FauxPolitik

Wednesday, April 02, 2003

Airlines Again: Lawrence Lindsey laid it out in the WSJ yesterday (here, if you subscribe). I think his take is accurate: further deregulation combined with smarter tax policy. Some quick hits:
Start with labor. Airline collective bargaining arrangements hardly constitute what anyone would call free collective bargaining. Government officials decide if and when strikes can occur. Once authorized, fear of a possible shutdown causes bookings to go to other airlines, draining the airline of incoming revenue while forcing it to keep paying the full costs of operation. No airline can survive for long, and so the union's demands are invariably met. The resulting high costs are the airlines' biggest problem.

Government also limits airlines' access to equity capital. Foreign ownership is prohibited. So, while Daimler can buy Chrysler, British Air can't buy United. The government's logic was based on the need for the president to commandeer planes to ferry troops and materiel to Europe in the event of a Soviet invasion. Certainly some national-security addendum can be added to any reform in this area. Meanwhile, the free market model on which the let-them-go-bankrupt approach depends doesn't work when the number of buyers is so restricted.

This brings us to taxes and other mandated costs. Federal taxes and fees now consume 25% of the cost of a low-priced ticket. That does not include the further tax burden on profits and wages that most businesses face. This tax compares with an 18% federal excise tax on cigarettes and an 11% federal excise tax on whiskey. Is air travel more of a sin than alcohol or tobacco?

The business-model problem is still an issue, even after deregulatory reform, but as long as the airlines know they're playing by evenhanded rules, and are told very clearly to get off the public teat, they'll be more likely to adapt to the new environment.

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