DE-DE-REGULATION

Posted in Rants on April 1st, 2008 by Ed

On the heels of the announcement that the Fed is now expected to act as corporate America's playground monitor, I'm officially taking bets on when the entire airline industry goes back to pre-1979 regulation. As far-fetched as that sounds in the Reagan era, keep two things in mind. First, large corporations violently oppose regulation only until they begin producing an audible death rattle. Second, an objective look at the industry makes it entirely unclear how any airline is going to survive the next five to eight years.

Aloha Airlines just went down after filing for Chapter 11 for the second time since 2002. Delta** (bankruptcy: 2005-2007) is trying to buy out 30,000 workers after failing in its Fat Guy Looking For A Prom Date search for a buyout partner. United (2003-2006) launched a failed LCC (low cost carrier), partnered with Aloha (brilliant!), and is also looking for a buyer to no avail. US Air and America West went bankrupt and then merged, which is approximately as intelligent as two dirt-poor, debt-laden people getting married. ATA died. Nearly every airline abandoned its pension responsibilities and dumped them onto Uncle Sam via PBGC. While some major carriers crawled back to making small profits in 2007, the mad increase in fuel costs and unrelenting LCC competition will take care of that.

The air travel industry grew exponentially in the 1980s when airlines figured out that, by and large, people don't give a shit about amenities. If the average consumer has two choices – a no-frills service they can afford or a high-end service they can't – the former wins out 100% of the time. Now we have a perfect storm brewing. Fuel costs are making even "no-frills" service very expensive at the same time that middle- and working-class incomes are feeling a serious squeeze due to stagnant wages and rising prices. Make no mistake, you and I are what the airline industry needs to survive. The only people doing well in the past 8 years – the top 5% of income earners – can only fly so much. Certainly not enough to fill existing capacity.

I only see a few outcomes. The major airlines can continue limping along by filing bankruptcy every 4 years, which amounts to government intervention to keep them alive. The government could subsidize fuel. Southwest (tenuously assuming that they can continue making money, which they won't once their fuel hedges run out) could become a de facto monopoly on domestic traffic, necessitating regulation. Or the entire damn industry could teeter on collapse until Washington steps in to assign routes and set prices.

Or we could send everyone a check for $600 in an election year effort to cover the fact that there's a lot of shit you can't afford anymore.

**(Seriously, fuck Delta. If it isn't the world's worst airline this side of Tajik Air, then I don't know what is. One flight is enough to tell you that there's more to their bankruptcy than fuel costs.)