying exclusively that the flying would be done by more experienced pilots. The pilots flying for the regionals would instead be flying for the majors!

Now, those pilots get their training and education at the regionals and hope to ‘move up’ to the majors.

If there’s anything to blame for a lack of experienced pilots to support commerical aviation, it’s the Iraq War and continued activities in Afghanistan that have stretched the military thin and caused them to pay out higher and higher retention bonuses to pilots. With fewer pilots departing the military for commercial aviation, the regionals look to greener pilots than otherwise.

That’s a fair criticism, and has nothing to do with deregulation. But even looking to less experienced pilots, more sophisticated equipment and advanced training techniques have made flying — whether regional or major carrier — continually safer. Titling this study “Flying Blind” is itself willful blindness to the facts.

The Demos report points out that aviation has been unprofitable for decades. Indeed. It’s a dying heavily unionized industry, with the major carriers operating like G.M. and Chrysler, with a heavy tax burden to boot. Without government enforcing minimum pricing, it’s been difficult to make money. The flip side of course is that flying is no longer limited to the wealthy or to business travel. Mssively lower inflation-adjusted pricing has democratized the skies, but with entrenched costs it’s made long-term profitability difficult to achieve. Of course, one exception is Southwest — which was only able to escape the confines of intra-Texas flying as a result of deregulation.

The study’s approach seems to be a mish mash of seemingly random complaints, hoping that something sticks. Indeed, the press release describes it as “wide ranging.”

So what are their proposed solutions? They suppose the industry would be more profitable, it seems, if the government would require “a code of customer service” to mandate specific pricing and rebooking procedures.

Underlying the silliness is the core goal of the authors:

Promote more equitable and stable labor practices and return to the pre-deregulation practice of pattern bargaining in order to discourage airline competition based on low wages and high-pressure working conditions.

The regulated era is what created the heavily unionized airline business. Airlines didn’t compete with each other on price, instead they were given a cost-plus pricing model. The higher their costs, the higher their prices, and there was no competition to offset this. Under that model, profits flow simply by flying, and there’s little cost in raising wages and indeed pushing back against unions would disrupt profitable flying.

Consumers would be worse off, of course. Prices are 50% lower in real terms than they were in 1978. Airline traffic (measured by revenue passenger miles) has more than quadrupled since 1978. (Indeed, that — and not “outsourcing” — is why there are more maintenance facilities than in the past.)

The report’s final recommendation is highly contradictory. They suggest

Develop new regulations to curtail airline consolidation and promote genuine competition where feasible, while, at the same time, cracking down on monopoly pricing and the other abuses of concentration on routes that are incapable of supporting more than one or two carriers.

But it’s precisely competition which deregulation permitted and which was verboten in the regulated era. Kuttner apparently doesn’t understand that “monopoly pricing” is precisely what the Civil Aeronautics Board enforced in the regulated era that he wants to return to.

Airline deregulation has led to huge growth in traffic and huge declines in prices. It’s made air travel affordable and within reach of much of the public. There are problems and complaints about travel, to be sure. But non-sequitors about safety have nothing to do with what actually has occurred in the deregulation fo the airlines thirty years ago. And re-regulating the airlines — while appealing to some as a way to vent frustrations with the grind of travel — would in no way make anyone better off except for those entrenched carriers offered monopolies over specific routes, and perhaps their unions who can extract a piece of those monopoly profits at the expense of the economic activity permitted by the huge growth in the airline industry over the past three decades.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Good post, Gary. Thanks for parsing out that study. Honestly, though, are you surprised that someone from AP would favor re-regulation? and that their conclusions would be self-contradictory? I’m not. There’s a certain sort for whom increased goverment regulation is the desired end, not the means for reaching it.

  2. This is the problem with today’s so called “liberals” whom are not advocates of a free market system, but they actually are advocates of socialism and collectivist policies which inturde upon the operations of markets in order to serve their political agenda of income and social redistribution. I am in favor of an economic environment where governments allows businesses and competion to flourish and does not try to control markets as the USSR proved to be such an enormous failure.

  3. I myself was pretty shocked to see the Airfarewatchdog endorse such an INSANE and naive study of the airline industry. Whether we’re liberals or conservatives, Republicans or Democrats, I find that frequent flyers generally understand the basic economics of this industry. I respect the work George Hobica does at airfarewatchdog, but I honestly must say that I respect his opinions less after he endorsed such a nutty study.

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