Current domestic passenger air carriers are a much changed collection of firms r

Question

Current domestic passenger air carriers are a much changed collection of firms relative to, say, a generation ago. Gone are Pan American, TWA, Eastern and Braniff. Merged carriers include America West and US Air to make US Airways, and under consideration today, the joining of Delta and Northwest Airlines. Upstarts like Jet Blue, Southwest, Virgin, Midwest Express, and Trump have proven able entrants into specialized, regional, and /or niche markets. But, in summary, a few, maybe 10 or so, large air carriers dominate the nationwide domestic market with small markets like Sioux City IA, Fort Dodge IA, Lincoln NE, West Lafayette IN, and Moline IL wondering “where are these 10 carriers and this deregulated competitiveness we’ve been hearing about for the last 25 years? We’re lucky to have one airline service us, and the fares aren’t cheap!”

So as an appointed undersecretary of transportation/air travel in our new President’s administration, what recommendations will you take to the new President on 22 January 2009, two days after the inauguration festivities have concluded? Namely, what general market corrections, regulations, policy changes and/or proposals will you forward for consideration?

Please raise and discuss at least three issues for the President, posing your (governmental) responses to each of the issues. Some acceptable (governmental) responses are to interfere, lessen the interference, or do nothing. Please enumerate your policy response(s) and justify your actions by focusing on the intended results of your recommendations.

Explanation / Answer

It is clear from the that there is space for all kinds of airlines-big and niche ones. Each one is doing well after having found its own kind of customers and segments to cater to. So one recommendation is that the govt needs to do nothing as the market size is large enough to accommodate many players. In fact there must be no limits on more entrants as this fosters competition making companies more efficient and cost conscious. Prices are also lowered due to tough competition.

From society point of view it must be ensured that safety is not sacrificed for profits and competition. In this regard, the required safety regulations must be imposed strictly. any violation must attract the highest punishment so that it acts as a deterrent to others. Safety must not be compromised

The above ques states that prices are high. One way to reduce them is to lower taxes on air travel. Second, high process can be lowered with more competition, and creating incentives for new firms to enter this industry. Third, the govt must ensure that no collusion between operators occurs that allows them to ‘fix’ high prices. A close eye on the prices must be kept and any ‘cartelisation’ must not be allowed. The regulation must not allow firms to collude and keep prices from behaving in line with demand and supply conditions.

Looking at the present situation of terrorism especially particularly after the incidents of Worde Trade Centre, it is quite important for these airlines to have some extra precautionary measures so that these kinds of activities and incidents are not reported again. Thus a collaboration of government and these airline industry’s representatives must come together to device some process and methods to prevent these acts.

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