NCPA - National Center for Policy Analysis


April 18, 2008

The number of airlines may be shrinking, as the planned merger between Delta and Northwest is likely to encourage other big airlines to pair off.  Reduced competition will probably mean higher fares, particularly as the airlines shrink their fleets and cut flights to reduce costs.  All of which raises anew the question: Has deregulation really worked out?   By some measures, it has.  By others, not so much, says the New York Times.

For instance:

  • Before the industry was deregulated in 1978, there were 10 big carriers -- referred to as trunk lines, they controlled 90 percent of the American market -- and 8 smaller regional carriers.
  • The airlines were tightly controlled by the Civil Aeronautics Board, which regulated routes and set fares that guaranteed airlines a 12 percent return on flights that were 55 percent full; discounts were rare, too.
  • Service was limited; American, for example, flew to only 39 cities, and Continental had to wait eight years for approval to fly from San Diego to Denver.

It is a much different industry today, but not all of it is better, says the Times:

  • Flying is less expensive, as fares have fallen steadily, adjusted for inflation, and there are more flights to more cities.
  • The barrier to entry is lower; over the last 30 years, more than 150 airlines have sought bankruptcy protection or disappeared, but more keep springing up.
  • But the industry incurred losses of more than $30 billion from 2001 to 2006 and has gleaned only scarce profits since then.
  • Persistently high fuel costs are driving airlines into bankruptcy court, or one another's arms, something proponents of deregulation did not foresee, said Alfred E. Kahn.

This is the free market at work, and we're not used to it, says Mo Garfinkle, a lawyer and a longtime airline industry consultant.  He believes that the industry is only now winding up the first phase of deregulation, in which industry practices had to be established.

Source: Micheline Maynard, "Did Ending Regulation Help Fliers?" April 17, 2008.

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