Deregulation....Success or Failure??

[germb747]

I've seen some really good posts here; won't repeat them all here. But, I do agree that deregulation was a good thing for America. No matter what regulatory scheme (or lack of one) that the government imposes, there will be winners and losers. Perhaps many of us are in the "losers" category, but overall in terms of economic benefit to society, the free market deregulated environment is way better than the alternative. I wasn't around during regulation, but didn't you have half-empty 747s flying rediculously unprofitable routes? (much like the post office does to ensure everyone gets their mail) Guess who subsidized these inefficient and unprofitable routes? The same John Q. Publics that many of you don't think deserve to fly so that you can enjoy your gourmet 5-course meals in domestic coach such as the better service you enjoyed during regulation; and they forked over way more overall to pay for all those empty seats than they pay now in the deregulated regime.

In no case would I support any form of government "bail out" to airlines that are mismanaged and simply can't compete. Increased costs have created overcapacity that must be trimmed to cover those costs with reduced supply and resulting higher fares; unfortunately that may mean some weaker companies have to go (as sad as that is for the workforce involved**)--that's the way free markets work, in order to promote efficiency and innovation on the macro scale. Yes, some John Q. Publics who were able to fly in the early 2000s will no longer be able to do so due to increased fares, but that should be as a result of market forces and not artificial government intervention in the way of price controls and subsidies. Unfortunately, there is a redistribution of wealth (from poorer to richer, from working/middle class to upper class/super rich) going on in this country, but I don't see airline regulation doing anything to reverse that trend. IMO, the only role of the government should be to hold corporate executives/CEOs accountable for their actions, and cast them into the darkest jail cell for a very long time for corruption/breaking the law.

**Note, I'm trying to look at this from a societal/public policy (and neutral) point of view; but naturally I'm biased and want only the best pay and working conditions for those in my profession; I'm probably more likely to lose my job in the near future than many of you are ***

 

[surreal1221]

SWA has been flying "joe twelvepack" around for 30 years and making a profit at it.

And they're not always the cheapest player around. . .

And they're also reducing capacity by a large number come this fall.

 

[CoffeeIcePapers]

The problems is that the airlines won't price themselves into a profit. They undercut each other in a race to see who will go bankrupt first. I would have no problem with this, but then the government steps in and bails them out. It is essentially supported by the government through bailouts, but lacks the oversight of the funds.

So what happens? They continue to bleed cash, pay out large management bonuses with my tax dollars, to support a system that shouldn't be supported in this way.

If we are going to let them fight it out in a free market, do it. If we are going to have the government supporting the system, it should be regulated. This hybrid junk system we have now does no one any good.

Here is an article that predicted exactly what would happen when you bailout airlines, from 2001:

The federal government's $15 billion bailout of failing airlines could backfire, industry analysts warn. They fear that a few failing airlines -- propped up by federal aid -- will file for bankruptcy reorganization and set off fare wars that drag down the whole industry.
Something like that happened a decade ago during the industry's last financial crisis:

• While they were reorganizing under Chapter 11 bankruptcy laws, America West, Continental, Pan Am, Eastern and TWA didn't have to pay some bills run up before they went into bankruptcy.
• That gave them cost advantages that allowed them to sell lower fares than competitors could do profitably.
• The advantages stuck after the reorganization -- which took years -- because each carrier greatly reduced its debt.
• Economist and investor Felix Rohatyn points out that bankrupt carriers "add more competition at a time when the industry is in difficulty."

A board of federal officials is to dole out $10 billion in government-backed loans. About 100 airlines have received $2.4 billion of $5 billion in government grants so far. The board has considerable latitude in deciding which airlines get the guarantees.
Now, there is debate about whether the industry's weakest airlines should get guarantees if they have to seek protection from creditors anyway.
Source: Jayne O'Donnell, "Could Airline Bailout Backfire?" USA Today, October 18, 2001.

