In Air Travel, Competition is Up
TEN years after the Deregulation Act of 1978, the state of the airline industry seems pretty grim. Competition appears to have been reduced as mega-carriers gobble up small firms via merger. Airline employees are reported to have suffered massive layoffs and wage concessions. Prices may be on the rise. No wonder there is a growing consensus that airline deregulation bombed.
There is evidence, however, that competition in the airline industry has increased and employment is up.
How can this be? It depends on how competition is measured. The common practice is to lump all airlines into one group. Mergers are considered to affect the entire industry. Therefore, claims are made that due to mergers the number of airlines is declining, and consequently competition is down. But determining the amount of competition industry-wide is not necessarily the best measure of actual competition.
For example, a traveler from Chicago to Dallas is concerned only about the number of carriers that fly that route. It is of no relevance to his case how many airlines there are flying industry-wide. If he decides to make another flight, for example from New York to Las Vegas, he then would investigate the options available on that route.
When one considers routes separately, competition has increased since deregulation, even if the total number of airlines industry-wide is decreasing.
For example, on the Chicago to Dallas route there were only two airlines (Braniff and American Airlines) authorized to fly in 1977. As of December 1988, there are six (American, Delta, Midway, Northwest, TWA, and United). The route from Cleveland to Washington, D.C., was served by two airlines in 1977; as of December 1988, it is being served by five airlines.
The route from New York to Las Vegas was served by TWA and Frontier in 1977. As of December 1988, American, Braniff, Continental, Delta, American West, Midway, Northwest, TWA, United, and US Air are all flying that route. This is an especially interesting route to consider because in 1985, Ozark and Western also flew this route along with American, Frontier, TWA, and United. Ozark and Western are victims of recent mergers, yet the number of airlines serving the route now is greater than in 1985.
It is evident that competition has increased dramatically since deregulation, right through the recent merger wave.
Immediately after deregulation jobs were lost as airlines cut costs to compete. Hubbing, which concentrates an airline's operations, had a particularly detrimental effect on airline mechanics' jobs.
Other factors not related to deregulation, however, may be the cause of unemployment in the airline industry. High fuel prices, a recession, increasing capital costs, and competition for limited airport space have all become issues since 1978.
Despite such factors, employment in the airline industry has risen. Total employment has increased from 336,253 in 1978, when deregulation began, to 457,349 in 1987, according to the Air Transport Association.
Recent reports of plans to increase fares have sparked new criticisms of deregulation. However, despite high aircraft costs and the costs of providing more service options, overall real prices have generally been decreasing throughout the decade.
Service options include frequent flights, meals in flight, nonstop service, wider seats, etc. Not all travelers want, or need, these options, though. As a result, many airlines have developed a set of flexible rates and services depending on the demands of those using the service. Business travelers, airlines' most reliable customers, demand most of the service options and therefore pay higher fares. Vacationers, who demand low fares, must fly at odd times when business travel is at a minimum and settle for fewer of the service options.
The picture of the airline industry after deregulation should not be perceived as grim. Competition has increased, employment is up, and more people are flying than ever before.