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Should We Reregulate The Airlines?

Part 8 :  Why some people advocate reregulating the airlines?  But would it improve anything?
 

 

This air mail stamp, issued in 1968, commemorates the 50th anniversary of the inception of air mail service in the US in 1918, a watershed event that marked the start of America's aviation industry.

Part of a series on US airline regulation and deregulation - see extra articles listed in the right hand column.

 

 

Parts three, four and five of this series detail how airline regulation was a failed experiment, and record the benefits enjoyed by us all subsequent to de-regulation.

But the airline industry remains imperfect.  Some people believe the solution lies not in completing the deregulation process which still lurks in the background, and which continues to distort and detract from full free market economics (see parts six and seven), but rather in re-regulating and instituting a new series of controls on aviation.

These well-meaning do-gooders assure themselves that new regulations would create a better world for us as passengers and the airlines as business entities.

But would this really be true?  In the final part of this series, we look at - and answer - some of the arguments offered in favor of re-regulating the airlines.

The Ongoing Call for Re-Regulating the Airlines

It is hard to read too much about the airline industry without finding someone equating some aspect of what they claim to be problems within the industry as being due to de-regulation and concluding with a call for re-regulation, with the implied hope being that re-regulating the airlines would solve the specific problem in particular, and all other issues in general too.

Even Travel Insider readers have on occasion advocated re-regulating the airlines.  For example, a comment on this blog article claims

The truth is out! "Travel Insider" warns against promoting airline re-regulation!  After all, everything the airlines do is perfectly OK!  If they were regulated they might even thank customers for their business rather than slap all customers in the face every time they fly.

A comment on an earlier article about airline deregulation says

I suspect you won't be willing in the later articles to admit that deregulation, as practiced by recent administrations has some negatives: much less on-board comfort (which can actually have health consequences) and the domination of certain markets by one airline leading to much higher prices.  If we look at regulation in less ideological terms it would be easier to find a compromise that allows business flexibility while giving an appropriate minimum level of service.

Go search Google and you'll find literally hundreds of thousands of webpages on the subject (I searched for the query 'should the airlines be regulated again' and got 436,000 results).

Is There a Problem that New Regulation Could Solve?

It is true that, by some measures, the quality of the overall air travel experience has slipped over the last several decades, although one wonders how much of our perception of 'the good old days' is a true accurate understanding of what travel was like in the days before deregulation.  Are airline seats truly smaller than before (answer = No, the seats aren't smaller, but we are bigger; this CDC report shows Americans in 2002 are an inch taller and 25 lbs heavier than in 1960)?

Let's look at some of the arguments offered in favor of re-regulating the airlines and see if they hold up to inspection.

Claim #1 :

Re-regulating the airlines couldn't possibly make things worse than they are, and might make things better.  The airlines have had their chance and failed at it, so now it is the turn of regulation again.

This claim is not based on fact, but instead uses two rhetorical 'tricks'.

It first uses a rhetorical device where the person starts off with an unsubstantiated assumption (that things are so bad now they couldn't possibly be worse) and then uses that unsubstantiated assumption as a reason to support their argument (which is, in turn, empty and lacking in substance).

This first rheorical device is repeated again in the first part of the second sentence - 'the airlines have had their chance and failed at it' - how so?  In what way have the airlines failed?  Are lower fares and more flights a failure?  If so, I'd rather have more failure than less!

The second rhetorical device is to take a universally accepted concept and then to misapply it - in this case, the concept of 'turn and turn about' as being fair, and using it to suggest that the nation's industry should exist in a cycle of so many years of government control followed by so many years of freedom, and then a return to government control again.

It is hard to respond in detail to this double-barreled blast of rhetoric, because while rich in rhetoric, there are no facts to debate or rebut.

In what way could things not be possibly worse than they are now?  Oh - don't get the airlines started on that!  They could make things massively worse - like trebling airfares, halving the number of flights, flying to fewer cities, and adding more restrictions.  Oh - doesn't that sound familiar?  Yes, I've just described what air travel was like prior to deregulation.

Furthermore, the concept of some sort of cyclical series of regulated then deregulated then reregulated industries makes no sense whatever.

Claim #2 :

It should be illegal for airlines (ie Spirit Airlines) to charge for carry-on bags.  Free carry-on bags should be a basic right of all passengers, and we need the government to ban this.

To answer this claim, it is first necessary to understand that Spirit Airlines does not charge for all carry-on bags.  If you bring a moderate sized carry-on bag onto a Spirit flight and stow it under the seat in front of you, the bag remains as free to carry on as it has always been.  It is only if you bring on a big bag that you want to place in the overhead bins that you become liable for their fee.

Maybe we as passengers should have a right to bring some carry-on onto the plane with us for free, but that right is granted by Spirit allowing us to take a moderate sized bag.  Beyond that, what is unfair about 'user pays'?  If it is of value to you to bring a larger bag on board, why shouldn't you pay for it - especially if the alternative is paying to check the bag?

And if the thought of paying for a big roll-aboard bag onto your flight is that objectionable to you, why not go fly a different airline?

