It’s been 30 years since airlines were de-regulated. This has been a boon to consumers, as ticket prices have fallen. But how cheap is too cheap?
Before de-regulation, fares were regulated such that carriers would (presumably) be assured a fair profit. Airlines have always gone bankrupt, but nowadays I rarely hear a story about the airline industry that doesn’t include the shadow of a pending bankruptcy. Airplanes are expensive, and fuel costs keep rising. Airlines are putting more people into fewer planes (the seats really seemed a lot bigger when I was a kid! ), deleting in-flight meals, and adding surcharges to everything they can get away with.
Furthermore there’s the Buffalo crash, which highlighted the low salaries and grueling schedules of some pilots. Considering the dedication and expense of achieving a seat in the cockpit of even a commuter airliner, it just doesn’t seem fair that a pilot would earn less than a barista or a cashier – especially when AFAIK no one has ever died because a barista was sleepy. If fares were re-regulated, fewer carriers could face bankruptcy, pilots could afford to live nearer to where they work, and passengers would likely see the return of amenities as an inducement to choose one airline over another.
On the other hand there’s Southwest Airlines, which seems to have done quite well under deregulation; and they’ve done so while keeping fares low. A Free Marketer can point to them and say, ‘See? Fares don’t need to be regulated!’ If some airlines are losing money, let them fail and allow a more efficient company to take over.
What are the pros and cons of re-regulation of fares? Here’s what I’m thinking:
Pros:
[ul][li]It ‘levels the field’ so that airlines can compete on other things than price, possibly resulting in fewer bankruptcies;[/li][li]Pilots would likely receive higher salaries, enabling them to be compensated more fairly for their investments;[/li][li]Safety would be improved if pilots can live where they work, rather than commute all the way across the country as was the extreme case in the Buffalo crash;[/li][li]Even if salaries did not rise, airlines might be able to hire more pilots so that pilots are not fatigued;[/li][li]Surcharges might be reduced or eliminated, removing something that irritates many passengers.[/ul][/li] Cons:
[ul][li]Fares will increase, with the result that some people will not be able to afford to fly;[/li][li]Bureaucracy might slow the implementation of new fares;[/li][li]Less competition amongst airlines will likely reduce the number of route choices.[/ul][/li]
Now, I am by no means an economist or an expert on the workings of airlines; so basically I’m just asking a question. My assumptions may well be completely wrong.
I’m going to throw up some counter-arguments, but understand that most of these do not represent my personal views but rather a means to get the conversation going.
But it involves price-fixing and is anti-free market and there are people opposed to that on philosophical grounds even if it would reduce bankruptcies.
The free market sets the pilot salaries to what they are actually worth instead of artificially inflating them. (Although how you can argue that $20,000 a year is “fair” for a job that requires $100,000 in education and routinely being directly responsible for hundreds of other lives I don’t know.)
Employers are not obligated to fund a particular lifestyle - the pilot(s) in the Buffalo crash could have had roommates or shared living quarters, the did not have to live far away from their hub.
Hiring more pilots increases business costs, which makes the airlines less efficient.
Got nothing on this one.
If you can’t afford to pay the real cost of a flight you can’t afford to fly. Depressing fares below actual costs is unsafe and leads to dangerous cost-cutting.
Probably.
In the days of airline regulation the airlines who wanted the choice, profit-making runs were required to continue the runs to smaller localities. Post de-regulation those routes were discontinued or the prices jacked up. If you re-regulate bring that one back, make it required on an equal basis by all airlines, and you’ll see an increase in service. Also an increase in whining by airline executives.
Now, I am by no means an economist or an expert on the workings of airlines; so basically I’m just asking a question. My assumptions may well be completely wrong.
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Most of the major airlines “hub and spoke” model is screwed up and that is a big reason they are suffering. Southwest does not use that model and the results are self explanatory. Other airlines need to find a way to get rid of that model. The fact that one airline can make it work year after year while others fail shows a gaping flaw in their business plan.
Airline travel is mostly a commodity item these days and has to obey to the sane rules that other commodities do which is mostly price. When most people pull up Expedia or a related site, most people just pick the cheapest flight as long as it fits their schedule.
If Southwest becomes the largest airline in the U.S. based on their business model then so be it. There is no need to fly from Boston to Chicago to get to Atlanta for example. I am sure that the environmental folks would agree with this as well.
People bitch about airline seating (I do to) but when it comes time to pull out the pocket book, 5 hours of misery on a plane isn’t that bad compared to shelling out hundreds of dollars more to take your family to Disney Land.
I’m mystified at why the industry doesn’t rush to copy Southwest. I suppose JetBlue and a few other start-ups have taken pages from their book. But it seems to me that the few remaining legacy carriers actively avoid following Southwest’s lead in some areas. Strikes me as stubborn and stupid.
I bring this up because I share the feelings of the OP to some extent. If the Southwest business model ends up “winning” the competition and becomes the biggest airline, maybe this discussion will be moot.
