Regulation..
 

Simple question..

Why is it that I can't get into a cab, take a muni-bus, local or long distance train or what ever other mode of public transportation without it being regulated (in terms of the pricing).. but the industry with the highest costs (captal outlays), which is the airline industry is "De-regulated"?

Why?

Just to mess with your head!!

Hopefully this will help !
 

Since 1937, the federal Civil Aeronautics Board (CAB) had regulated all domestic interstate air transport routes as a public utility, setting fares, routes, and schedules. Airlines that flew only intrastate routes, however, were not regulated by the CAB. Those airlines were regulated by the governments of the States, in which they operated. The CAB promoted air travel, for instance by generally attempting to hold fares down in the short-haul market, to be subsidized by higher fares in the long-haul market. The CAB also was obliged to ensure that the airlines had a reasonable rate of return.
The CAB earned a reputation for bureaucratic complacency; airlines were subject to lengthy delays when applying for new routes or fare changes, which were not often approved. World Airways applied to begin a low-fare New York City to Los Angeles route in 1967; the CAB studied the request for over six years only to dismiss it because the record was "stale." Continental Airlines began service between Denver and San Diego after eight years only because a United States Court of Appeals ordered the CAB to approve the application.
This rigid system encountered tremendous pressure in the 1970s. The 1973 energy crisis and stagflation radically changed the economic environment, as did technological advances such as the jumbo jet. Most of the major airlines, whose profits were virtually guaranteed, favored the rigid system. But passengers forced to pay escalating fares did not, nor communities which subsidized air service at ever-dearer rates. Congress became concerned that air transport in the long run might follow the nation's railroads into trouble; in 1970 the Penn Central Railroad had collapsed in what was then the largest bankruptcy in history, resulting in a huge taxpayer bailout in 1976.
Leading economists had argued for several decades that this sort of regulation led to inefficiency and higher costs. In 1970-71 the Council of Economic Advisors in the Richard Nixon Administration, along with the Antitrust Division of the Department of Justice and other agencies, proposed legislation which would diminish price collusion and entry barriers in rail and truck transportation. While this initiative was in process, in the follow-on Gerald Ford Administration, the United States Senate Judiciary Committee, which had jurisdiction over the antitrust laws, a part of competition law, began 1975 hearings on airline deregulation. Senator Ted Kennedy took the lead in these hearings. This committee was deemed a more friendly forum than what likely would have been the more appropriate venue, the Aviation Subcommittee of the Commerce Committee. The Gerald Ford Administration supported the Senate Judiciary Committee initiative.
In 1977, President Jimmy Carter appointed Alfred E. Kahn, a professor of economics at Cornell University, to be chair of the CAB. A concerted push for the legislation had developed, drawing on leading economists, leading 'think tanks' in Washington, a civil society coalition advocating the reform (patterned on a coalition earlier developed for the truck-and-rail-reform efforts), the head of the regulatory agency, Senate leadership, the Carter Administration, and even some in the airline industry. This coalition swiftly gained legislative results in 1978.
Dan McKinnon would be the last Chairman of the CAB and would oversee its final closure on January 1, 1985.

The Act intended for various restrictions on airline operations to be removed over four years, with complete elimination of restrictions on domestic routes and new services by December 31, 1981, and the end of all domestic fare regulation by January 1, 1983. In practice, changes came rather more rapidly.
Among its many terms, the Act:

• gradually eliminated the CAB's authority to set fares;
• required the CAB to expedite processing of various requests;
• liberalized standards for the establishment of new airlines;
• allowed airlines to take over service on routes underutilized by competitors or on which the competitor received a local service subsidy;
• authorized international carriers to offer domestic service;
• placed the evidentiary burden on the CAB for blocking a route as inconsistent with "public convenience";
• prohibited the CAB from introducing new regulation of charter trips;
• terminated certain subsidies for carrying mail effective January 1, 1986 and Essential Air Service subsidies effective 10 years from enactment (however, as of 2009, the EAS is still in existence, serving 146 communities in the U.S.);
• terminated existing mutual aid agreements between air carriers;
• authorized the CAB to grant antitrust immunity to carriers;
• directed the Federal Aviation Administration (FAA) to develop safety standards for commuter airlines;
• authorized intrastate carriers to enter into through service and joint fare agreements with interstate air carriers;
• required air carriers, in hiring employees, to give preference to terminated or furloughed employees of another carrier for 10 years after enactment;
• gradually transferred remaining regulatory authority to the U.S. Department of Transportation (DOT), and dissolved the CAB itself.