Claim #3 :

The airlines have been losing billions of dollars a year.  Doesn’t that show the unregulated marketplace is a bad idea?  Shouldn’t we reintroduce regulation so that airlines can earn a fair profit in return for providing a decent service – currently it seems the worst of all possible worlds – the airlines are losing money and we’re getting bad service.  Isn’t deregulation a lose-lose proposition for everyone?

This cogent seeming suggestion is wrapped around a couple of misperceptions.

First of all, it is true that in the regulated era the government through the CAB accepted that it was fair, right and proper for airlines to earn a 12% annual return on their capital.  In simple terms, if the airlines were earning less than that, the CAB would agree to fare increases to allow the airlines to return to this 'fair' level of profit; if the airlines were earning more than that, the CAB would not agree to fare increases and might even insist on fare reductions.

But - even in the fully regulated environment prior to 1979, the airlines were not consistently making money.  Some years they'd lose money, and they almost never got anywhere near a 12% return, even with all the regulatory 'help' the government could offer.

The reason for this is simple, and forms my second response.  You can't regulate good management.  Regulation protects bad management, it does not promote good management.

Furthermore (here comes response number three) you can't regulate the price of jet fuel, you can't regulate the health of the economy in general, you can't regulate the impacts of security scares and foreign wars, and all the other external factors that impact on airlines and their profitability.  Who is to say how much the losses since deregulation have been the 'fault' of deregulation and how much has been inevitable due to external uncontrollable events?

It is indeed true that the airlines have struggled to be profitable, but this struggle is not new.  It is a struggle that has been occurring ever since the first commercial flight, with varying degrees of success.  And, in the last few quarters, even without the help of new regulations, the airlines are swinging back into one of their periods of substantial profitability.

Let's also carefully understand what this claim is advocating.  It implies that we have an obligation to ensure the profitability of the airlines.  This is a nonsense statement.  We have no obligation to ensure the profitability of any for-profit company, and if you feel to the contrary, you are happily free to mail off donations to any company you wish.  But please don't mandate the rest of us should also have to mandatorily join in this corporate contribution scheme.

Claim #4 :

It is grossly unfair that a person has to pay $100 or more to change their flights.  The government should regulate such unfair business practices.

One can agree – and disagree – that this is grossly unfair.  When you make a change to your airline reservation yourself, through the internet, then we all know that the millisecond of time that it took for a computer to flip a bit and electronically switch you from one flight to another has cost nothing to no-one.

But – and all these simple seeming issues have but’s – the trick is to think them through fully and fairly…… two thoughts.

First, no-one forced any of us to buy the ticket with the $100 change fee.  If we wanted to avoid the change fee, we should have bought a more expensive ticket up front with a lower or zero change fee.  The people complaining about the change fee are the people who gambled they wouldn’t need to make a change, and lost their bet.

Second, while the cost of the change fee is minimal, the value to us is great.  Why should the airlines be forced to give us a thing of great value for free?

And – think it all the way through.  If the airlines weren’t able to make good money from change fees, they’d have to up the price of all tickets to compensate for the revenue they were losing.  In other words, whether we thought we’d need a change fee or not, whether we make a change or not, we’d all be paying an extra premium, just in case we might need it.

Most of us surely prefer having the freedom of choice in terms of the ticket price and conditions associated with it that we select.  But once we’ve made our choice, we should accept the consequences.

Claim #5 :

There should be a law that requires the airlines to give us a decent sized seat, comfortable legroom, and enough overhead space to store our carry-ons.  These are fundamental essentials that should be built in to any and every ticket, no matter how cheap it might be priced.

I can answer this in two words.  First class.  If you want such amenities and benefits, then you should be prepared to pay for them.  Go ahead – buy yourself a first class ticket, and comfort yourself with the thought that your first class ticket today is costing you, in constant dollar terms, about the same as what a coach class ticket cost before deregulation.

But please allow the vast majority of Americans who have chosen to accept the too-small seat and the bad service, as a tradeoff in return for a monetary bargain that makes air travel the cheapest means of travel in the country today.  There’s no cheaper way to travel in the US than by air, and even after allowing for all the hassles, if you’re traveling any sort of distance more than a few hundred miles, there’s no more convenient way to travel either.

Yes, there’s a lot to dislike about air travel today, but this is the Faustian bargain we all make when we buy the cheapest available fare – we’ve decided to accept everything the airlines throw at us in return for a fast, safe, low cost and reasonable travel experience.

Claim #6 :

If the airlines were regulated again, we'd get better service, like we used to have back then.

'Like we used to have back then'?  The memory plays tricks on one.  Think back to what flying was like in the mid 1970s and before.  Do you remember?  How many of the people making such claims were flying in the 1970s (and how many of them are still flying today)?

Well, do you remember, for example, that there was almost no overhead space back then.  Do you remember that there were no frequent flier programs?  Do you remember the much higher cost of your flight?  Do you remember there was no seatback entertainment system for you?  And if there was a movie, it was on a screen at the front of the cabin and you got to wear those appalling painfully uncomfortable stethoscope type headphones with dreadful sound?  And the seats weren't really any bigger, either - the 737 and before it the 707 (which had the same size fuselage) have always had six seats per row.  Maybe the seats were a bit further apart, but they were also thicker, with the extra seat padding taking up the extra space for no good purpose.

