A new report, Flying Blind: Airline Deregulation Reconsidered, issued by DÄ“mos, a non-partisan public policy research and advocacy organization, and paid for by the Association of Flight Attendants and the Professional Association of Flight Attendants among others, concludes deregulation is a failure for the airline companies, their employees and passengers, the communities they serve and their shareholders. Including regionals in on the evils of outsourcing, perhaps the reports most dangerous proposal is to develop coordinated national and regional transportation plans, with provision for high speed rail networks to eliminate the need for excessive short-haul air traffic

Maybe so. But the issue is so much larger than deregulation. This report, as good as it is in recounting industry ills, is like many of its genre for what it does not say, rather than for what it says. While it makes a good case about the ills of deregulation, what it does not do is make the case that deregulation is solely to blame. It is not.

It also punts the question of what needs to be done. Indeed, focusing solely on the airline industry misses the point. The issue is so much bigger than the deregulation movement that has hit almost every sector of the economy. It encompasses globalization and the wholesale emasculation of enforcement authorities as part of a political agenda to reduce the size of government. Deregulation, as Co-Author James Lardner pointed out, did not eliminate all regulations. The deregulated industries all remain heavily regulated, none more so than the airline industry.

The report is unique, however, because it folds the regional airline industry into the outsourcing question, taking its cue from Congress, to call outsourcing service to regional airlines as big a safety issue as outsourcing maintenance. One wonders, if the Colgan accident hadn’t happened, whether regionals would have made it into the report. Possibly, since the signs were all there, thanks to years-long complaints from the National Transportation Safety Board, unheeded by the industry. But, it is doubtful.

The report calls on the White House and the Department of Transportation to convene a task force to develop recommendations on stabilizing the industry, as well as providing a livable wage, a comfortable retirement and adequate health care for employees. The task force idea is not new. Some – Vaughn Cordle and Robert Crandall, for instance – have been calling for such a task force for a long time. We have gone down that road before only to end up with a thick report shelved for the lack of political will to do anything else because the fiscal crisis of the early 90s ultimately ushered in one of the few periods where airlines actually made money.

One of the best things in the report is its attack on the one thing most people cite for deregulation success – fares. While it is true that fares have dropped, it says, it is an illusion. “It is true that in the 1970s, because of the oil crisis, fares are lower today than they were at deregulation,” he said. “But the price of air travel had already been declining for far healthier reasons before deregulation including more fuel efficient and larger aircraft. Now it is the result of slashing wages and benefits and changes in work rules. Low prices are hardly an argument for a policy that lets prices sink so low that airlines are unable to afford investments in either aircraft or human capital.”

No arguing with that!

Memory Lane
The report is a stark stroll down memory lane recounting how factors – computer reservations systems, fortress hubs, long-term gate contracts, slots and frequent flyer programs – conspired to derail the promise of airline deregulation by limiting entry and overpowering newcomers. The report also looks into the impact of airline pricing practices on driving more than 150 new entrants out of business since 1978. Lardner indicated only 12 new entrants have survived, calling some practices, especially by airport authorities, corrupt.

“Thirty years of deregulation has sent the airline industry into a steep nosedive, reducing consumer options and services, increasing delays, wiping out thousands of jobs, undercutting workers’ wages and benefits, bankrupting countless companies, and causing a downward spiral in safety oversight, said the DÄ“mos when it released the report yesterday, after flight attendants hand delivered it to all members of Congress on Wednesday.

One reporter on yesterday’s conference call was quick to ask if this report were in support of some legislative agenda. AFA President Patricia Friend was a bit disingenuous when she said no, given how long unions have been harping on outsourcing and the fact the FAA reauthorization legislation contains passages on both international alliances and outsourcing and is about to include regional airlines. However, her answer did indicate there was no specific legislation before Congress at the moment but the recommendations coming out of a task force could result in such legislation.

In her defense, she may not have made the connection. Unions, along with folks in the executive suite, all know the industry has gone to hell for every stakeholder involved, but they just don’t know what to do about it, and, having thrown their hands up in the air in frustration, hope a task force will solve that problem.

