All Commentary
Friday, April 1, 1988

Government Regulation of Air Safety May Be Hazardous to Your Health

John Semmens is an economist with the Laissez Faire Institute, a free-market research organization headquartered in Tempe, Arizona,

One would guess from media accounts that it is a proven fact that the skies are less safe due to the 1978 airline deregulation. Whether it be stories of actual crashes or near-collisions, hardly any coverage ends without implying that deregulation is at fault.

It is not that the implication of blame is totally implausible. As advocates of deregulation predicted, air travel is less expensive and more frequent than would have been the case had airlines not been deregulated. In 1987, U.S. airlines flew a record number of flights and passengers-more than a 50 per cent increase over pre- deregulation figures. Obviously, then, the skies are more crowded. And, of course, more crowded must mean more dangerous. Right?

Well, the indictment of deregulation is wrong on two major counts. First, the statistical 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 allocation of takeoff and landing rights. However, both air traffic control and airport operating practices are public sector activities that have not been deregulated.

The Federal Trade Commission has compared 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 commercial aviation since deregulation. The table on the opposite page provides a summary.

The evidence very clearly shows an improvement 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 unwillingness 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 precise 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, however, 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 deregulation.

Commercial Aviation Accidents

      Category       1970-1978       1979-1987       % Change

Major Airlines

      Accident rate*       .580       .266       -54

* The accident rate is accidents per 100,000 flight hours.

      Fatal Accident Rate       .088       .037       -58

Charter Airlines

      Accident rate*       2.010       1.220       -39

* The accident rate is accidents per 100,000 flight hours.

      Fatal Accident Rate       .354       .296       -16

Air Taxis & Commuters

      Accident rate*       4.830       3.300       – 32

* The accident rate is accidents per 100,000 flight hours.

      Fatal Accident Rate       1.080       .780       – 28

All Commercial Aviation

      Accident rate*       2,340       1.570       – 33

* The accident rate is accidents per 100,000 flight hours.

      Fatal Accident Rate       .496       .355       – 28

Safety Not Deregulated

Few media stories on air safety make it clear that safety was not deregulated. The FAA retains its extensive responsibilities for aviation safety standards. The FAA is also the operator of the air traffic control system. It is this control 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-operators 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 resulted 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 routinely 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 measuring 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 officials 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 unknown 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 bargain 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 unnecessary risks.

Why is it that airlines use this simple marketing strategy, and public authorities do not? Airlines, as privately owned, profit-seeking enterprises, have a strong incentive to pursue efficiency. Airports and the air traffic control system are run by public entities that have little incentive to be efficient. An airline that falls 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 demonstrate the “need” for a larger budget and greater subsidies.

Even when it is conceded that the profit motive 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 evidence 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-10 in 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 authority. 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 appropriations to build more runways or additional airports. Could anyone conceive of a more perverse 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 appear 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 municipal 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 competitive market? Perhaps trusting to such good intentions is an act of blind faith that is too risky to justify.

  • John Semmens is a research fellow at the Independent Institute and research project manager in the Arizona Department of Transportation Research Center.