What’s wrong with commercial aviation?
October 23, 2008 by Evan Sparks
My story in The American magazine is now up on its website. Here’s the lede: “Thirty years ago this October, the era of affordable mass air travel was unleashed. Why was this revolution stalled, and what can be done to finish it?”
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Posted in Evan's News and Quick Takes | Tagged air traffic control, airports, BAA, canada, competition, delays, Deregulation 2.0, dot, europe, faa, regulation, southwest, travel | 1 Comment
Evan Sparks said….
“After 30 years, airline deregulation has been remarkably successful. The U.S. aviation sector’s very real problems are due not to the lack of regulation but to excessive or ineffective government involvement in other segments of the industry. By making its aviation infrastructure more competitive and efficient, the United States can spend the next 30 years building on deregulation’s unmet potential.”
What’s wrong with commercial aviation, you ask?
Using Occam’s Razor which says that “the simplest explanation is most likely the correct explanation.”
Here’s the simplest explanation and it’s supported by the University of Chicago’s School of Economics ….. “Unfettered competition in the airline industry is NOT POSSIBLE!”
Their answer is so simple………it’s what we call in mathematics……….ELEGANT!
Your explanation, by contrast, asks policy-makers for another 30 years and A380 plane-load full of “assumptions”.
How does one explain an oligopoly market structure, that can’t “clear its own market”? There are several oligopoly models in economic texts……all clear the market quickly. Yet, the airline industry’s oligopoly market structure has defied the classical economic texts. Go figure?
30 years? Not enough time? You’re kidding?
You say it’s the aviation infrastructure “itself” that has caused all of this industry’s instability and problems? How does lack of infrastructure cause MASS BANKRUPTCIES in an oligopoly market structure?
The dilemma of how best to allocate fixed resources, whether in the form of slots, gates, runways airports or otherwise is not unique to the airline industry. The market mechanism has proved itself to be very useful in solving these types of problems, yet here we have an industry that CAN’T reach a meaningful equilibrium and has had 30 years to try?
What’s wrong with commercial aviation? It’s not lack of “infrastructure”.
While some policy makers may “celebrate” the ability of passengers to fly below the real costs of production. Common sense tells most economists that this is not sustainable market. Sustainable markets are characterized by “mutually beneficial exchange” and equilibrium.
Here, we have a consumers or air travel “winning” but mass bankruptcies for the producers. Is this your definition of “mutually beneficial”? Is this the American Enterprise Institute’s definition of a “market based solution”?
The Bankruptcy Court is NOT a market solution.
Bankruptcy is NOT an acceptable “management tool” if you are to continue to ask for money from the capital markets.
Chicago University’s Professor Tesler tells us that in some industries a market solution is NOT possible. Such markets are said to have an Empty Core. It is obvious the airline industry is such market.
30 years of evidence, mass bankruptcies and destructive competition has proved to most reasonable policy-makers that the airline industry has no competitive core. Eventually, empty core markets leave society “worse off”, as predicted by Tesler’s model of Empty Core economics.
I’m glad that Alfred Kahn has lived long enough to see the “capstone of his life’s work” discredited as an immense FAILURE, one that has weakened our ability to compete globally.
The solution is as Crandall prescribed……….a “dollop” of regulation.
In the end………..it was Crandall who is vindicated by the evidence of history.
“You F@#ing Egghead!
You don’t know $h!&!
You CAN’T deregulate this industry!
You’re gonna wreck it!
You don’t know a goddamn thing!”
Crandall was RIGHT!
The simplest explanation is the often the most correct!