Bags would still get lost back then (possibly even at greater rates due to less automation in the systems - do you remember the stories of the checkin agent getting the wrong tag and eg putting a IAD tag on a bag instead of the adjacent IAH tag, etc) and were harder to trace and return to their owners.  Flights would still be delayed or cancelled.

Ah yes, the good old days indeed, right?  Still keen to return back to those days?

Okay, so that is unfair, because so much has changed.  Ah - but part of that change is also a change in service standards.  Let's think some more about the 'good service' we used to get.  Maybe that was true, maybe it wasn't, but the drop in service standards is not unique to the airlines.  It has happened in every segment of society - should we regulate the corner convenience store?  Should we set maximum line lengths in the banks?  Should we make full service gas pumping, complete with a free windshield clean and oil level check mandatory?

The most relevant reason you almost never see full-serve gas stations these days is because people overwhelmingly decided they didn't want to pay the extra cost to have someone pump their gas for them.  Our expectations for service have diminished, as has our willingness to pay for it.

This is true in most areas where service has been reduced.  Companies - whether they are airlines or any other type of company - would much rather compete on the basis of service than on the basis of price.  That is simple marketing.  But the American public has overwhelmingly shown their unwillingness to pay for extra service, for extra amenities, and for extra features.  Travelers say they want better service and everything else, but when it comes to making a choice, they almost always choose the lowest cost option, not the best service option.  That is the real reason why airlines these days give so little - because we, their customers, have shown them overwhelmingly that we don't want to pay for anything more than the barest basic no frills.

Indeed, one of the American carriers - Alaska Airlines - had a competitive problem.  It decided it would continue to provide better services than the other carriers it was competing with (primarily United Airlines), but charge the same low fares.  The public accurately perceived that Alaska Airlines (AS) was the better airline, but then inaccurately guessed that because it was better, it was probably more expensive than UA, and so they would buy a ticket on UA.  AS was losing business to UA because it was providing a better service!  How crazy is that?

After a period of running ads saying, in effect, that they were better but not more expensive, they gave up trying to promote that message and simply cut back their services.

One more thing about the evolving service standards and the 'good old days'.  Back then, people would get dressed in their best clothes to take a flight.  Ladies would wear nice dresses and men would wear suits and ties.  This now seems antiquated and amusing, but surely it goes with the territory - it is harder to give respect to someone in a dirty pair of trainers than it is to someone well dressed and well mannered.  Respect is earned, it can't be regulated.

Claim #7 :

While of course we should leave the airlines largely de-regulated, there are clearly some things that are too important to risk leaving to the airlines to properly do by themselves.  Complete re-regulation isn't the answer, but a few careful and limited controls would improve an industry that currently desperately needs improvement.

This sounds like a very moderate sensible statement, doesn't it.  It sounds statesmanlike, thoughtful, and also hints at finding a compromise somewhere between the extremes of a totally deregulated 'Wild West' and a totally regulated Soviet style economy (remember Aeroflot prior to Russian independence - surely the ultimate example of what total regulation would do to the airline industry).

But the road to hell is paved with good intentions, and (to add another metaphor) such a statement represents as the thin end of the wedge.  Note the statement is totally lacking on the specifics of what should be regulated - or possibly it might vaguely refer to 'safety' (already regulated) or 'consumer protection' (also already regulated, but sadly a great example of how ineffective regulation can be).

It is hard to rebut such a non-specific statement, because of its vagueness.

The Cost of A Roomier Seat

One of the most commonly cited bad things that should be re-regulated is the inadequacy of airline seating.

First of all, airline seats are no smaller today than they were prior to de-regulation.  The measure of an airline seat encompasses two main considerations.  The width of the seat (ie 'elbow room') and the space between seats (ie 'leg room').

As regards seat width, this has been steady for decades.  All 707, 727, 737 and 757 planes have the same diameter fuselage and all these planes, dating from the first 707 which flew in 1957, have had three seats on either side of a single aisle.  The seats can't be made any wider without making the aisle narrower, and the aisle is already as absolutely narrow as possible.  Other airplane interior designers have perpetuated the seat dimensions, and nearly every coach class seat, everywhere in the world, has between 17" and 18" width.

As regards seat pitch, this is a bit harder to evaluate in terms of effective net seat room, because if you have two seats both with the same 31" pitch (the space between the start of one seat and the start of the next one ahead or behind it), but with one seat have a 2.5" thick seat back and the other having a 1.5" thick seat back, you end up with an extra inch of leg room/knee space.  The effective/perceived amount of leg room also depends on things such as how the seat pivot/reclines.

There's been very little reduction in net leg room in seating either.

The most significant impact on seat space is not the seat, but us.  We are growing taller and, alas, getting heavier too.  This CDC report shows Americans in 2002 are an inch taller and 25 lbs heavier than they were in 1960, and it seems the trend is continuing subsequent to the 2002 data.

