Re-regulation of the US Aviation - Coursework Example

Re-regulation of Aviation Introduction One of the most important aspects of aviation in the United s is the regulation scenario. The Federal Aviation Administration (FAA), which has its roots in the first half of the 19th century, has played a major role in changing the constituent of the aviation industry of the US. With each changing global, political and economic wave, the FAA has been fast in changing its policies to reflect the need of the hour. However, is such responsiveness to the environment beneficiary to the industry and nation, or will result in the industrys demise? The following sections shall investigate the impact of the current debate of re-regulation of the aviation industry in the US. History of Aviation Regulation The aviation regulatory body in the U.S. has its roots in the 1930s with the formation of the Civil Aeronautics Board (CAB). The CAB was a regulatory body which governed the aerial transportation infrastructure by giving authority to its regulatory agency to control entry into the industry, exit by controlling cessation of service, regulation of fares and approval of mergers and other anti-trust activities (Bailey, 2002). The CAB was also the gatekeepers of safety issues and economic regulations in accordance to the Federal Aviation Act of 1958. The US aviation was part of the national infrastructure, designed to facilitate travel and communication. However, introduction of new aircrafts during the 1950s and 1960s gave rise to competition for routes and fares by service carriers. The limitation of price and entry regulations clashed with the market laws which had no policy standing (Bailey, 2002). By the 1970s, the deterioration of the national infrastructure and lack of efficiency and innovation due to no competition or new entry led the government to deregulate the aviation industry. The bankruptcies of airlines like Eastern, TWA and Pan American promulgated the political forces to influence service offering, quality, air fares, routes, and innovation contributed by the carriers (Bailey, 2002; Cleveland and Price, 2003). For over three decades the US deregulated aviation industry capitalized on its authority over price fares, established routes and hub airports, new service type such as no-frill airlines, and competitive regulations. However, dominance of low-cost carriers, mergers, and route monopoly, and hub-and-spoke system have led to the increase in fares rather than decrease and thereby increased a larger network of high priced service providers. It was at this point that the government intervened and stopped the wave of mergers of major carriers like United Airlines from taking over US Airways to control monopolies. On the other hand, airport facilities which were owned by the government depended largely on airlines for funding its maintenance and development. Facilities like gates, air traffic control facilities were offered as long-term leases to air carriers which were easily monopolized by the carriers who paid the most for the facilities. These issues raised concerns over the next step in regulations in the aviation industry (Bailey, 2002). Re-Regulation in the US Aviation Industry Re-regulation refers to the process of government regaining control over the aviation regulations by introducing measures to advocate consumer friendly initiatives, rules and policies. The re-regulation of the aviation industry in the US has its roots in the September 11, 2001 attacks which had raised concerns over aviation security and its upkeep with the enactment of the Aviation Security Bill of November 2001. The public had become concerned with the lack of security at airports and aircrafts in case of terrorist attacks. Airlines have been fast in blaming the governments policies for this drawback (Bilotkach, 2007; Cleveland and Price, 2003). The decision to re-regulate the industry has been thought to stop irregularities in the aviation industry. These policies have also been felt imperative for curtailing hub-premia, dominance of international routes by partner carriers, and the effect of negative pricing on consumers. The dominance of the private carriers and its competitive dictates of the aviation market have led to the debate whether to re-regulate the industry. The rationale is that re-regulation would reduce carrier monopolies yet at the same time it would allow local carriers to effectively compete within international markets, especially in countries where protectionist regulations has been developed by governments to help protect their local industries. These industries will have to compete in the international arena (Bilotkach, 2007). Airlines will have to change their contract carriage to cater to customer service according to standards set by the regulation. Implications on Aviation Industry What re-regulation of the aviation industry has resulted in are the mounting open-skies deals among airlines to protect their routes, guaranteed passengers and monopoly over geographical sphere. Deregulation, which had created the private marketplace for carriers has also made them immune to the governments intrusion. Decades of deregulated laws have allowed carriers to create an infrastructure of gridlock, hubs, and monopolistic fares which have proved hard to eradicate (Ranson, 2001; Cleveland and Price, 2003). Airlines have been forced to lower prices to attract passengers after September 11. They are to adopt security measures as regulated by the government to create safe and secure air travel. Passengers now have more rights at the airport and on the aircraft than they had before including termination of tickets, access to security, and are more demanding in terms of service for the price they pay (Ranson, 2001). At the same time carriers is to face international shift in demand for air travel due to terrorism. These have resulted in mergers or bankruptcies. American Airlines, Trans World Airlines, Southwest Airlines, and the like have been hard hit by the regulations, and have been forced to merge. But due to re-regulation, these airlines are pushed into unfavorable circumstances - they have become bankrupt due to low fares, fail to operate at designed routes, and are no longer competitive against international rivals (Ranson, 2001). Furthermore, the claim that re-regulation would curtail monopolistic