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I kinda wondered if the money-losing air carriers talked at all about Alfred Kahn's master-stroke in 1978. Turns out it is heated:
One more "magic bullet" fired off by an academic genius, who then strained to pat himself on the back without asking if the bullet hit something and ricocheted.
Marketplace economics. Who needs a god when you have a cliche?
The debate on deregulation's legacy will rage as long as there are economists and universities. Each paper written by an expert builds a compelling case for its success or failure. With fuel prices soaring and the devastating effects of 9/11 still lingering, the proponents of failure, including former American Airlines Chairman and CEO Robert Crandall, are having a field day. On June 10, Crandall addressed the Wings Club in New York and laid out his blueprint for stabilization of the US airline system, which not surprisingly involved a "dollop" of reregulation (ATW, 7/08, p. 5).
"I feel little need to argue that deregulation has worked poorly in the airline industry. Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment," he told members. "To put things bluntly, experience has established that market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost and operating problems." And in a touch of irony he essentially called for dismantling the hub-and-spoke system he once championed by forcing carriers to charge full sector fares. "To my mind, a 'sum of the locals' rule would likely reduce the ability and motivation of airlines to preserve connecting complexes now being sustained by operating small, relatively inefficient aircraft, or by pricing connecting itineraries far below actual costs or--in far too many cases--doing both," he said.
Scrambled Eggheads
For Crandall none of this comes as a surprise, as typified by his comments to a Senate lawyer in 1977: "You . . . academic eggheads. You can't deregulate this industry. You're going to wreck it. You don't know a goddamn thing." His is not the only voice calling for reregulation. On May 7, the International Assn. of Machinists and Aerospace Workers, whose members have endured wage and benefit reductions at many carriers since deregulation, urged lawmakers to resist appeals to approve additional consolidation such as the Delta/Northwest merger. "Limited reregulation is the only long-term solution for an industry that is continually seeking government assistance," said IAM General VP Robert Roach Jr. at a Senate Commerce Committee hearing on the state of the airlines. "This industry is simply unable to turn away from pricing its product below the cost of providing it, further perpetuating the chaotic spiral that brings us here today."
"I feel little need to argue that deregulation has worked poorly in the airline industry. Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment," he told members. "To put things bluntly, experience has established that market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost and operating problems." And in a touch of irony he essentially called for dismantling the hub-and-spoke system he once championed by forcing carriers to charge full sector fares. "To my mind, a 'sum of the locals' rule would likely reduce the ability and motivation of airlines to preserve connecting complexes now being sustained by operating small, relatively inefficient aircraft, or by pricing connecting itineraries far below actual costs or--in far too many cases--doing both," he said.
Scrambled Eggheads
For Crandall none of this comes as a surprise, as typified by his comments to a Senate lawyer in 1977: "You . . . academic eggheads. You can't deregulate this industry. You're going to wreck it. You don't know a goddamn thing." His is not the only voice calling for reregulation. On May 7, the International Assn. of Machinists and Aerospace Workers, whose members have endured wage and benefit reductions at many carriers since deregulation, urged lawmakers to resist appeals to approve additional consolidation such as the Delta/Northwest merger. "Limited reregulation is the only long-term solution for an industry that is continually seeking government assistance," said IAM General VP Robert Roach Jr. at a Senate Commerce Committee hearing on the state of the airlines. "This industry is simply unable to turn away from pricing its product below the cost of providing it, further perpetuating the chaotic spiral that brings us here today."
One more "magic bullet" fired off by an academic genius, who then strained to pat himself on the back without asking if the bullet hit something and ricocheted.
Marketplace economics. Who needs a god when you have a cliche?