March/April, 1977
page (hree
Questions and answers on deregulation
Q Just what will these deregulation bills do?
A The bills propose to bring more competition
into the aviation industry. The bills’ sponsors
say this would result in lower air fares and
better service. The Civil Aeronautics Board
would be maintained. It would be required to
encourage the development of new airlines
and additional competition in established
markets, whether or not those markets re
quired additional service. The Board’s
authority to set reasonable fare structures
would be almost removed, since carriers
would be allowed to set fares which did not
cover all costs or raise fares without justifica
tion.
Q Would deregulation really bring lower air
fares?
A It might, for a short time, on some major
routes. This could happen if new carriers
started a “rate war” in the potentially most
profitable markets. However, deregulation
will not change the cost of providing air
transportation. The price of fuel will not go
down; airports won’t lower their landing
fees; and suppliers of other goods and serv
ices will not reduce their charges. These
economic realities will eventually catch up
with the rate warriors.
The price of air transportation has to cover
the cost of producing it. In a rate war the not-
so-financially-strong airlines would either be
driven out of the market or out of business.
The surviving airlines could and probably
would then set fares at whatever the traffic
would bear. Fare levels are directly related
to the load factors attainable over a given
route system. And the ability to lower fares
depends on the relationship between actual
and breakeven load factors. With more com
petition and lower load factors it seems fare
would have to be raised to cover excess
capacity. Only a higher load factor justifies
a fare reduction.
Q As a result of deregulation, would lots of
markets be abandoned? And would com
muter services fill these gaps?
^ Abandonment is a relative term. It is simply
” not possible to determine the extent to which
there would be an absolute elimination of air
service. Piedmont and other carriers would
certainly be inclined to shift emphasis to the
most profitable markets. Because of this,
smaller cities would most likely be served
more and more by commuter operators. The
question is, can commuters provide the kind
of air service these cities need and want?
It appears that, under these deregulation
proposals, many small cities could lose their
air transportation unless tax payers sub
sidized it. Currently, service by the airlines
to smaller cities is based on the same public
service philosophy under which telephones
and other utilities are provided. The utility
companies use the profits from their entire
networks to offer the best possible service
at affordable rates to all customers, no matter
where they are. The airlines are like these
public utilities and follow this same policy.
Without the security of the system of public
convenience and necessity (or licenses), and
faced with having to meet intensified compe
tition on their most profitable routes most
airlines would be compelled to reduce services
to many smaller communities.
Q What would deregulation do to efficiency in
our industry?
A It wouldn’t help at all! The U.S. airlines
have been very innovative with regard to
efficient operations, new services and promo
tional tariffs to a degree unequalled in other
industries. The sophistication of airline
equipment and the enormous amounts of
capital needed for aircraft fleets have re
quired that carriers be constantly aware of
modern technology. If total deregulation
comes, more airlines and airplanes at already
crowded major airports would cause serious
problems rather than greater efficiency. It
would also be wasteful of fuel supplies. The
carefully developed national network of air
line routes could be disrupted. Customers
and communities alike would be playing a
guessing game as to service and rates.
Q The airlines have traditionally worked to
gether to provide good service. What would
deregulation do to this concept?
A For industry teamwork, deregulation would
be a big step backward. It would probably
wipe out years of progress in developing
systematic interline procedures. These pro
cedures are directly involved with customer
convenience. We all know that today, one
call to one airline res center gives access
to schedules, fares and space on most all
carriers. One ticket can cover a trip on sever
al airlines and check baggage is automatically
transferred. Cargo shippers benefit from the
same inter-carrier cooperation. Deregulation
would cloud the entire working structure of
interline relationships by requiring that
thousands of interline agreements be review
ed and revised. Indeed, interline agreements
might not be possible at all. The proposed
legislation would remove the anti-trust im
munities which have been provided so that
the public transportation system could
function as an integrated national network.
Q How would passengers be affected by deregu
lation?
A With rate wars on major routes resulting in
tickets being offered at less than cost, air
lines would certainly be unable to afford
most inflight and ground service features.
Schedules would be adjusted to get more
equipment utilization at marginal times, fre
quency of flights would diminish and seat
configuration would be high density.
Q How would deregulation affect postal service
and airfreight users?
A The pending bills would allow mail and
freight to be carried on charters as well as
scheduled flights, thus seeming to benefit
these users. However, these added flights
might prove temporary and probably would
not be serving the variety of cities currently
served by the scheduled airlines. About eight
out of ten first class intercity letters go by
air now. This is possible because the airlines
serve so many points at such reasonable costs.
Contract, subsidized mail flights would pro-
ably be required for many small cities. Sound
like a backward move? It would be, for con
tract mail service was how the U.S. airlines
started.
Q How would deregulation affect career airline
personnel?
A The aii'line customer today enjoys the bene
fits and security of years of training and
experience offered by this country’s 300,000
airline professionals. New carriers coming
into the industry would have relatively in
experienced personnel starting at the bottom
of the wage scale. This would be the one area
of operating costs which would make reduc
ing fares possible. As a result of the rate
war that might rage in an atmosphere of un
restrained competition, fewer airlines would
survive. Thus there would be fewer employees
in the industry.
Q Are the airlines who are against deregula
tion also against free enterprise?
A Absolutely not! The airlines, like the pre
viously mentioned utilities, provide vital
public services. It is essential to the users of
all the utility-like systems that their reliabil
ity of operation and fairness of rates not be
left to chance. The airlines’ obligation to
provide adequate service should continue to
be a statutory mandate. These factors are
assured for the nation’s air transportation
network by the present regulatory structure.
There is certainly room for improvement in
the I’ate-setting and rule-making procedures.
Piedmont feels the changes can best be made
within the framework of the present law. II
has worked exceptionally well, as evidenced
by our having the finest air transportation
system in the world.
aiP
Piedmont Aviation, Inc.
Betsy Allen, Editor
Smith Reynolds Airport
Winston-Salem, North Carolina
flIRLine EDITOR/
IS -i