VIEWPOINTS : Californians Getting a Fair Deal on Air Travel : Despite critics’ claims, the state’s travelers enjoy cheaper rates than across the rest of the nation.

California paved the way for deregulation of the nation’s airlines by showing in the 1960s and 1970s that unregulated airlines served consumers better than regulated airlines.

California’s experience was prophetic: The nation’s travelers have benefited by more than $100 billion since deregulation in 1978.

But now many California travelers believe that they have not shared in deregulation’s benefits, and they long for the good old days of PSA and AirCal.

A factual basis for travelers’ fond memories appears to have been provided by the California Public Utilities Commission, which reports that between 1979 and 1988 fares on California intrastate routes rose 41% more than the overall rate of inflation in the state. State Sen. Art Torres (D-Los Angeles) and some of his colleagues apparently believe that a state-run airline is the answer to the problem of excessive fares. The state Senate this week voted down Torres’ bill to create such a carrier, but the proposal could come up again.

In truth, both the PUC’s facts and Torres’ analysis of them are misleading, and the Senate was correct in nixing the idea of a state-run carrier.

True, intrastate fares in California have risen. They should have. Under regulation, the federal government intentionally set short-haul fares below cost and long-haul fares above cost. The natural--and fully expected--result of airline deregulation has been for short-haul fares to rise and long-haul fares to fall.

Service, however, has improved: Because of the higher fares on the short intrastate routes, the number of flights increased by 121% and available seats rose by 76%. Load factor, the percentage of seats filled, fell to 52% from 58%. With more flights and more vacant seats, passengers are less likely to find the flight of their choice already filled.

What is misleading about the PUC’s facts on fares is that although California fares have risen, they remain below those in the rest of the country. The difference is especially dramatic for short hauls. The average fare between Los Angeles and Sacramento--a route at the heart of the controversy--is 80% of the fare for routes of the same distance elsewhere in the United States. For LAX-San Francisco, the average fare is 75% of the national average for the same distance.

Overall, both short- and long-haul flights from California airports offer fares that are 5% lower than fares in the rest of the country. Furthermore, fares from California airports are more than 20% lower than they would have been if regulation had continued.

Fares are generally lower in California than elsewhere because competition flourishes in California. Some people believe that when PSA, AirCal and Western were acquired by USAir, American and Delta, respectively, market concentration on California intrastate routes increased.

Before the mergers, however, USAir, American and Delta were not major players in the California market. Merger provided a convenient way for them to expand their operations in the state. As a result, for example, since 1977, the average number of viable competitors on the Los Angeles-Sacramento route has risen from 2.7 to 3.5.

Although the facts show that California travelers are paying lower fares than the national average and are served on major routes by several carriers, Sen. Torres felt that the state needed a healthy dose of competition and proposed that a state-run carrier be formed to drive down “the outrageous cost of flying.”

Imagine if his bill had become reality and, once again, California had anticipated the standard for airline competition. Every state government would have its own airline and eventually the nation--or, more precisely, the federal government--would have one too. Each state’s airline would be easy to name. In California, Golden State Air was suggested by proponents of the state-run airline (and Califlot by its detractors).

But what could the federal carrier be called? The obvious names like USAir, American Airlines and United Airlines are all taken. Perhaps it could be called Washington D.C. Air, which may also suggest the efficiency of the airline.

If current fares are so high and profit opportunities are so great, an airline should be able to set “reasonable” fares and earn a normal profit. Why then was Sen. Torres proposing that Golden State Air be subsidized by other airlines and their passengers to the tune of $25 million annually through the proceeds of a 1-cent-per-gallon tax on jet fuel sold in the state?

Maybe it’s because he knew that profits amount to only about 4 cents out of every fare dollar. That’s right: the “outrageous cost of flying” would be just 4% lower if airlines didn’t earn a profit.

In practice, even this subsidy isn’t likely to be sufficient. Hollywood can cast Charlie Sheen to run an airline, Leslie Neilson as a pilot and Martin Sheen as an airline mechanic.

But who would the state Legislature have “cast” in its production of a nonprofit airline? So-called low-cost airlines with their lower wages and less restrictive work rules typically use profit sharing as a way to motivate workers. But nonprofit sharing is unlikely to provide the incentives that profits do.

Experience in this industry shows that “low-cost” carriers seldom survive. These low-fare, low-frill airlines primarily appeal to pleasure travelers, not business travelers. But airlines need business travelers--and their high fares--to survive.

An airline that caters to pleasure travelers finds that service peaks on weekends and in the summer. An airline that caters to both types of travelers can balance the non-summer mid-week pattern of business travelers with the opposite pattern of pleasure travelers and have profitable loads year-round.

The lesson of deregulation is that markets work--even airline markets, and even in California. If profits are to be made in California, other carriers will enter.

As is frequently the case, Californians don’t appreciate how good they have it. Hats off to the full Senate for realizing the folly of the state trying to get into the airline business. A state-run airline, rather than providing a “healthy dose of competition” to an already competitive industry, would provide a healthy dose of reality.