[jimworcs]

http://news.yahoo.com/s/ap/20100502/...ed_continental

Are there any regulators left in the US? What are they thinking...

[The_Judge]

Originally Posted by jimworcs

http://news.yahoo.com/s/ap/20100502/...ed_continental

Are there any regulators left in the US? What are they thinking...

Although it's probably just a formality, it's not a done deal. It hasn't gone to the government yet. You must have not read the article you linked closely enough as I found this line in it.

"Any deal would need the approval of antitrust regulators"

[jimworcs]

I read it...but I have no faith whatsoever in them. Delta was in Chapter 11 having failed to meet its obligations to its passengers, stock holders and suppliers. It has a terrible record of customer service and has very dominant positions in Atlanta, MSP, SLC, etc.. and yet is allowed to emerge as the largest airline in the world, after receiving permission to take over Northwest. You can bet United and Continental will have taken "soundings" from the regulators ahead of this announcement and that they will be asked to give up a few "token" slots and routes and it will sail through. It will be the customer who loses....

[The_Judge]

agree 100%.

In the end it will be one airline in the world. I said this 15 years ago and am saying it again.

[Butch Cassidy Slept Here]

United would not be allowed to merge, with anyone, until they've made peace with their workers. It seems clear that's not going to happen. It would be nice to think that, with the CO guy running the new airline, things will be better. I doubt it. My money says the new airline will wipe-out whatever decent service Continental had, and the new airline will border on some third-world carrier.

[jimworcs]

June 17, 2010
Mega-Merger Triggers Call For Re-Regulation

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By Glenn Pew, Contributing Editor, Video Editor






Congressmen James Oberstar and Jerry Costello said at a hearing, Wednesday, that if the proposed United and Continental merger is approved, they'll be pushing to restore financial regulation of the airline industry. Oberstar, chairman of the House Transportation and Infrastructure Committee, and Costello, chairman of the panel's aviation subcommittee, say that if the merger is approved, they'll put the issue before Congress. Federal regulation of airline pricing would re-establish the government in a position to set pricing for consumers and decide which companies would be fit to fly passengers. Deregulation of the airline industry came about in 1978 and has been cited by proponents for initiating a new era of competition and affordable air travel. Oberstar says that era is over and consumers are now suffering under a new fee-based system that would only get worse with the creation of a United/Continental mega-carrier.


Oberstar voted for deregulation, which opened the industry to new low-cost carriers that competed with larger established carriers, some of which have since gone out of business. He now says that the proposed merger and the current economic environment suggest regulation is now what's needed to preserve competition. United and Continental feel their merger will make them internationally competitive with large foreign carriers without the need to raise fees. In this country, their merger would create the nation's largest airline.

Some day our dreams will come!

[justme]

In the end it will be one airline in the world. I said this 15 years ago and am saying it again.

Federal regulation of airline pricing would re-establish the government in a position to set pricing for consumers and decide which companies would be fit to fly passengers.

Sounds to me like we're headed towards government run healthcare, as well as government run airlines. What's next?

[jimworcs]

Regulation is not government run. Does anyone seriously think the banks do not need regulation?

What about insurance? Does this industry need to be regulated?

All monopolies need to be regulated. Delta, United, AA, US Airways etc, are hub monopolies and like all monopolies, they abuse that power. We have been regulating and breaking up monopolies since the 1800s. Anyone remember when AT&T was a monopoly?

Fortress hubs need to be broken up, as do monolithic airlines. Let Delta form alliances with international carriers and compete on the world stage, but creating huge domestic monopolies is anti-consumer, unhealthy and diminishes choice and service quality. The drop in US airline standards is precipitous and dramatic. It is long over due for regulation.

[The_Judge]

But who will regulate them? The very people that get campaign money from the airlines?? What's that saying, the fox guarding the chicken coop? Not sure exactly but having the government regulate the airlines is a joke. Something needs to be done but not that.

Maybe an independent group whose only affiliation with the government was being appointed to do so. I don't know. There really isn't a good answer as to who should do it but I am strongly opposed to the government doing it.

