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U.S. Airline Industry Regulation - Essay Example

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The policies and the experiments that determined the phase and dominance of free market flourished greatly. The main aim of the policy was to improve the industry performance and ensure equal availability of…
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U.S. Airline Industry Regulation
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U.S AIRLINE INDUSTRY REGULATION The paper determines the result of airline industry deregulation. The policies and the experiments that determined the phase and dominance of free market flourished greatly. The main aim of the policy was to improve the industry performance and ensure equal availability of airline facilities to every passenger. The paper also discusses the pros and cons of regulation and deregulation and the need of air line industry to be reregularized.
U.S Airline Industry Regulation
The main purpose behind the regulation by government is to maintain a stable industry. The air transport industry since its beginning has faced ups and downs. Since the deregulation, the air transport carriers have decreased in number. A number of problems have plagued the industry and its workers. Whereas there are many favorable conditions that prevailed in the air line industry.
The term airline deregulation has been in the news for decades. The airline deregulation was signed into law by President Jimmy Carter, he removed the power of the Civil Aeronautics Board to allocate routes and set fares. Before this law the fares were the same regardless of the airline flown. Due to the airline deregulation the airline fares have varied. But from a consumer’s point of view, the deregulation proved to be consumer friendly as fares are much less expensive than it were before. (Buckfelder)
When talking about regulation, it has played a pervasive role. It subsidized increasing return and it had economy-wide positive spill over. Regulation provided an institutional structure that gave way to investment and uncertain technologies, which would otherwise exposed to inconsistencies and market breakdown. Regulation created high concentration industry, major trunk airlines with high market shares justifying high-fixed cost and new aircraft technologies. (Yosef, 2005, p No 133)
Air travel has increased drastically and due to deregulation the airlines have improved their services, equipment and made it accessible to the general public. The rigid fares of the regulatory era have given way today’s competitive price market. It introduced competition in the industry and airline fares. It proved as a successful step for commercial airlines, the airlines could now set their own policies; determine the fares without any government intervention and expect high level of profits. Although the industry gained a lot from deregulation but few draw backs also flourished. The industry had unionized workforce that flourished on inefficiency and generous salaries, it proved to be a problem for a competitive industry. We cannot rule out that the aftermath of September 11, 2001 terrorist attack proved to be a hardship for the free market airline industry. Although the industry faced boom in the earlier period, hub-and-spoke systems decreased the unit costs but it created high fixed cost that required large number of investment and technology systems. On the other hand 9/11 attack added fuel to the fire in the industry. The net losses increased as the high fuel prices, labor problems and most importantly the fear of terrorism increased and added further drag to the industry’s downfall. (Smith & Cox)
The airline industry is a mixture of competitive and regulatory industry. There are several policies that affected the level of competition. In the airline industry different firms set the prices and routes, according to different market conditions. Due to deregulation the profits have fluctuated towards growth and left a positive impact of deregulation. (Gowrisankaran, 2002)
The quarter-century that followed deregulation took many attempts of innovations in the industry. Many proved successful and a few needed refinements. Due to changes in institutional policies and innovation in business practices, the phase witnessed increase in monopolistic power, whereas other strategies brought competition in the industry. Different experiments like emergence of hub-control, the deregulatory phase presented a different approach to low-control services. It brought evolution in standard and quality replaced the previously dominant industry. (Williams & Weiss, 2005)
When talking about the studies by academic economists, they were keen and positive about the deregulation of domestic airlines. Since the imposition of the deregulation the economists continued an extensive study on the industry. The study concluded which was also the prediction of many of the economists that deregulation would improve the consumer welfare. Even after 14 years this prediction is still collaborative, and the outcomes of the deregulation vary considerably. (Borenstien, 1992)
Moreover, re-regulation is being looked forward to as in opinion of many deregulation is overestimated, considering the financial crisis, monopolistic market trends. Therefore, it’s time to regulate the airline industry. The industry needs billions of dollars for maintenance and construction. It has become impossible for the industry to compete in the market, as in the past decade the fuel prices have increased and the profits are decreasing. The industry itself is realizing the need of change in policy, not completely regularization but a partial regularization can significantly help the downfall. (Longman, 2012)
Conclusion
The U.S airline industry since its deregulation has undergone significant surprising changes. Well established airlines failed, whereas others gained significant importance and limelight. The aftermath of this policy was featured my media and press, resulting the industry to be subjected of excessive competition or becoming excessively concentrated. Hence, it’s needed that a partial regularization must be adopted to decrease the drawbacks of deregulation.


References
Borenstien, S (1992), The evolution of U.S Airline Competition, .Journal of Economic Perspective, 6(2), 45-73. Retrieved from http://www.jstor.org/discover/10.2307/2138408?uid=3738832&uid=2&uid=4&sid=21101662243357
Buckfelder, B, (n.d) Airline industry regulation in America. Retrieved from http://www.ehow.com/about_5488430_airline-industry-regulation-america.html
Gowrisankaran, G (2002), Competition and regulation in the airline industry. FRBSF ECONOMIC LETTER, Retrieved from http://www.u.arizona.edu/~gowrisan/pdf_papers/airline_competition.pdf
Longman, P, (2012) Time to Re-regulate the Airlines. Retrieved from http://usatoday30.usatoday.com/news/opinion/forum/story/2012-03-28/regulate-airlines-bankruptcy-flying/53837694/1
Smith, F & Cox, B (n.d) Airline deregulation. Retrieved from http://www.econlib.org/library/Enc/AirlineDeregulation.html
Williams, J & Weiss, M (2005), Competitive innovation in the U.S. Airline Industry. Retrieved from http://repository.cmu.edu/cgi/viewcontent.cgi?
Yosef, E. (2005). The evolution of the U.S airline industry: Theory, strategy and policy. (Illustrated, Vol. 25, pp. 132-134) Springer. Retrieved from http://books.google.com.pk/books?id=oU3JToIiFpQC&pg=PA133&dq=advantages of regulation of US airline  Read More
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