Flying the unfriendly skies.

• Author: Eichel, Larry
• Position: Deregulation, United Airlines

The benefits of deregulation are almost too numerous to

mention: high prices., old planes,, bad maintenance

and layovers in Newark

One recent Friday evening, David Brown boarded United Airlines Flight 103, nonstop service from Philadelphia to San Francisco. So did Andy Skibo, Don Seigrist, Brad Weaver, and Judith Benson.

David Brown sat in coach. So did the others.

He dined on California lasagna and beef roulade. The others did, too.

But there was one major difference between David Brown and his fellow passengers.

David Brown paid $586 for his seat.

Andy Skibo paid $483.

Don Siegrist paid $358.

Brad Weaver paid $229.

And Judith Benson, one row in front of Brown and just across the aisle, paid $124.

"It's an amazing thing," said Brown, a sales representative for a California wine company, shaking his head, "The mysteries of airline pricing are unbelievable." This array of prices, one of the most wide-ranging in the whole American marketplace, is the direct result of an experiment launched by Congress I I years ago. The experiment was called airline deregulation.

The idea was that there would be more airlines. In fact, today there are fewer. The theory was that there would be more competition. In a lot of places, there is less. The expectation was that the airlines would compete primarily through ticket prices. For the most part, they don't. The promise was that there would be better service. To many passengers, air travel has never been such a hassle.

Lords of the skies

In deregulating the airlines in October 1978, Congress decided to stop treating the industry as a public utility. No longer would the government tell the airlines what routes they could fly and what they could charge, as it had for 40 years. The carriers, and the marketplace, would make those decisions.

For a time, deregulation worked just the way its champions had predicted. New airlines popped up all over, and consumers reaped the benefits of spirited competition. Air fares declined, service increased, and the number of passengers mushroomed. But those days are gone. Today nearly all of the upstart, low-fare carriers have disappeared, along with some long-established ones-more than 200 casualties in all. Their assets have been redistributed by bankruptcy courts or gobbled up in a wave of merger mania that reached its crest during Ronald Reagan's second term.

Now there are eight mega-carriers"-American, Delta, Northwest, Pan American, Texas Air (the parent company of Continental and Eastern), TWA, United, and USAir-and there are rising fares.

Average domestic air fares increased by 12 percent in the first half of 1989 compared with the first half of 1988, according to the Air Transport Association, the industry's trade group. Fares have been rising faster than the cost of living for the past two years. While budget fares remain available to vacationers willing to lock in itineraries far in advance, business travelers have seen fares on their discounted tickets rise 47 percent just since last fall, according to Runzheimer International, a travel management firm.

Those unregulated fares-along with the ongoing array of airline mergers, consolidations, takeovers and bankruptcies-have spurred debate about whether the time has come for the government to reassert some control. "The issue is not deregulation or re-regulation," said Senator John C. Danforth, the ranking Republican on the Commerce, Science, and Transportation committee, an intervention advocate. "The issue is lack of competition." The trend in the airline industry is toward a marketplace controlled by the large and the few.

"The fact that we have fewer carriers is obviously of concern to me," says Secretary of Transportation Samuel K. Skinner. "I don't like the fact that we're losing airlines. I don't like the fact that there's some feeling in the industry that we've got less competition than we had before."

Only two significant airlines formed after deregulation have survived-America West and Midway-and they account for well under 3 percent of the national market. "Big won, small lost," said Vance Fort, senior vice president of World Airways. Small is still losing. Presidential Airways filed for bankruptcy protection last October. Braniff Airlines suspended passenger operations in November. And no new carriers of consequence are on the horizon. "If you are looking to come into this business today as a new carrier, you're out of your mind," says George James, president of Airline Economics, a Washington-based consulting firm. "The barriers are so high. You can't put together enough in the way of resources to get a full running start."

The effect is clear, as Wall Street demonstrated with a vengeance last year when stocks of the largest airlines, which posted record profits in 1987 and 1988, soared and became subject to frenzied wheeling and dealing.

Some of the advocates of deregulation originally believed that the old, established airlines would fail to adapt to the new environment and rapidly become extinct. A few did fade away. It took the others a while to adjust. But eventually they figured out how to turn their bigness into an asset by creating a new game in which only they could afford to play. "The field was open, and they could make the rules," said Chris Witkowski, who heads the Aviation Consumer Action Project, an organization funded by Ralph Nader. "There was no understanding of the marketing devices that would be developed and no will to keep them in check."

The major airlines poked gaping holes in the two theories on which airline deregulation was based. One theory was that there was no inherent advantage in bigness, no "economies of scale." The other was that the mere threat of competition on a route was enough to keep fares in line.

The carriers destroyed these suppositions by creating an intricate web of marketing devices to attract and hold customers-regardless of ticket price. Devices so radically different from anything that had come before that a whole new language had to be invented to describe them: Frequent-flier programs. Computer reservations systems. Yield management. Commission overrides for travel agents. Hub-and-spoke route systems.

These marketing devices served two fundamental purposes: They deterred price competition among...