Anyway, whether it is anyone's 'fault' or not, let's look at the cost implications of getting bigger seats onto planes.  What would it cost to get a seat with more shoulder room and more leg room?

That means going from six to five abreast seating, and taking out some rows of seats.  Let’s say, on a typical plane currently with about 30 rows of six seats we go instead to 27 rows of five seats. That should give us an extra 3” of legroom.

What does this mean for the fares? The airline now only has 135 instead of 180 seats.  So instead of selling tickets at perhaps $250, to get the same return it now must sell tickets at $333.  This simple tweak to seating has increased the cost per ticket by a third.

Lessons from the Cost of a Bigger Seat

And now, here is the catch.  Hands up, everyone who would travel as much as before, and happily pay an extra $83 per flight, so as to get a slightly bigger seat.  No-one puts their hands up.

This is the catch.  The public has repeatedly been given a choice between better and worse - indeed, for a while it had the amazing choice between more leg room (with American Airlines and its 'More Room in Coach' product) and less room (all other airlines), with AA's roomier coach class seating costing no more than its competitors with the crowded seating we all hate to much.

Did the traveling public flock to AA, eager to get the seat spacing they so desperately want and complain about, without even having to pay any cost premium to receive it?

Ummm - no.  American Airlines detected no visible gain in market share at all, and so ended up discontinuing their program and returned the extra rows of seats to their planes.

So while we, the traveling public, definitely want more seat room, it seems that not only would we be unwilling to pay for it, we're not even willing to switch airline loyalty to get it for free.

So by what stretch of good sense can we say we should regulate and insist the airlines give us more legroom, at a massive extra cost, if we've shown that no matter what we say, in reality, we don't really care, and most of all, we're absolutely unwilling to pay any premium for this at all?

This gets us to the biggest problem implicit in any re-regulation of the airline industry.

The Biggest Problem of Re-Regulating

Conveniently overlooked or ignored in all calls for reregulating the airline industry is the unavoidable ugly reality that any and every bit of regulation will have a cost associated with it.  Regulation does not, can not, and will not give us something for nothing - quite the opposite, the inefficiencies of regulation generally mean we get less provided at greater cost.

Two problems arise with a return to regulation and the costs that would unavoidably be associated with the arguably improved air travel experience that new regulations might seek to create.

The first is that no matter how much the traveling public may say it wants an improved air travel experience, it has voted with its pocket book and clearly shown it will not pay for any improvement whatsoever.

The second is that the few people who are willing to pay for a better travel experience already have the choice and option to do so - it is called first class.

Yes, that's right, first class.  Most of the complaints about current airline practices are minimized or resolved if you simply fly first class.  So if this is what you seek, please go ahead and buy a first class ticket, but please allow the rest of us the freedom to make our own choices, and to - in most cases  - unhappily accept a bargain priced coach class fare complete with ever fewer associated amenities and inclusions, and ever more rules, restrictions and potential penalties.

If we regulate the airlines and demand they change all manner of things in the process, the bottom line is that we'll all end up paying first class fares (just as used to be the case when the airlines were regulated prior to 1978).

And when we all see our fares double, we'll cut back on air travel.  And the airlines will then go through their latest massive loss-making cycle, they'll cut back further on flights, they'll need to push fares up even higher, and before too long, we'll have an industry in a crisis to which there is only one solution - the same as that crying out for attention in the mid 1970s - deregulation once more.

The Biggest Assumption of Re-Regulating

The biggest assumption of people who advocate regulation is that the government knows how to run an airline better than the airlines themselves, and the government knows better than we do what is 'best' for us as passengers.

The people who believe this probably work for the government at present, and come knocking at our door, and greet us with those fateful words 'I'm from the government and I'm here to help you'.

All joking aside, what possible support can any regulatory advocate claim to show that the government can do a better job of airline management than the airlines themselves can do?  The government's earlier attempt at airline regulation was a failure.  How/why would they do better this time around?

In fact, there are reasons to fear the government would do much worse these days.  One of the problems of managing the airlines via a regulatory process rather than via the free market is that the regulation writing process itself is far from rational, sensible and altruistic.  Government regulation-making is very susceptible to political influence and pressure.  All sorts of vested interests will cluster around the regulatory proceedings, trying to get the best possible share of the process, with no thought for whether doing so will also be best for the airlines and the public they serve.

Mixed in with the venal self-interest lobbying groups will be other groups that are almost as dangerous and harmful.  These are the well intentioned but ill informed groups that wish to create more and more obstacles and complications to airline operations.

A good and recent example of how all such special interest groups can create an unstoppable force that results in ridiculous and costly regulation which costs the airlines while providing no value to the traveling public in return is the recent increase in pilot qualification standards.  Previously pilots could fly a commercial jet with 250 hours of appropriate flying experience.  This has now been increased to 1500 hours minimum flying experience.  Please see our article about how this unnecessary increase in pilot qualifications brings no measurable benefit in safety, while strengthening the hand of pilots when it comes to negotiating future wage increases.

