Tuesday, March 23, 2010


The airline industry is inherently global yet often overly protected at a national level. The airline industry is considered deregulated, yet the "de" implies that there is no regulation, while a more appropriate term would be less regulated (of course, from an economist point of view the "de" is suitable). Here is an interesting opinion piece by Alfred Kahn discussing the benefits of deregulation in the industry, click here (A. Kahn is offered considered the godfather of deregulation).

The goal of deregulation of any industry is to introduce or increase competition to the market to stimulate price reductions, efficiency, and innovation. Alone the fall in cost of air travel has been a blessing to the traveling public (you can see here that the price of air travel has gone up since 1978 but not nearly as much as the CPI or other items). So, there has been a decrease in the cost of flying for the public, which has naturally meant more passengers. This has lead to frustration at times, yet overall, the public is able to fly for less expense. Kahn goes on to talk about unbundling of services and how this is a reflection of deregulation at work. I think the concept of bundled vs. unbundled products works either way as long as they are accepted by the public and they work. If an airline offers unbundled products they better make sure they are simple to understand and to use (and pay for!).

The challenge is now that there are some calls for reregulation. Planes are crowded, there are delays, the system doesn't work. I think what's wrong is the system! The NAS in the US is in shambles and is not geared for the growth at hand, and probably wasn't geared for the growth for the last 2 decades. The government deregulated the industry on the basis that lower prices will benefit consumers, yet failed to prepare for the oncoming growth. Once the NAS', in North America, Asia, and Europe, are upgraded and the system is still pressured maybe one can consider reregulation, but that's a very conditional consider.

I am a proponent of deregulation/less regulation, although an interesting read against deregulation is Airline Deregulation and Laissez-Faire Mythology by Dempsey and Goetz.

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