Airline Deregulation - Problems and Controversy

Problems and Controversy

The purpose behind government regulation is to create a stable industry. The number of major carriers in the United States fell from six in 1978 (United, American, Delta, Eastern, TWA, and Pan Am) to three by 1991 (United, American, and Delta). Since the year 2000 every major airline has filed for bankruptcy at least once. US Airways has filed twice in the same number of years. The destabilizing effects of privatization were felt immediately and have become worse as time has passed. Although finding solutions to some problems, airline deregulation has created strongly polarizing results. Along with a 40% drop in airfares since deregulation in 1978, airline employees have seen up to a 40% drop in income, affecting approximately 545,000 American workers. Although the gains of economic liberalization have been substantial for the traveling public and airline executives, fundamental problems brought on by deregulation continue to plague the industry and its workers.

Even though it's been more than thirty years since deregulation, some of these massive adjustments imposed at the end of a half century of regulation are still being considered transitional problems in their effect by the champions of privatization. Before deregulation, airline oligopolies received returns on capital that were profitable for the company, its executives and its employees, but these returns factored in costs that would not necessarily exist in a competitive market. For example, the airlines' unionized workforce, strengthened under regulation and held in place by the Railway Labor Act (RLA), protected worker salaries, keeping them commensurate to the level of education, experience, risk-factor and time away from home. Instead of a traditional lockout, since deregulation airline executive management has used the laws of bankruptcy as an "ultimate weapon". Labor unions view this as union-busting, allowing management to throw out contracts already agreed upon while still receiving exorbitant bonuses themselves, regardless of work quality. In doing so, airline executive management has created what many are calling the great race to the bottom with one company filing for bankruptcy after the next, leaving only those who have not paying their employees what was contractually agreed upon.

Thus, former airline pilot and hero of The miracle on the hudson, Chesley Sullenberger, has argued before the United States Congress that the U.S. is beginning to realize an industry wide brain drain from the occupation of airline transport pilot. Adding that:

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Various solutions have been proposed, including, for the first time since 1978, federal control over some of the prices charged and routes served by major airlines with a view of increasing price and cost competition.

Ultimately deregulation has certainly provided some financial benefits to the average air traveler. Economists from the Brookings Institution, a political think tank with both liberal and conservative members, and George Mason University have proven that indeed consumers save thanks to the lower fares resulting from a competitive airline marketplace. Specifically:

- Taken from the Cleveland & Price Study, 1999

Conversely, in a June 2008 former CEO of American Airlines, Robert Crandall stated,