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Coffee, Tea or Another Airline Merger? | The Nation

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Coffee, Tea or Another Airline Merger?

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When the New York Times ran a headline triumphantly declaring "Entrees Break the $40 Barrier, and, Sorry, the Sides Are Extra," not even the interns on Wall Street noticed. Wall Streeters don't eat in cheap restaurants where lunch costs less than $100.

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Nicholas von Hoffman
Nicholas von Hoffman, a veteran newspaper, radio and TV reporter and columnist, is the author, most recently, of...

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Bank of America's Ken Lewis has done his bit to reinforce the idea that the CEOs who got us into this mess are a pack of liars.

You may be wondering how to pay your bills, but on Wall Street they are making money faster than the computers can count it, not only because they've got themselves a nice stock market bubble going but also because of all the mergers and acquisitions. You cannot count all the ways they make money out of this form of corporate activity, one that is usually sterile from the point of view of profits or enhanced productivity.

One of the more promising acquisitions from a Wall Street perspective is the ongoing attempt by US Airways to buy Delta Airlines for more than $8 billion. Delta is in bankruptcy at the moment, but in the airline industry that means nothing. US Air has been there and back twice already.

Delta's managers do not cotton to the idea of being taken over and losing their jobs; Delta's creditors seem to have split on the subject; Delta's unionized employees will have to take whatever they're given and make the best of it; Delta's customers, US Air's too for that matter, may not come off much better than the airlines' unions.

Assuming the government lets the takeover go ahead, the new combined airline would be the largest in the country. Something close to one out of every five passengers would have to fly on it. In some Southern cities like Charleston, South Carolina, the US-Delta airline, or whatever they might call it, will have a near monopoly. But from the noises emanating from that region it appears the people there love unfettered capitalism, so they may not object to the fares monopolies charge.

The industry has long held that there are too many airlines, and that too many airlines cause too much competition, and too much competition causes airfares to be reduced, and therefore competition must be eliminated or drastically curtailed by creating semi-monopolies through mergers and acquisitions. Believe it or not, they have a point. After some thirty years of experiment, it has been conclusively shown that a free market in airlines brings economic devastation. A free market in the skies does not work. Instead of fat profits, low fares and the employees serenading the management, turmoil and bankruptcy stalk the industry. Employees have lost their pensions and suffered massive pay cuts; passengers have enjoyed progressively worse service; and stockholders, unless they are on the inside track, have taken something close to a horrendous beating.

This misery closely parallels the story of the American railroad industry a century ago. If you go back to circa 1906, you will discover that something like half the trackage in the country was bankrupt. Like today's airlines, yesterday's choo-choos were free-marketing themselves into extinction, and, mind you, this was back in the era when they had no competition from other forms of transportation. Like the airlines, they tried creating monopolies and, when that proved difficult, they attempted secret agreements for splitting the business and fixing prices.

Nothing worked. Finally, resort was made to Washington, and federal regulation imposed a degree of stability on the industry. Airlines, however, have gone in the other direction. Until 1978 the now-defunct Civil Aeronautics Board (CAB) controlled competition in the industry by assigning routes and controlling prices. Of bankruptcies there were almost none. The service was good, the profits satisfactory and the industry was in a roly-poly condition. Compared to what we have now, however, the fares were high. You had to save up to take a plane trip. Yet if the airlines have their way, the era of cheap, mass air travel is coming to an end without government regulation.

Whether allowing carriers to merge and create semi-monopolistic conditions will work is far from certain. While Wall Street makes the big bucks from mergers and acquisitions, at the managerial and operational level they are hard to pull off successfully. Labor problems abound, equipment does not match, the promised cost savings disappoint and on and on.

Some industries may not be suited to an unregulated existence. Commercial transportation may be one of them. Another is the electric utility industry, which has been liberated from the chains of regulation in a number of states, with painful and expensive consequences for anybody who depends on electricity for such nonessentials as light, heat and refrigeration.

For many years now, doubting the efficacy of the free market under any and all conditions has been tantamount to shouting a racial slur in public. The very word "regulation" is anathema. As for the word "socialism," it is unutterable, even if people who live in cities with municipally supplied power enjoy cheaper, better service.

Thus you may expect no corrective action on the government's part anytime soon. Airline companies will continue to be prone to sudden crash landings. As for the passengers, it's a bright future of less leg room, higher ticket prices, filthier cabins and more lost luggage. Oh, yes, one more thing. Nursing mothers be warned--stay away from Delta. The other day the airline threw one such woman off a plane after the flight attendant told her, "You are offending me." (The airline later apologized, but still...)

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