Safety inspections and air traffic control remained in the hands of the FAA, and the act also required the Secretary of Transportation to report to Congress concerning air safety and any implications deregulation would have in that matter.

[edit] Effects

A 1996 Government Accountability Office report found that the average fare per passenger mile was about 9% lower in 1994 than in 1979. Between 1976 and 1990 the paid fare had declined approximately 30% in inflation-adjusted terms. Passenger loads have risen, partly because airlines can now transfer larger aircraft to longer, busier routes and replace them with smaller ones on shorter, lower-traffic routes.
However, these benefits of deregulation have not been distributed evenly throughout the national air transportation network. Costs have fallen more dramatically on heavily trafficked, longer-distance routes than on shorter, lighter ones.
Exposure to competition led to heavy losses and conflicts with labor unions for a number of carriers. Between 1978 and mid-2001, nine major carriers (including Eastern, Midway, Braniff, Pan Am, Continental, America West Airlines, and TWA) and more than 100 smaller airlines went bankrupt or were liquidated—including most of the dozens of new airlines founded in deregulation's aftermath.
For the most part, smaller markets did not suffer the erosion of service predicted by some opponents of deregulation. However, until the advent of low-cost carriers, point-to-point air transport declined in favor of a more pronounced hub-and-spoke system. The larger hubs were served with larger aircraft, the spokes with smaller. While more efficient for serving smaller markets, this system has enabled some airlines to drive out competition from their "fortress hubs." The growth of low-cost carriers such as Southwest Airlines has brought more point-to-point service back into the United States air transport system, and contributed to the development of a wider range of aircraft types that are better adaptable to markets of varying sizes.


It worked out just great !!!!!!!!!!

Fred

Hopefully this will help !
 

oop's double post !!!

what a disaster... the only ones that made out are the bean counters who now run airlines... gone are the Juan Trippe, Howard Hughes, and Bob Six.. In comes the Crandals, Parkers and Tiltons..

I think when SWA goes into BK in about 30 years will DC start to think that the De-Regulation thing really didn't work out that well.

To date, deregulation is a success.

JJ

Yes, a success in ending the glory days of the airline industry.

A success at bringing the cost of aviation down and raising our standard of living as a country. As a pilot, the success of the market has brought down wages because of competition. It turns out that pilots will fly for a lot less money than pilots enjoyed in previous decades. If you are currently a pilot that started out in the last 10-20 years as a CFI/regional pilot, you probably contributed to that lowering of wages. But, now that you 'made' it, you want to have it the way it was before. You just don't get that before, you would probably not have gotten a job at a major airline. You almost exclusively had to be a military pilot or spend decades grinding it out to even have a chance at a major airline job.

And I would be ok with that.... It's not like I'm doing any better as a result of Deregulation... and the rest of the pilots who did "make it" are doing worse... So go figure.

Demand will outweigh the supply - when it comes to pilots in the future. (There will be a pilot shortage, it's inevitable.) This will change nothing. Safety will be compromised and pay (as an industrial average) will still decrease. Get while the getting is good ladies and gents. Flying a bus is all we do...

The only thing that will change this is changing the FAR's. You **cannot** put a 250 hour pilot in an airliner...

Deregulation has been successful in offering consumers choice.

This was one such purpose of deregulation. Deregulation wasn't designed to provide airline employees glory days.

Like I said, deregulation has been a success!

JJ

So why don't we deregulate the rest of public transportation? Taxi's for example?

The public has a choice in what taxt to take, but no taxi company has to reduce their rates to cut throat prices and drive down their costs as they're fares are set and protected.. As is the case with Electric and Gas..

Just think for only 4 cab rides in Manhattan you can afford to fly from NY to Florida!

