Why airline reregulation is no longer taboo

One observer with a unique perspective is Robert Crandall, the former chairman of American Airlines and a recognized industry leader — for better or worse — during his tenure in the business. In a speech before the Wings Club in New York City in June, Crandall noted the following: "The consequences (of deregulation) have been very adverse. Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An even higher percentage of bags are lost or misplaced. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable."

Then, in what came as a surprise to many but really should not have, Crandall advocated — just as he had in the 1970s — against complete deregulation. He stated: "Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment. To put things bluntly, experience has established that market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost, and operating problems."

Crandall summarized his views by stating, "Modest price regulation, slot controls at congested airports, more stringent standards for new carriers, revised labor laws, amended bankruptcy statutes, and a more accommodating stance towards industry collaboration are a far cry from the inclusive regulatory regime of [Civil Aeronautics Board] days. However, these few steps — in my view — would have a dramatic and favorable impact on the financial health of our airlines, the usefulness of our airline system, service levels in the airline business and the welfare of airline employees."

A counterpoint of sorts was put forth the following month, in a speech before the International Aviation Club in Washington, D.C. It came from Michael Levine, currently a senior lecturer at New York University's School of Law but at one time a key player at the Civil Aeronautics Board, as well as a former executive at several airlines, including Continental and Northwest.

Levine stated: "We are beginning to get calls to stop this movie and to write a new script, with the stopping and writing done by government...Those who offer these arguments have been skeptical from the outset that a liberal market economy can be made to work in the airline industry. Their theoretical argument is an old one: that an industry with substantial fixed or common costs will be unsustainable as competition drives prices to levels that don't allow the common costs to be recovered. This argument proves much too much: If we really believed it, we'd have to regulate virtually every industry, because virtually every industry has some fixed and common costs."

Here are links to the full text of Crandall's speech and Levine's speech.

Double standards?

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