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Wed, 13 Sep 2006 03:38:00

Thought experiment - The failing airline industry

We all know that the airline industry is a colossal failure.  What we have is a small group of companies who, due to the miles of red tape and consumer expectations of low fares, can’t make money.  We *need* airlines to keep our economy running, so the government props them up...which is understandable since much of what makes the airline busines so unprofitable is federal regulation.

Here’s my plan.  Scrap it all.  All airlines will be abolished with an act of Congress.  Every one of them.  No more budget puddle jumpers, no more jumbo international jets.

All operations will be taken over by a new department of the US Department of Transportation.  They will coordinate with Justice for security and screening.

All Americans, regardless of income or usage of the service, will pay for it with an increase in the income tax.  Trying to find a dollar amount for what the entire indistry is worth is hard, but considering that *parts* of it are worth 140 billion here and 165 billion there, and that between 2001 and 2003 the industry lost 28 billion dollars, let’s say it’s somewhere between a half-trillion and a trillion dollars.

I’m afraid that will result in a fairly large tax increase, but hey, we’re in a mess here.  Privatization has failed.  We need the government to rescue the industry in order to keep the infrastructure running.  Every American deserves the right to be able to get where they need to go in this country, and with the whole thing being paid for by tax dollars, we’ll all be able to travel for free.

Now...this is a bad idea.  I’m very wrong on so many things in the above paragraphs.  Here’s the experiment.  You have to tell me why this is a bad idea.  Pick any part, the whole thing, whatever.  Tell me why the federal takeover of the entire U.S. airline industry would be a huge mistake.


Posted by JimK at 03:38 AM on September 13, 2006
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#1  Posted by Belcatar United States on 09/13 at 11:12 AM -

Economics is based on incentives. You are proposing that we remove failing airline companies because airlines are necessary for the economic welfare of the country. Unfortunately, removing failing airline companies also removes the incentive the individuals who ran the companies had to do their jobs.

Although many airlines are in terrible shape, there are a few who turn a profit. I believe Southwest Airlines consistently turns a profit, though that may no longer be the case. Apparently, the business model for airlines has changed, and the airlines failed to change with it. Those companies who evolve will survive, and those who do not will perish.

If the government takes over the airlines, you’l have a situation very similar to public education. Monolithic government control of education has done more harm than good, because it is impossible for public schools to adapt in a timely manner.

Someone will figure out a way to make the airlines profitable, and it would happen even faster without government intervetion. A good example of innovation without meddling is the World Wide Web. Of course, now the government is looking for a way to get some control over that as well.

I should probably back up my argument with facts, but I’m doing this on break at work.

#2  Posted by Icarus United States on 09/13 at 01:29 PM -

Uh, free passage would eliminate a huge obstacle for most people… price. I rarely fly, mostly (maybe 98%) because of the price; but as well as the huge, seemingly random, price fluctuations. 

That would create a huge demand… and the lines get pretty long as it is, right now.  Waiting periods and long reservation lead times would make the service pretty unusable for emergency or spontaneous trips. (More passengers, more flights, more planes, more danger, more airports… if it is unprofitable now, it would be unsustainable with such a large increase)

Couple that with the poor service that would result from lack of competition. There would be no incentive from the ground up to serve you better, it’s not like you can decide to switch airlines if all of them are run by the same government.

We’d end up with what we always end up with in situations like this: A huge, wasteful, government-run mess from which we have no choice.

Here is a question: When was the last time an airline did anything innovative to earn my business?

Even the local grocery stores change the ways I can shop to make things easier, faster, better.

Airlines offer the same uncomfortable experience at higher and higher prices. They may or may not serve me the same lousy meal, and if I’m lucky, they might let me borrow a pillow. If I’m lucky.

With the price fluctuations, I have to worry about spending hundreds of dollars more for the same flight, if I buy today, and I don’t wait a few days. But then, I may end up paying more, by waiting.

If movie theaters operated in this fashion, I’d never go to a movie again.

They don’t have to worry innovation and improving the experience as it is. They know we have to fly. They know the Government will bail them out.

If there was absolutely no threat of going out of business, no possibility of profit, no incentive to improve service… as would happen if the government took control… things would be much worse.

But… I could be wrong.

~Icarus

#3  Posted by Frenchconnection United States on 09/13 at 01:54 PM -

Quality is the answer.  Can you imagine some dipshit from the DMV fueling your plane?

