Airline Re-regulation

The last two decades of de-regulation in the air transport industry had both good and bad consequences. Many in the industry strongly believe that the pros have out-weighed the cons. The rationale behind their beliefs is constructed below, as a way of justifying the status quo. Areas where the present rules do not apply are also elucidated.

There are some analysts who believe that the flying experience was much better 20 years back, before the industry was de-regulated. The higher ticket prices ensured that companies did not go broke and consequently the employees were well paid. Also, back then, ticket prices did not depend on the time of purchase (Whitaker 7). If a flight was missed for any reason, the ticket is still valid for the next available flight and on any alternate airline flying the same route; all this without any additional cost for the passenger. Reservations too were much simpler – all it took was a phone call. There was enough room to stretch one’s legs and the food was much better that what is being dished up these days (The Economist 67). However, it is through conscious consumer choice – where cheaper prices were preferred to luxurious traveling experience – that the changes came about. Hence, this line of argument for re-regulation is weak and not sound.

Much had been said about the reduced prices during the de-regulated period. However, there are some definite costs, though not very conspicuous. The recent plane crash accidents are a good example. The December 1994 crash of American Eagle ATR 72 and the ValuJet McDonnell Douglas DC-10 crash had significantly added to the public unrest. Analysts now generally agree that “low-cost” is synonymous to “high-risk”. The airlines industry had promoted the concept of “low-cost” travel quite successfully, but there is a lot of illusion attached to it. The advertisements don’t reveal the complete reality – minimum seat-pitch, cheap meals, inconvenient scheduling, etc. There is also evidence that security had been compromised on more than a few occasions in the name of cost-saving. In this circumstance, regulative restrictions on the marketing practices of the industry are quite appropriate. The regulations would screen for deceptive or unrealistic claims. It will lead to more factual advertisements that serve the public need for accurate and reliable information. It will also empower the consumer in demanding more stringent security standards, especially in light of the events of September the 11. (Whitaker 7)

An area that is in immediate need of reform in the aviation industry is air traffic control. The Air Traffic Organization, which is part of FAA, is confronting $8.2 billion funding deficit. This is mainly attributed to the unionized, government-operated system with all its inefficiencies in combination with the ever decreasing ticket prices. It means that the revenues will continue to decrease, despite increasing air-traffic. In this scenario, more governmental interference in the name of regulation would only worsen the situation. On the other hand, commercializing air traffic control, probably by privatization, seems the obvious answer. This would enable the implementation of more market-based pricing plan and to invest in newer technologies that would increase safety while decreasing costs. (Shane 23)

The U.S. Department of Transportation (DOT) recently released its Proposed Statement of Enforcement Policy on Unfair Exclusionary Conduct by Airlines” to curb anti-competitive practices. A special area of concern for the DOT is the practice of “predatory pricing”, wherein the older corporations within the industry offer hefty discounts to consumers to lure them away from newer and smaller entrants. But, this interference with fare competition will not please the consumers. The proposal is a definite move by the government towards re-regulation. It is in the best interest of the industry and the consumer that the proposal does not become policy. (The Economist 67)

Though the current economic situation is weak and the markets uncertain, there is a pay-off for persisting with the de-regulated model of industry. The Air Transport Action Group, an industry association lobbying for further investment in aviation infrastructure had estimated that the global civil air traffic generated an average of $700 billion annually in 1989. The industry also employed 21 million workers. Going by the trend seen during the last decade or so, the figures should double by 2010 (Vietor 72). But that is only possible if investments match the pace. The best conditions for investments are created by a convenient and efficient air transport system. Such conditions also boost business development, tourism, national economy and employment. It is hence clear that aviation and economic prosperity go hand in hand. What is required of the government then is efforts in the best interest of the air transport industry. This translates to an improved infrastructure, airport expansions and better efficiency. The legal and bureaucratic atmosphere also needs a makeover – to suit the changing needs of the industry. Once the government occupies itself over these projects, the airline marketplace will sort itself out through free-market competition. Regulations can at best be an inconvenience and at worst be disastrous. (The Economist 66)

This closing thought sums up the situation: Though the airline industry’s future is put in jeopardy through destructive competition and irrationally low fares, re-regulation is not the answer. A few areas like marketing practices may need some control. But overall, the solution lies in finding a competitive model that puts the consumers first while also allowing the industry to achieve sustainable growth. Until then the problems will persist.

Works Cited:

“Dogma, pragmatism and protectionism (international airline regulation).”, Airline Business (Nov 1993): 7(1).

Shane, Jeff, Peter Martin, and Matthew Samuel., “Jaw-jaw not war-war. (impact of deregulation, re-regulation and protectionism on airline financial losses)” Airline Business (Annual 1992): 22(4).

“The war in the skies: airline regulation.” The Economist (US) 328.n7824 (August 14, 1993): 66(2).

Vietor, Richard H.K. “Contrived competition: airline regulation and deregulation, 1925-1988.” Business History Review 64.n1 (Spring 1990): 61(48).

Whitaker, Richard. “Airline revolution gathers pace.” Airline Business 13.n4 (August 1998): 7(1).