Sample Essay On Who Benefited From Airline Deregulation: Consumers Or Airlines?

Type of paper: Essay

Topic: Airline, Customers, Economics, Industry, Government, Information, Politics, Business

Pages: 2

Words: 550

Published: 2020/11/23

Abstract

The regulation-deregulation crisis in the U.S. airline industry came to a head with the Airline Deregulation Act of 1978, causing a massive shift of fare and domestic flight-route determinants to comply with market forces, rather than abide by the strict protocols of government control. The present article seeks to: (a) briefly provide an historical background to the situation, (b) engage a balanced discourse of key perspectives on the topic, and (c) to identify questions that pertain to a ‘pros’ and ‘cons’ format that hopefully helps to use logical reasoning to support and defend the thesis position, while allocating valid refutation of counter-arguments. Government sources, journal articles, and data shall be referenced throughout.

Introduction

It is no secret that United States’ airline carriers currently operate under the auspices of a deregulation status implemented by federal powers, during the late 1970s, under the Airline Deregulation Act of 1978. The intended idea served to raise competition levels, thereby reducing airfare costs in conjunction with elevating improvement in services rendered (“Reports & Testimonies Airline Deregulation,” 2006). Prior to the policy design and execution of this move to institute deregulation, according to a Library of Economics and Liberty report “The Civil Aeronautics Board (CAB)” had determined and controlled “entry, exit, and the pricing of airline services,” along with controlling “intercarrier agreements, mergers, and consumer issues” (“Airline Deregulation”). While certain factors may be argued to sustain that the airlines benefited most from deregulations, the hopefully cogent and precise thesis for this research paper is as follows. Airline deregulation has considerably benefited consumers, as supported by a wide variety of reliable data, resulting in an unambiguous impact in terms of allowing a persistent reduction of airfares.

Discussion

Myriad factors and elements devise a mix of complexities associated with the airline industry. According to Rose (2012), the deregulation act represents an enormous “legacy,” and “may be one of the greatest microeconomic policy accomplishments” of the past half century, in quoting researcher Bailey (2010) (p. 376). A major stakeholder within the airline industry, Alfred E. Khan, was deemed the Father of Airline Deregulation because of his intelligent wit, and being known for his willingness to step out-of-the-box in finding better solutions as a Chairman of CAB (Rose, 2012, p. 376). Although people will not all agree that consumers, versus the airlines, benefited from airline deregulation several interesting facts stand as appropriate data to support consumer benefits.
First of all, the primary foundation for the better plan to deregulate the airline industry did not purely emerge from government forces, or any federalized political will. A noteworthy aspect that drove the airline deregulatory change came as a result of economists’ evaluations (Rose, 2012, p. 376). Carrying a heavy weight of reliability, as an expert in Economics from MIT, the journal article written by Nancy Rose makes it easy to believe the credibility that economics drove the move. Furthermore, Rose (2012) states that the airline deregulation represents the first major “dismantling of a substantial economic regulatory apparatus,” that lowered fare averages, while permitting widened opportunities for more flights (p. 376). Retractors who think that airline deregulation benefited the airlines, rather than consumers, may offer various perspectives to support their points of view. For example, in 1985 the decision ensued that airlines could be able to open their carrier-holding slots at airports, thus allowing sales of the ‘slots’ (parking spaces) which resulted in a price-hiking towards competitors who wished to purchase those slots (Oberstar, 2000, p. 5). Oberstar (2000) further reports that in 1995 the rule was overturned by the Department of Transportation (DOT) because according to their government study “eliminating these slots will produce a net benefit to consumers of over $700 million annually” (p. 5). Proponents who would argue that the airlines benefited, due to any increased revenues from slots-selling, can have their position greatly challenged – if not debunked altogether – given the change in policy.
Also, there are those who would argue that with the increase in technology in terms of fuel efficiency discoveries, and energy-saving device apparatus in methods or bio-chemical advancements would deem that the airlines benefited instead of consumers. An article in Consumer Reports (2014) cited that the gas/oil crisis in the 1970s noted that cars were “gas- guzzling” vehicles, with the mid-sized (at the time) “Oldsmobile Cutlass” being tested at by today’s standards, would be an appalling “11.8 mpg in city driving” (p. 13). The same article discusses the nervousness of a nearly 8 percent inflation rate, in comparison to 2 percent in the modern year of 2014. While it may be true that technological advances have aided fuel economy, it does not mean that the airlines benefited from deregulation, and fails to rationally prove any strength of evidence. Still others may contend that Southwest Airlines neither went bankrupt, nor had to forfeit company employee pension plans as a result. But yet again, this argument is weak first of all because a single airline’s continued success cannot defend a stance that the airlines benefited from deregulation rather than consumers. Perhaps the data shall help explain why. According to a U.S. Government Accountability Office (2006) report it was true that in the mid-2000s airlines were under “cost pressures” due to low-fare airlines like Southwest, however “United and US Airways entered bankruptcy” during that period and also were forced to renege their employee pension plans, thereby causing federal insurers to lose “$10 billion” with their beneficiaries losing out at over $5 billion (“(“Reports & Testimonies Airline Deregulation,” 2006). A full report, in addition to supporting materials may be accessed at their website.
At this point in the discussion it is imperative to remember that economics experts figured out that airline deregulation was the best move, and that in accordance to well-substantiated evidence, top economists like Rose basically know what they are talking about. In fact, Rose (2012) indicates that the study of the airline deregulatory impact has been quite well documented, and that its policy paved the way for other industries to deregulate such as: buses, trucking, and railroads (p. 376). If you think about it, and try to contemplate outside of the ‘box’ like former Chairman of the Civil Aeronautics Board, Alfred E. Kahn, the airlines deregulation pathway opened up greater benefits for consumers beyond the realm of air travel and therefore affecting lowered prices for people all across several transportation modes, and industries. It is also very important to realize why the fundamental underlying decisions to deregulate the airlines came from economists is crucial. It is not the factor of top economists being very smart, although they are. The factor that economic decisional studies propelled, and undergirded, airlines deregulations because governments sometimes base their rule-making premises upon theory not always resting upon the current-day marketplace forces (Rose, 2012, p. 377). Rose (2012) points this out highlighting that when governments engage in regulatory controls of economic situations, they might sometimes overlook that such decisions may impede “the ability of markets to provide feedback” on such judgments (p. 377). See the problem? Button (2014) has argued that air traffic and the numbers of airline passenger travel, immensely increased due to post-realities in which controls “over domestic commercial aviation ended in the late 1970s,” with computerization further capturing efficiency and expanding the magnitude of the industry (p. 40). Furthermore other data firmly support that consumers benefited from airline deregulation.

