Those of us who for years have opposed deregulation of the airlines aren't surprised that American Airlines is trying to buy up TWA's London routes, that United Airlines is trying to gobble up Pan Am's lucrative London business and that TWA's Carl Icahn at the same time proposes a "friendly" merger with Pan Am.
If these moves succeed -- and they could if British Airways is allowed to break into markets here now denied them -- it will mark the demise of Pan Am, one more major airline to fall in the era of deregulation.
The number of major carriers will have been cut about in half since the onset of deregulation. This is contrary to the assurances of Alfred E. Kahn, the father of deregulation, that a great new period of competition would be opened.
"The regulated oligopoly which existed under regulation has simply been replaced with unregulated oligopoly, free to exert its market power with impunity," says Kahn critic Paul Stephen Dempsey, director of the transportation law program at the University of Denver College of Law.
Opponents of deregulation, including Dempsey, a former lawyer for the Civil Aeronautics Board, warned the government that it was a mistake to remove itself from any say in the structure of the airline business. Hands-off government guaranteed that the industry would be reduced to just a few huge airline conglomerates, each operating out of its own hub.
But deregulation caught the fancy of Congress at the end of the 1970s, because it was fed up with the power of the airline industry that, with the help of government regulators, froze out new entrants and kept fares high. The eight largest carriers then had 80 percent of the passenger market. But now, under deregulation, they have 92 percent of the business.
Kahn, an economics professor who was chairman of the now-defunct CAB under President Carter, contended that deregulation would induce healthy competition and result in lower airfares for consumers.
It was good academic theory -- and indeed, it seemed to work when ventures like PeopleExpress came on the scene and caught the fancy of air travelers with cheap, basic transportation. But these competitive stings to the carrier establishment were quickly snuffed out.
After an initial boomlet of activity by new carriers, the bigger ones -- now totally unregulated -- began to absorb the smaller ones, usually by predatory pricing. Airlines began to disappear. And of the remaining ones, only four or five are in sound economic condition.
Kahn, the Department of Transportation and studies by Brookings Institution scholars insist, nonetheless, that air travel is cheaper under deregulation, a claim that is hard for me to believe when flying the shuttle round-trip to New York at $284 -- a 60 percent increase since mid-1988. In a recent study for the Economic Policy Institute, Dempsey calculates that by 1989 consumers were paying some 2.6 percent more per mile than they would have if the downward trend in pre-deregulation years had simply continued.
The debate over fares will rage on, because different base years and different assumptions can be made. But no one can challenge the fact that deregulation spawned an unprecedented concentration that allows a handful of giant companies to control the market.
The airline traveler is left at the mercy of the remaining airlines, which set the routes (leaving some cities and areas without service), set the fares and establish the quality of service (or lack of it). If you don't like what's offered, you can take the bus -- or fly a kite.
Deregulation also helped generate a mountain of debt for the airlines. Dempsey estimates that at TWA and Eastern, 8 cents or 9 cents of every dollar of operating expenses represents interest on loans. As a whole, the industry has $15 billion in outright debt. That doesn't include frequent-flyer mileage, new aircraft and other obligations.
Kahn now blames the mess on the failure of the Reagan-Bush administrations to enforce the antitrust laws, but exculpates deregulation. It's true that Republicans since 1981 never met an airline merger proposal that they didn't fall in love with. But as Dempsey notes, "whether the government approves airline mergers (as it did in the 1980s), or insists that failing airlines be liquidated (as it will likely do in the 1990s)," the number of major airlines is diminishing.
As of the moment, five American airline companies (including four big ones) are in one stage or other of liquidation or selling off assets: Pan Am, TWA, Continental, Eastern and Midway. Two of these -- Eastern and Continental -- already have gone belly up. Yet in other nations around the globe, all of which regulate their airlines, there is not a single bankruptcy. That should tell us something.