competition, and give way to new entrants, has not proven true. Low fares and stringent regulations have actually discouraged new entrants from entering the industry. In fact, due re-regulation, carriers have been able to dominate hub airports and capitalize on open-skies deals to sustain their position in the market (Ranson, 2001). Advantages and Disadvantages The debate over re-regulation is whether it is advantageous or disadvantageous to the industry, stakeholders and passengers. According to Crandell former Chairman of American Airlines (McGee, 2008), re-regulation would further deteriorate carriers performance and drive to attain service quality and international reputation. This is because there are lesser US carriers in the industry today. Airports congestions have added to the degradation of service. What re-regulation would achieve is emphasize on policies which will be harder to implement, resulting in violation of regulations and tendency to by-pass these laws. Price regulation, security regulation, and labor laws etc. would be by-passed as airlines would be constrained by their low margins (Cleveland, 1985; Lee, and Luengo-Prado, 2004). On the other hand, for three decades carriers have improved their ways of making money from passengers while offering inferior services at high costs. Airlines now charge for checking bags, food, and drinks etc. They have also been known to have fewer seats available, as well as delays, missed flights, no routes, and rescheduled flights, causing extreme inconvenience to passengers. Re-regulation would force carriers to provide these services by controlling the routes, facilities and airports (McGee, 2008). In the long run, re-regulation would limit the scope of an industry which forms a significant chunk of the national economy, security and defense infrastructure. Re-regulating the aviation industry would be funded from peoples taxes. In case of economic crisis, the same airlines would require further bailout fund from the government to prevent them from bankruptcies, the likelihood of which is increasing (Whalen, 2004). Conclusions This leads the researcher to understand that although the US aviation industry has degraded over the years, it is also true that it has improved in terms of safety, ease of travel and improved services to the passengers. The US aviation is the pioneer in aviation industry, with leading technologies and aviation systems in the world. Yet this industry is compromised by greed, non-systematic regulations, and the free hand of the market. There is a clear need for improvement. Re-regulation has been a good option but it has not proved to be beneficial for any one in particular. In terms of the governments benefit it would incur more cost in terms of bankruptcy bailout laws, dependent on carriers for funding its facilities and maintenance of the industrys infrastructure. In terms of carriers, re-regulation actually restricts the scope of exploring for new service offering, fares option and so on. They are forced to cut down costs in operations in order to meet up with the requirements of re-regulations. In terms of consumers, many would avail security, safety and legal rights but these would come at a cost which should have been available to them in the first place. Therefore, the researcher concludes that re-regulation is not actually beneficial for the US economy. Perhaps alternatives or laws in conjunction to deregulation should be followed to organize the US aviation industry. Annotated Bibliography Bailey, E.E. (2002). Aviation Policy: Past and Present. Southern Economic Journal. 69 (1), 12+. This is a journal article which details the history of aviation regulations from the 19th century to current day debate on re-regulation. Bailey describes the formation of the US aviation industry, the origins of its policies and why it is important to regularize it. Bilotkach, V. (2007). Asymmetric Regulation and Airport Dominance in International Aviation: Evidence from the London-New York Market. Southern Economic Journal 74 (2) 505. This journal article argues that asymmetric regulation in the London-New York route is creating service provider dominance in the international aviation arena. The author believes that this would lead to other international carriers to follow in the same path. Cleveland, P. A. (1985). Market Performance under Deregulation: An Industry Study of Air Transportation. College Station: Texas A&M University Press. This is a book on the aviation industry in general, and how it has performed in the past decades under deregulation policies. The author believes that the authority has failed in regulate the regulators which has resulted in the mismanagement of the aviation industry. Cleveland, P.A. and Price, J.R. (2003). The failure of Federal Aviation Administration Regulation. The Independent Review, Vol. VIII, No. 1 (Summer) 53-63. This article is a continuation of the book. It outlines in particular the FAA’s role in the design, implementation and management of regulation, deregulation and re-regulation of the US aviation industry. Lee, D., and M. J. Luengo-Prado. (2004). Quality competition in the U.S. airline industry: Are passengers willing to pay more for additional legroom? Journal of Air Transport Management 10:377-83. This article outlines the competitive market of carriers in the US, outlining the quality of service, fares, and the offerings that airlines provide to their passengers. The emphasis is on the passenger psychology, and how their demands have contributed to the industry’s trend. McGee, B. (2008). Why airline reregulation is no longer taboo. USA Today. Online available at: http://www.usatoday.com/travel/columnist/mcgee/2008-09-02-airline-regulation_N.htm This is a news article which outlines why re-regulation of the US aviation is a major debate for Congress, and whether it would be beneficial for the country in the long run or not. Ranson, L. (Feb 2, 2001). Move Toward Re-regulation of Aviation Industry Gains Momentum. World Airline News. This news article outlines the re-regulation status, and how effective it has been so far in implementation. Whalen, C. (2004). The Plane Truth about Airline Woes. Insight on the News (March 29) 33. This news article notes the dilemma of airlines, their problems and how these are affected by regulations set by the government. Read More