Saturday, April 21, 2007

FAILURE OF AIRLINE CONTROL

The US Federal Government tried and failed at economic regulation of the airline industry. In 1938, the Civil Aeronautic Authority was established for the exact purpose of determining fares, routes and schedules. If there was ever a chance for liberals to demonstrate how government can run the airline industry better than the free market, this was their opportunity in 1938. Moreover, they had up to 40 years to “make government work” until the people finally demanded that the US Congress abolish the Civil Aeronautic Board (CAB) in 1978.

So what were the results of deregulation? According to the Cato Institute, “average airfares fell some 53 percent” from 1977 to 2003. The drop in prices led to an increase in load factors “from 49 percent in 1976 to 75 percent in the first half of 2004”. Inefficient airlines went bankrupt while the competent ones stayed in business, and new competitors arrived on the scene.

While many have said that our higher prices subsidize the major routes, in truth, it’s the other way around. The profitability of the major routes makes additional service to smaller communities such as our own less risky and worth pursuing. If the airlines are not making good money on the major routes, do you think they’re gonna come rushing to the Pago route to make up for the millions in losses across the continental United States ? No, and it’s that greater risk of un-profitability of smaller routes that Congress included the Essential Air Services (EAS) to provide a sort of a safety net.

Then again, the free market has also one-up the elite on that political football with HAL demonstrating that business is not only possible but profitable as well in a small route like Pago. So what was the EAS for again? I don’t get it.

Could we use more competition? You bet we can, and Togiola and the Fono’s temperament would have been put to better use huffing and puffing to blow that political brick wall down to allow foreign competitors into our airline market. The governor may not get his public-private charter airplane with his image engraved on the tail by doing so, but he’ll at the very least get the thanks of our people for more freedom in the airline market.

That’s worth more than all the butt kissing in the world, and best of all, it doesn’t cost anyone anything. I hope he and our people consider that especially in light of the proven failure of airline control.

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