[Butch Cassidy Slept Here]

Judge & Just Me: I remember the Delta Air of 1970. The customers weren't any better behaved than they are today. But, in spite of that, Delta staff managed to show customers they could be ladies and gentlemen. Today, among Delta and most other US-based carriers, staff compete with each other for the title of biggest schoolyard bully.

As I've said in previous posts--at the time of deregulation the (US) air transportation system was not ready for "air travel for the masses." Even with improvements in the air traffic control systems (whenever that ultimately happens!) I doubt adequate infrastructure will EVER exist. Before deregulation Greyhound and the train was the mode of choice for the masses. Re-regulation will, doubtless, bring higher prices and reduced capacity. However it will also restore sanity, civility, and fairness to domestic air travel.

[justme]

Government regulation = government run. When they're the ones that set the prices, make the rules and regs, decide who gets what slots, etc they are pretty much running the industry, are they not?

While I agree that DL, UA, CO, AA, etc all have hubs where they operate the majority of the flights, by definition, none of them are a monopoly. Here is the definition at investorwords.com: A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition. They do not fit that definition. There are lots of different airlines that fly into each of their hubs. New airlines come, old ones go. They have no say in what other airlines can operate at their "hubs." If they did have a say, then they would start to fill the shoes of a monopoly. But just because one company is significantly larger or operates more flights out of a particular city than others does not automatically make them a monopoly.

Regulation, if done correctly, would be great for the consumer and wouldn't necessarily be bad for the airlines. The thing is, I agree with Judge in that the government doing the regulating would be a disaster.

[justme]

Re-regulation will, doubtless, bring higher prices and reduced capacity. However it will also restore sanity, civility, and fairness to domestic air travel.

That is probably very true and I would welcome the day that it happened. Although, if the government is the one doing the regulating, I have absolutely no faith that it will EVER happen.

[Butch Cassidy Slept Here]

To those who dismiss the idea of government regulation one should remember that, at the time of deregulation, commercial aviation in the US had existed for about 50 years. Not bad for such "dysfunctional" government oversight! Delta, by the way, had been in business for about 40 years.

The biggest failings of the CAB were two things: (1) Subsidies which shielded airlines from bankruptcies and the consequences of operating unprofitable routes. (2) Regulation of fares and routes. Schedules were also regulated--but for reasons having nothing to do with airport congestion. Re-regulation doesn't have to repeat these mistakes. If one looks at an average major airport around Christmas, how could government regulation make things any worse???

[jimworcs]

Regulation = Government Run is simply not true.

No regulation is anarchy. It is interesting that the airlines are huge advocates of the free market, except when the market works. Delta was so bad that it went bankrupt. That is how the market works. If you abuse your customers and your monopoly power, the consumers let you know you are not good enough.

Instead of allowing the airline to fail, which is what the market dictated, the airline instead went running to the government to protect it. The airline then sheltered under government protection and was allowed to walk away from it's obligations. Not only that, they then asked the government to allow them to build an even bigger control of the market and with the collusion and protection of government were allowed to emerge from bankruptcy having walked away from their obligations to staff, customers and suppliers. What they want is the big bad government to protect them when the market dictates they fail, but complain that the government is bad when it tries to regulate them. That is having your cake and eating it. They get away with that by bribing politicians.

Justme, the fortress hubs fit perfectly your definition of a monopoly. Do you know why they are called "fortress hubs"? The whole point of the strategy of building a dominant position at a "fortress" hub, pioneered by Delta at Atlanta is exactly to act as a barrier to entry. The fig leaf of competition of smaller airlines competing at the margins doesn't come close to challenging the might of Delta at ATL or AA in Dallas for example.

Then we come to competition. US airlines run to the government and demand protection as soon as anyone tries to compete with them. All of the legacies have filed briefs with the US government to block foreign ownership of US airlines and entry of foreign owned companies in the US domestic market. Why? What is the justification? Foreign companies can own any other kind of industry in the US and sell their products and servcies in the US. Why not airlines? What are they afraid of?

