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Article
The Approach of Re-Regulation: The Airline Industry After September 11, 2001
Issues in Aviation Law and Policy (2004)
  • Brian F Havel
  • Michael G Whitaker
Abstract
In this essay (Paragraph No. 10,051), the authors examine the visible fracturing of U.S. airline deregulation that they claim is the consequence of the Federal Government's airline rescue package enacted in the wake of September 11, 2001. The essay looks briefly at the strong consumer benefits from deregulation, but notes that there are several reasons why the industry nevertheless seems constantly at risk of being re-regulated: the poor profit margins of the carriers, the federal government's continued regulation of security, safety, and airport infrastructure, and recurring claims of anti-competitive behavior and inadequate attention to passenger rights. The threat of re-regulation, the authors argue, has required the airline industry to maintain a strong lobbying presence in Washington, DC, and they provide a paradigm adapted from public choice theory to explain the airlines' relative success at deterring re-regulatory campaigns. Nevertheless, the severely weakened financial condition of the industry after September 11, 2001, represented a defeat for these vaunted lobbying efforts, and the outcome of the stabilization package allowed some governmental invasion of the airlines' zones of regulatory freedom. The consequences of that loss of influence are reflected in the legislative and administrative components of the rescue package, which the authors inspect in some detail. Focusing on the specific elements of disaster relief, the authors discuss the creation of the new Air Transportation Stabilization Board, which is authorized to guarantee loans to the airlines and even to participate in the prospective gains of the recovering airlines through equity participation. The legislation also imposes salary caps and, most intrusively for deregulation, appears to confer a power on the Secretary of Transportation that could be used to restrict airlines from exercising their existing freedom to exit any routes they have previously served. The essay next turns to the three administrative instruments that have been adopted to carry out the terms of the legislation. The authors find that the instruments have very burdensome real-time reporting requirements and are poorly coordinated with one another. With respect to the loan guarantee regulations, the authors find that while the language does not insist that carriers give equity participation to the government in return for credit assistance, the Board's evaluative criteria are drafted to give preference to loan proposals that contain an offer of such participation. The authors note that the order implementing the Secretary's powers with respect to route exit seems less restrictive than the widely-drafted legislative power appears to allow. Concluding their analysis, the authors note conflicting views on whether the assistance package prefigures an economic re-regulation of the airline industry. Although the Stabilization Board could diminish the role of the marketplace in picking winners and losers, its effects are limited in time and purpose. The authors are more concerned that the legislation's open-ended restriction on route exit could become a widening fault-line in the post September 11, 2001 fracturing of deregulation.

Publication Date
2004
Citation Information
Brian F. Havel; Michael G. Whitaker, The Approach of Re-Regulation: The Airline Industry after September 11, 2001, 2001 Issues Aviation L. & Pol'y 4101, 4122 (2001-2004)