Why airline reregulation is no longer taboo

Now airline executives are analyzing every route, every flight, and every seat in a way they never have before, and capacity continues to be cut. That's a compelling reason the marketplace is not always the best decider for the interests of consumers. Millions of Americans are dependent on frequent air service to conduct business, maintain family ties, secure affordable vacations and remain in touch with other communities. If airline executives determine that certain routes are not lucrative enough, they can't be faulted for acting in the best interests of their shareholders. Even if protecting stock prices means rolling back air service in hundreds of regions throughout the country.

That's why deregulation included the Essential Air Service clause, so the DOT can subsidize flights in rural regions. However, even a government subsidy won't help if an air carrier ceases to operate. And a rash of airline bankruptcies this winter could have effects far beyond rural regions.

Consider Hawaii, for example. Earlier this year, Aloha Airlines suddenly ceased flying and went bankrupt after serving the islands since 1946. There was momentary panic and then Aloha's chief rival, Hawaiian Airlines, announced it would step in to fill the gap in intra-island air service. But now imagine if Hawaiian were to succumb to rising fuel costs and shut down as well — and these days it's not inconceivable to consider the grounding of just about any carrier. There would be no meaningful intra-island airline service without Hawaiian. Well, sure, the marketplace will have decided. But for the vast majority of citizens who can't afford private jets, does commuting within the islands by outrigger canoe constitute a victory for the marketplace?

How much profit is enough?

So what does the Father of Airline Deregulation say to all this? Alfred Kahn, the chair of the Civil Aeronautics Board under President Carter, has heard that nickname hundreds of times (once he even joked that he wanted a paternity test). In an interview published just last month, Kahn maintained that deregulation was and is a good idea, and expressed disappointment over Crandall's speech. Yet he also said there is no reason to believe that airlines will ever match the profitability of other industries.

Perhaps that's the crux of this issue: Within the movement for a financially secure aviation industry, there are many competing interests and those interests don't always dovetail. Shareholders, airline management, airline labor and passengers themselves often are at odds over what constitutes success. And it's not a given that what is good for one sector is good for all.

What's more, long-term profitability in the airline industry has proven elusive. In a famous letter to shareholders a few years ago, investor Warren Buffett stated: "Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down." And Richard Branson, the founder of Virgin Atlantic Airways, is fond of telling an old joke: "The easiest way to become a millionaire is to start with a billion and go into the airline business."

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