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Monday, Oct 6, 2008
Deregulation led airlines to shaft their customers -- and then go out of business! But the airlines that emerge from bankruptcy probably won't be any better.
Apr 16, 2005 | The impending demise of nearly every major airline -- U.S. Airways, Delta, United, Northwest and others are either in bankruptcy or near to it -- should fill travelers with joy, given the way airlines have treated us. Since deregulation unleashed the carriers' talons in the late 1970s, they have stuffed us into smaller seats and smaller planes, taken away perks ranging from meals to pillows, charged us capriciously and exorbitantly, routed us through cities we never wanted to visit, and instituted ridiculous requirements like mandatory Saturday-night stay-overs.
Unfortunately, there's no guarantee that any new airlines that might emerge from the financial wreckage of the current bunch will be any better. The industry has lost more than $30 billion since 2001, and high oil prices alone could lead to an additional loss of $5 billion this year. The nine largest U.S. airlines are expected to report first-quarter losses totaling at least $2 billion in the coming week. True, a few nimble airlines like Southwest and Jet Blue are making a profit by offering flights at reasonable prices with few restrictions. But they are still a small percentage of the market and they may stay that way.
The fault for this mess, dear tired traveler, lies not with the airlines but with those who allowed politicians to deregulate the airlines a generation ago. President Jimmy Carter and his Civil Aeronautics Board chairman, Alfred Kahn, pushed through deregulation in 1978, when I was a freshman in college. A generation later -- my entire professional life -- I am still waiting for the magic era of easy flying that fans of deregulation promised a free market would bring.
Before deregulation, airlines competed mostly on the freshness of their cocktail nuts because the Civil Aeronautics Board dictated their routes and ticket prices. This seemed a little strange, so economists and policy wonks proposed "marketizing" air travel -- that is, allowing airlines to compete head-on. They thought this would give consumers lower prices, more direct flights, more airlines to choose from, and simpler ticketing and flying requirements. It seemed like a good idea at the time.
But contrary to predictions, deregulation has actually led to fewer direct flights, fewer airlines, less predictable prices, costly restrictions -- and, not incidentally, the financial ruin of nearly every major carrier. Analysts estimate that the airlines have collectively lost more than $50 billion since deregulation began. True, consumers have gotten lower prices on some flights, but only at the cost of astronomical prices on others and a rash of new restrictions and conditions.
Despite all this, commentators in the media routinely hail deregulation as a great success, even as they acknowledge a lot of rough spots, which they assert the market will eventually sand off. The latest round of airline troubles have some predicting that the long-awaited era of mostly Southwest-style carriers competing by offering easy flying at low prices will soon arrive.
That's unlikely, says Robert Kuttner, editor of the American Prospect, who examines airline deregulation in detail in his 1997 book "Everything for Sale: The Virtues and Limits of Markets" -- in a section called "A Failed Experiment."
"There are two ways to think about the current situation," says Kuttner, in a telephone interview from his home near Cambridge, Mass. "One way is that the wave of [airline] bankruptcies and the hemorrhaging of money are the last gasp of the dying dinosaur of an industry that took a lot longer to put out of business than the deregulators thought, and we are now heading into a new era of low-cost, competitive airlines.
"The other theory is that this history proves that airlines are not a naturally competitive business, and that the steady track record of business losses and the screwing of customers are just going to continue if they try to run [the industry] as a deregulated business."
Whatever the future holds, it's worth looking back to the past to see just how little has gone as planned. Believe it or not, deregulation was supposed to make flying not only cheaper but simpler. It was meant to spawn more airlines like Southwest, a company that predates deregulation, and at first, the idea seemed to work. I remember flying from my hometown of Norfolk, Va., to New York City in 1984 for $19 on People Express, which introduced the novel technique of collecting payment onboard. But the larger airlines managed to kill off that consumer-friendly airline with predatory pricing.
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