Making the airlines accountable to regulations driven by government lobbyists and variously ill informed and/or self-promoting pressure groups, instead of holding them accountable to the marketplace and us as their customers/passengers will result in a dysfunctional and ever-growing set of increasingly ridiculous regulations that will destroy the effective affordable operation of our airlines.

Summary

It is difficult to dispassionately and absolutely consider the validity of re-regulating some or all aspects of the airline industry, because at its heart, the issue is one of philosophy.  If one believes that life is best enhanced in a relatively free marketplace with a minimum of government participation, one seeks reasons to avoid airline (and other) regulation.  If one believes that governments rather than narrow vested interests provide the best way of managing the living of one's life, one finds reasons to regulate the airlines and most other things.

It is hard to find a consensus middle-ground between these two opposing world-views.

But in the case of the airlines, we have some degree of demonstrated outcomes already.  We've seen what has happened in both a regulated and an unregulated environment.  Regulation didn't work the first time, which is why it was abolished.  What reason is there to think it would work a second time - sure, we might be able to get things more or less sensibly defined to start with, although I doubt that (all the pressure groups, vested interests, lobby groups, etc), but what about the evolving world subsequently?  The previous regulatory regime got so out of touch with its marketplace, both in terms of authorizing legislation and actual regulatory practice, that the only solution was to abolish it.  How to prevent it happening again?

Our society is based on the assumption that, in general, less government is better than more (the opposite assumption is what is known as somewhere between socialism and communism and we all know what happened to that form of government).

There needs to be a clearly demonstrated reason and benefit to returning to regulation - what is it?

 

 

 

Some things are obvious and quantifiable.  For example, do you remember the 'good old days' when you could arrive at an airport 30 minutes prior to departure, rush through security, walk to the gate and get straight on a plane with your pre-printed boarding pass.  Nowadays we're being 'recommended' to turn up at an airport some ridiculous time in advance of the flight's scheduled departure time, and are told if we're not at the gate 30 minutes prior to departure and on the plane 15 minutes prior to departure (actual numbers vary from airline to airline), our reservation will be cancelled.

 

 

The First Class Solution

Most people who advocate re-regulating the airlines seem to share two characteristics.  The first characteristic is that they fly, if at all, in coach class.  The second characteristic is that most of their motivation for re-regulating the airlines seems to be in the idealistic belief that by doing so, the airlines would become friendlier and nicer, and that the quality of the air travel experience would travel in various important ways.

Unstated in all such complaints is a belief that making air travel 'better' would somehow be possible at no additional cost to the people flying.

 

 

 

 

 

 

The current situation isn't deregulation - it is semi-regulation.  Some things are regulated, some are not.  And some things probably should be regulated - safety issues and passenger rights issues.

Some things should not be regulated - for example, the government propensity to create what I'll call an 'unregulation' and to give a group of airlines immunity from anti-trust laws.  It was appropriate, when the industry was fully regulated, that the airlines be protected from other unintentional rule breaking as part of complying with the direct regulations affecting their business.  But now that the regulations have largely disappeared, so too should the 'get out of jail free' cards.

 

 

 

 

If it ain't broke, don't fix it.  Is the airline industry currently broke?  And if it is, would regulation fix it.

Talking about broke, perhaps the first consideration should be financial.  While no-one owes the airlines a living, it is true that a healthy airline industry is probably desirable to one that is unhealthy.  But if you are paying $200 for a ticket to an airline that was struggling to break even (but still flying on time, observing all safety and maintenance requirements, etc) would you voluntarily choose to pay another $50 as a contribution to the airline's profit, so it can pay some federal taxes and distribute a dividend to its shareholders?  Airlines are not registered charities, and it is for them to do what they need to do in order to trade profitably, we have no more obligation to support them than we have an obligation to support any other failing business.

Furthermore, regulation was not a guarantee of airline profit prior to 1978, and would not guarantee airline profits now.  Bad airline management and negative external factors (the economy, wars, fuel prices, terrorist attacks, etc) will impact on any airline, whether or not it is regulated.  Who is to say how much of the airline losses are the 'fault' of deregulation and how much would have happened anyway?

 

 

 

What would re-regulation be intended to achieve?  It won't be free!

 

 

Stopping airlines from overselling flights so people are never bumped off flights?  This is close to a non-problem at present, and we all benefit more than we suffer from it.  Most times, if a flight is oversold, sufficient people rush to volunteer to be bumped in return for fair to generous compensation.  See overbooking series.  Only about 1 passenger in 10,000 is involuntarily denied boarding.  And if you stopped airlines from overselling, they would have to increase the fare paid for everyone.

 

 

'If the airlines were re-regulated, we'd have better service'.  This statement is often made in vague terms, and it isn't clear if the person making the statement is thinking of 'better service' in terms of hot panted young stewardesses, or being able to breeze through security, or what.  But those hot panted stewardesses - they're not going to come back again, and security is outside the airlines' control already.

