Word Count: 1038On October 24, 1978, President Carter signed into law theAct. The purpose of the law was to effectively get the federal government out of the airline business. By allowing the airlines to compete for their customers’ travel dollars, was the thinking, that fares would drop and an increased number of routes would spring up.
The results of airline deregulation speak for themselves. Since the government got out of the airline business, not only has there been a drop in prices and an increase in routes, there has also been a remarkable increase in airline service and safety. Airline deregulation should be seen as the crowning jewel of a federal de-regulatory emphasis. Prices are down: Airline ticket prices have fallen 40% since 1978. Flights are up: The number of annual departures is up from 5 million in 1978 to 8.2 million in 1997. Flights are safer: Before deregulation, there was one fatal accident per 830,000 flights, now the rate is one per 1.4 million flights. So what’s the problem?
It appears that the Clinton administration and some in Congress will cut off their nose to spite their face. By almost all measurable ways, airline deregulation has been a success. But in response to a few small start-up airlines complaining to the Department of Transportation about “predatory pricing,” Washington legislators and regulators are poised to act. “Predatory Pricing” is code for: “fares are too cheap for some airlines to compete in that market ’cause they will lose money”. In response, the Department of Transportation recently proposed guidelines to limit the maximum number of seats an airline can offer on particular routes and which forbid them from dropping prices below certain levels, all in the name of “fair” competition. In other words, ” we can’t have prices get too cheap because then the Value-Jets of the world won’t be able to jump into the market place.” Of course then you would be paying $400 to fly from New York to Boston just for the chance to have a thrill-a-minute ride across New England. But as long as a guy with a pair of Ray-Bans and a crop duster can “compete” with Delta and American, then the D. of T. is happy.
Flying High, What Are They Smoking?
Where is the common sense in the Clinton Administration’s airline policy? The administration claims to desire full competition, but shudders at the one result of competition that truly benefits the consumer – low fares. A drop in fares has been the best result of the Airline Deregulation Act of 1978. It has been the impetus for the increase in the number of flights, which in turn has spurred a drive for greater safety in airlines. But with the current airline market, this development has given us one negative. Since ticket prices have dropped to new lows, the realities of an industry which operates on such economies of scale dictates that only a few competitors have the capacity to operate within the market. This is not the desired effect of either political side on this issue, but it is an economic necessity with the environment that has been created, very similar to that of public utilities and phone companies.
The Best of Both Worlds
The U.S. airline market admittedly operates in an oligarchal fashion. But is this not the best policy for air travel? The success of the large carriers has enabled a drop in fares, and while entry into the market is difficult, it is not impossible. Upstarts such as Southwest Airlines are able to find a market niche and exploit it into profitability. Maybe benevolent oligarchy should be the term…
Turn the Market Loose!
Those in the de-regulation camp see an opportunity to expand on the Deregulation Act. When the act was written, the government was taken out of the business of setting fares and routes. But various municipalities still retain ownership over airports. Given the massive improvements in the airlines since dergulation, why not apply this same thinking to airport ownership? The results should only be more of the same: better service, cheaper prices, and more market freedom.
But the legislation winding its way through the