[PEN-L:4757] Re: Fruits of deregulation

[Bill Moore <billkatt@xxxxxxxxxx>]

On Thu, 20 Jun 1996 JDevine@xxxxxxxxxxxxxxx wrote:

[...]
> Specifically for here in Gringolandia, it seems to me that back
> in the days of the Civil Aeronautics Board (pre-1978), airline
> competition was restricted (as the CAB acted much like a cartel).
> This may have raised air fares compared to the competitive case,
> but it lowered the degree of competitive pressure that can push
> an airline to break the F.A.A.'s safety regulations.

It's interesting to recall that even Alfred Kahn (Carter's deregulation
czar and longtime CAB critic) cautioned about that potential side-effect
while testifying before Congress for the abolition of the CAB.  On a
slightly smaller scale, I was researching the Texas intra-state airlines
at the same time and the two "national" carriers (Braniff and TI who
were being severely drubbed by Southwest) both tried to level the lower
safety charges against Southwest (as an upstart low-cost competitor).

When I noted that their respective maintenance/safety expenditures were
relatively lower than Southwest's, they pled economies of scale (which
they simultanelously were denying the existence of on the passenger side
of the market where such economies should have resulted in lower fares).

As more information about the ValuJet flap appears, it appears that,
indeed, the pressure to compete can (but does not necessarily have to)
cause a low-cost carrier to skimp on basic maintenance (and try to shift
liability by "outsourcing" it), but probably more for profit than for
reasonable cost containment.  In a better-late-than-never sense, ValuJet
is learning the true *price* of their service...

Bill the Cat in the Regulatory Economist Hat