Maybe they just mean that the flight attendants would be more polite and pleasant.  Excuse me - you are going to try and regulate politeness and pleasantness?  In actual fact, if you reregulate the airlines, you'll almost certainly end up constraining the ability of airlines to discipline and fire their staff, and so the staff will become less accountable rather than more.  Besides which, it has been my experience that most flight attendants are moderately pleasant and friendly; it is only when they meet a rude passenger that they unload.

You can't legislate good service.  If you could, then government departments would all be staffed by brilliantly service-sensitive individuals, surely.

So what exactly would be better service?  Fewer delayed flights?  But most flights are delayed for reasons outside the airlines' control such as air traffic control delays and congestion, and it is the government, not the airlines, that has been holding back on new improved air traffic control systems.

Maybe shorter lines at checkin is what these people mean.  But if you want a short line, you can book a first class ticket, or become a premium level frequent flier, and get access to the VIP line already.  Indeed, some airlines are now selling access to the VIP checkin lines as another optional extra.  This isn't something that needs regulation, and if it were to be regulated, who is going to pay for the cost of more checkin stations at the airport, and more people to man them?  Will the airlines just do this for free?  Or will the cost of our tickets increase to cover these costs?

Safety?  The airlines are safer than they've ever been, and 13 times safer in 2009 than 1969, and most safety related issues are already regulated.  Repeated predictions by various pressure groups that each and every bit of deregulation would result in the airlines abandoning all safety standards have every time been shown to be completely false.

Free meals?  Meals have never been free, they used to be included in the price of a ticket, and now they aren't.  I don't know about you, but I seldom ate the airline food when it was provided at no extra charge, and I am perfectly willing to pay $5 - $10 if it buys me a decent meal; I'd rather pay money for a decent meal than get something I'm not going to eat for free.  If the airlines are mandated to start serving food again, ticket prices will go up.

 

 

 

Partial re-regulation - 'water finds its own level' - you can't regulate half an industry, because that creates anomalies and loopholes - like savings and loan (FDIC),

 

 

 

Why and How Did Deregulation Occur?

The Civil Aeronautics Board (CAB) had been in charge of regulating all interstate air transportation, setting fares, routes and schedules. Airlines that flew only intrastate (ie only within one state) were exempted from such regulation (but were subject to regulation at a state level).

The CAB was obliged to ensure that airlines earned a fair profit - a very generous 12% return on investment was the target, and in general, it did this by discouraging competition and by setting prices sufficiently high to ensure the airlines traded profitably. Although the aviation industry was evolving at a tremendous rate, with new types of planes with new types of capabilities, and therefore opening the door to new types of air service, the CAB was slow to respond and react.

For example, World Airways applied to begin a low-fare New York City to Los Angeles route in 1967; the CAB studied the request for six and a half years only to then dismiss it because the record was 'stale'. Continental Airlines began service between Denver and San Diego after eight years only because a US Court of Appeals ordered the CAB to approve the application.

Slowly there was a mounting level of dissatisfaction at the CAB's activities. The airlines themselves - with profits that were generally guaranteed - were not very aggressive at seeking change, although even they felt increasingly constrained by the slow moving CAB and its inability to respond to almost any type of request. The CAB generally did not allow airlines to add new routes (none had been added since 1969 and the airlines had essentially given up applying), but also they would not allow the airlines to discontinue previous routes that no longer made sense.
The traveling public was getting increasingly unhappy with ever more expensive airfares, and while the airlines were delighted to be able to fly planes profitably and only half full, the public was starting to come to realize that if more seats were sold per plane, maybe the fares could drop. The antics and successes of Southwest Airlines in Texas and PSA in California was also demonstrating, in a very clear manner, that an unregulated airline could provide a high quality service at about half the price of a regulated airline.

Meanwhile the economic climate as a whole was becoming more unsettled - the 1973 oil crisis rewrote many of the country's basic assumptions and flowed through to massive losses in the airline industry (even with its protected status). The stagflation that followed the oil crisis caused a general feeling of malaise to settle, and lead to the development of the 'Misery Index' (the combination of the unemployment rate and the inflation rate) which in part was credited with a change in administration to a Democrat administration headed by President Carter in 1976.

Stagflation of a sort was setting in to the airlines, too. Higher fares were impacting on passenger numbers, and lower numbers of passengers made for higher fares, in a vicious cycle. Even the least responsive of the airlines were starting to get frustrated at their inability to create more flexible fares, allowing them to sell some seats at discounted rates in an attempt to bring more people onto their planes and to then truly reduce the average fare they needed to charge everyone.
Congress was concerned about the successive failures of the nation's passenger railroads, culminating in what was the largest bankruptcy in history by the Penn Central Railroad in 1970, the creation of Amtrak in 1971, and a huge taxpayer bailout of Penn Central and five other railroads in that same year, and feared that the ills of the passenger railroads might flow over to the airlines too - something that at the time, fresh after the oil crisis shock, seemed far from unthinkable. Adding to the industry ills was a second taxpayer bailout, this time of Lockheed, late in 1971.

The airlines were also facing the need to upgrade and replace their fleets, and Congress knew that they would be seeking government assistance to do this in light of the then economic climate and their regulatory constraints.

