Annals of Deregulation: Airlines ‘Stare Into the Abyss’

by Tom Bozzo

What a difference a quarter makes, as the International Air Transport Association’s forecast of aggregate airline industry has taken a $6.8 billion or $10.6 billion swing to the red, depending on how optimistic you are (per the NYT):

In March, the group forecast a profit of $4.5 billion…

If the price of oil, now just below $130 a barrel, averages $107 over 2008, the industry will lose $2.3 billion for the year, the chief executive of the group, Giovanni Bisignani, said. Should it trade at $135 a barrel for the rest of the year, the industry will lose $6.1 billion, he added.

Mirroring the global industry’s situation, the U.S. Air Transport Association has evolved in the last month from campaigning for a halt to additions to the Strategic Petroleum Reserve to calling for a release of 100 million barrels of oil from the SPR to learn those commodities speculators and try to get a break on fuel prices that are killing them. In doing so, they’re joining the trucking industry — whose marginal firms have also been dropping like flies — in a desperate scramble for oil price relief by any means necessary. (As a would-be member of the Pigou Club, this is where I’m actually a little happy that past bad policy does constrain present stupid policy actions). Via TrafficWorld (subscription maybe required):

“The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when fuel expenses are coupled with a weak U.S. economy,” American Airlines Chairman and CEO Gerard Arpey said in a statement.

However, they shouldn’t hold their breath:

It seems unlikely the Energy Department will act on the SPR on its own.

Energy Department Secretary Samuel Bodman told a House panel last week tapping into the SPR would be a bad idea,

“It’s meant to be used in times of severe supply disruption,” said DOE spokeswoman Angela Hill. “We just don’t think it’s a good idea to pull from this national asset, this security mechanism that protects the American people.”

This brings us to a dilemma of our partly privatized transportation system. Assuming the airline industry’s fiery crash can be avoided, deregulated airlines at least could have been regarded as relatively effective at taking money from shareholders’ pockets and corporate travel budgets and turning it into relatively cheap and fast intercity transportation for the middle class.

But continuing a theme of the last few transportation-related posts, it’s yet another example of the U.S.’s glass-jawed infrastructure: plan A assumes cheap oil forever, and there is no plan B. Or, to be a bit more precise, plan B requires large investments with long lead-time, and plan A can become non-operational fast enough that people ex post want plan B yesterday. Long-distance passenger travel may be some notches short of food or power distribution among essential services, but internal mobility is still important.

The sad thing is that Ben Stein is not alone in mistaking plan A-prime for a plan B ‘moon shot.’

“We should drill for oil and natural gas anywhere we got oil and natural gas – except maybe cemeteries,” said Rep. Ted Poe, R-Texas. “And we can slant drill into cemeteries.”


“Doing anything,” said the ATA’s May, “is better then what they are doing now – which is nothing.”

With leadership like that…