PERSPECTIVE ON AIR TRAVEL : Deregulation: An Idea Gone Wrong : The new fares will create hardships for many passengers and make it hard for all but a few huge carriers to compete.
Airline deregulation isn’t working, and consumers may soon regard the airline industry as they do Detroit, an industry that is out of touch with the needs of its customers. American Airlines’ decision to adopt a new fare structure is just the latest example of an idea gone wrong.
The perishable airplane seat that remains empty upon flight departure represents an extremely complex challenge for the industry. The 500 million passengers who fly each year in the United States have many reasons for traveling and place a wide variety of values on their trips. In a competitive market, airlines would offer a multifaceted rate structure, which would meet the varied needs of the flying public, while providing the airlines with a fair return.
Unfortunately, the new fare structure will be anything but fair for the vast majority of airline passengers, and it will ultimately make it more difficult for all but a few mega-carriers to compete.
For many passengers the new fare structure does not represent a reduction at all. Gone are military leave and bereavement discounts as well as lower fares for seniors and families. They and other advance purchase discounts have been replaced by a “reduction” in air fares. A key question to ask is: A reduction from what? The answer is that these new fares represent a reduction from the unrealistically high fares that would never have survived if airline deregulation been allowed to work in the first place.
Deregulation, per se, isn’t the problem. Unfortunately, since the enactment of the Airline Deregulation Act in 1978, the federal government has taken the position that deregulation is the same as an exemption from the enforcement of the economic laws of the land. Instead of enforcing existing anti-trust laws, the federal government has simply looked the other way. The result is a few powerful and financially secure airlines driving all others out of business.
I am convinced that if the original backers of airline deregulation had the slightest inkling that deregulation would lead to reduced service, decreased employment, and more restricted fares, they would never have enacted the legislation in the first place.
The numbers tell the story. When airline deregulation was enacted there were 23 domestic airlines. Within six years, they were joined by three intrastate and 14 start-ups of significant size. The result was 40 carriers providing 250,000 additional jobs.
Today, however, the promise of those early days goes unfulfilled. The number of airlines in operation has dwindled to 11 and three are operating in bankruptcy. Of the 14 airlines that have started up since 1978, only America West is still flying. And, more than 150,000 airline industry employees have lost their jobs since 1988.
The reason for this disaster is not economic. It is political. The government’s policy of not enforcing anti-trust laws has permitted the development of three glaring barriers to competition: the dominance of computer-reservation systems by the very largest carriers, the growth of frequent-flyer programs that lock customers into using only the largest airlines and the unfair allocation of landing rights at capacity-constrained airports.
It’s time the government took action on behalf of all airlines rather than maintaining a policy of inaction that had benefited just a few. American and United, the two largest carriers, must be forced to divest their computer reservations systems because they provide these carriers with an unfair competitive advantage. Not only do these systems automatically feature American and United flights, but they also reward travel agents for booking passengers on these two airlines in lieu of other viable--often more convenient--alternatives with better prices.
Airport market access is another goal of deregulation that has slipped by the wayside. There is no reason why carriers should be allowed to own arrival and departure slots at capacity-constrained airports and to trade them at prices so high that only the mega-carriers can afford them. The Wright Amendment, which established and preserves Southwest Airlines’ monopoly at Dallas’ Love Field, must also be rescinded by Congress as the blatant violation of free-enterprise fundamentals that it is.
If the federal government continues to abandon its responsibility to enforce antitrust laws, eventually the flying public may be left with just three mega-carriers--American, Delta and United.
The domestic airline industry can still live up to the promise of 1978. But only if we once again begin to enforce the laws that are on the books to safeguard a competitive environment. The airline industry that will serve the public best is the one where all airlines have an equal chance to compete.
