It’s Time to Re-Regulate Aviation (by Louis Erlichman and Carlos DaCosta)

In the wake of the global economic meltdown and its stunning display of the failures of corporate-dominated markets, there has been a lot of talk (but little action) about re-regulation in the financial sector. In the aviation sector, however, the deregulation express seems actually to be accelerating, with moves in Canada and elsewhere to get rid of the last vestiges of airline regulation.

Starting in the early days of commercial aviation, around three quarters of a century ago, the industry around the world was regulated by national authorities as a public utility. Extensive government licensing requirements covered not only areas like safety and maintenance, but also laid down strict rules on routes, fares, and even the types of aircraft in use. Governments were also actively involved in the provision of aviation infrastructure – airports, air traffic control - and in many cases, were directly involved through the public ownership of air carriers.

Over the last three decades, as part of the global push to reduce the role of governments, and let economic activity be driven exclusively by markets and corporations, aviation has been increasingly deregulated. The US deregulated its domestic market in 1978, and open domestic markets are now common around the world (Canada deregulated in 1984). Most government-owned carriers have been privatized (including Air Canada, in 1989), and there have been a steady stream of “open skies” agreements signed in the last couple of decades, deregulating air traffic between contracting countries.

Around the world, what remains are regulatory controls on international traffic, as well as requirements for “domestic” ownership or control of carriers, and continuing protection of domestic markets. “Cabotage” - allowing foreign carriers to fly passengers on domestic routes – is the last frontier of deregulation.

Deregulation was supposed to improve services and cut fares by increasing competition. It is difficult to discern whether deregulation has actually reduced fares, since air fares have been declining from the inception of commercial aviation, pre- and post-deregulation, as the result of technological advances (more efficient engines, larger and lighter airframes, scheduling improvements, etc.).

It would hard to argue that deregulation has improved airline service.

What is clear is that deregulation has not increased competition, but has rather increased concentration. In spite of the frequent rise and fall of new start-up carriers, more and more traffic is concentrated in the planes of a shrinking number of larger and larger carriers. It is now commonly predicted that the world aviation market will soon be dominated by 3 or 4 megacarriers, growing out of the current global alliances.

It is interesting that, despite this increased concentration of market power, even the largest airlines around the world remain financially weak and vulnerable. In spite of mergers, bankruptcies and successive cutbacks imposed on airline workforces, even the strongest carriers have difficulty making much money in good times, and lose billions when the economy and the air transport market weaken.

In aviation, the evidence over the last three decades is that the choice is not between regulated, uncompetitive markets and unregulated, competitive markets. Rather, the choice is between unregulated monopolies and regulated monopolies. For consumers, communities and the workers involved, strong public regulation makes more sense than ever.

In the light of the history of deregulation to date, it is interesting to see IATA, the global airline association, is responding to the current economic downturn and multi-billion airline dollar losses worldwide with a call for further deregulation and market consolidation. IATA is proposing the end of national ownership restrictions, and the remaining restrictions on both international flights and cabotage. They also call further drastic reductions on the number of airlines worldwide.

It is hard to see how more deregulation and market concentration will somehow produce a different result. It is hard to see how creating stronger unregulated monopolies will help consumers, particularly those off the “mainline” most heavily-travelled routes that might retain some level of competition.

Any reasonable assessment of the evidence of deregulation would conclude that we need not only to maintain the remaining public controls on the industry, but bring back a more comprehensive regime to protect travelers, communities and workers.

It’s not a new argument. The IAM has been exposing and opposing the deregulation fallacy for over 30 years. Unfortunately, reality rarely intrudes on the vision of free-market ideologues, and corporations look to expand their power and control, and they have had the ears of governments for the last few decades.

We can only hope that the economic crisis will finally awaken the minds of decision-makers to the folly of airline deregulation. It is a message that we need to take to our Governments and legislators of all parties.