Usually it happens in the fall, as the summer specials disappear and airline seats once again are filled with business executives instead of squirming kids. Ticket prices rise, and the critics of airline deregulation fish their old arguments out of the back of the closet and thrust them yet again into public view. We must re-regulate the airlines, they say, because prices are too high, competition is putting airlines out of business, and traveling just isn't what it used to be.
As a fall ritual, this discussion is no more worrisome than football season or network premieres. But this year, the discussion started in February and stretched into the spring. This year, Congress demanded a National Commission to Promote a Strong and Competitive Airline Industry. And this year, the would-be re-regulators have friends in the Clinton administration. So this year, I'm worried.
Most discussions of re-regulating the airlines start by hiding the realities of what air travel used to be like. Regulation set a floor on prices–not a ceiling, as you might think listening to regulation advocates today. The airlines competed, but not on price. They offered frequent flights on new planes with sexy stewardesses. Big city businessmen with expense accounts flew around on mostly empty jets, and their employers paid plenty for that privilege. There were no squirming children because families couldn't afford the fares.
That's dirty little secret number one. Secret number two is that the battle over airline deregulation is not, unfortunately, a battle about facts. It is a battle about attitudes–a struggle between favor-seeking producers and price-conscious consumers, between those who believe in bureaucracies and those who trust markets, between those who see air travel as an elite service and those who see it as mass transit. The facts are, overwhelmingly, on the side of deregulation: Ticket prices, in real terms, are 20 percent lower than in 1978, when deregulation took effect. More than 90 percent of all passengers travel on discount fares. Travelers have saved some $10 billion a year. The airline work force has expanded by 25 percent, producing some 100,000 new jobs.
But still the arguments for re-regulation come, in all their contradictory glory. Some favor industry, some favor consumers, but all favor government control of prices and routes. And all pretend that the "ideology" is on the other side.
University of Denver law professor Paul Stephen Dempsey is typical. Writing in The Wall Street Journal, he declares: "Not to be confused by the facts, laissez faire theologians tenaciously point to consumer savings and declare victory. Never mind the tremendous losses suffered by investors, creditors and workers, or the opportunity costs squandered by imprisoning business travelers in canisters of aluminum and steel and flying them circuitously through constipated hubs, or that we Americans now fly the oldest fleet of aircraft of any G-7 nation, or that bankruptcies and concentration are growing."
Five assertions are crammed into this one paragraph, four into one sentence–too many to argue, or rebut, in a short space. But let's consider them briefly.
Dempsey argues that removing government-imposed price floors cost airlines money, hurting investors, creditors, and workers. Of course. When regulation artificially raises the price of something, the people who collect the money benefit; when the regulation is removed, they're hurt. But other investors, creditors, and workers–those in flourishing airline upstarts such as Southwest or, more importantly, in all the businesses that buy air travel–benefited.
Then there are the hubs. Thanks in part to those hubs, more than 55 percent of all passengers can choose from three or more airlines, compared to only 28 percent in 1978. Travelers from smaller cities, in particular, now have many more choices available. Flight frequency has increased greatly in most markets.
Nor are business travelers "imprisoned" with no option but a connecting flight through a hub. A recent MIT study of 500 routes between the 100 busiest airports found that travelers could book nonstop service on 27 percent in 1989, compared to only 17 percent before deregulation.
Dempsey laments the age of the U.S. air fleet. He doesn't explain why this is a fact or whether it is a problem. (The accident numbers don't suggest that planes are falling apart.) Competition does drive U.S. airlines to use their equipment more cost-effectively, and their larger fleets let them spread specialized maintenance costs over more planes. And unlike, say, government-owned Air France, U.S. airlines are not under pressure to keep government-subsidized Airbus turning out planes.
The crux of Dempsey's case is that airlines are going bankrupt and that the business is getting more concentrated, presumably threatening price increases. He, like many fans of regulation, seems to think bankruptcies are bad for two reasons: They indicate that companies are losing money, and they might reduce competition.
But these objections contradict one another. Price competition, combined with high costs, is what forces some airlines into Chapter 11. Dempsey doesn't like low-cost strategies, which involve cutting workers, hubs, and new aircraft purchases. So the alternative would seem to be higher prices.
Which brings us back to the dirty little secret of airline regulation. It was all about high prices. And empty planes. And more trips by bus and car.
Despite his supposed concern for the consumer, Dempsey just doesn't like low prices. To him, as to many in the Clinton administration, businesses exist not to serve consumers but to serve the national glory. Low air fares, which benefit the public at large rather than identifiable companies, pale before the glamour of airlines.