And to say that de-reg has been a success. Keeping prices low has been accomplished. The problem is that the prices that are STILL in the marketplace cannot sustain the industry. Thus All the Old big boys are gone, the current legacies have largely been through BK or they would be gone too.

If the weak were truly allowed to die, then maybe it could work in it's current form. That hasn't happened and probably never will. A de-regged industry doesn't work and probably never will.

Already been done across the pond. Could it spread?

AHHH! South of the border too, TACA, Lan Chile etc..... Middle East QATAR, Royal Jordanian, etc...Asia Cathay, Chinesse companies etc.... its a reality.

The deregulated industry would work if the government would let the weak companies die. You just said that, and then you say that the industry will probably never work deregulated. You were right the first time. As a country, we will be stronger and enjoy a better standard of living if the government does allow the weak companies to fail and go away. Stronger, more innovative companies will fill the voids. Possibly an entire paradigm shift in travel would occur. Maybe the inefficient manner that routes are done right now would change if the market were allowed to work. The market has an amazing way of eventually working out the best practices when allowed to perform.

In this free market, a company like Southwest is able to be very profitable while paying one of the leading wages in the industry while having some of the lowest fares available. There is evidence that a company that wants a very specific labor pool will pay enough to attract that labor. The market at work.

What happened to America? Do you have to be a socialist/communist/marxist to be a pilot these days?

Well, and that's just it, these free market defenders forget about how many times CAL, UAL and others have been "bailed" out buy the same free market congress.... you can't play both sides of the equation.

Either de-regulate and let them fail when they're broke, or RE-REGULATE <<--- this one!

Regulation is a tool available to governments in the face of market failure.
Despite difficulties experienced by airline employees and in our case, pilots, there hasn't been a "market failure".

If the market appeared to approach failure, you can be sure the government would regulate.

In the face of difficulty, change is appealing. However, regulation would be very intricate and would have far reaching implications. Exactly what those are is difficult to foresee.

Many economists believe that economies are "self correcting". History shows that they are. We are living in frustratingly slow times but, ride it out. Things will turn around!

JJ

We end up argueing over words but don't define what the word means. We say that the airline industry is "de-regulated." But it never really was. The regulations were changed, but it certainly isn't "de-regulated." If it were, then you would see (as Milky mentioned) about the right amount of airlines and pilot positions. It would be, as Smith spoke of, the "invisible hand." Some-how it just works... "France gets fed." It is called capitalism. But what we are arguing about is not capitalism; "free market capitilists" did not bail out CAL and friends. Just because you are a buisnessman doesn't make you capatilist. In fact, is is usually the big buisnesses that prefer governement intervention to keep out the small guy. They are modern day Whigs.

Regulation or "de" regulation are just different flavors of corpratism; corporate and government partnership.

If we keep going down that road then we will get more of the same....

Regulation
 

What if it was regulated that the maximum any pilot could make was 80K and the least was 45K.

What is the job really worth anyway? Are pilots worth 250K? I don't think so especially when the rest of the world is making it work with 250 hour pilots.

The fact is that the world is coming here. Competition and globalization will continue to put downward pressure on the airlines. Most likely we will see even less market controls when open skies hits America. How about third world pilots making third world wages flying american routes?

It is on its way. Globalization hit the cab market long ago.

Skyhigh

Skyhigh,
Yes they are, depends on what they are asked to do. Take an air ambulance pilot that saves a loved member of your family, and they made 250K, would it be worth it? Heck yeah in my book, if they can command the prices. What's the self masochistic angst against pilots making coin? Sully is worth the 250K, he doesn't get it, same with his F/O. Those two saved a planeload of people with experience. A 250 hour ab initio F/O may have ridden along with the Sully's but may have likely choked and caused tragedy. Price doesn't equal experience, but it probably is as good a market measure as anyone can get.
The liabilty an airline Capt and crew (look at Comair lexington crash for liability numbers) can lay financial wreckage on the company, much more than most of the management executives. Yeah, pilots are worth it.

With the market pressures working downward on wages, if the airlines are allowed to continue in an unregulated manner, there is going to have to be a market pressure in order to change things. Right now, the public does not seem to differentiate between different carriers when it comes to safety and pilot experience.