Conclusion

In commenting on the state-of-affairs involving the effects from airline deregulation, one source lends statistics to help understand how the move has benefit consumers. According to the Library of Economics and Liberty (2015) passengers have saved “$19.4 billion per year from airline deregulation” at the time of its writing, further noting a “44.9 percent” fall in real terms from the records of information in the archives of the Air Transportation Association (ATA) (“Airline Deregulation”). Also, McDonnell (2015) agrees that Alfred Kahn was a de facto force in airline deregulation, as a “reform-minded” individual who headed the CAB (p. 379). Brown (2014) determined that adopted measures to make the deregulatory change was largely “proposed by the community of economists,” resulting in more feasible costs for the public to commercially fly (p. 86). Obviously, we sit within a constantly evolving business environment with concerns for terrorist activities, and seemingly electrical costs in general rising. In fact, Kind (2013) states that the “electric power industry has faced technological and economic disruptions” before, although they have responded “strategically” (p. 85). In terms of the reality of a post-9/11 world, terrorist plane attacks are possible, Goll & Rasheed (2011) did a study to examine intersectionality of airline deregulations and the 9/11 attacks’ aftermath, stating that the “initial response” emphasized cost control (p. 1). However, it is safe to maintain that airline deregulation greatly benefited consumers, linking supportive data for the claim. Button (2014) observes air traveler numbers increased “from 250 million in 1978 to 815 million in 2012,” of which “716 million of them domestic” (p. 41). So it may be very safe to say, indeed, that consumers benefited from airline deregulation.

References

Brown, J.H. (2014). Jimmy Carter, Alfred Kahn, and airline deregulation. Independent
Review, 19(1), 85-99.
Button, K. (2014). Really opening up the American skies. Regulation, 37(1), 40-45.
Goll, I., & Rasheed, A.A. (2011). Environmental jolts, clocks, and strategic change in the U.S.
Airline industry: The effects of deregulation and the 9/11/2001 Terrorist Attacks.
Business & Politics, 13(4), 1-37. doi:10.2202/1469-3569.1386
Kind, P. (2013). Responding to a changing business environment. Electric Perspectives, 38(3),
81-85.
Library of Economics and Liberty. (2015). Airline deregulation [Data file]. Retrieved from
http://www.econlib.org/library/Enc/AirlineDeregulation.html
McDonnell, G. (2015). What caused airline deregulation: Economists or economics?
Independent Review, 19(3), 379-395.
Oberstar, J.L. (2000). Airline deregulation. Issues in Science & Technology, 16(3), 5.
Rose, N.L. (2012). After airline deregulation and Alfred E. Kahn. American Economic Review,
102(3), 376-380. doi:10.1257/aer.102.3.376
U.S. Government Accountability Office – GAO. (2006, June 9). Reports & testimonies:
Airline deregulation: Reregulating the airline industry would likely reverse consumer
benefits and not save airline pensions [Data file]. Retrieved from
http://www.gao.gov/products/GAO-06-630

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