Watchdog: Accountability

Not-so-friendly skies: Deregulation didn't fail, it was never really tried

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Transportation,Watchdog,Colorado,Accountability,FAA

Part four of a five-part series

Conventional wisdom holds that President Jimmy Carter withdrew the federal government from the airline industry in 1978 through a landmark process that came to be known as “deregulation.”

Carter, so goes the tale, heeded the advice of his appointee Alfred Kahn, the last chairman of the Civil Aeronautics Board, which for decades had presided over a heavily regulated commercial aviation system by approving all fares, schedules and routes.

It’s true that Kahn was the central player in the process. He wanted to get the government out of regulating the industry and his ideas had backing of a wide range of advocates from across the ideological spectrum, including consumer crusader Ralph Nader on the Left and an ambitious young political entrepreneur on the Right by name of Grover Norquist.

As the American Spectator’s Andrew Wilson noted in 2011 on the occasion of Kahn’s passing, Carter’s man “set out on a mission of writing himself and his agency out of a job — opening the industry to real competition for the first time.

“Kahn gave airlines the freedom to enter (and exit) domestic markets and to price [their services] as they pleased. He also allowed new low-cost, low-fare airlines to challenge the incumbents.”

But Wilson points to a crucial factor that would be central to the failure to achieve comprehensive deregulation:

“With the exception of United, all of the established airlines were adamantly opposed to deregulation, as were the unions representing airline pilots, flight crews and baggage handlers. But as Kahn recognized, this was a classic instance of the capture of the ‘regulators’ by the ‘regulated’ — to the disadvantage of the traveling public.”

Kahn’s reforms did open up the industry to some degree, but the federal government retained all of the key regulatory pressure points to exercise whenever ambitious politicians and bureaucrats opted to do so.

But that fact has never prevented pundits and TV talking heads from pointing to deregulation as the cause of all the industry’s problems since 1978.

Delta Airlines CEO Richard Anderson addressed the issue in a speech last year to the U.S. Chamber of Commerce.

Whenever airline companies, such as Delta and Northwest, attempt a merger or acquisition lawyers from the Department of Justice’s Antitrust Department jump onto the process, often blocking, delaying and perverting the deal, he said.

However, other businesses in the industry, caterers, aircraft makers and engine manufacturers are allowed to similar combinations unmolested, he said.

Anderson said that, although the 1978 Airline Deregulation Act eliminated the Civilian Aeronautics Board, the DOJ attorneys to this day use the old CAB antitrust regulations to interfere in airline mergers and acquisitions.

Marc Scribner, a research fellow at the Washington-based Competitive Enterprise Institute, agrees, noting that President Obama’s administration aggressively pursues an antitrust agenda with the airline industry, including its initial opposition to the merge of American Airlines and US Airways.

“Despite significant economic evidence suggesting a positive result of the merger, the Justice Department is attempting to derail it in order to flex its antitrust enforcement muscles,” he said a few weeks before the government opted to allow the merger to go forward.

Anderson had a long list of complaints, including the tax burden borne by the airlines and air travelers, but nothing upsets him more than the taxpayer-supported Export-Import Bank financing of Boeing aircrafts for his overseas competitors.

“I’m just telling you—the CEO of Delta is telling you it hurts,” he said.

Anderson pointed to Ex-Im’s assistance with Air India’s purchase of Boeing 777 wide body jetliners on terms that were annually $4 million below the terms Delta secured for its previous purchase of similar jetliners for its Indian routes.

On those Indian routes, Air India sold tickets $300 to $400 cheaper than Delta, in part because of the federal government’s sweetheart deal for the benefit of Boeing, he said.

Neil McCabe is a Washington-based journalist who covers national politics and public policy issues.
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