The high-level Clinton administration-House-Senate Commission to Ensure a Strong, Competitive Airline Industry has about finished its deliberations. The final report will be the major non-event of the year, if the current draft is any indication: The initial recommendations contain very little direct benefit to travelers.
Overall, the best news may be what the commission doesn’t recommend. It doesn’t call for a floor on domestic air fares, as some airline executives had suggested. It doesn’t recommend much other government interference with the airline marketplace either.
Given the diverse composition of the commission-just about all interested parties except consumers-an obvious and pedestrian outcome may have been inevitable.
Even so, the commission’s results are weaker than many of us had hoped. Why? Mainly because the commission’s basic premise is off-target. It is “not convinced that the airline industry suffers from any competitive structural defect that inevitably leads to irrational pricing behavior.” Instead, it attributes the huge recent losses mainly to the Persian Gulf War, the recession and a few one-time special circumstances.
In my view, that assumption is faulty. The airline industry does suffer from a competitive structural defect. It has become a commodity market in which customers don’t see enough difference among main players to overcome the effects of price.
In such a market, the weakest competitor can set the price agenda. Many pricing decisions have been-and will continue to be-irrational. Though creating some short-term consumer benefits, in the long run that invites monopoly.
Probably the most important consumer issue the commission does address is the question of new airlines. For lower fares or better coach/economy service, the new startups are our best hope. Here, the commission ducks the hard issues. Instead, it simply suggests the Department of Transportation continue to be “receptive” to new applicants.
That lukewarm endorsement is accompanied by an equally tepid exhortation that the Departments of Justice and Transportation remain vigilant in antitrust and prevent anticompetitive practices. There’s nothing specific to help current and future Kiwis, Morrises and Renos get into the sky or remain there.
What about other tough issues-how to improve airlines’ financial strength, for example? Here the commission recommends forming a financial advisory committee to define standards of financial health and advise the secretary of transportation. Another committee may make some bureaucrats feel more secure, but it’s hardly my idea of decisive action.
The commission recommends increasing the limit on foreign investment in U.S. airlines to 49 percent. More foreign investment may look like a lifesaver to some struggling U.S. lines, but that’s another chimera. It’s going to take more than just more money to improve a declining line’s situation. New capital-foreign or domestic-may retard the decline a bit, but not reverse it.
As you might expect, several recommendations are for short-term bandages for the airlines’ financial problems. One calls for a reduction in the taxes and fees paid by airlines, another for tax credits for the purchase of new planes-suggestions not exactly in tune with today’s focus on the deficit. Another calls for reducing the regulatory workload-a benefit, to be sure, but hardly a way to cap a gusher of red ink.
Some recommendations are of the bland “mom and apple pie” type anyone would support: Update our air traffic control system technology. Restructure the FAA for greater efficiency and flexibility. Adopt policies encouraging labor and management to cooperate. Make it easier for U.S. aircraft and engine companies to undertake joint ventures. Assure continued air service to small communities. Again, a laundry list of good intentions but little specific change.
