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FEATURE INDUSTRY

It blocked new competitors from entering another,” Kahn said. “I just do not see any carriers to ”transition from Chapter 11 to
the market and stymied applications for reason to believe that the airline industry today’s industry leaders, each achieving
new routes from existing carriers. cannot prosper and attract capital.” multi-billion dollar profits.
De-regulation allowed any airline to fly Kahn’s testimony was way off the Last year, the three big US carriers
anywhere it wanted and to “cherry pick” mark. In fact, there has been nothing but generated collective net profits of US$8.97
the best routes. intense, severe and cutthroat competition billion, equivalent to 45 per cent of the
Before its enactment, deregulation since deregulation and the airline system total US$19.9 billion profits achieved in
was opposed by nearly every major US in the US is now arguably the worst in the 2014 by the global airline industry.
airline. Once it was enacted, however, industrialised world. The trend says the report has
the airlines briefly welcomed their new One of the greatest benefits claimed continued into 2015, with all three major
freedoms. But initial optimism soon gave for deregulation is that fares have fallen US airlines announcing strong net profits
way to serious misgivings. since 1979 and passenger numbers have for the first quarter.
By the 1990s well-credentialed climbed. In fact, fares have fallen across The international consultancy The
commentators were citing serious effects, the globe and have done so every year Risk Advisory Group, which conducted
including the loss of some of aviation’s since 1929 when the first reliable records the research for Etihad Airways, identified
greatest companies, the bankruptcies of were kept. And passenger numbers have that the majority of benefits which accrued
all but one of the major pre-deregulation always grown. to Delta, United and American came from
carriers, relentless downward pressure The reality in the US is that since restructuring under Chapter 11 of the US
on airline wages, and a widespread view deregulation in 1979, air fare decreases Federal Bankruptcy Code, yielding them
that customer service had declined. have actually slowed, passenger growth at least US$35.46 billion, and additional
In 2008 Robert Crandall, former has also slowed while airline margins pension fund bailouts totalling US$29.4
president of American Airlines, addressed have been slashed. billion from the US Government’s Pension
the Wings Club in New York and laid out In 1988 Kahn, the architect of de- Benefit Guaranty Corporation.
his blueprint for stabilisation of the US regulation, admitted that “there is no Etihad Airways and Emirates and Qatar
airline system, which—not surprisingly— denying that the profit record of the have consistently denied claims by US
involved a reversal of deregulation—or industry since 1978 has been dismal, airlines that they have received subsidies,
rather a ‘dollop’ of reregulation. that deregulation bears substantial and have stated publicly that they have
“I feel little need to argue that responsibility, and that the proponents … received equity and shareholder loans
deregulation has worked poorly in the did not anticipate such financial distress— from their sole government shareholder.
airline industry,” he told members. “Three either so intense or so long-continued”. Releasing the findings by The Risk
decades of deregulation have demonstrated While the US airline industry has not Advisory Group, the General Counsel and
that airlines have special characteristics been re-regulated there have been three Company Secretary of Etihad Airways,
incompatible with a completely unregulated major mergers that have the big six to Jim Callaghan, said: “We do not question
environment. To put things bluntly, the very big three (merger partner in the legitimacy of benefits provided to US
experience has established that market parenthesis) – Delta (Northwest), United carriers by the US government and the
forces alone cannot and will not produce a (Continental) and American (US Air). bankruptcy courts.
satisfactory airline industry, which clearly And all airline have been in Chapter “We simply wish to highlight the fact
needs some help to solve its pricing, cost 11 bankruptcy protection that has enabled that US carriers have been benefitting and
and operating problems.” them to shed billions of debt and slash continue to benefit from a highly favourable
For Crandall, none of these failures salaries. legal regime, such as bankruptcy
came as a surprise. As far back as 1977 Now they are making super profits. protection and pension guarantees,
he had berated a Senate lawyer: “You … exemptions from certain taxes, and
academic eggheads. You can’t deregulate US Subsidies! various other benefits. These benefits,
this industry. You’re going to wreck it. You That reorganisation has been now been which are generally only available to US
don’t know a goddamn thing.” detailed by research commissioned by carriers, have created a highly distorted
And he was right. They did not know a Etihad Airways. The report has quantified a market in which carriers such as Etihad
goddam thing, as evidenced by comments range of government and court-sanctioned Airways have to compete.”
made by the deregulator Kahn testifying benefits and concessions received by Delta, Mr Callaghan said the figures
before Congress a year later. United and American and other airlines produced by The Risk Advisory Group were
“The assumption that you are going with which they have merged. conservative, quantifiable and credible,
to get really intense, severe, cutthroat These US airlines have received and obtained from public records and
competition just seems to be unrealistic benefits valued at US$71.48 billion, more statements.
when you are talking about a small number than US$70 billion of which has been since Mr Callaghan referred to a 2011
of carriers who meet in one market after 2000, enabling the nation’s three largest interview, published by America’s
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