The EU has been offering US airlines free access to their domestic market for years in return for free access to the US market. The DOT wants to grant it. Why oppose it? The EU is the largest single market in the world for airline travel. The reason they oppose it, is they are terrified of competition. It is nonsense to suggest that the US airline industry is competitive. It is managed and controlled by monolithic airlines which collude to generate huge cashflows to senior management and stock holders, without paying significant corporation taxes, by generating losses which offset the profits. Someone needs to wake up and smell the coffee.

I have never argued for regulation which sets prices or even standards of service. I am perfectly content to let the market do this. I think regulation involves the following:

1. The protection of airlines from state consumer laws to be dropped.
2. The protectionof airlines from foreign competition to be dropped (happy for this to be bi-lateral to make it fair).
3. The protection of airlines from foreign ownership to be dropped (happy for this to be bi-leteral to make it fair).
4. The exemption of airlines from anti-trust regulations to be dropped
5. No airline should be allowed to file Chapter 11. If they fail, they should be permitted to fail and let the market work.
6. Normal monopoly powers to be applied. I would argue that no airline should be allowed to operate more than 25% of the slots at any airport.

Do you notice something about this list? It is NOT a call for huge volumes of new regulations. On the contrary, it is predominantly a call for the REMOVAL of exemptions and protections. Here is the irony.. I am calling for less regulation overall, NOT more. However, it should be in such a way that there are basic consumer rights and the MARKET should be allowed to work. I am calling for the market to be allowed to work.... it is apple pie and the American way. I can't imagine why any good American would oppose it.

[justme]

Jim, first off, I am happy to respond and converse with you since you are not attacking Delta egregiously or maliciously.

1. The protection of airlines from state consumer laws to be dropped.
2. The protectionof airlines from foreign competition to be dropped (happy for this to be bi-lateral to make it fair).
3. The protection of airlines from foreign ownership to be dropped (happy for this to be bi-leteral to make it fair).
4. The exemption of airlines from anti-trust regulations to be dropped
5. No airline should be allowed to file Chapter 11. If they fail, they should be permitted to fail and let the market work.
6. Normal monopoly powers to be applied. I would argue that no airline should be allowed to operate more than 25% of the slots at any airport.

I have to say that I cannot find reason to disagree with your list. I think all these things would help the industry and the consumer. I especially like 2 and 3. I think 5 is good, but think that if they would apply that rule to the airline industry, they should apply it to EVERY industry (as well as 1, 4, and 6). I find it appalling that our government spent billions to bail car manufacturing companies out of bankruptcy when they obviously caused their own demise. Number 6 I think could be tricky in some places. With the way the industry is currently functioning, it would take MAJOR restructuring of flight schedules, maps, plans, etc, etc. What happens if no one wants to fly to BZM and only 2 airlines end up serving the airport? Then you've got a breach of rules on your hands since they both would have 50% of that market. Would you force all the airlines to fly everywhere? How would you solve that? As for the "fortress hubs" being monopolies, I still don't buy it since the airline has no real say over who can compete with them. They have no real way to stop them other than offer better prices and service and out COMPETE them. The very fact that the have to compete means it's not a monopoly.

US airlines run to the government and demand protection as soon as anyone tries to compete with them. All of the legacies have filed briefs with the US government to block foreign ownership of US airlines and entry of foreign owned companies in the US domestic market.

Bold is mine for emphasis... Again, I don't think this fits the definition of a monopoly. Because it is ALL of the airlines working together, not just one, it doesn't fit the mold of ONE entity having control. Control, or resistance, in this example is being shared by all the airlines. I think Open Skies would be great, and look forward to the day it finally happens.

[The_Judge]

You got my vote!!! Which office you runnin' for? First it's more regulation, now you've flip-flopped and are calling it less regulation. Make up your mind.

Of your list of 6 proposed regulated items.....I agree with numbers 2 and 3. 1 and 4-6 would be unfair business practices that all other industries are afforded. Why single them out. If you want these items for airlines, it should be for all industries and businesses then. True??

[justme]

at the time of deregulation, commercial aviation in the US had existed for about 50 years. Not bad for such "dysfunctional" government oversight!

