Winging It: Airlines are a public goods in need of regulation

Posted: July 12, 2010

Last week's column that outlined the complaints of some airline executives about the Obama administration's regulatory initiatives on behalf of passengers brought a spirited response.

Some of you think the administration is headed in the right direction and agreed with what I said. Others called me a socialist for wondering whether airlines should be considered a "public good."

So let's step back and look at what "public good" means, at least to me, and why some regulation of private-sector airlines is widely accepted by most travelers and the country's political leaders.

Transportation infrastructure - roads, bridges, rail lines, waterways, and airports - has traditionally been built by governments, with the cost borne by user fees or by all taxpayers. The investment was considered a public good that only the government could afford to do.

In this country, we've always had a mix of public and private investment in transportation. The government spurred the building of private-sector rail lines with free land in the 19th century, and it helped the first airlines get off the ground with U.S. mail contracts in the 1920s and '30s.

The City of Philadelphia built Philadelphia International Airport in the 1940s as a way to spur economic development while also helping support a fledgling, heavily regulated - but still private-sector - airline industry.

Today, most airports are still government-owned and largely paid for with fees collected from passengers or from the airlines and concessionaires who benefit from using them. But if a city-owned airport builds a new terminal to accommodate airlines, and the carriers later abandon the city because they're not making enough money, guess who's stuck paying the mortgage?

Many smaller U.S. airports do give direct aid to airlines. An example is Lehigh Valley International, which pays to advertise new service for start-up airlines because local officials say they believe the flights are good for the whole community.

The Federal Aviation Administration, whose job it is to regulate and promote air travel, is funded not only with taxes and fees levied on airlines and their customers but also with general tax revenue.

So let's call the American aviation system a public-private partnership designed for the good of everyone.

Looking at airline regulation, the most pervasive form of it for the domestic industry ended in 1978, when Congress and the Carter administration lifted all restrictions on fares, routes, and frequency of service.

We all know how that's worked out. Some airlines grew into giants while others disappeared. Start-up carriers emerged to compete with the giants, resulting in more service and lower fares for most people.

After inflation is factored in, airfares are lower today than they were 30 years ago, making flying far more affordable to business and leisure travelers - yet another good thing for the public.

The airline industry today describes itself as highly competitive and highly regulated, but the latter term primarily applies to safety and security. In those two areas, there's little disagreement that government has an important role to play.

The question is always how much regulatory oversight is enough.

Should regional airlines have higher standards for how much experience their pilots have and how much rest they must get between flights?

The FAA is writing rules to do that, after limited pilot experience and fatigue were cited as primary causes of the crash of a Colgan Air turboprop near Buffalo last year that killed 50 people.

Should airlines be allowed to decide how long they trap customers on planes sitting on the ground without food or water because of weather delays?

They had that power - and some airlines occasionally abused passengers in the extreme with it - until this spring. That's when the Department of Transportation issued tough new rules and set fines high enough to make airlines behave better, resulting in today's decline in long airfield delays.

Should a handful of major airlines control the great majority of the industry's inventory of available seats for sale by manipulating the computer-reservation systems owned by the carriers and used by travel agents?

That was the case in the early 1990s, when federal regulators demanded that the airlines display all flights, no matter which carrier operated them, in an unbiased way. That gave all airlines, and especially small start-up carriers that paid hefty fees to have the big carriers' agents process reservations for them, an equal chance to attract customers. The airlines have since spun off the reservation systems into separate companies.

Today, the regulators are taking public comment on whether airlines should be required to more clearly display the total price of an airline trip, including all fees for things such as checked bags, before a customer buys a ticket. The rules would apply to online travel services and to the reservation systems still used by travel agents.

According to preliminary results of a survey of corporate travel managers and their agencies, now being conducted by the Business Travel Coalition, more than 90 percent of the 138 who have responded say they believe only federal regulations will guarantee that airlines will fully disclose total costs.

What does that tell you about customers' appetite for regulating an industry that doesn't always regulate itself very well?

The Winging It column is coming to an end. The last column will be Aug. 2. Thereafter, reach Tom Belden at beldens@aol.com.


Contact Tom Belden at 215-854-2454 or tbelden@phillynews.com.

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