 

[cfii2007]

The problems is that the airlines won't price themselves into a profit. They undercut each other in a race to see who will go bankrupt first. I would have no problem with this, but then the government steps in and bails them out. It is essentially supported by the government through bailouts, but lacks the oversight of the funds.

So what happens? They continue to bleed cash, pay out large management bonuses with my tax dollars, to support a system that shouldn't be supported in this way.

If we are going to let them fight it out in a free market, do it. If we are going to have the government supporting the system, it should be regulated. This hybrid junk system we have now does no one any good.

Here is an article that predicted exactly what would happen when you bailout airlines, from 2001:

Ironic.....the flying public thinks they are so smart when they pay the lowest fare, but they are paying for it regardless.

 

[CoffeeIcePapers]

Ironic.....the flying public thinks they are so smart when they pay the lowest fare, but they are paying for it regardless.

The consumer drives price. If you offer the consumer a $3 fare, of course they are going to take it. That's not my point. My point is that the government bailouts stop the market from working properly.

 

[meritflyer]

And they're not always the cheapest player around. . .

They're competitive, don't charge for drinks, checked bags, changing flights, tickets are fully refundable, and so forth. They've got this stuff down cold.

 

[surreal1221]

Wasn't challenging that premise.

They should have their business model down cold. They haven't been forced to adjust for any reason throughout their history as a company. Mad props.

 

[skydog]

So you'll stand by your friendly opinion of the free market theory while, your company provides you with the lowest amount of pay and lowest quality of work rules right? Because you know, that whole free market thing - everyone gets theirs at some point.

No desire to protect your pay, benefits, and work rules then right? You'll take it on the chin like so many others have prior to you. Right?

Just want to make sure I have what you have been saying through this whole thread correct.

I don't understand what you are asking me. Do I believe the free market works? Absolutely, as long as it is a true free market. What another poster said on here was valid. The free market doesn't work as long as the federal government steps in and bails out the big players at taxpayer expense. But that is a different discussion.

Companies who "provide you with the lowest amount of pay and lowest quality of work rules" are doing exactly what I would expect them to do; and what you and I as consumers do: get the most value for the money. When you go to make a purchase, do you pay more than the listed price out of some sense of obligation or fairness towards the retailer or its employees?

An employer has to pay market competitive wages. He pays too much, he has to raise prices to compensate, he loses customers, he loses money, and shuts down. He pays too little, and he has trouble attracting qualified candidates for jobs, his customer service suffers, he loses customers, and shuts down. Either way he shuts down. How does that help anybody?

Protect pay and benefits? I'd love to. When you figure out how to do so, let me know. Because history clearly shows that whatever has been tried up this point isn't working.

Take it on the chin? Nope. I just chose a different profession. I left commercial aviation for a field that has much better job security, respects experience, provides a better quality of life, and pays better.

 

[Boris Badenov]

Lots of good posts here, I agree. It's pleasant to see that at least the "next generation" of pilots are relatively well informed on how government and industry (don't) work together.

Every major issue I can think of has been brought out, so I'll just add my spin. Basically, we don't know whether deregulation "succeeded" because it never happened. When legacies continue unsustainable price structures in order to "compete" with other legacies because they all know that when they run out of money they'll be bailed out by Joe Sixpack, that's not deregulation.

Has the Frankenstein's Monster billed as "deregulation" worked? It's lowered nominal fares, sure, but are the real costs of flying any less? It's just a question of who pays and how.

For my money, what's most important is transparency. Either regulate it or don't. All that's happening in the current system (like much of what's happened in the US in the last 30 or so years) is very sharp people with Interest have obscured the process of money changing hands so that it works to their advantage. The taxpayer is the #1 casualty of this, followed closely by labor. We are living in the Second Gilded Age, and we don't even know it.

 

[skydog]

Some excellent points by Boris...

 

[surreal1221]

Take it on the chin? Nope. I just chose a different profession. I left commercial aviation for a field that has much better job security, respects experience, provides a better quality of life, and pays better.