The thing about this statement is that the government, the economy, the people who traveled by air, the infrastructure, pretty much everything was a completely different animal then. We're talking 32+ years ago when the government was regulating the airline industry.

[jimworcs]

Ok guys, now we seem to be getting somewhere in this debate. Lets take the issue of monopoly first.

As for the "fortress hubs" being monopolies, I still don't buy it since the airline has no real say over who can compete with them. They have no real way to stop them other than offer better prices and service and out COMPETE them. The very fact that the have to compete means it's not a monopoly

This is a common misconception of what a monopoly is. Monopoly power does not mean that there is no competition. However, it does mean that the barriers to entry for any new competitor are such that competition is severly limited. Delta has such a huge position at ATL, to compete effectively any entrant would have to be able to offer the high number of time options, connections, etc that Delta do. The cost of entry to achieve this is so high, and their lock on favourable leases and gates so strong, that this is prohibitive. This is the very meaning of a fortress hub. Therefore, competitive airlines instead compete at the margins.. low costs targeting leisure travellers where timings are less important or point to point competition on heavy routes. There is no substantive competitor to Delta at ATL.

Let us look at another example. In the bilateral agreement between the EU and DOT relating to access to London Heathrow, the stalling point was access by other carriers to LHR slots. The US DOT argued that BA operated a monopoly position at Heathrow which acted as a deterrent to entry for any carrier, as the launch costs and through traffic limited the capacity of other carriers to compete effectively. They require BA to relinquish slots and open the access to any carrier as part of the extension of Open Skies. BA had 41% of the slots at LHR in 2009. As a point of comparison, Delta in 2009 carried 73% of the passengers travelling via ATL.

First it's more regulation, now you've flip-flopped and are calling it less regulation. Make up your mind.

My point Judge is that the airlines enjoy exemption from existing regulation. I am arguing that we remove their exemptions. In that respect, we are removed special regulation treatment for airlines, but the effect would be that normal competition rules would apply to them. Is that any clearer. You ready to vote for me now?

With the way the industry is currently functioning, it would take MAJOR restructuring of flight schedules, maps, plans, etc, etc. What happens if no one wants to fly to BZM and only 2 airlines end up serving the airport? Then you've got a breach of rules on your hands since they both would have 50% of that market. Would you force all the airlines to fly everywhere? How would you solve that?

One of the most difficult tasks in dismantling monopolies is how to achieve the restructuring. This would take time and have to be carefully managed. I would suggest that we have a 5 year plan which progressively strips away the protections. Given that the large legacies have a large number of slots at a number of hubs, the process would be a "slot swap" process and an auction process. This has been done in both the US and in Europe. The slot swap would be similar to the swap that recently took place relating to La Guardia, but might for example involve AA trading some positions at Dallas with say US Airways at Denver, who also swap with Delta at ATL. In addition, new entrants would be encouraged by packaging slots at airports which are over-served, such as JFK, by auctioning slots for 5 or 7 year periods. This would allow new entrants for example Virgin America or foreign entrants if allowed to target particular markets and make a meaningful entry.

The big fear is that there will be massive job losses. In fact, the experience of all industries which dismantle monopolies is that new, innovative services come in and employment increases. However, the management of the transition over 5 years should reduce the "shock" effect, similar to how deregulation of the communications industry was managed.

Chapter 11 is controversial "shelter" which is cynically used by management to rip up labour contracts, screw suppliers and avoid the consequences of their irresponsible market behaviour. It is badly in need of reform. There is some case for a "bankruptcy" shelter to enable an industry to manage exceptional market shock or for community benefit. For example, allowing a hospital in a rural area to file Chapter 11, to try to protect the services for the community. There is no such requirement for airlines. If Delta had been allowed to fail, those routes would have been snapped up in no time. When Europe decided to allow airlines to fail, the same arguments were used. After they began to fail, it quickly became apparent the world didn't end. Even some large, well established airlines have been allowed to fail (Sabena, Swiss for example). No one could argue that the air market in Europe was devastated by this.