Throughout its entire history the Republican Party has been possessed, either simultaneously or alternatingly, by at least two souls -- those of an authentic 18th century liberal and of a 19th and 20th century protectionist. While the rhetoric of the Reagan administration is the rhetoric of the free-market Jekyll, all too many of its actions in recent months have been the actions of the protectionist Hyde. Witness, for example the policies or policy declarations with respect to imports of Japanese cars, the multinational fiber agreement, price supports for sugar, peanuts and tobacco and the re-regulation of trucking.
Now we may be witnessing another such retreat from principle: on Sept. 11, the Civil Aeronautics Board, acceding to a request of the president, postponed for four months its order withdrawing antitrust immunity from U.S. carriers for participating with foreign airlines in the collective setting of fares over the North Atlantic.
We cannot unilaterally transfer into the international arena our new domestic aviation policy of deregulation and open competition: international airlines markets are controlled in large part by bilateral agreements negotiated between governments, and all too many foreign governments insist on limiting entry, regulating capacity and fixing prices.
The policy we adopted under President Carter was one of trading liberalizations for liberalizations -- offering foreign carriers freer access to the American market in exchange for agreement by their governments to admit competing American airlines into their cities, to accept our increasingly liberal charter rules (no longer need all passengers on a charter flight have the same blood type), to eschew limits on the number of flights and to refrain from disallowing competitive fares.
Most governments, however, continue to permit or require their carriers to participate in International Air Transport Association (IATA) fare-setting conferences. IATA is essentially a cartel, consisting of most international airlines and providing a mechanism for them to meet and agree on fares and levels and conditions of service. The results are what one would expect of any cartel -- higher prices and reduced service levels (including the $3 charge for headsets that the flight attendants attribute euphemistically to "international regulations").
Aside from attempting to negotiate more liberal bilateral agreements, the most procompetitive policy we could adopt would be to prevent U.S. carriers from participating in any IATA fare-setting conferences, simply by repealing the antitrust exemption they now enjoy. The CAB moved in that direction last May so far as the North Atlantic routes were concerned; this is the action that has now been postponed until next January.
If, as the matter now stands, the board's order does indeed go into effect in January, this note of alarm may prove to have been premature. Still, it is worth sounding, for two reasons. First, there are some officials in the Reagan administration who agree with the complaints of the major international carriers that our liberal policies have gone too far, that we gave away the store at their expense. (To be fair, there are other officials who do not agree at all).
Second, this postponement comes at a terribly unfortunate time. Officials of the European Economic Community are at this very moment drafting regulations to bring aviation into closer compliance with the pro-competitive articles of the Treaty of Rome. For us to be giving the impression that we are ready to pull back from our previous free-trading policies plays into the hands of the opponents of these new EEC initiatives.
It seems to me essential, therefore, to confront the complaints of our incumbent carriers, and the accompanying demand that we go back to the days of governmentally negotiated and sanctioned cartelization.
The opponents of increased competition on international routes claim U.S. carriers have suffered a serious erosion in market shares as bilateral agreements have been liberalized. That is true. However, the decline during this recent period has been no more rapid than in the years immediately preceding. Our losses in market share have been more than accounted for by declines in the share of traffic originating in the United States. Foreign travelers tend to choose foreign carriers, just as U.S. travelers tend to choose U.S. carriers." Moreover, and most striking, our carriers have consistently done better under the more liberal bilaterals than under restrictive ones.
The opponents contend, second, that the competition to which our liberal policy subjects them is unfair because foreign governments subsidize their airlines and discriminate against ours. But our international carriers have had some very profitable years, even in the presence of these handicaps; since the reduced profits of the last year or two can clearly be attributed to other unfavorable circumstances, there seems to be no reason to use the subsidies as a justification for abandoning our pro-competitive policies.
Opponents point, finally, to the poor profitability of U.S. carriers on international routes in 1980 and 1981. In fact, their results have differed dramatically; the differences seem to reflect very closely the respective qualities of their managements. Moreover, the industry -- whether competitive, monopolistic or regulated -- was bound to suffer disappointing results when faced with suddenly dramatically elevated fuel costs, high interest rates and recession. Except for Pan Am in 1981, the industry suffered heavier losses in real dollars back in 1974-75, when free entry and price competition were still dirty words.
Our domestic experience in the past several years has amply demonstrated that competition in the airline industry functions well even under adverse conditions and confers immense benefits on the traveling and shipping public.