Expand airline relief

A federally appointed board holds the fate of how much your airplane ticket will cost in the near future. This time though, they’re not threatening a new tax. Quite the opposite, actually. They are trying to determine how to spend your tax dollars. The Air Transportation Stabilization Board is charged with the task of allocating the $10 billion in loan guarantees that the government has provided for the airline industry. This policy will, in effect, determine how many and which airlines stay in business. And if the major airlines – and, of course, their lobbyists – have their way, many of the smaller airlines will go the way of the dinosaurs while sending ticket prices soaring.

First, with the federal loan guarantees, the government isn’t giving the airlines money – they already did that with a $5 billion grant. Instead, the government promises potential airline investors guaranteed loan re-payment if a carrier defaults. So naturally, the government wants to hedge its bets by providing loan guarantees to the most stable airlines, like United, American and Northwest. Unfortunately, these are the very airlines that need their support least.

This would have the effect of consolidating the industry – a process that, if it happens, should take place naturally in a slowing economy. Inducing consolidation will almost certainly have detrimental effects on both the industry and the economy as a whole, once it normalizes again. The Sept. 11 attacks hit airlines particularly hard – more so than the rest of the economy. Consumers’ fear of flying drove demand down and airline industry losses up.

But this exaggerated depression in consumer demand is only temporary. People are merely reacting to the additional dangers of flying and their fears will subside eventually. Americans will reconcile with the facts and start flying with appropriate consideration. When this happens, demand will go up and airline losses will go down. The less-stable airlines falling into bankruptcy today will be able to eke out profits tomorrow.

Unfortunately the ATS board – pandering to the wishes of the White House – is likely to allocate the guaranteed loans only to major airlines, forcing the most needy airlines to sell or go out of business. Meanwhile, the overly exaggerated fall in demand will rebound, and returning consumers will find only a few airlines left in their local airports. Economists call this an oligopoly. Consumers can just call it like it is: artificially heightened ticket prices.