Airline Deregulation: Now Do It for Real

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 |  Includes: AAL, DAL, FRNT, LUV, UAL, UAUA
by: Felix Salmon

Bob Crandall, who used to run American Airlines, thinks that airline deregulation has been a failure and wants to re-regulate the whole thing. But his argument comes from the point of view of airlines, not of passengers:

Deregulation did bring lower fares and low-fare airlines like Southwest and JetBlue. But can anyone look at the state of the industry these days - it expects to lose as much as $6.1 billion this year - and say air travel's grown more efficient or innovative?

...For passengers, Crandall's plan means fewer flights and higher fares...

But what are the other options? Collectively, airlines have lost over $13 billion since deregulation, and that's after you throw all the profitable years into the mix. Carriers are cutting routes fast, but with low-fare competitors still growing, so far they haven't been able to raise fares enough to cover costs. We've seen 24 airlines go under or go bankrupt in the past six months alone...
Re-regulation would suck. But the alternative could be just as bad.

As a passenger, I don't much care whether my airline is making or losing money. In some sense, if the airlines are all losing billions of dollars, then passengers must collectively be getting a bargain, since they're all flying at well below cost.

If lots of airlines go bankrupt, fine. It's not going to stop them flying, most of the time. And if they do stop flying, that's fine too. If you want to look at the effect of deregulation, don't look at profits, look at passengers. Passenger miles on airplanes in the US have been steadily increasing since deregulation, and continue to increase despite all those industry losses.

Here's the data: there have only been two years since 1981 that passenger miles decreased, and those were 2001 and 2002. Previously, the high point, in 2000, was 69.25 billion passenger ton-miles; the figure for 2007 was 79.74 billion. In other words, growth in air travel is vastly outstripping population growth, and people are flying more than they ever have in the past.

If the legacy carriers become a thing of the past, that might well be bad for Bob Crandall's net worth. But the rest of us won't mind too much: We'll just go the way of the Europeans, and fly other airlines instead.

The US problem isn't too much deregulation, it's too little. All those ridiculous laws on foreign ownership and whatnot make barriers to entry far too high. Airlines should be like restaurants: lots of startups, lots of failures, and the occasional big success (like Southwest). As it is, just because three or four US airlines are struggling (no one really cares about the rest), people like Crandall think the entire business model is broken. Maybe the old one is, but I'm sure there are new ones which aren't.