Was about all I need to know. A true capitalist, at least you put your ass where your mouth is. Just nice to know you're also willing to toss your once professional brothers under the bus rather than being an advocate for them. We don't get to manage a company, lord knows most of us wouldn't want to. . .but the poor business decisions made by our managers are their decisions, not ours. We just show up, fly the schedules given, and go home. All while trying to make a living to perhaps one day send a few of our kids through college and retire.

Of course you welcome bottom feeding companies to come in and suck the lifeblood out of those more established, with $10 fares and what not. Capitalism and all. . .

You're no longer making a living in an industry that essentially depends on a cheap raw good, and when that raw good becomes expensive, the industry essentially does a flip and lands flat on it's face because it's impossible to compete with companies that don't mind losing money hand over fist just so they can have a certain percentage of market share in poo-dunk USA. (Skybus, Virgin America, etc). Then, those more established have to lower their standard for pricing simply because "competition rues the day." Competition has brought more negatives to this once stable industry on the business sense. Sure, it brought about jobs, lower quality jobs, but it brought them about. Sure, any billionaire that wants a million dollars can go and buy some airplanes on the cheap and pay their crews peanuts because we're idiotic pilots who are constantly "building" time to reach our "career" position. But in the end, we have an extremely fragile industry. And where do these bottom feeders end up? Closing shop in 2 to three years time when they run out of cash after selling $10 round trip tickets. What happens to the ones who have managed to make it through? Now they're stuck in a continuous pricing battle because the bottom feeders have brought the level of pricing the good to such a level that 1) is not sustainable, 2) people won't pay anything higher, 3) but if they are to continue to at least fill seats, they might as well charge SOMETHING that people will pay, and 4) they never have the balls to increase prices without 5) reducing capacity.

So, we are bouncing between steps 4 and 5 right now. Companies across this land are reducing capacity, in an effort to rid the industry of money losing routes to hopefully one day increase prices on the routes that already make money to make even more money.

Nevertheless. . .good luck in your new profession.

 

[wheelsup]

While not $10, I've bought several one way tickets on SWA for under $40. Those damn bottom sucking fools!! How DARE they sell seats at a loss...oh wait...

One could argue that the person who was buying the $10 one way fares on Skybus sure as heck wouldn't be buying ANY tickets if they were regular price, so therefore they (Skybus) really weren't taking passengers away from other carriers.

It's also a lot easier to blame management at your carrier or others rather than yourself for sticking with a sinking ship (or industry).

 

[AMH]

I thought Skybus was a sinking ship...

 

[surreal1221]

It's already sunk. Thankfully.

Wheels, wasn't bashing Southwest. They have a system, and it appears, a cadre of pricers who might actually know how to make their company some money. It's a shame other companies are not hiring the same type of talent to manage their yield departments. Further, if you feel the industry is sinking. . .well then. . .when are you leaving? Wouldn't want you to blame management for sticking around while the ship is sinking now would we? Going to blame ourselves? You know, because we clearly have so much power in making our companies profitable.

 

[Boris Badenov]

I LUV southwest, and would love to work for them someday. That said, as someone pointed out earlier, their genius is in filling the holes left by the legacies, not in providing a national aviation transportation infrastructure. And therein lies the real issue. If we accept that a national infrastructure is a "common good" within the boundaries of the Federal Government to regulate for greater commerce and trade, then regulation is a necessity (albeit a somewhat leaner regulation than existed in years past). If we want to be laissez faire about the whole thing, so much the better in my view. But then we really have to do it rather than having two decks: One for the upstarts (sink or swim) and one for the "legacies" (stacked at the taxpayers expense). Pick one, America.

 

[wheelsup]

Further, if you feel the industry is sinking. . .well then. . .when are you leaving? Wouldn't want you to blame management for sticking around while the ship is sinking now would we? Going to blame ourselves? You know, because we clearly have so much power in making our companies profitable.

