Is it time to re-regulate the airlines?
In this age of delayed flights, rising fares, and generally poor service, even some longtime proponents of deregulation are beginning to reconsider their position.
In this age of delayed flights, rising fares, confusing price structures, congested airports, mounting fees, and generally poor service, more and more travelers are beginning to reconsider their position on regulation of the airline industry.
In many cases, it's a bit of a "Catch 22" for the airlines. No one can legitimately argue that fuel costs have not had an adverse effect on airline costs and resulting airfares. Airlines have low fixed costs and high variable costs, with much of the latter consisting of fuel expenses. For example, with jet fuel at $3.17 per gallon, the fuel cost per hour for a DC-10 in flight would be $7,624 and for a 747, $10,813.
Obviously, these costs must be recouped through fares, but this is not the major complaint of most of today's passengers, particularly business travelers. The concern is the product being received for the price paid. First of all, the fares are both high and erratic, varying with Saturday stay-overs, lead time, and other considerations. It is not uncommon to have a variety of fares represented on a given flight among passengers with similar itineraries.
Second, the fees are a major irritation to many fliers. In 2010, airline revenues from bag fees totaled $3.4 billion. The baggage charges have resulted in more carry-ons with no space left for the last passengers to board the aircraft. Oh, by the way, don't forget to pay the fee for the extra leg room if you want some semblance of comfort.
Obviously, poor service, such as flight delays, is not always the fault of the airlines, but when it is, it just compounds an already unpleasant experience.
Mergers have created further unpleasantness and expense in some cities. My hometown of Memphis is a case in point. Since Delta's acquisition of Northwest in 2008, flights out of Memphis have been reduced by 33 percent. Memphis's recent average airfare was third highest among the country's 100 airports and 31 percent higher than the national average. The point was brought home to me when I paid $1,093 roundtrip to go to a meeting in Chicago. This was with two weeks' notice and no Saturday stay-over. I would have been better off if the meeting had been in Paris. One of our local wags has started a Facebook page titled "Delta Does Memphis," and it already has 1,500 members. Delta cites high fuel costs, but it appears to be more like the time-honored practice of charging whatever the market will bear.
Is re-regulation the answer? Many think so. As a longtime proponent of deregulation, I am on the fence on this one.
The Airline Deregulation Act was signed into law on Oct. 24, 1978. Prior to that time, the Civil Aeronautics Board set fares, routes, and schedules for the airlines, and the 1978 act removed that power. The stated goals of the new legislation included "the avoidance of unreasonable industry concentration [that] would tend to allow one or more air carriers to unreasonably increase prices, reduce prices, or exclude competition" and "the encouragement of entry into air transportation markets by new air carriers, the encouragement of entry into additional markets by existing air carriers, and the continuing strengthening of small air carriers."
For several years, it seemed to work. Fares did go down, and new airlines entered the market. Frequent flier programs were introduced—a wonderful perk for the business traveler.
The trend seems to have reversed itself, however. The stated goals of the 1978 act are no longer being achieved. It is even difficult to redeem earned miles on some airlines. I believe it is time for the airline regulation question to be revisited. While I hope that re-regulation is not the only answer to the problem, it is one that must be seriously considered.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing – A Management Guide and co-author of The Role of Transportation in the Supply Chain. He can be reached at email@example.com.
More articles by Clifford F. Lynch
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