Government Regulation of Air Safety; J. Semmens

Well, the indictment of deregulation is wrong on two major counts. First, the statis tical data show that contrary to what one might surmise, the rate of accidents and fatalities is lower in the post-deregulation period. Second, the hair-raising reports of near-collisions at busy airports reveal that there may be serious problems with air traffic control and the alloca tion of takeoff and landing rights. However, both air traffic control and airport operating practices are public sector activities that have not been deregulated. John Semmens is an economist with the Laissez Faire Insti tute, a free-market research organization headquartered in Tempe, Arizona. The Federal Trade Commission has com pared the 1979-1987 post-deregulation record with the 1970-1978 pre-deregulation period. The figures reveal that the accident and fatality rates have declined for all categories of com mercial aviation since deregulation. The table on the opposite page provides a summary.

The evidence very clearly shows an improve ment in commercial air safety in the U.S. Not only is the accident rate lower, but the number of fatalities is lower despite an increase of over 100 million passengers between 1978 and 1987. Perhaps the reason these real gains in air safety are not being heralded is the unwilling ness of those with an interventionist agenda to accept the implications. From the standpoint of satisfying consumer demand, deregulation is an unqualified success. If interventionists had to concede that flying is also safer, they would have little leverage for undermining the market solution to transportation needs. So, instead of being encouraged by verifiable gains in safety as represented by decreases in crash rates and fatalities, the public is being bombarded with hysteria bolstered by less pre cise measures of safety. Two favorite indicators of the allegedly rising danger are the increasing reports of near-collisions and the rise in Federal Aviation Administration (FAA) citations for violations of safety regulations.

The rising reports of near-collisions, how157 Commercial Aviation Accidents Category 1970-1978 1979-1987 0/0 Change Major Airlines Accident rate* .580 .266 -54 Fatal Accident Rate .088 .037 -58 Charter Airlines Accident rate* 2.010 1.220 -39 Fatal Accident Rate .354 .296 -16 Air Taxis & Commuters Accident rate* 4.830 3.300 -32 Fatal Accident Rate 1.080 .780 -28 All Commercial Aviation Accident rate* 2.340 1.570 -33 Fatal Accident Rate .496 .355 -28 * The accident rate is accidents per 100,000 flight hours. ever, might be the result of a more determined effort to look for them. Raising the number of citations could be viewed as a way of creating an apparent need for more FAA funding and authority. Or it could be seen as an increased safety enforcement program made possible by the elimination of the distractions involved in regulating fares and routes. Thus, an increased ability to concentrate on safety enforcement would stand as a desirable by-product of dereg ulation.

Safety Not Deregulated Few media stories on air safety make it clear that safety was not deregulated. The FAA re tains its extensive responsibilities for aviation safety standards. The FAA is also the operator of the air traffic control system.. It is this con trol system that is supposed to keep planes from running into each other. Further, it needs to be pointed out that all of the overcrowded airports at which the near-collisions are occurring are publicly owned facilities. The FAA and the public sector owner-oper ators of airports have neglected to employ the most obvious means of coping with dangerous overcrowding. Failure to charge compensatory fees for scarce landing and takeoff slots has re sulted not only in misallocation and inefficient use of resources, but reckless endangerment of the flying public. Time-of-day pricing is clearly needed at busy airports. Yet, publicly owned facilities rou tinely base landing fees on weight alone. No adjustments are made for whether the landing takes place during hours of peak demand. Lack of differential pricing leaves no way of mea suring the relative value of the scarce landing and takeoff slots.

Because of this system, small, non-radar controlled planes are attracted into the crowded airspace near busy airports. A demand-based pricing scheme would divert all but the most urgent uses of this crowded airspace to less congested reliever airports. Instead, public of ficials resort to arbitrary landing slot allocation schemes and much hand-wringing over the threat posed by the small, non-radar-controlled planes. It is not as if the concept of metering demand via peak/off-peak pricing differentials is un known to public aviation officials. The airlines themselves are masters of the techniques of using price differentials to obtain higher fares from time-sensitive travelers, while using bar gain prices to lure more discretionary travelers to fill what otherwise would be underutilized excess capacity during off-peak periods. The operators of airports and the air traffic control network could manage demand in the same way. Their failure to do so not only wastes time and money, but may be subjecting fliers to un necessary risks.

158 THE FREEMAN. APRIL 1988 Why is it that airlines use this simple mar keting strategy, and public authorities do not? Airlines, as privately owned, profit-seeking en terprises, have a strong incentive to pursue effi ciency. Airport~ and the air traffic control system are run by public entities that have little incentive to be efficient. An airline that fails to manage demand and capacity efficiently faces economic losses. An airport that fails to manage demand efficiently is apt to use the peak-period shortage of capacity to demon strate the "need" for a larger budget and greater subsidies. Even when it is conceded that the profit mo tive spurs efficiency, it is frequently asserted that it is insufficient to promote safety . Just why this assertion should be accepted is never very clearly demonstrated. Often, the only evi dence offered is a slogan like "people before profits. " Overlooked is the reality that catering to the wants of people (including the desire for safety) is the marketplace's only path toward profitability.

Crashes cost money and disrupt business. For example, the stockholders of McDonnell Douglas lost an estimated $200 million in market value of their shares following the crash of a DC-lOin 1979. A perceived safety hazard costs profit-seeking firms money. What does it cost the FAA or public sector airport operators? The risks to travelers being generated by public sector mismanagement serve as the basis for expanding government budgets and auLast call! thority. The near-collision dangers created by public sector failure to adopt rational pricing are the very arguments advanced for granting the FAA more power and resources. The dangers fostered by mismanagement of airport capacity are the key argument for higher appro priations to build more runways or additional airports. Could anyone conceive of a more per verse system for running an air transportation network? The alarms being sounded over air safety are pointing to precisely the wrong answer. It is not that deregulation of fares and routes has gone too far. Rather, the proper message would ap pear to be that deregulation has not gone far enough. Deregulation of fares and service has been a success because it cleared the way for the profit motive to perform its function of stimulating improvements in air service. If safety lags in any way, it is because the profit motive of the main actors (the FAA and munic ipal airport authorities) is largely nonexistent.

Without a strong profit motive to guide the management of airspace and airport capacity, we will have no recourse but to continue to rely on the good intentions of public officials. But are the intentions of politicians and bureaucrats so reliable that we should choose them over the proven potency of the profit motive in a com petitive market? Perhaps trusting to such good intentions is an act of blind faith that is too risky to justify. 0 F-E-E / 1988 Summer Seminars June 19-25 August 7-13 A limited number of spaces are available for each session. For full details and applications. telephone Jacob G. Hornberger. Director of Programs, Foundation for Economic Education. (914) 591-7230.