Other deregulation activity was occurring at the same time. The trucking industry was largely deregulated in 1980 (it had been regulated since 1935). The railroads - initially regulated as part of the Interstate Commerce Commission in 1887, were partially deregulated by the Railroad Revitalization and Regulatory Reform Act of 1976, and further deregulated by the Staggers Rail Act of 1980.

Meanwhile, although the airlines were almost guaranteed profitability, some of them still managed to fail. There were sixteen 'trunk' carriers in 1936; forty years later in 1976, six of these had disappeared, leaving ten trunk carriers, while not a single new airline had been allowed to commence operations.

The remaining airlines had grown fat and lazy. Load factors of 50% or less were common, and a 55% load factor was the target for the airlines to operate profitably and to get their 12% rate of return. But this provided a mirror to the situation with the railroads where they too had become complacent, inefficient, and underutilized during their own regulatory protected environment.

Add to all of this a quiet evolution in conventional economic wisdom, which no longer propounded government regulation as the best way to manage economies. Leading economists were now suggesting that regulated industries were inefficient and had higher costs than did unregulated industries.

In 1977 President Carter appointed Professor (of Economics) Alfred E Kahn to head up the CAB as its chairman, while a general union of political forces and public advocacy groups all supported airline deregulation.

The airlines had repeatedly 'cried wolf' before about how occasional changes to their operating environment would spell the end of life as we know it - predictions always contradicted by the reality of what subsequently happened, and so their opposition was discounted and ignored, and the CAB itself had precious little to point to that could demonstrate any value or benefit at all from their regulatory involvement. And so, legislation quickly passed through both the Congress and Senate in 1978 and was signed into law on 24 October, 1978.

The Politics of Deregulation

Some people with short memories have accused the Republicans of dismantling airline regulation. But in 1978 - the year of the passing of the Airline Deregulation Act - this was halfway through President Carter (D)'s administration, with also a filibuster proof Democrat majority in the Senate (61-38) and twice as many Democrats as Republicans in Congress (292-143). And the preceding hearings by the Senate Judiciary Committee in 1975 were chaired by Sen Edward Kennedy (D - Mass).

The 'father of deregulation' - Professor Alfred E Kahn, who was appointed to head the CAB during its breakup period and who was arguably the greatest advocate for deregulation in all industries, is also a Democrat.

While there was a general bipartisan consensus supporting deregulation, it was not without its detractors. In particular, the labor unions were concerned at the impact of deregulation - they were concerned that if their airline employers stopped operating on a 'cost plus' basis, then they might start looking at their costs and start objecting to what were generally higher than rates of pay for comparable work in other industries, and they were concerned that new airline startups might have non-union workforces. Small towns were concerned they would lose their air service. And the airlines were not sure if they'd be winners or losers in the process, and so in general selectively resisted change.

 

 

 

excellent article on the forces supporting deregulation and why https://library.findlaw.com/1988/Sep/1/129304.html

And good interview with Professor Alfred E Kahn (undated) https://www.pbs.org/fmc/interviews/kahn.htm

and https://www.usatoday.com/money/industries/travel/2007-07-23-alfred-kahn_N.htm

 

 

 

 

 

 

see https://www.frbsf.org/publications/economics/letter/2002/el2002-01.html for some good statistics

 

https://www.artdiamondblog.com/archives/2008/05/airline_deregul.html good charts

 

https://www.nytimes.com/2008/04/17/business/17air.html?_r=1&sq=Ending%20Regulation%20Fliers&st=cse&adxnnl=1&scp=1&adxnnlx=1280437936-vkTyLot+PSpeN0JK5v6NjA  good article too

 

https://www.centennialofflight.gov/essay/Government_Role/FAA_History/POL8.htm  evolution of FAA and what it does/regulates  and https://www.faa.gov/about/history/brief_history/

 

 

 

 

 

 

 

 

In 1918 the USPS commenced offering a fast intercity mail delivery service that used airplanes (rather than trains or other ground transportation) to transport the mail between the cities.  In other words, this was an airmail delivery service.

This represented the birth of regular scheduled commercial airmail service.  It commenced on 15 May, and initially operated between New York, Philadelphia, and Washington DC.

There had been earlier one-off special events that saw letters being transported by plane prior to then, mainly as a curiosity or novelty event.  It seems that perhaps the first ever 'airmail' flight was in 1911, a temporary service that operated between 4 - 8 October, with mail being flown between Kinloch Field near St Louis to the Fairgrounds Park in downtown St Louis, from which it was then re-dispatched onwards.

To put the 1911 date in perspective, back then planes typically had short range (150 miles or less), flew slowly (about 50 mph - slower than many trains), had a maximum altitude of about 5,000 ft, and a plane with one pilot could carry perhaps 100 lbs of 'cargo'. In other words, in 1911 trains provided a faster, more reliable, and more economical service than did planes.  In 1911 there was no thought of a regular airmail service, because trains were faster than planes.  But this quickly changed.

1920s - The USPS Operates the Largest Air Network in the World

When the USPS first arranged for mail to be transported by air, it made use of the US Army's aviation wing, using their planes and their pilots.

