Deregulation Has Been Successful
<B> Deregulation Has Been Successful</B>
By Harold Seligman
<i>Harold Seligman is founder of consultancy Management Alternatives Inc., which is headquartered in Stamford, Conn.</i>
Deregulation had as one of its primary objectives affordable air travel. It certainly has achieved that goal. By any yardstick you care to use to measure affordability, more people are able to fly today because of the cost-containment that resulted from deregulation. Some of the reduction is due to price freedom, some to new competitors, but most results from carriers learning to compete fiercely in a deregulated environment. Whether in inflation-adjusted dollars or absolute dollars, there are certainly more people able to fly today than if regulation had remained intact.
On the first day of deregulation, Oct. 30, 1978, carriers filed to provide service on 870 dormant or unused routes, many of which continue to be served today, either by a major carrier or a regional partner. More air service exists than before and most assuredly it is cheaper than it would have been had regulation persisted.
In 1978, the domestic airlines boarded 253,957,000 passengers. In 1998, more than 550,000,000 passengers flew on domestic routes. International travel has more recently achieved a similar magnitude of growth as a result of reduced intervention in international air travel by many governments. Open skies agreements are certainly an offspring of U.S. deregulation.
Not everyone has been a winner. There are entities, whether travelers or businesses, that have been losers. The mega agencies achieved their growth as a result of deregulation and today are receiving management fees rather than commissions as their income stream. At this time, they continue to be winners. Large corporations can negotiate discounts based on volume and have the ability to direct travelers to their preferred suppliers. They too are winners. Frequent travelers are also winners--without deregulation, the popular frequent flyer programs would not exist. This type of competition would not have been permitted during regulation as it represents a discount from published fares. Smaller agencies and independent business travelers, without the luxury of advance booking or Saturday night stayover, are losers now, but they have benefited during the 20 years of deregulation.
The agency community expanded beyond anyone's expectations. In 1978 there were 14,804 appointed agency locations. As 1998 drew to a close, there were more than 32,799 appointed travel agencies with 47,907 locations.
Former AMR chairman Bob Crandall, an early critic of deregulation, became a believer. In a recent speech, he criticized the Department of Transportation for even looking at commission differentials for Internet bookings.
Competition exceeds anything that might have resulted in a regulated environment. UAL's announcements of a 60 percent expansion in service from Dulles Airport resulted from US Airways' introduction of their Metrojet service at Dulles. During this decade, UAL also vastly expanded their West Coast service when threatened by Southwest on the north/south corridor. Today their Shuttle operates 462 daily flights between 21 cities. This low-cost operation affords many the opportunity to fly that would not have been available in a regulated era. In a regulated environment, a carrier was required to show "need" before a new route would be granted by government authorities. Today, an airline can begin or terminate service based on its own economic well being. It can start a new route to defend markets or it can withdraw from a route because it is unprofitable, without Uncle Sam's permission.
Deregulation enabled low-cost carriers, such as America West, ATA, Midway and Southwest, to survive and many are prospering.
Without deregulation, Braniff, EAL and PanAm would still be among the dominant domestic airlines. Regardless of a carrier's inefficiency, it would have continued to operate had regulation remained in place. Incompetent carriers were permitted to raise prices and able competitors were mandated to increase pricing to match the inept.
Without deregulation, the sale of air travel would have been stifled. Travel agencies would not have the freedom to use their commission income as a sales tool. They would continue to be handcuffed by the Air Traffic Conference and Civil Aeronautics Board. There would be no mega agencies or consortia, such as Woodside, which was initially created to help midsized agencies level the playing field with their larger competitors.
Agents who feel they are mistreated by the carriers today have short memories. Prior to deregulation, ATC could dictate location, hours of business, advertising content and a host of other business practices that impeded agencies from conducting business in a manner that allowed them to grow and prosper. Airlines were not sued by agencies in those days as they were shielded by federal antitrust immunity. Periodic ATC inspections, most without notice, were a nightmare. Even the smallest infraction could lead to suspension or loss of appointment by the Air Traffic Conference and IATA. There was no arbiter to adjudicate on behalf of the agencies.
The percentage commission earned by agencies was far lower in the pre-deregulation era than at any time during the past 20 years. Only now is it returning to earlier levels.
Airline executives have determined that travelers in growing numbers will use the Internet for point-to-point and simple itinerary reservations. E-ticketing has eliminated the need for ticket delivery. As a result, the carriers are positioning themselves to function with a reduced number of travel agencies in the not too distant future.
We may return to an earlier age when the carriers considered the agencies to be creators of business rather than order takers. Again, there will be winners and losers, with those agencies that create a niche that adds value to the traveler ending in the winner's circle.