Right now, the evidence seems to be that for whatever reason (automation, technology, dual cockpit, etc) having significant experience in an airplane does not seem to matter much when it comes to flying airliners. Maybe it is just that there are very few opportunities for true piloting skills to be needed, so accidents are just statistically avoided. Maybe an accident like colgan's rears its head only so rarely that it doesn't really matter if the pilots are so unskilled as to deal with adversity.

I believe that flying public (myself included) will continue to buy the cheapest ticket available with little care as to the name of the airline until they have a reason. Sadly, I don't believe there will be a change to that until there are significant issues with airline safety. Right now, accidents don't happen very often. Until airplanes are falling out of the sky often enough for people to take notice, there will be very little discussion about experience in the cockpit. Even if there is a rash of problems, it will still take a while for the flying public to understand the makeup of airline talent to understand that there is a significant difference in talent and experience in the commuter/regional world from the majors. Then they will have to start demanding that they are able to fly only on major airlines without some sort of codeshared commuter flight getting them to their big airplane.

My point is that the market doesn't see a need for experience in the cockpit right now. The sad truth is that it will take some real pain in order for people to demand it. Maybe it isn't needed. Maybe the price of flying is that the chance of crash is .001% higher than it was.

I don't know
 

It is all relative. A school kid could be messed up for life by one bad teacher. An Army Sargent in Afghanistan could wipe out an entire village with improper artillery coordinates. Every bus driver has the responsibility of dozens of passengers. There are plenty of jobs that carry huge responsibility. Most are not paid what they are worth.

What is a pilot really worth?

They are worth the break even point where just enough pilots show up for ground school for the wages they are being offered. I think the job will find its natural parity point at around 80K for a major airline captain. A large part of a pilots total compensation lies in job satisfaction.

Skyhigh

Safe system
 

Nationally aviation is very safe and getting safer in spite of low time pilots.

Skyhigh

Penny wise and pound foolish
 

That's certainly the philosophy of many airline CEOs these days. But when you build a house, do you hire the cheapest licensed subcontractors available? That will work, but there may be an additional price down the road. Someone else may have to pay it, of course. :(

Do you think that De-regulation ended the "glory days" of the airline industry? I don't know if you're looking for a bigger salary or for a lifestyle that existed 40 years ago as a pilot but I don't think either one was lost by de-regulation.
The airlines just like any other industry (or aspect of our culture) are evolving and we're not going to go back to the way things were. Things won't be the same in another 40 years as they are now but they wont be like the past either. We need to try to guide our industry down a good path into the future but trying to drive it back into the past is futile.

You make statements as if you have done studies, drawn graphs, interviewed people and are an expert in airline pay. I have no idea what pilots should be paid, what they will be paid or what will happen to the industry next month. Although you sound like an intelligent person, unless you present some kind of data to back up your claims, I would no more believe your figures over a room full of monkeys throwing darts at a dart board with salary figures attached to it.

Lcc
 

I use to work for a start up called National Airlines. They had experienced pilots lined up around the corner to fly the 757 for 55k captain pay. Every other start up hasn't had trouble finding pilots either at painfully low starting wages.

I am sure that if the major airlines were free to set whatever wages they wanted they would not have any trouble filling ground school classes at less than half of their best captain wage.

Skyhigh

Sub-Contractors
 

Sub contractors compete on the open market. They do not have union contracts to artificially inflate their rates. If they get to far out of line then they go hungry.

Since deregulation free market forces have been putting downward pressure on pilot wages. Why is it that one 737 captain for a 121 airline might make 60K while another makes 120K for flying the same plane on the same routes?

Eventually they both will be at 60K.

Skyhigh

I have to agree with this statement.

I do not completely agree with this statement, however. Deregulation occurred in 1978. The airline industry (and it's associated problems) as we currently know it began around 2001 - 23 years since deregulation. During that time, many airlines were flourishing, salaries were growing, and jobs were somewhat available. Pan Am shut down in 1991, 13 years after deregulation. And there is some speculation that a large amount of politics was involved in that demise as well.

