If you are flying during the holidays, do take a look at the color of your plane.
Is it rather bland?
The reason is deregulation. After 1978, when government stopped approving fares, guaranteeing profits, and allocating routes, the world of flying changed.
If you wanted to fly from NYC to Washington, D.C., you could take the Eastern Airlines shuttle. The sole source of the service, Eastern guaranteed a seat to every customer. Arrive late and the plane is full? Eastern said, “Not to worry. We have an extra plane.” Similarly, Braniff Airways commissioned artist Alexander Calder for artwork on the outside of planes and had designer uniforms for its stewardesses. Neither Eastern (1991 bankruptcy) nor Braniff (1982 bankruptcy) survived deregulation.
Now, in a deregulated world, competition rather than government determines profits. Because painting planes is expensive, airlines avoid colors that need upkeep. Not only is the plane out of service for more than a week but also, you need a lot of paint–250 gallons for a jumbo jet and 60 for something smaller like a Boeing 737.
More from econlife on airline deregulation, here and here.
The Economic Lesson
Deregulation transformed flying. Pre-1978, airlines enjoyed the benefits of monopoly. Afterwards, when the market changed to oligopoly, airlines had to worry about costs, fares, and responding to competition. Here is an excellent video from Annenberg that includes a segment on the impact of airline deregulation.
I just heard in a podcast that being a good economist means lifting the veil off of the unseen. Have you ever thought about the impact of deregulation on the color of an airplane?
An economic question: How were consumers affected by airline deregulation?
Weigh baggage, tag it, and place it on the conveyor belt. No you are not an airline employee. You are flying the Australian Airline, Jetstar. Any human interaction will cost you. A question about your baggage? $10.
Soon, all U.S. air carriers will be required to list their fees. On its website, Ryanair tells us that it charges for lap babies, baggage, name changes, sports equipment, priority boarding. They also charge for printing a boarding pass. Other airlines have us pay extra for legroom, snacks, and booking by phone.
The Economic Lesson
The airline industry can tell us a lot about how competitive market structure shapes a firm’s behavior. Before 1978 deregulation, airlines enjoyed government oversight that gave fliers high fares, labor high wages, firms were profitable and competition on interstate routes was minimal.
The incentives changed after deregulation. Less government and more competition meant lower fares. How then to generate more profits? Fees are the current answer. Up by $22 billion, fees represent a huge source of airline revenue.
An Economic Question: Picture a market structure continuum. Perfectly competitive small firms selling similar products are on one end, then monopolistically competitive firms, next oligopolies, and finally, monopoly. On this scale, where would you place the airline industry before deregulation in 1978? After?
Who could possibly have disagreed with President Obama when, in his State of the Union address, he said we have to eliminate wasteful regulations?
Some very important people.
Emory University economics professor, Paul Rubin, explained in a WSJ article that the key opponents are the agencies that currently oversee the rules.
Which rules? The President referred to duplications with salmon oversight. The NY Times cited rules about highways signs and sweeteners and dry cleaning machines. For example, highway signs can have no more than one upper case letter in a word. It took 7 years for the E.P.A. to coordinate with the FDA on whether saccharin was a toxic substance.
You can see where this is going. At each agency, once you take away a responsibility, they have less to do. Less to do means diminished power, a lower budget, fewer employees. Will regulators support their own demise?
The Economic Lesson
Again, it is all about opportunity cost, cost and benefit. For tax payers, the benefit will probably exceed the cost when deciding whether to eliminate redundant or seemingly minor regulations. For regulatory commission employees, the opposite is true according to Professor Rubin, who cited his Reagan administration experience at the Federal Trade Commission and the Consumer Product Safety Commission.