Comments on: American’s former CEO rocks industry with call for reregulation

By: jlawrence01

jlawrence01 — Thu, 12 Jun 2008 19:23:59 +0000

I agree with the first poster.

If large airlines were allowed to fail and were immediately liquidated (no matter how painful in the short term), you would see much stronger and more customer friendly airlines. It is unfair that certain airlines – like United, Delta, and Northwest – can walk away from their commitments to their suppliers and employees and still be permitted to operate.

The argument that air service would “go away” is several of the legacy airlines folded is specious. Look at the mega-retailers of the 60’s – WT Grant, Korvette’s, FW Woolworth – have all ceased to exist years ago and there are still an adequate number of retailers today.

By: john m

john m — Thu, 12 Jun 2008 17:45:24 +0000

Re-regulation would take us back to the gravy days for the airlines as there wouldn’t be any incentive to control costs. Take a look at airfares prior to deregulation and you will see that they were much higher and that far fewer people flew places. Airlines were virtually guaranteed to turn a profit since they weren’t competing in the marketplace. This was great for stockholders but it didn’t do anything for the consumers and it didn’t encourage innovation in service.

Yes, the airlines have their issues, part of which is the cost of fuel, part is mismanagement and part is plain stupidity. Any industry that forgets to price it’s product in such a manner that it turns a profit is stupid and since most of the airline management teams are sheep and follow each other to the slaughter, they are acting stupidly.

The solution to their current crisis is to allow free market forces to work, not to regulate an industry. It is clear that there are too many seats being sold at too low of price and therefore management needs to charge according to their costs, not according to what their customers want to pay. It is not a simple nor easy solution but it is one that they need to undertake.

By: Matthew B

Matthew B — Thu, 12 Jun 2008 15:19:27 +0000

The only ramp up in airline regulation I’d like to see is to impose capital adequacy requirements, and to get rid of Chapter 11. These companies are in and out of bankruptcy because the shareholders don’t put up enough money. In the US, typically an airline will finance 90% of its assets with debt, compare this to profitable foreign airlines like BA and QANTAS that finance about 30% of their assets with debt. The other thing I don’t get is why when an airline is insolvent and goes into Chapter 11, management get to keep their jobs. In most countries if a company goes into official administration, the first people to go are the directors and senior managers who got the company into its precarious position in the first place.