Friday, July 25, 2008
Next week, Michael Levine, former General Director of International and Domestic Aviation at the now-defunct Civil Aeronautics Board, and now a senior researcher and lecturer at NYU School of Law, will address the International Aviation Club in Washington, D.C. on the topic of reregulating the airline industry. Responding in part to former American Airlines Chairman Robert Crandall's recent speech (and subsequent open letter) calling for the government to step-in and "save" U.S. aviation, Levine will argue that the industry will have to adapt to the challenges facing it and that "reregulation will simply postpone the inevitable adjustment and [be] a prescription for waste." As Levine has already gone on to state, "Reregulation wouldn't affect the price of oil or the fragility of the economy. Those fundamentals will take time, perhaps a lot of time, to fix. The industry needs to adapt to these realities and to adapt, it will need the kind of innovation and flexibility that regulation is designed to impede."
In addition to his arguments against reregulation, it is interesting to note that Levine has long been skeptical that such measures are even politically feasible. In his extended essay, "Why Weren't the Airlines Reregulated?," 23 Yale Law Journal 269 (2005), Levine pointed out that the lower fares and increased services the industry has provided since deregulation, when combined with the general lack of unanimity brought on by multifaceted interests and competitive strategies, has neutralized the political will to see reregulation made a reality. Of course, some might argue that when Levine penned the piece back in 2005, he couldn't have foreseen the current crisis. Maybe so. He's not Nostradamus. On the other hand, it doesn't take a crystal ball to see that the airline industry will experience its fair share of peaks and valleys. Following a general surge during the 1980's, the airlines lost an estimated $15 billion between 1991 and 1993 before returning to profitability during most the 90's. Following 9/11, a staggering $25 billion in losses were recorded and yet again the industry weathered the storm and continued to provide an invaluable contribution to the world economy.
Up until the recent surge of European Union efforts to broaden its liberalization agreements with countries around the world, the U.S. and its model of deregulation had been a beacon of real progress in the industry. While we may be experiencing a sea change away from the "Open Skies" approach the U.S. launched in the mid-1990's towards multilateral arrangements, it must be remembered that "Open Skies" marked the first significant step away from the restrictive bilateral system which dominated international civil aviation for over fifty years. Without deregulation and the cultivation of its benefits, the U.S. could never have taken the steps it did to help foster a truly liberalized global airline industry. Last year's Air Transport Agreement with the EU-the ultimate efficacy of which still rides on the prospect that the U.S. is amenable to opening its skies and markets further with the EU-will be nothing short of a wasted effort should U.S. aviation find itself suffocated by new layers of regulation. Its airlines will have to concede competitiveness and profitability worldwide for the dubious security domestic protectionism might afford them. And the U.S. consumers? It will be an uncomfortable and expensive ride for a while, but not nearly as uncomfortable and expensive as a new era of government regulation would likely be.