Airline Deregulation

October 24, 1986

Report Outline
Mergers, Bankruptcies and Uncertainty
For Passengers: Discounts Galore
Deregulation Debate Comes Full Circle
Special Focus

Mergers, Bankruptcies and Uncertainty

Like a jetliner hitting an air pocket at 30,000 feet, the U.S. airline industry has entered a time of turbulence. Each month brings new accounts of disarray among the air carriers, as firms go bankrupt, merge and acquire one another at a dizzying pace. The announcement in September that Texas Air Corp. would seek to buy People Express Inc.—the upstart airline that shook up the air-travel business through cut-rate, no-frills service—was only the latest in a string of corporate maneuvers that may portend a radical shift in control of the $50 billion-a-year industry. Another was the financial collapse in late August of Frontier Airlines Inc., a major Western-states carrier that had been taken over by People's earlier in the year. Along with reports that the airline companies are in poor financial condition, losing a record total of $657 million in the first three months of 1986, the pattern of mergers and bankruptcies suggests that the industry is in chaos.

Air travelers, too, have been experiencing unsettling change. For some, heightened competition among the airlines has meant startlingly low fares—for example, the $99 charged by some airlines for a coast-to-coast flight. But others have found-that it is now impossible to fly to some cities and towns, or that relatively short flights on lightly traveled routes may cost as much as a ticket to Europe.

Moreover, the low fares are shielded by a panoply of advance-purchase requirements, mandatory weekend stays and other limitations confusing to anyone hut a professional travel agent. Once passengers purchase their tickets, they often find that air travel has become a new form of mass transit, dominated by crowded planes, delayed flights, congested airports and perfunctory service that is a far cry from the days when carriers competed chiefly through the lavishness of their service amenities.

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Regulation and Deregulation