So what you are saying is that we ought to re-regulate the markets so that companies can compete with Southwest. By ‘compete’ you mean have the government rig the market so that the rest of the airlines don’t have to actually compete with Southwest. Instead the government will regulate the companies into profit.
I am amazed at how much I have to pay to fly 400 miles. The airplanes on this route are always full, and I really don’t think that the route is unprofitable at all. Unfortunately, I really can’t spend 10 hours on the road these days. So I suck it up. However, I do wonder why it seems that the airlines have to charge this much, when I see much lower fare offered for flights that are two or three times as far.
Possible explanation : most technical stress happens at takeoff/landing I believe. The engines are pushed to the max on take off, the landing gear and airframe take a hit on less-than-perfect landing.
So a plane that does lots of short trips in a relatively short time frame might require more maintenance than a plane that only does one long distance flight a day.
That, or it’s a simple supply and demand thing caused by more people needing to do short trips, which your statement that “the planes are always full” would corroborate. Then again, I’ve never been on a less-than-full flight, so…
I always love talking about airplanes. Here is one link, from nearly 12 years ago, reflecting on 20 years of de-regulation. I found it after 10 seconds of Googling. The highlights of de-regulation:
Passenger miles traveled doubled
Fares down 40% in real terms
Improved safety record
I have no doubt the trends have continued.
Please don’t fall into the trap…quite common, unfortunately…of using headline-grabbing news stories and tear-jerking anecdotes to promote new public policy.
Our congressmen do it all the time, spawning Unintended Consequences and 10’s of thousands of new pages in the Federal Register. They confuse their own activity with improved outcomes for the rest of us. And always have solutions ready at hand, in search of non-existent problems to solve.
There is nothing to see here.
Now if we would only allow greater foreign investment in our airlines, by getting rid of that little bit of antiquated legislation, we might really see some improvement. Ever been in the Virgin lounge at Heathrow? Yousa. Yousa, I say.
Pros:
[ul][li]It ‘levels the field’ so that airlines can compete on other things than price, possibly resulting in fewer bankruptcies;[/li][li]Pilots would likely receive higher salaries, enabling them to be compensated more fairly for their investments;[/li][li]Safety would be improved if pilots can live where they work, rather than commute all the way across the country as was the extreme case in the Buffalo crash;[/li][li]Even if salaries did not rise, airlines might be able to hire more pilots so that pilots are not fatigued;[/li][li]Surcharges might be reduced or eliminated, removing something that irritates many passengers.[/ul][/li][/QUOTE]
Overall I see the reasoning you’re offering in support of re-regulation to be rather daft.
Just to address your bulleted “pros”
-If you aren’t an airline debt holder or equity holder, I really cannot fathom why you’d give a damn about airline bankruptcies. Really, that’s not your problem.
-Apparently tons and tons of people still want to fly airplanes at the minimal salaries offered by regional airlines. Mainline air travel in the United States is incredibly safe, far safer than any period during regulated air-travel, and I’m not even convinced that better pay or sleep would have prevented the Buffalo crash. In that case, the plane did something unexpected or opposite of what the pilot expected and the pilot overreacted causing the plane to crash. Isn’t that exactly what happened with the American flight that went into Queens in 2001?
-Surcharges are just the breaking of ticket prices out into components. If people cared enough about crappy airline food to pay an extra $10 for it, then most airlines are glad to offer them the chance to do so through buy-on-board meals. Why in the world do you consider it a rational policy to force airlines to charge a certain amount just so that we can be served microwave dinners that apparently half the passengers don’t place a $10 value on anyway?
Another con that you have completely failed to address is that a rise in airline prices leads to a very real drop in airline traffic. This equates to either trips that people don’t get to take or people choosing to drive. The driving is extraordinarily dangerous compared to airline traffic, so you must understand that increased ticket prices equate to increased traffic deaths.
Also, in real price terms, regulated airline prices were about equal to business or first class fares today. If the surcharges or lack of food on airlines today bothers you, go ahead and buy a first class ticket and enjoy your mediocre airline food and free checked bags.
I have to agree with the less regulation is better folks here. I do not always agree that an unregulated market is the right choice, but in this specific case the advantages are clear: airline travel is cheap and safe and easily available, far more so than it ever was in the regulated days.
There is a wider theme here: often people complain that standards are low (airline travel is not what it used to be, furniture quality is not what it used to be, etc). But you can still live like it is 1950 if you so choose: buy a first class ticket or expensive hand crafted furniture. It will be very close to the real thing, right down to the fact that you are paying a huge proportion of your annual income for these things.
The real difference between now and then is that now there is this additional choice that simply didn’t exist before: pay significantly less for functionality (quick travel, a functional furniture item, etc) of a poorer quality. The difference between now and 1950 for most people is not that 1950 had better quality, it is that now they can actually fly and in 1950 it was not an option. By this standard air travel quality is vastly improved in the modern era, especially given that the high quality high cost option is still available for today’s equivalent of the 1950s elite.
