How to Fix the Airline Mess

By Gordon Bethune

With four major U.S. carriers in bankruptcy, the U.S. airline industry is at breaking point, and something needs to be done. The best way to fix the industry is to fix the government's role in it. For one thing, the marketplace should be picking the winners, not the government. For another, the government should also stop weighing down the survivors with unreasonable burdens.

The industry was deregulated in 1978, but you wouldn't know it from all the extra baggage it carries. The main offenders: ever increasing taxes, lack of government spending to build a modern air-traffic-control system and airports, and countless rules imposed without consideration of how the airlines can afford to comply. All told, the airline industry is the most regulated "deregulated" business out there. The government, oddly, has been too tough on airlines in some respects (through taxation) and too accommodating in others (through anticompetitive legislation such as the Wright Amendment, which limits flights out of Dallas). The industry can be saved, but these actions must be taken swiftly:

o TAXES They have to be made more rational. Congress has found the ultimate cash cow in the U.S. airlines, which pay 14 separate taxes. The Air Transport Association says the industry is going to lose $10 billion this year, but the government is taking $15.2 billion in special aviation taxes and fees. If the industry were to pay only one-third of its taxes for 2005, it might break even! Few passengers realize that more than 20% of the average $200 ticket is taxes and fees. The government is hooked on those revenues like a junkie and can't seem to get off. Even today, one Florida Congressman is advocating more security fees for airline passengers. With that kind of wrongheaded legislation, it's no wonder Congress bears a huge responsibility for the sorry state of the industry.

o BAILOUTS The government and manufacturers have got to stop bailing out the weak at the expense of the strong. Keeping airlines on artificial life support is not a long-term benefit to anyone--and distorts the market. Additionally, government reform to allow mergers among carriers would help stabilize the industry. We don't need 20 airlines to provide competition. New entrants will always keep others from dominating a market.

o INVESTMENT Our government must put billions of dollars into aviation infrastructure, from airports to air-traffic control to security. This needs to be done in a rational way, without rhetoric, turf wars and political pork. We need real leadership at the national level to set a game plan and stand up to members of Congress who want to waste money on local boondoggles.

It's time Washington started recognizing that everyone benefits from aviation. Though military, business and private aircraft all use the infrastructure, U.S. commercial carriers primarily carry the costs. Why shouldn't a corporate hotshot in his Gulfstream jet pay a fair share to use the same services? And why should everyday passengers pay for an airport that no commercial airline can ever serve? It's unfair that airline security costs (to protect our citizens from attack from the air) are paid for predominantly by passenger ticket taxes. Since everyone benefits, why not use some of the revenue collected from everyone on April 15? Lastly, we must remove political influence on day-to-day operations. Get the government out of the business of regulating minutiae like "peanut-free" zones on some flights, as was attempted some time ago.

While airlines are often their own worst enemy, by doing things like thwarting pension reform or holding out on needed fare increases, they can make progress with some enlightened government guidance. Let's forget the handout approach, and let them fight it out in a truly deregulated marketplace.