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From the article: > "There is a middle ground between an abusive cartel and a ruinous free-for-all in the skies. It’s known as regulated competition." The aut

From the article: > "There is a middle ground between an abusive cartel and a ruinous free-for-all in the skies. It’s known as regulated competition." The author has an agenda. There are two problems: 1. Is the airline consolidation permitted by the Obama administration going from 6 airlines to 4 with the consolidation of US Air into American and Continental into United. It is baffling why the Obama administration allowed this which only meant higher costs for consumers. 2. Airline gates and takeoff/landing times lots are a scarce resource at major airports, limiting competition and adding costs to flights. Speeding up the implementation of the GPS guided flight control systems and in the longer term building more runways will help release the scarcity for increased competition. Many airports (e.g.. Chicago's O'Hare) was built years ago with no surrounding houses and people built and decided to live near the airport. Then they complain about airplane noise. They knew what they were getting into. There needs to be federal regulations that override local control prohibiting runway construction which harms to national economy. Fixing problems like this is to understand the economics and where the market inefficiencies or market failures occur and addressing them so that we again have efficient markets. Air travel is a commodity and should be low cost except for these market failures, market inefficiencies. In summary: 1. Break up American and United to restore the status quo prior to the consolidation. 2. Speedup investment in the ongoing conversion to GPS controlled air traffic control. Financial allocation from Congress which could be paid for by taxes on airplane tickets. 3. Federal legislation overriding local laws which create a shortage of runways in key high traffic airports.

nostrademons 9y ago
My understanding is that Continental, United, USAirways, American, Northwest, and Delta (the latter two also having merged) would've all ceased to operate had they not been allowed to merge. As of 2005 United, USAirways, Northwest, and Delta were all bankrupt; at that moment in time, 4 out of the top 6 U.S. carriers were operating in Chapter 11 bankruptcy. American entered bankruptcy in 2011, and Continental was reportedly in financial difficulties at the time. Had they not merged and instead entered Chapter 7, we might have gone down to 2-3 active airlines. And we're already seeing renewed competition in domestic air travel: JetBlue and Alaska are coming up fast and threatening established carriers. JetBlue is my wife's favorite airline to fly on; she's gotten pretty good service on some very low fares. I don't really see this as a market failure. People expect capitalism to give them great products at low prices all the time; it doesn't work like that. Capitalism just means that when things get too out-of-whack, the market adjusts and fixes it. Airlines were crazily unprofitable in 2008-2010; the market reaction was consolidation & mergers, such that airlines are now crazy profitable and give shitty service. The market reaction to that is that new competitors are springing up, saying "I can do better", and people are flying on them. Vote with your dollars and in another 5-10 years United will be bankrupt again.
- davidf18 9y ago
  The legacy carriers had to go bankrupt because their original business models and labor costs were based on regulation and would not work once regulation was removed. Regulation created a huge market failure, a market inefficiency while deregulation made the market more efficient. The wages/benefits of labor were negotiated by unions that made the labor costs non-competitive with airlines that launched after deregulation. There may have been issues of operational inefficiency as well that was supported by the extra profits above an efficient market under regulation. Capitalists generally do not want market efficiency when it comes to providing a product or service but for customers that is the best deal. Firms fight commoditization of their product or service and tried to create "moats" that protect their business from competition. Looking for good investments is often a case of looking for businesses that can't easily be commoditized. Columbia Profs. Bruce Greenwald and (also Nobelist) George Stiglitz sometimes co-teach a course. Greenwald talks about making moats and Stiglitz talks about commoditizing to make products/services more accessible to people with lower incomes.
Paul-ish 9y ago
ProPublica had a good write up on the airline consolidation that occurred during the Obama administration. https://www.propublica.org/article/airline-consolidation-democratic-lobbying-antitrust https://www.propublica.org/article/airline-consolidation-dem...
- davidf18 9y ago
  Thank you. The entire article is very interesting, but I'd like this part: "Some lawyers and officials who worked on the American-US Airways case now say they were “appalled” by the decision to settle, as one put it. “It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work,” said Tom Horne, the former state attorney general of Arizona, one of seven states that were co-plaintiffs with the federal government."

nostrademons 9y ago

My understanding is that Continental, United, USAirways, American, Northwest, and Delta (the latter two also having merged) would've all ceased to operate had they not been allowed to merge. As of 2005 United, USAirways, Northwest, and Delta were all bankrupt; at that moment in time, 4 out of the top 6 U.S. carriers were operating in Chapter 11 bankruptcy. American entered bankruptcy in 2011, and Continental was reportedly in financial difficulties at the time. Had they not merged and instead entered Chapter 7, we might have gone down to 2-3 active airlines. And we're already seeing renewed competition in domestic air travel: JetBlue and Alaska are coming up fast and threatening established carriers. JetBlue is my wife's favorite airline to fly on; she's gotten pretty good service on some very low fares. I don't really see this as a market failure. People expect capitalism to give them great products at low prices all the time; it doesn't work like that. Capitalism just means that when things get too out-of-whack, the market adjusts and fixes it. Airlines were crazily unprofitable in 2008-2010; the market reaction was consolidation & mergers, such that airlines are now crazy profitable and give shitty service. The market reaction to that is that new competitors are springing up, saying "I can do better", and people are flying on them. Vote with your dollars and in another 5-10 years United will be bankrupt again.

davidf18 9y ago
The legacy carriers had to go bankrupt because their original business models and labor costs were based on regulation and would not work once regulation was removed. Regulation created a huge market failure, a market inefficiency while deregulation made the market more efficient. The wages/benefits of labor were negotiated by unions that made the labor costs non-competitive with airlines that launched after deregulation. There may have been issues of operational inefficiency as well that was supported by the extra profits above an efficient market under regulation. Capitalists generally do not want market efficiency when it comes to providing a product or service but for customers that is the best deal. Firms fight commoditization of their product or service and tried to create "moats" that protect their business from competition. Looking for good investments is often a case of looking for businesses that can't easily be commoditized. Columbia Profs. Bruce Greenwald and (also Nobelist) George Stiglitz sometimes co-teach a course. Greenwald talks about making moats and Stiglitz talks about commoditizing to make products/services more accessible to people with lower incomes.

Paul-ish 9y ago

ProPublica had a good write up on the airline consolidation that occurred during the Obama administration. https://www.propublica.org/article/airline-consolidation-democratic-lobbying-antitrust https://www.propublica.org/article/airline-consolidation-dem...

davidf18 9y ago
Thank you. The entire article is very interesting, but I'd like this part: "Some lawyers and officials who worked on the American-US Airways case now say they were “appalled” by the decision to settle, as one put it. “It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work,” said Tom Horne, the former state attorney general of Arizona, one of seven states that were co-plaintiffs with the federal government."