I also do not think that the bankruptcies point to a problem with deregulation. Given that there are examples of successful airlines (South West, etc) I’m inclined to believe that the problems are with the individual airlines and their strange hub-and-spoke model. I’m pretty sure propping them up with regulation is the least efficient solution.
Southwest found a niche and did a very good job of filling it, but it’s not nearly a big enough niche to support the entire industry. For instance, Southwest has only one model of plane in their fleet, which cuts down their maintenance expenses, and means that any of their planes can fly any of their routes (which helps to free them from the hub-and-spokes model). But for shorter legs, they’re not as economical, and they can’t fly longer routes at all. Meanwhile, a more conventional airline will have some very large planes for routes like New York to Los Angeles, and then a fleet of puddlejumpers to connect from LA to other points on the West Coast, or from NYC to other Eastern destinations. Even if someone chartered a plane for it and bought all the tickets, you can’t just route directly from random small East Coast town to random small West Coast town, since the small town airports can’t handle the planes big enough to make that trip.
I should be clear about the OP, and how it relates to my posting habits.
Often I’ll wonder something and want to ask about it. But I have this need to not just post (using this thread of an example) ‘Based on the last 30 years, has airline deregulation been a good thing?’ So what I tend to do (in other threads as well as this one) is to think of some examples from both sides of the argument, in the hopes that it will spur conversation rather than a ‘yes or no’ answer. Often the assumptions I make while trying to come up with examples are faulty.
Another thing is that I might think of something that would be better answered in another thread. For example in the Buffalo crash I might have started a thread about whether $16,000 or $17,000 per year is a reasonable salary for a co-pilot, rather than to try to use it in this thread.
My posting habits can confuse the issue.
Please don’t think I’m in favour of re-regulation. Also, don’t think I’m not. As I said in the OP, I don’t know enough about the issue to have an opinion. I’m just asking a question.
Thank you for the answers so far. I’ll be reading others until Wednesday night.
Deregulation isn’t total. There are still plenty of rules about pilot hours, etc., and it seems that the problem with the Buffalo crash was that the pilots either flew through loopholes in the rules, or because their employer turned a blind eye to violations. I’m betting that airline is going out of business when the facts are discovered - it won’t be the first to cut corners to boost profits only to lose the entire airlines when luck catches up with them.
I’m a big fan of Southwest, but a lot of their success comes from initially low labor costs and smart management. They did well during the oil price runup because they placed smart bets on oil futures. They have an excellent on time record because they mostly fly places with good weather.
I don’t think re-regulation is going to make the other airlines any smarter. Passengers can do it, if they refuse to fly on airlines who want to rip them off. USAir backed away from charging for drinks thanks to passenger resistance (and that the other airlines didn’t follow.) The problem is, despite the supposed diversity due to competition, most airlines march in lockstep. I’m lucky that I’m on the West Coast and so can favor Southwest, which actually uses not screwing their customers as a source of competitive advantage.
I doubt re-regulation will work (unless it involves micromanaging seat pitch) so we’d just get higher prices and the same crappy experience we do today.
My wife takes Southwest from Oakland to Philadelphia all the time, and likes it. Sometimes you have stops. I took it from Austin to Oakland with two stops, and saw first hand how awesomely efficient they were at turning the plane around. Not quite as fast as some alternatives (but not too far off) and a lot cheaper. And I didn’t have to pay extra for a decent seat - I just had to be clever enough to get my number in time.
About 18 months ago I read that in its history the airline industry (not specific companies) over all these 60-some years has at best broken even. At the end of the day, it’s amazing that anyone thinks they can make money in this business. Thank goodness people still do.
Regulation led to great airline service, because every cost–fuel, food, capital to buy planes (a really huge one), and labor all got covered by the regulated ticket price, rather than the market. So the prices were much higher than now.
I know what Johnny L.A. longs for, which is civilized air travel, but, sorry Johnny, it ain’t gonna happen, near as I can tell.
What I long for is my own plane. Probably faster than an airline for trips under 400 miles, and if it takes two or three days to fly across the country I’ll have more fun than I would in an aluminum tube.
But I remember from my teen years, hearing on the news that the FAA had approved (or disapproved) and airline adding a flight from City A to City B. That’s what I think of as airline regulation - it was a centrally planned economy, with the government deciding how many flights there were to which cities.
The idea was that a sustainable airline industry was necessary both for business and for national security, so the government regulated the industry so that airlines wouldn’t fail. It turns out that there remain enough investors in the industry, despite it’s history, that there have been plenty of planes to ferry troops to the Iraq, for instance, even when no one, (except Southwest, temporarily) is making money.
Question: If you had the money, would you start an airline, or buy airline stock?
), deleting in-flight meals, and adding surcharges to everything they can get away with.