“I’ve been concerned for several years, not only from the perspective of the workers and destruction of working conditions and wages, but, from the broader perspective, I’ve been concerned about the overall stability and direction of the industry,” she said. “It is clear that a robust industry is essential to the economy. What has happened has threatened air service to medium- and small-sized communities throughout the country [which threaten local livelihoods]. I believe that, rather than let the market determine what kind of an air transportation system we want in this country, there should be a broader policy discussion to make those decisions.”

But the entire reason for the report seems to be to provide another third-party endorsement for union quests to eliminate outsourcing. Saying these are serious safety issues that have overwhelmed the Federal Aviation Administration’s ability to oversee airlines and maintenance, it leads with the outrage resulting from the revelations that have emerged out of the Colgan Flight 3407 accident in Buffalo.

The report is clearly designed for the general assignment press and, indeed, that was the majority of 10 or so reporters tuning in to yesterday’s press conference which should tell us something. Consequently, we can expect more damning stories as the report gives a fresh lead to the many stories so far resulting from the revelations of the Colgan crash.

What makes this report interesting is that it is part of a series of reports done by DÄ“mos on deregulated industries such as trucking and financial services. However, it fails to put the airline industry into context with those other industries. It also fails to address the role of Congress, the Department of Transportation and the Federal Aviation Administration except to say outsourcing practices, as large and as swift as the transition was, has overwhelmed the FAA. The report does, however, cite the failure of the DOT and the Department of Justice to use antitrust laws.

There can be little argument that failure to become profitable has led to pain for all parties involved and it will be interesting to test US Airways Chair Doug Parker’s theory that the dismal fiscal performance has more to do with airlines being run by operations types than anything else. During his last conference call, he noted that most of the majors were now being run by former financial officers, who are trying to put Humpty Dumpty back together again into a profitable industry.

Even so, the report does not make the case that deregulation alone is to blame more than the dozens of other factors that have affected all industries, including globalization. Indeed, that may be the point. After all, the trends we’ve seen in the airline industry are not unique. Outsourcing, no matter the industry, has been hard on employees and caused a fundamental shift in the quality of life. Driving down costs, increasing productivity, creating critical mass are just basic business practices of any industry.

As for the safety aspects of deregulation, here again, airlines are not unique and suggests that the dismantling of government resources simultaneous with deregulation has more to do with that than deregulation itself. After all, we’ve seen lack of resources and oversight impact both food and drug safety as well as environmental efforts and, yes, the financial industry, all of which do grievous harm to the public. Cigarettes, Phen Fen, unregulated supplements, E-Coli in spinach and peanuts, are only the latest headlines. They’ve been going on for 30 years.

Lardner pointed out that the consequences of regulatory failure are different for different industries. That is true, but they all come with a body count. Ours just come suddenly with a lot of people killed at once in a crash whereas the others are less flashy since they come over time, and one by one

Even the quest for developing industry stability, a livable wage, retirement and health care, are better suited to broader economic and social policy discussions since employees in other industries have faced many of the same things airline employees have – witness, for instance, the recurring problems with profitability in the auto industry. How many people are holding two to three jobs today when their parents raised a family on only one salary? How many employees have had their contracts abrogated and their pensions eliminated?

Don’t get me wrong, these are serious economic issues, all deserving of attention. But, the cure is entirely unclear, especially when it comes to re-regulation. As Lardner noted existing law would have allowed regulators to respond differently to the growing helter skelter of the marketplace whether it is airlines or mortgage lending. But, regulatory agencies were acting under the laissez faire strategy while being deprived of resources to do their jobs.

Since unions are the ones pushing some of the issues, perhaps it is time for them to join together a call for a task force on what happened to our quality of life and how we can get it back. Lardner indicated that can only happen by doing something that is very unpopular – building back the government resources and supports for the middle class which started being eroded in the 1960s.

That’s the point, said Lardner. “Airlines are only one of many industries that were regulated that helped to expand and support the middle class but since deregulation what has happened is we have turned jobs that were once middle class to part time, marginal jobs without benefits,” he said. “If we did like being a middle class country, we must have economic security and we can’t do that without government investment and regulation.”

Really? Government investment yes, definitely, but is re-regulation the answer or is it just window dressing to make it look as if Congress and the government are doing their jobs to make us feel better?