No I find it ironic you belittle "skydog" for leaving the industry yet are upset about the quality of life, pay, schedule, and job security of it yourself. But like I said you find it easier to blame managment. Skydog found it easier to just...leave.

I don't see how him leaving the industry thru his "brothers" under the bus. He voted with his feet, the loudest vote there is out there.

But I'm defending him...for no reason really...he can do so himself just fine.

 

[cfii2007]

I LUV southwest, and would love to work for them someday. That said, as someone pointed out earlier, their genius is in filling the holes left by the legacies, not in providing a national aviation transportation infrastructure. And therein lies the real issue. If we accept that a national infrastructure is a "common good" within the boundaries of the Federal Government to regulate for greater commerce and trade, then regulation is a necessity (albeit a somewhat leaner regulation than existed in years past). If we want to be laissez faire about the whole thing, so much the better in my view. But then we really have to do it rather than having two decks: One for the upstarts (sink or swim) and one for the "legacies" (stacked at the taxpayers expense). Pick one, America.

I don't think mainstream America can tell the difference between the two....

 

[surreal1221]

No I find it ironic you belittle "skydog" for leaving the industry yet are upset about the quality of life, pay, schedule, and job security of it yourself. But like I said you find it easier to blame managment. Skydog found it easier to just...leave.

I don't see how him leaving the industry thru his "brothers" under the bus. He voted with his feet, the loudest vote there is out there.

But I'm defending him...for no reason really...he can do so himself just fine.

I'm not upset someone left the industry, and as you read what I wrote one more time I commended him for putting his ass where his mouth has indicated - leaving the industry. I also further wished him the best in his new profession.

While yes, I would have hoped a one time airline professional would forever be an advocate for his/her one time peers. . .it is clear that some have a different opinion on the matter and as such are yes, tossing their one time comrades under the bus. Which, appears is fine with some people.

I on the other hand tend to think it'd be wise and a great asset to the group if those who have left the profession play more of an advocate role rather than "See how much better I have it now."

 

[NJA_Capt]

The problem is that the economy as we know it depends on the cheap airfare. If we forget that, get ready for a market collapse greater than the housing crises.

Our economy is not based on cheap airfare. People are overusing airfare now because it cheap. The economy is based on people who HAVE to travel....not the ones that want to travel. The people that HAVE to travel buy tickets regardless of price and generally buy short notice tickets and can't take advantage of "cheap" fares. Sure if there is a cheap one they will take it, but the "have to's" will still buy them when fares increase.

Furthermore, if people aren't spending their hard earned money on tickets and goods in other cities (or worse yet, other counties) they will be spending the same amount of money on goods closer to home and contributing to their local economies. To be honest, It may even strengthen our economy. Don't you think Americans spending their $100s/Billions in the US instead of Mexico would better serve the US economy?

NetJets is an example of a "have to." We have 3000 (USA) pilots who use a minimum of 4 tickets/month. That's 144,000 tickets/year. At an avg fare of $300, we would spend about $43 Million/Yr on tickets. Before anyone splits hairs, that is an estimate. Sometimes we use 1 ticket/week, sometimes we use 5-6. Sometimes it's $50/leg, sometimes it's $1200/leg.
Using my personal average of 65 flights/year, the estimated expenditures would be closer to $58 Million /year. Let me hear the ATA tell us we aren't contributing to their bottom line.

 

[JPilot9]

For the deregulation opponents, please ponder the following:

Would companies like Mesaba, Pinnacle, Skywest, Mesa, ExpressJet, etc. be around if the industry were still regulated? Would 300-hour zero-to-hero pilots get jobs flying 767s and and 777s across the ocean?

Is it the government's fault that 23 year olds who pay $75,000 for their ratings are lining up for a $20,000 salary?

Would people be willing to pay triple what they pay in a deregulated industry for a coach-class fare?

Bob Crandall was opposed to deregulation. What was the B-scale at AA, and what was his position on the B-scale? There's a good lesson in the history of airline economics.

I rarely comment on these boards, but just some ideas to think about, one way or the other.