Saturday, December 30, 2006

Protectionism for US Airlines

This week the U.S. Department of Transportation grounded Richard Branson’s new airline, Virgin America because the airline didn’t meet the regulatory test that requires 75% American ownership. The question is, who benefits from this rule?

Certainly not consumers. One more choice on popular routes like New York to San Francisco could have made a tangible difference to prices.

No, this is old-fashioned protectionism of the kind that the US has been trying to erode in China, India, Brazil and other countries with tightly held markets for services ranging from air travel to banking. Even in those economies, ownership tests are often at 51 percent - not 75 percent. If American carriers can’t survive in the face of even a modicum of foreign competition, perhaps they’re weak enough that they really should be replaced by it.

ead more here.


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