I would agree with Fabio that airlines are probably necessary for a modern
economy. But how many airlines there should be, or the availability of money
to airlines, are exactly the kinds of questions that it is unwise for
government to judge. According to microeconomics, the optimal number of
airlines is the number at which there is neither a consumer who wishes to fly
at the effective price but is unable to, nor a producer who wishes to
schedule a flight but is unable to book it. This is exactly what will happen
under a free market. If demand for air travel has truly decreased
permanently, a free market would soon adjust the number of flights -- and the
number of airlines -- to compensate. Some airlines will go out of business
in the process; this is called capitalism.
Subsidies to airlines seem to make sense only if the government's public
policy objective is to maintain a number of airlines higher than that at the
market equilibrium. This keeps prices low and puts more people in the air,
but from an efficiency standpoint it is a decline; with or without subsidies,
everyone who wants to fly at the effective price is flying, so the only
difference is that taxes increase with subsidies.
Yet there is perhaps a final, less obvious reason for the subsidies. Even
prior to the World Trade Center disaster, the structure of the airline
industry was somewhat oligopolistic. (I do not know the HHI for this
industry, unfortunately.) If a free market is allowed to prevail even with
decreased demand for air travel, the weakest of the existing airlines would
be culled, leaving only a few "titans" who might be able to form a cartel.
Perhaps the subsidies are there to support a perfectly competitive market for
airlines?
(I am not an economist; in fact, I'm a high school student. I would value
any feedback any other members of the group would like to offer.)
--Brian Auriti
