NCPA - National Center for Policy Analysis

Airlines Need More Deregulation

April 1, 2003

Economists who study the U.S. airline industry warn that the federal government still controls most of the costs affecting passenger carriers. Although fares were deregulated long ago, the government still has a hand in labor negotiations, access to capital, domestic restructuring and tax policies.

Airlines need to be able to crawl out from under the rules which impose cost burdens if they are going to be able to save themselves and avoid bankruptcy, economists point out. Here are some steps they recommend:

  • Replace present labor negotiations procedures, which drain the airlines of incoming passenger revenue, by adopting final-offer arbitration -- in which an arbiter picks either labor's last offer or management's last offer, providing both sides with an incentive to appear reasonable.
  • The out-of-date rule prohibiting foreign ownership of carriers should be set aside -- thereby freeing up airlines' access to equity capital.
  • Antitrust restrictions governing airlines far exceed the government's antitrust involvement in other industries -- setting a higher standard for an acceptable market structure in a failing industry makes little sense.
  • Federal taxes and fees constitute 25 percent of the cost of a low-priced ticket -- and should be lowered.

Setting up a sensible regulatory and tax policy framework for the nation's airlines should be top policy priority.

Source: Lawrence B. Lindsey (Lindsey Group), "The Status Quo Won't Fly," April 1, 2003, Wall Street Journal.

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http://online.wsj.com/article/0,,SB104916361852930700,00.html

 

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