Time for Government Regulation of Airlines to Return? No Way…

“U nited Airlines treats me like a dog pile even though I spent over $10,000 with them last year and hold Platinum status with their airline. So, I’m flying mostly American Airlines. And, Delta offers a pretty darn good in-flight product if United and American both fail me. In the age of regulation, where prices were fixed, airlines had to compete on service, free bottles of booze and all kinds of other luxuries. Those days are past, relics of a society that thinks very differently today about service needs.”

Ed Pizzarello of Pizza in Motion wrote this article — from which the quoted content shown above was extracted — which definitely provokes thought as a result of his argument pertaining to why government regulation of airlines in the United States should not return and contradicts the point of this article written by Paul Hudson of Elliott; but I also like to deal with the simplest and most basic principles which help to set a foundation for more complex ideologies.

Government intervention in industries where companies are in business to profit should only be extended to protecting consumers in most cases, in my opinion. Commercial aviation in the United States is heavily regulated as it is; but much of that regulation pertains to passenger and flight crew member safety. We certainly do not want a repeat of incidents such as what happened to a McDonnell Douglas DC-9-32 airplane which operated as ValuJet Airlines flight 592 back on May 11, 1996 where a fire erupted during the flight as a result of oxygen generators which were not properly stored in the cargo compartment aboard the aircraft. The fire led to the eventual crash of the aircraft into the Everglades in Florida shortly after departing from Miami International Airport on its way to Atlanta; and all 116 people aboard the airplane were killed…

…and that was an accidental mishap. There have also been numerous stories over the years where airlines have attempting to save on costs by compromising safety. Government regulations pertaining to passenger and flight crew member safety is necessary in order to prevent both accidental and purposeful acts which could potentially injure or kill people.

However, I am generally against government intervention when it comes to economics. “Should they have to pay you when they change a schedule because your trip has to change?” asked Ed. “I’m a believer in free markets, so my answer is no.”

Although the idea is debatable that if an airline can charge a change fee to a customer for changing a schedule, then it therefore should pay a customer if a schedule is changed on him or her — and I have heard that argument numerous times over the years — I too am a believer in free markets as well. As with any other business which seeks to earn profits, the airline industry must deal with the classic economic laws of supply and demand. However, airlines are permitted to have special exemptions of sorts — such as “hub fortresses” where competition is minimal — which many other businesses are not able to readily enjoy. The airlines can also act in an oligopolistic manner and set airfares, cut capacity, and change whatever policies they like to their frequent flier loyalty programs — such as the allegation by Gary Leff of View From The Wing that Delta Air Lines “flushes its promise of more award seats for fewer miles down the memory hole” as one of myriad examples.

Let us say that the airlines have passengers in a stranglehold in a perfect storm of supply and demand — to the point where airlines can charge as much in airfares as they like; schedule flights to wherever they like and as frequently as they like; cram as many seats on airplanes as possible; gut frequent flier loyalty programs beyond their usefulness; and cut services and benefits down to the bare bones. While the cost of entry into commercial aviation is expensive and not easy — which is one natural economic factor of commercial aviation which helps to protect airlines — there will be a point where disruptive technology will be developed to the point where airlines will take notice. In this article which I posted last month, I listed several possible threats in the long term to airlines — and there may be more forms of disruptive technology in the works about which I am still unaware…

…and let us not forget about existing technology and modes of transportation which indirectly compete with airlines. Although I advocate how important it is to meet someone in person when conducting business, virtual conference calls have become more commonplace and reduce the need to actually fly to a location to conduct business. Trains and buses such as Megabus may not exactly be the most desired mode of transportation; but they do offer viables alternative to airplanes — especially on overnight trips. Cars can also compete with short-haul flights when factoring in time consumed by traveling to an airport, parking or being dropped off, having to pass through the security checkpoint at the airport, waiting for the flight to depart, and the aircraft possibly being delayed on the way to the runway for whatever reason.

However, those technologies and alternative modes of transportation are typically not as fast or as convenient as air travel; so even though more people could be using alternative means of travel, the airlines are not hurting because capacity has been reduced — and it is debatable whether those lost customers were the type who sought out the lowest airfares possible and traveled minimally anyway, which is typically not the desired demographic of airlines.

I believe that the airlines should be given “enough rope” — so to speak — so that they can “hang themselves” when they go too far; and let the market forces of the economy determine supply and demand. Allow innovation of disruptive technology to occur.

In my opinion, government intervention in an industry for economic reasons is usually a bad idea and could actually help the airlines rather than the consumer. No — commercial aviation should not return to being regulated by the government for the reasons cited by both me and Ed Pizzarello.

Photograph ©2015 by Brian Cohen.

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