He quoted the father of deregulation – Alfred Kahn – suggesting even he thought it a failure. “I should have recognized that the naturally monopolistic or oligopolistic character of most airline markets…would continue — indeed expand — under deregulation,” said Kahn a decade into deregulation. While Lardner noted that the architects of deregulation did not anticipate the growth of the oligopoly and predatory pricing that have become the standard business practice of the last three decades, that seems an astonishing statement given the fundamentals of business. It is more accurate to say that the architects did not anticipate is they were unleashing these new entrants on a decidedly unlevel playing field and asking them to try to compete and then blaming the 900-pound gorillas when they could not. What they did not anticipate was enforcement would go away at the same time.

“Outsourcing is a reflection of FAA weakness,” he said. “FAA did not protest the transition of maintenance outsourcing,” said Lardner. “It, and other issues, out ran the ability to monitor the work. The people within the agency itself are quite frank about this.” Lardner noted existing law would have allowed regulators to respond differently to the growing helter skelter of the marketplace whether it is airlines or mortgage lending.

We have long observed the political theater over and over again. A problem arises only to be solved by a new law when an existing law does just fine, if used. So, I’m not a big fan of new sweeping legislation or regulations when what is really needed is giving regulatory authorities the tools to do their job under existing laws.

While unions and this report cite the unfettered excesses of airlines, the airlines counter that their inability to reach profitability is only proof that there is still too much competition. Lardner, in fact, said that the only reason it looks as if there are plenty of airlines out there is to count the regionals. On questioning, however, he added that such over capacity is probably the best argument for re-regulation.

“Look at 30 years,” he said. “There has been a high degree of consolidation and we don’t know how big airlines really have to be to be efficient or how much of what has happened is the result of bullying tactics. That needs to be studied. Airline executives seem to blame it on the economic crisis and the price of jet fuel but it is so much more than that. They don’t have the resources to do right by investors, employees and for consumers in terms of safety. The industry is in a terrible state. Whatever you think done for consumer bad deal for workforce, the stockholder and the airlines.”

He’s right. This does need to be studied. But any study would need to include the other two legs of the stool – how the actions of government regulators and Congress have contributed to the problem. Otherwise we will never get to solutions.

Policy Recommendations for Regulatory reform
• The authors call on Congress and the relevant executive agencies to make a thorough study of the airline industry.
• They recommend creation of a federal task force to examine the industry’s problems and propose solutions.

Specifically, they call on the task force to:
• Develop a plan to moderate the booms and busts and build a more stable domestic airline industry. Here,
• the remedies could include capital-reserve requirements and bankruptcy reform.
• Expedite (and establish stable financing for) a modernized Air Traffic Control (ATC) network.
• Develop coordinated national and regional transportation plans, with provision for high speed rail networks to eliminate the need for excessive short-haul air traffic.
• Devise a code of customer service that would, among other things, protect passengers from wildly varying
• prices and establish more uniform procedures for ensuring remuneration and rebooking when a flflfl ight is delayed or cancelled.
• Promote more equitable and stable labor practices and return to the pre-deregulation practice of pattern
• bargaining in order to discourage airline competition based on low wages and high-pressure working conditions.
• Insist on uniform airline safety standards, including mechanic credentials and oversight of maintenance
• facilities.
• Develop new regulations to curtail airline consolidation and promote genuine competition where feasible, while, at the same time, cracking down on monopoly pricing and the other abuses of concentration on routes that are incapable of supporting more than one or two carriers.


Statistical Highlights
• Out of roughly 150 low-cost airlines founded since 1978, fewer than a dozen are still operating; they account for only about 10 percent of current airline capacity.
• Before deregulation, there were 11 major trunkline carriers; today, the country has six large mainline carriers — American, United, Delta, Continental, US Airways,
• and Southwest – the first three, along with their regional partners, control two-thirds of domestic air travel.
• More than 100,000 pilots, mechanics, flight attendants, ticket agents, cargo handlers and other airline workers have lost their jobs since 2001.
• The number of people on the payroll of the legacy airlines dropped 26 percent between 1998 and 2006.
• DOT Data for US Airways, United, Delta, American and Northwest show labor costs falling by nearly a third, on average, between the end of 2001 and the beginning
• of 2006.
• According to the U.S. DOT, 2008 total baggage-fee charges by U.S Airlines came to more than $1.1 billion — a figure that is expected to triple by 2010.
• In 2007, more than a quarter of all flflfl ights were delayed, accounting for 112 million lost passenger hours.
• More than 100 communities have lost air service over the past decade.

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