Ryley R. Hayes#4  Posted by Ryley R. Hayes United States on 09/13 at 01:58 PM -

Seeing as I’m signing my life away for 40k a year to learn this shit, I guess I should comment

Southwest Airlines is the fucking gold standard for running a large but domestic airline.

The biggest thing Southwest does is keep simple. They operate only one model of aircraft, the Boeing 737… which happens to be about the most efficient airplane in the world, in terms of passengers carried for fuel spent. By using only one type of aircraft (though they do use a couple different versions of the 737) they only have to spend money training people to work with one kind of aircraft: pilots, mechanics, etc. You don’t need as many people to keep your fleet running. The “big” airlines like United or American operate dozens of different aircraft, and need to spend more money because of it.

Another thing is that air travel used to be quite an exclusive business. It cost a lot more money to fly back in the old days, and as such, many of the airlines were formed with luxury in mind. That’s just bad business now. Southwest may be all coach, but they sell their tickets for a lot less, and make a lot more money than the “big” airlines.

To be honest, I think the government should just let the airlines wither and die. It’s not all the airlines that we’re talking about either, just the old ones that refuse to adapt to a new environment - United, American, Delta, etc. Airlines like Southwest can expand under the same business model. If Southwest were to gradually switch to the 787 when it comes out in a few years, they could start international routes as well.

For those who don’t know, Boeing is going make those Frenchies at Airbus look fucking stupid in the coming decades. That gigantic A380 is a financial disaster waiting to happen for the airlines. The airliner that is going to dominate the early 21st century is the new Boeing 7E7 (likely to be the 787). It’s really the evolution of the 737, which has moved more passengers than any other aircraft in history. The 7E7 will be a bit bigger. The big thing is that it is going to be very, very fuel efficient, and will take smaller passenger loads between more airports.

If an airline like Southwest were to keep the same business model, and gradually switch from the 737 to the 787, they would make a fuckton of money.

Ryley R. Hayes#5  Posted by Ryley R. Hayes United States on 09/13 at 02:09 PM -

Yep. A quick look at Fortune 500

Shows that of the top 10 airlines, only two are turning a profit. Southwest is one of them, with over half a billion dollars in profit.

The other one is SkyWest, turning a much smaller profit.

#6  Posted by xlokix United States on 09/13 at 02:48 PM -

Success with privatization is based on safety, ease of use, and quality of the product (in this situation). Plane tickets are expensive, people don’t think they’re safe because of 9/11, and you’ll have to go through hours of security just to get on the plane. Therefore popularity is low. You sound like a democrat, how would government control over the industry change anything? Tickets are still going to be expensive, there’s no guarantee of it being any safer and security is going to probably be even tighter. But I don’t know a lot of what I’m talking about so I’ll just stop here.

Ryley R. Hayes#7  Posted by Ryley R. Hayes United States on 09/13 at 03:22 PM -

I’m also going to add for everyone’s benefit that you really should fly Southwest. It’s really a whole lot cheaper than everyone else. Some of the other airlines, especially the budget lines, occasionally get you cheaper fairs, but as a general rule of thumb, Southwest will be your best bet.

#8  Posted by craigm68 United States on 09/13 at 03:30 PM -

I see it coming. Change airline with healthcare.

I bet that it costs more to bail out healthcare too.

#9  Posted by gcanter United States on 09/13 at 03:50 PM -

Plus, the people paying the most taxes are the same people who most likely never set foot on an airliner. After all, nothing is really “free”. They fly on their own corporate or personal aircraft.  Only a socialist would think it makes sense for them to foot the bill for the rest of us.

#10  Posted by Zinger United States on 09/13 at 05:50 PM -

Let’s see, what’s wrong with the proposal.  I don’t have that much time but here is what strikes me off the top of my head:

1. Zero cost would translate to unlimited demand.  What stops anyone from suddenly taking a trip to Hawaii?  There is no way to provide such a luxury item to anyone that wants it without confiscatory tax levels (for all income levels)

2. International competition.  Perhaps you could socialize the domestic airline travel industry, but the US does not have the authority to do it worldwide or even continent wide. 

