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Airline Nosedive Highlights Failures of American-Style Capitalism

Many airlines can't survive in a free-market system; shoot themselves in the foot. {Illustration credit- Leonardo da Vinci}
Airline Nosedive Highlights Failures of American-Style Capitalism
Airline Nosedive Highlights Failures of American-Style Capitalism
My economics professor led me to believe that government regulation of business was a disservice to the consuming public. I think there are a few serious problems with this assumption. First, it ignores the fact that huge corporations lack adequate incentive to consider the public good, and they are largely devoid of accountability to the consuming public. The government is theoretically in place to protect ALL of the public from damages resulting from commerce, among other things.

Government regulation of key industries always leads to a handful of massive companies controlling the entire industry. There are good arguments that would claim this to be beneficial to the consumer. The problem is, when the government "deregulates" an established key industry, the entrenched handful of huge companies is initially too powerful for new competitors to challenge. The free-market system allows compensation for this by encouraging new competitors to break in, using nimble planning and innovation to outmaneuver the giants. In this case, the less adaptable company is bound to eventually fail, and the free-market prevails.

The US economy does not operate on a free-market basis, however. Unlike the smaller companies, the huge companies wield so much influence that they are able to garner huge public subsidies when they get into trouble and are not allowed to fail. The airline industry provides an excellent current example of how this can be problematic.

Even if the substantial externalized costs of producing the planes and infrastructure are neglected, the toll of this industry is quite high. By "externalized costs", I mean the costs of business that the companies successfully pass on to the general public. Pollution is a typical example of this. From air pollution, to ground and water pollution, to noise pollution, the airline industry does not discriminate when it comes to taxing the general public. Rapid propagation of microorganisms & invasive exotic species caused by airlines present costs which would be difficult to calculate, but are no doubt huge. The growing privacy attack from airlines, as seen recently from Delta Airlines, is yet another cost that is difficult to quantify.

The american airline industry benefits in countless ways from the publicly funded military-industrial complex of course, but that is another story. Prior to 911, several american airlines were already struggling. They had retained billions over the years by their successful political lobbying efforts aimed at staving off the institution of a well-trained and regulated security force. Ill-paid, ill-trained, and ill-equipped security personnel resulted in the passage of safety (or lack thereof) costs on to the flying public. The cost of security was then spread to the larger public following 911, but that wasn't enough to save the big industry players.

Following the 911 plane crashes, the US Congress enacted legislation that awarded billions of corporate welfare dollars to the airline industry. While thousands of airline employees got an empty sack, companies who were not even affected by the 911 plane crashes received generous public compensation. Several big american airlines were STILL not able to generate black ink. Fear of terrorism, war, weak economy, high fuel costs, more war, and SARS, have now conspired to deliver the deathblow to several industry giants.

Does this mean certain doom for the american airline industry? Not necessarily. Despite all the gloom, some major american airlines are showing a profit, but speaking of american airlines, American Airlines is not one of them. Despite an additional multibillion-dollar public gift to the airlines that was tacked onto the Iraq war budget, American continues to flounder.

Posting more than a billion dollar loss for the previous quarter, American looked to employee concessions to fill the gap. The employees voted for a collective concession of 1.8 billion dollars, in order to save the company. Without informing the trade unions prior to the vote, American airlines had quietly planned millions of dollars of bonuses for the very executives that had driven the company down the drain.

The employees are furious about this manipulation and are planning to have a fresh vote on their concessions. It would appear that they now have a choice between losing their jobs, and accepting the blind greed antics of their management. While demonstrating this level of contempt for their employees, this cash grab does not seem like a very smart business move for American execs, at a time when pilots are to begin carrying firearms.

The industry could approach economic equilibrium and stability if the true costs of the industry were built into the price of the ticket, and the poor performers were allowed to fail under a free-market system. Otherwise, air travelers and non are paying a much higher price for this service than we are being led to believe.
smaller pic 24.Apr.2003 02:24

Save the bombardier!

smaller pic
smaller pic

Update on American Airlines 24.Apr.2003 18:41

Save the bombardier!

American Air CEO Carty resigns, bankruptcy looms
By Kathy Fieweger and Jon Herskovitz

 http://reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=2626670

CHICAGO/DALLAS, April 24 (Reuters) - American Airlines ousted its Chief Executive Don Carty on Thursday after a controversy erupted over executive bonuses and pensions, and sources said the world's largest airline may still file for bankruptcy as early as Friday.