Deregulation airline industry

Deregulation resulted in a number of changes to the nature of the airline industry. In particular ... 

A number of airlines have cut support departments, such as engineering, to focus scarce resources on the necessities of operations and maintenance. There has been little or no systematic study of how such cuts have affected safety. However, some airline industry observers and critics of deregulation have raised concerns that such cuts leave the airlines more dependent on aircraft vendor input on decisions regarding new aircraft designs, as well as maintenance and other areas. Thus, for example, O Malley (1993, pp. 80-81) cites a United Airlines captain as saying ... 

Eastern Airlines as being virtually unheard of in the airline industry prior to deregulation, and noted that the aetions of some airlines in cutting back safety standards to FAA minimums were also a product of deregulation. 

The experiences of the airline industry with maintenance violations and falsification of records after deregulation, and the widespread concerns about under-reporting of safety problems identified in the rail industry interviews, raise another note of caution here. In particular, there is some indication that financial and union difficulties in the airline industry exacerbated the incentives for some airlines to cut comers on maintenance (Transportation Research Board, 1991, pg. 184). To the extent that deregulation causes similar stresses within the nuclear power industry, some companies may face similar incentives to ignore or under-report safety problems, and/or avoid regulatory sanctions by evasion rather than by enhanced maintenance efforts. This is consistent with the prediction that less effort may be devoted to issues that are perceived as gray areas, but can have unforeseen safety consequences. 

Corporate culture issues also appear to have played a part in the increased risk associated with some new entrants to the airline industry for example, Gray (1987, pg. 34) stated that Many new carriers have little notion of or experience in how an airline must be run. By contrast, corporate culture issues did not appear to pose as much risk in the new spin-off railroads established after rail industry deregulation, in part because they were largely staffed by experienced personnel from the larger railroads. In addition, because of intercormections between the new short-line railroads and the major rail carriers, the smaller railroads were generally required to meet certain minimal levels of safety performance. Similarly, the recent trend toward partnerships between the commuter air carriers and the major airlines may be associated with a reduction in the average risk of the commuter carriers. 

David Card (1996), Deregulation and Labor Earnings in the Airline Industry, Cambridge, Mass., National Bureau of Economic Research. 

Within the United States, the passage of the Ocean Shipping Reform Act of 1998 was a significant event for water transport. This act allows carriers and shippers to enter into confidential contracts, effectively deregulating the industry. The act is similar to the deregulation that occurred in the trucking and airline industries more than two decades ago and is likely to have a similar impact on the shipping industry. 

As might be expected, airline profitability has been far more variable after deregulation than before. The CRS (Fischer, 1986, pg. CRS-2) notes that Under regulation, when the industry had a good year, its benefits normally were spread among all carriers. In 1984 and 1985, however, the distribution of profits was dramatically different. Fischer concludes (pg. CRS-3) Carriers have shown that it is possible to move from the financial brink to profitability, and in some cases, back again, in a relatively short period of time. ... 

Airline deregulation permitted the establishment of a number of new entrant airlines, since they no longer needed to apply to the CAB for permission to fly particular routes. Thus, the OTA (1988, pg. 27) reports that 119 carriers... entered the industry between 1978 and 1986 Mark Kahn (1988, pg. 3) cites statistics from the New York Times indicating 128 new entrants (of which only 37 were still in existence as of November 1987). Gray (1987, pg. 34) states that Many new carriers have little notion of or experience in how an... 

Overall, therefore, the experience of the aviation industry suggests that economic deregulation did not have a negative impact on the overall safety record, but that safety cannot be taken for granted after deregulation. The situation is well summarized by Lauber (1988, pg. 228), who notes that the accident statistics do not demonstrate that safety has suffered under airline deregulation— but neither do they prove that there has been no impact... Vigilance, therefore, must be continuous. ... 

The data used by Card (1986, pg. 528) consist of annual observations on employment, wages, and output at 11 major airlines. Card notes that Wage rates at the financially sound airlines have maintained the pattern of equality established in the industry before deregulation (pg. 528), suggesting that below-market wages affected only airlines in financial difficulty. 

In examining the impact of economic deregulation on safety in the aviation industry, the literature surveyed in the previous chapter provides an excellent starting point. In particular, two books based on interviews with airline pilots, mechanics, FAA inspectors, accident investigators, and others (O Malley, 1993 Nance, 1986) provide first-hand perspectives on experiences in the aviation industry in the years after deregulation. These books serve as a useful supplement to the statistical analyses and other empirical data stunmarized in Chapter 2, and provide detailed information based on extensive interviews. 

Two individuals noted that deregulation had increased the numbers of airplanes in the air, and hence the amounts of traffic being handled by the air traffic control system. One of these specifically suggested that this might be a factor in altitude deviations and runway incursions, and emphasized that communications is one of the most frequent causes of accidents in the industry. This individual also noted that in the first 10 years after deregulation, neither the new airlines nor the FAA were fully prepared to deal... 

One individual who had formerly worked at the FAA argued that maintenance practices had actually improved after deregulation, but that this improvement was in part regulatory driven. He described a cycle in which the airlines develop new maintenance practices as a result of operational experience, and those improved practices are eventually encoded in regulations. Thus, an innovation that may have begun at one or a few airlines is eventually mandated for all airlines. This respondent believed that the greater sophistication of preventive maintenance practices today had unquestionably helped the safety performance of the aviation industry. He cited corrosion as an area where such improvements had a significant impact. As a result of extensive efforts to understand the causes and effects of corrosion, the skins of a number of aircraft had been replaced for preventive maintenance purposes. 

From an economic point of view, these types of changes make sense. In particular, while some have raised concerns that competition would reduce the amount of money available for maintenance, experience indicates that companies will generally expend the funds necessary to ensure the reliability of their product in a competitive market, while searching for the most cost-effective means to do so. Thus, the reductions in maintenance expenditures observed in the aviation field and the increased maintenance observed in the rail industry are not necessarily inconsistent. The airlines appear to have reduced the amount of money they spent on inefficient maintenance. By the same token, the railroads increased their investment in maintenance at exactly the time when deregulation of shipping rates led rail lines to become more profitable, and hence those investments became more worthwhile. 

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