3. Lack of competition results in reduced services, increased costs, black market economies (to avoid the headaches of going through the governmental red-tape, or to trade travel vouchers (or however else you would handle the free travel))

4. Lack of security.  If anyone could suddenly travel anywhere at anytime, “people of interest” would become very difficult to track.

There is a whole host of other problems presented by the tremendous demand that exists for airline travel, but as I said, my time is limited.  gotta go.

Joe R.#11  Posted by Joe R. United States on 09/14 at 01:11 AM -

Only one answer should be necessary.  If I choose not to travel by air, then I should not be forced to pay for air travel.  It’s called liberty.

Unfortunately, (50+x)% of this country likes telling (100-50-x)% of the country what to do with its money.

#12  Posted by sindri United States on 09/14 at 02:55 AM -

Dude you have been in CT way too long. America is a capitalist system remember? Get the government out of the airlines 100%. No proping them up at all. The one who run their business properly will survive and grow. The one who mismanage their airlines will die. Yes for a year or two it may be hard getting a flight but after that we will have healthy well managed airlines and the government will take a little less out of our poickets.That is what Capitalism is. Southwest, Jet Blue and Air Tran don’t need the government because they run efficent customer based businesses. I am in the aviation industry and can tell you from personal experience that the major airlines will NEVER run themselves properly as long as they know the US taxpayer is there to bail them out. United wastes more money in one day than most third world nations bring in in a year.
Whenever we have actually tried capitalism in the U.S. it has worked just fine. Capitalism can be subsidized for a short time to help an industry over a hump but in order to survive and be healthy ALL rules of capitalism must apply.

#13  Posted by pilot141 United States on 09/14 at 02:59 AM -

You need some regulation of commerce. (the rulemakers). You need someone invested and willing to take a risk (the owners). And finally you need someone out there to actually go do what you want done (the players).

In one case, these are the FAA, the shareholders and the employees of the airlines.

Your proposition is to replace them all with a government entity.

In another case, we have umpires, the owners and the players of Major League Baseball. Since the Pittsburgh Pirates have been lousy for several years but somehow the franchise has survived, I declare that a failure of the system. Ticket prices for Pirate games have gone up but their record has not improved. Something is obviously broken: I am paying more but getting less.

Solution: Fire all the MLB players and replace them with the umpires. Instead of the rulemakers just enforcing the rules, let’s have them do everything. No owners, no players, just nothing but umps running around.

Thrilling, no?

You get the point!

#14  Posted by sindri United States on 09/14 at 03:03 AM -

And...since when has the Government EVER run anything properly? JimK I am starting to worry about you. The answer to most of our problems is smaller government. The government running the airlines...then what? They take over ford cuz we all need cars. Then they take over health care and our retirement plans and let’s see..what else runs so ineffecitenly that the goverment can’t make it worse?

You propsal is the first step to The United Scocialist Republic of AmeriKa.

Stop drinking the water up there. They put liberal cooties in it for sure! :)

#15  Posted by FrauBudgie United States on 09/14 at 05:30 AM -

Have you ever taken Amtrak?

#16  Posted by xlokix United States on 09/14 at 10:48 AM -

Keep in mind this is an experiment and I don’t think he believes this, he just wants to see your reaction.

Now...this is a bad idea.  I’m very wrong on so many things in the above paragraphs.  Here’s the experiment.  You have to tell me why this is a bad idea.

#17  Posted by Starving Writer United States on 09/15 at 12:46 AM -

I think JimK is trying to establish a parallel between the health care industry and the airlines industry, and this experiment is to prove a point regarding why universal health care is such a bad idea.

#18  Posted by tuneout Australia on 09/17 at 03:53 AM -

The bit I disagree with is the sentence “Every American deserves the right to be able to get where they need to go in this country”.

I don’t think this is true. The freedom to travel anywhere should you want, yes. The right to take an airline to get there, no. While it’s true our economy needs airlines, this is also the fact that is going to guarantee that there will always be airlines for those who need and can afford it - there will always be a market.

I agree with the poster above who said: “If I choose not to travel by air, then I should not be forced to pay for air travel.  It’s called liberty.”

This is what separates it from healthcare as an issue. The protection of ALL its citizens should be one of the fundamentals of government.  And so a civilised government *should* be in the business of ensuring healthcare for all, not only to those who can afford it. In my opinion.

It’s called life.

You know, as in “life, liberty and the pursuit of happiness.”


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