Some members of Congress are worried about what the CO-UA merger will mean for the consumer and are considering introducing a bill to restore airline regulation if the merger goes through.
Deregulation has been credited with making airline travel affordable for the average American. But [Congressman James] Oberstar [D-MN] pointed to the $2.7 billion the airlines earned in baggage fees in 2009 as evidence that consumers are no longer benefiting from the system. He said he believes there’s support in the House for re-regulation.
No longer benefiting? Please.
The legislation would impose federal regulation of airline pricing and re-establish a government gatekeeper role similar to that played by the old Civil Aeronautics Board prior to deregulation in 1978, Oberstar said. The board set standards for companies trying to enter the airline market and decided on a case-by-case basis which companies should be granted permission to fly passengers.
Deregulation worked for a while, bringing new, lower-cost carriers into the market and driving down fares, said Oberstar, who — as a junior congressman — voted in favor of deregulation. Most of those air carriers — as well as several "legacy" carriers dating back prior to deregulation — are gone.
Deregulation worked for a while? Southwest has become the nation’s largest domestic carrier, is consistently profitable, and does not charge the fees that Oberstar objects to. Now he wants to prohibit the next generation of innovative airlines from entering the competitive fray for misguided concerns over consumer protection.
This should concern you:
The CEOs of United and Continental, who testified at the hearing, complained that competing against a steady influx of low-cost carriers who drive prices artificially low and then go bankrupt has weakened the airline industry…"The status quo for this industry is unacceptable," said United’s Glenn Tilton.
Tell that to Southwest, Glenn. Sure, we’ve seen the quick demise of carriers like Independence Air and Skybus and Glenn is right to an extent: for better or for worse, legacy carriers have been not exactly thrived under the deregulation paradigm (see PanAm, Braniff, and TWA), but UA has certainly come a long way from the airline that it was in 1978, even if it has shrunk in the post 9/11 world. Tilton wants regulation back to protect United–to artificially raise fare prices and prevent competitors from coming in.
Regulation *might* lead to the return to consistent profitability for the legacy carriers, but consumers will lose. Some start-up airlines do introduce "artificially low" pricing to a market and then fail. Then prices return to equilibrium. Other start-up airlines, like Jet Blue or Frontier introduce "artificially low" pricing to a market and that pricing becomes the equilibrium price. There is nothing artificial about that.
"I’m looking for a way to preserve competition," Oberstar said. "That’s what I voted for in 1978."
And that’s what you’ll be voting against if you bring back airliner regulation, Mr. Oberstar.