An initial fleet of six Curtis Jenny planes were specially purchased and modified - mail was carried in the space where the forward pilot would have otherwise sat.

But the Army did not want to be involved in carrying mail - particularly because it was at the time in the middle of fighting World War 1 in Europe, something which was of course much more part of their core mission and they resented having to take resources out of the conflict in Europe and deploy them instead to carry civilian mail in the US.

Accordingly, the Postal Service quickly formed their own air service, after only a few months of using the Army.  Over the next seven years, this was to grow to become the largest air network in the entire world.

1925 - A Transition to Private Companies

In 1925 the Air Mail Act authorized the postmaster general to use independent private companies to transport air mail, and it also set the rates for airmail postage and in turn the rates to be paid to the companies that carried the air mail.

It was generally understood that the purpose of allowing the Postal Service to contract with private companies to carry mail was to provide some funding and ongoing business/revenue/profit to allow private air service companies to establish air service.  The government vaguely understood and appreciated that there were strategic and business benefits to the country as a whole if it were to encourage the development of commercial aviation, in line with developments that were occurring elsewhere in the world.

The first commercial flight to carry airmail was on 1 July 1926, between Boston and New York, with an en route stop in Hartford.  This was operated by Colonial Air Transport, in a Fokker Universal monoplane, built by Altantic Aircraft Corp (Fokker's American subsidiary) and with a Wright Whirlwind engine. The plane could carry one pilot and either four passengers or up to 940 lbs of freight, and had a range of about 500 miles and a cruising speed of 98 mph.

Juan Trippe & Pan Am - a Future Built on Airmail

Of some interest is that this company, established in 1923, had a young Juan Trippe as its general manager (and one of its shareholders too).

Juan Trippe would go on to found the Aviation Company of the Americas (or possibly Aviation Corporation of America), based in Florida, so as to provide services into the Caribbean.  This company in turn became Pan Am, with its first flight in 1927 between Key West and Havana - carrying mail.  Mail routes defined a lot of the Pan Am growth around the world in the 1930s and 1940s.

Juan Trippe - and his airline, Pan Am - revolutionized much to do with air travel. He introduced the concept of coach class, was an early adopter of jet aircraft, and pushed Boeing to develop the 747.

He remained President of Pan Am until 1968, but remained a board member for some time subsequently. He died at the age of 81 in 1981.

1925 - 1930 :  A New Industry Rapidly Evolving

With the passing of the 1925 Air Mail Act, the Postal Service gradually disbanded its own Air Mail Service, first awarding shorter routes to private operators and then eventually passing on the trans-continental routes too. By the fall of 1927, the Air Mail Service was no more.

Flying the mail drove the development of air travel in the US during the 1920s, and both created new challenges and accelerated the development of solutions.  For example, because traveling from coast to coast represented about 32 hours of flying time, the Postal Service was keen to see the development of night flying so that the 32 hour travel time could be done all in a consecutive 32 hour period, rather than over the course of three days during daylight hours only.  (By comparison, it took a train five days to travel from coast to coast.)

Pilots navigated primarily by following visual clues provided by the landscape below.  They would follow roads, rivers and rail tracks, but at night these were hidden in the dark.

Even the daylight visual clues were merely that, and primitive compasses did little to help.  And so the Air Mail Service encouraged towns to paint their names on rooftops, and also to paint compass arrows and quadrants, to help pilots understand where they were and which way to fly.  They augmented this with huge concrete arrows set on the ground in the middle of nowhere, giving further visual clues to pilots.

Next came the need to add night navigational aids as well.  Initially this took the form of a land/air equivalent of lighthouses for ships - a series of rotating beacon searchlights located every 30 miles or so along the main cross-country air routes. These powerful beacons enabled the pilots to fly from one to the next to the next, and each beacon site had an emergency landing strip as well in case the plane developed problems and needed to land.

These visual aids were then enhanced by the first radio beacons.  Radar wasn't to appear until after World War 2.

With the evolving industry and growing infrastructure needed to support it, the government felt that the time had now arrived to introduce some order, and so in 1926 the first aviation regulations were enacted.  Please read on to the second part of this series covering the regulated period 1926 - 1979.

Part of a series on US airline regulation, deregulation, and whether or not there should be reregulation introduced again now - please see extra articles listed at the top in the right hand column

Related Articles, etc

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Originally published 30 Jul 2010, last update 21 Jul 2020

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.

 
 
Related Articles
1.  The Development of the Aviation Industry prior to Regulation 1911 - 1926
2.  A History of Airline Regulation 1926 - 1979
3. The Seven Reasons for Airline Deregulation in the 1970s
4. The Effects of Deregulation post 1979
5. More Benefits of Deregulation post 1979
6. Present Day :  Remaining Regulatory Constraints
7. More on remaining regulatory constraints
8. 2010+ : Should we Re-regulate the Airlines?
9. More on re-regulating
10. Why Re-regulation is a Bad Idea

Please see also
Is airline competition always fair?
Airline competition 1980 -2010 RIP
 
 
 

 


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