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Re-Regulation Talk Heats Up, and Airlines Should Think About Supporting It

Anytime an airline merger shows up on the radar, the re-regulation folks start coming out of the woodwork. The argument in recent times is that airlines suck and mergers are bad, so we need regulation again to fix the problem. Only one problem with that -- it's a terrible argument and would undoubtedly be awful for consumers. With discussion heating up again, it's a good time for airlines to refine their talking points on this dumb idea. But wait -- should airlines really oppose it? Believe it or not, they might actually want to support it. It could be the best option available.

Unsurprisingly, the latest noise is being made by Rep. James Oberstar (D-MN). Rep Oberstar is the most vocal of the congressmen who sit on the aviation subcommittee in the House, and he's never been in favor of mergers. As a congressman from Minnesota, he strongly opposed the Delta (DAL)/Northwest merger because of what he expected it to do to his constituents. As we know, his opposition failed. Now he's ramping up the rhetoric again regarding the Continental (CAL)/United (UAUA) merger. If you've got 7 minutes and 24 seconds to spare, you'll want to listen to his remarks:

He's pretty angry about this, but is re-regulation the right answer? No. But since he can't block mergers, this is his next best option for saber-rattling. Congress has no say in whether mergers get the green light or not. That falls under the departments of Justice and Transportation when it comes to airlines. And the expectation is that this will gain approval regardless of what Oberstar says. So he'll do what he can, and that's to try to re-regulate. Although it's important to note that he doesn't say what kind of re-regulation he'd prefer.

I can't imagine this effort being successful, but airlines should still start thinking about a response. Airlines, of course, might like this idea. Full regulation would presumably mean the end of price competition, making profitability a reality over the long run. But it also means massive shrinking because of the inevitable rise in fares and shrinking demand. Such re-regulation would be awful for the consumer, but it's mixed for the airline.

Would consumers get better service? Maybe, but only if they could afford a ticket. Instead, they'd just get fares set by a body that doesn't understand how airline pricing works in the first place. Oberstar continually rails against fees, but he fails to mention that if you get rid of fees, then base fares will rise to better cover costs.

So, re-regulation brings us a price-stable industry with much lower demand based on higher fares. Most airlines won't want this given the choice in a vacuum. Sure, they have to shrink dramatically, but you have to think about this considering the alternative.

Without re-regulation in full, we'll probably see more piecemeal regulation like we've already seen with the DOT's Passenger Bill of Rights. If Congress is really angry about this merger going through, they might try to pass more rules to handcuff the airlines. As distasteful as re-regulation may be for most, it's far better than the death by a thousand cuts (or handcuffs) strategy that the government seems to be employing today.

Neither of these is an ideal option, but unless the feds back off on some of these regulatory issues, re-regulation might just be the more palatable one. Consumers, however, will lose the most.

Original Photo via Flickr User ktylerconk

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