I will agree that many carriers have ceased operations since 1978. I will also submit that the regional airline system (as we know it today) is not the same "commuter" system it was prior to deregulation either. Scope, regional jets, code-sharing, and a large supply of pilots have also contributed to a drastic reshaping of the industry.

Would government regulation make things better? I don't think it would.

Even a regulated industry doesn't work well. I may be wrong, but I think the airlines were somewhat subsidized during regulation.

The big question that needs to be asked is whether or not the industry itself can ever be profitable just by the very nature of its existence. If you add up all of the years that the airline industry has been in existence and compare revenues to expenses, one will find that the historical data shows an overall loss for the industry.

On paper and according to the principles of the free market it should. However, three variables could negatively affect an otherwise perfect system.

First, expenses vary and drastically affect the bottom line. Fuel prices and salaries come to mind.

Second, demand. You need to fill seats and thus necessitates the need for people to purchase those seats. Business professionals still need to travel, but many choose alternate methods of meetings - i.e., teleconferencing. People still like to fly for vacations, but when money is tight many choose not too.

Third, you need good management to run the airline profitably. All other variables could be perfect, but poor management can run the best company into bankruptcy. Good talent in knowing how to successfully manage the store is absolutely critical.

The difference depends on two variables: the financial health of the company and how well their contract (if they are union) is negotiated. Every worker in every industry is paid not what they are worth, but what they negotiate. Self-worth is subjective.

True, but is it democratic to allow airlines to void workers negotiated pay and benefits in bankruptcy with no recourse? How many companies have been able to survive (probably unfairly otherwise) thanks to the extremely biased corporate bankruptcy laws. Is it democratic that companies can drag their feet for 5+ years with no recourse (see ASA and now Pinnacle) and the workers just have to put up with it rather than be able to strike or otherwise provide self help thanks to the less than democratic Railway Labor Act we must bargain under?

Scary prediction
 

That's just what some airline managers would like to see: each pilot acting as an independent contractor, bidding for work, and the hungriest gets the job. Don't worry about employee qualifications; the FAA assumed that burden by issuing a license and medical certificate. Don't worry about poor-quality work; collect a bonus and escape through the revolving door before that bill comes due. If anyone complains, blame the market.

I hope your prediction is wrong, but weak or non-existent unions could make it come true. :(

Free Market
 

In the free market people compete to do the job by deciding how much it is worth to them. Pilots are obsession driven people who love their jobs. Much of their compensation comes in the form of job satisfaction. Once union influence and tradition is completely gone 737 captains nationally will earn between 60 and 80K.

Eventually everyone will have to adjust their wages to match the lowest common denominator.

Skyhigh

Pilot Competition
 

I think that airlines could get better pilots for less money on the open market. Start up airlines consistently rate higher in travel surveys then legacy airlines. The reason is that employees are more happier and more satisfied than people who have been locked into long held airline dynasties.

During my time at an LCC there were plenty of highly experienced pilots eager for a job even though the wages were considerably lower than the legacies. During simulator training at a major airlines training center the instructors were constantly complaining about the legacy pilots they also trained and declared that they wished that they had a good attitude like us LCC guys. There is better opportunity in the free market.

Better opportunities equate into happier people doing a better job. Eventually every airline will be forced to match the wages of their LCC competitors.

Skyhigh

SkyHigh,


I applaud you for leaving this industry and I agree with many of your post but this one seems to be a little hard to believe. 60K for 737 Captain is not really feasible. With that pay scale how much will an RJ FO make? 10K? That's below minimum wage. I think that the reason why present RJ Fo's take the 30k job is because of that 'promise' that they will be making 150K as a 737 Captain. Even at current state of the industry number of Commercial pilot certificates has dropped very significantly. I find it hard to believe that the airlines would get enough people with SJS to fill the cockpit for 10K a year if the ultimate best case scenario is making 60K when your are in your 40's.

Happy for how long?
 

These "more happier" LCC employees are waiting and hoping for that call from a "long held airline dynasty", as you did. When the call never comes, they become "less happier", as you did. Why would they be satisfied with a pay cap of $60k, when you were not?

Yep..."not making" it then was still every bit as lucrative as "making it" now...