Airline Deregulation as it relates to Competion and Unions - Essay Example

Airline Deregulation as It Relates to Competition and Unions (Assignment) Airline Deregulation as It Relates to Competition and Unions Airline deregulation simply refers to the process by which price, entry, and route restrictions on airlines are removed. Several countries have introduced this process with intent to increase the price and cost competition in the industry. In United States, airline deregulation is usually applied to Airline Deregulation Act of 1978 (deregulation and its consequences).

This paper will critically evaluate the airline deregulation with reference to its impacts on competition and unions. The airline deregulation provides significant benefits to an average traveler. This Act removed many of the airline restrictions and thus totally altered the concept of civil aviation in the US. Subsequent to the integration of jets into the market, the air travel industry experienced incredible growth rate. As a result of steady increase in air travel, the federal regulators were forced to deregulate the industry to meet the increasing needs of the air travelers.

The airline deregulation process augmented market competition once the marketers got the freedom to determine their own prices. It also persuaded the airline providers to enter in price competition in order to dominate the air travel market. Reports point out the notable effects of deregulation; “the inflation adjusted 1982 constant dollar yield for airlines has fallen from 12.3 cents in 1978 to 7.9 cents in 1997. This means that airline ticket prices are almost 40% lower today than they were in 1978 when the airlines were deregulated” (Thierer, 1998).

Since this trend offered fruitful economic benefits to passengers, the passenger miles flown tremendously grew. For instance, in 2005, there were 750 million passenger miles whereas this figure was only 250 million in 1978. The magnitude of market competition was more in Europe as compared to US. In addition, the airline marketers competed also on safety and service quality. The higher level competitiveness of Southwest Airlines and Jetblue can be mainly attributed to the airline deregulation.

Once the marketers got the right to set prices, they minimized direct and indirect subsidies to labors and that resulted in incessant conflicts between labor unions and management. As Murphy (2008) reports, wages fell from #3 to #17 between the period 1978 and 1990. Dislocation was one of the major impacts of airline deregulation on labor. Although, the dislocations decreased labor strikes, it has substantially increased bankruptcies and liquidations. As a result of this deregulation process, new business lines such as LCC’s and Air Express and other employment opportunities were opened.

A good number of potential employees were attracted to airline industry due to which the labor unions’ bargaining power got declined to a large extent. Murphy (2008) says that the number of full time employees considerably increased from 324,000 in 1978 to 508,000 in 2007; and there was also an 836% increase in the number of part time employees between 1978 and 2007. Moreover, the changing work environments force labors to be more competitive because inefficient labors are more likely to be eliminated.

In total, airline deregulation has significantly contributed to the growth of airline industry with regard to market competition and labor. The tough market competition led to price falls and subsequently added value to passenger interests. In contrast, this process adversely affected labor unions since marketers got the right to determine their charges. References Deregulation and its consequences. US Centennial of Flight Commission. Retrieved fromhttp://www.centennialofflight.gov/essay/Commercial_Aviation/Dereg/Tran8.

htm Murphy, P. V. (2008). Airline deregulation’s impact on labor. Eviation Forum on Liberalisation and Labour. Retrieved from http://ec.europa.eu/transport/air/events/doc/patrick_murphy.pdf Thierer, A. (1998). “20th anniversary of airline deregulations: Cause for celebration, notre-regulation”. The heritage foundation. Retrieved from http://www.heritage.org/Research/Reports/1998/04/20th-Anniversary-of-Airline-Deregulation