Deregulation – success or failure?

But we shouldn’t criticise the lay media as that same hopelessly flawed analysis is also trotted out yearly by the Government Accountability Office (GAO) which reports to the US Congress.

So what are the real facts? 1. There is no question that airfares have come down since 1979 in the US and air travel has boomed. But this is true also for the rest of the world where most markets have not been deregulated, although many have been liberalised.

2. The downward trend in airfares since deregulation in the US is no different from that experienced before deregulation.

3. The number of US domestic passengers carried in 1959 was 55 million and in 1969 topped 171 million.

When deregulation started in 1979, 316 million passengers took to the air and by 1989 453 million were flying in the US. Thus deregulation has not increased the already established growth in passenger numbers.

4. Fares have basically flat lined since the 1930s, while all other costs have soared.

Many critics suggest that the US airline industry had evolved into a cosy club by the late 1970s.

In 1978, the 10 major US airlines accounted for 90 per cent of the air carrier market.

However, there was discontent over: 1. Alleged price fixing.

2. Low industry load factors.

3. Lack of flexibility of the Civil Aeronautics Board (CAB) to encourage innovative fares.

4. Inability to persuade the CAB to liberalise fare regulation.

In one classic case that underscored the problem, World Airways, a charter airline, applied in 1967 to fly a scheduled service between New York and Los Angeles at discount prices. The CAB “examined the case” for six years and finally dismissed the application.

But even if you were a member of the so-called “cosy club”, gaining CAB approval for a new route was difficult.

One of the best examples of this was Continental Airlines. The airline had to wait an incredible eight years just to add San Diego- Denver to its network and only gained that after the US Court of Appeals instructed the CAB to grant the authority. In fact, even if an airline just wanted to deploy its aircraft in a more efficient way, CAB approval was required in order to quit a route.

Certainly change was required, but the subsequent total deregulation was savage.

Since deregulation started, 51 major and significant regional airlines in the US have collapsed or merged, according to the Air Transportation Association.

Some of the results of deregulation have been: 1. The age of the US airline fleet has more than doubled.

2. The decline of fares has been no more dramatic than would have been expected when compared to the historical downward trend.

3. Fewer of the major airlines have continued operating.

4. The development of the hub-and-spoke system has led to increasing distances and time to final destinations.

But many continue to argue that the benefits of the free market environment are undisputed. One noted US trade journal declared that US passenger enplanements (passengers boarding) more than doubled in two decades since deregulation to almost 600 million. But they doubled everywhere else as well – without deregulation.

Cargo was also touted as a winner with a trebling of tonnage – but again that occurred around the globe and was more to do with the explosion of the smallpackage market than with deregulation. Others tout the number of new airlines which has risen from 43 to more than 90 as a positive outcome – but most of those are small operators while many of the major airlines have been forced to merge or have foundered.

Absurd in some commentaries is the claim that airlines have become more efficient just because of deregulation, quoting the fact that airlines are operating at load factors not believed possible 20 years ago. They clearly do not give appropriate weight to the enormous role of computers, yield management software and internet bookings in lifting load factors.

The argument for US deregulation is not as compelling as it would seem at first glance – something passengers caught out by recent groundings of older US airliners would probably agree with.