07.12.2020 in Analysis
Surface Transport

Economic Effect of Regulations and Deregulation of Surface and Air Transportation

Regulation is a government-based measure for protect consumers, minorities investors, employee and the environment. On the other hand, deregulation refers to the relaxation, abandonment or deletion of various, rules, regulation and laws affecting business and industries. The effects of deregulation are well understood after comprehending the purpose and consequences of regulations.

Economic Effects of Regulation

Typically, regulatory agencies naturally tend to protect the interests of the industries under regulation. In other words, regulation is meant to protect the financial health of entities operating with the regulated industry. The regulation of entry into a mode of transport releases competitive within a transport industry. Consequentially, economic rent is transferred to organized suppliers of production inputs, such as aircraft manufacturers and labor unions. In that regard, the bargaining power of buyers shifts away from them. In contrast to entry regulation, price regulation induces competition alongside quality. Regulation in itself is a costly endeavor because administrative costs are settled by taxpayers money. Regulation also limits the dynamism within an industry, as there are few innovation. To note, the regulation of an industry is meaningful where there is market failure. However, the air and surface transport is unique in the sense that economic regulation has become more of a contributor of market failure rather than a solution for market failure. For this reason, the appropriate benchmark for establishing the effect of regulation on sales and price in the surface and air transport sectors is the utilization of a competitive solution.

Economic Effects of Deregulation

Early criticism of regulations emerged in the first half of the 20th century. The growing criticisms and the economic cost of regulations resulted in political pressure to deregulate the transport industry. With the deregulation of the air and surface transport came the deregulation of other economic sectors of the United States economy. For many years, the United States transportation industry was regulated. The regulation was meant to curtail the abuse of monopolistic entities. Following the United States governments decision to deregulate the transportation between 1970 and 80s, the deregulation process has resulted in numerous benefits to not only consumers, but also shippers. In the aviation industry, airfares become more affordable. Trucking rats fell and the countrys railroads offered new services. This wave of surface and air transportation emerged from the growing acknowledgement that the governments control of the transportation failed to foster the public interest. Deregulation resulted in airlines focusing on profitable routes. By abounding less profitable routes, surface transport would benefit from the traffic that would have used air transport. Deregulation also lead to the adoption of the hub and spoke routes, whereby major airlines adopted the large cities are their operational centers. Deregulation also resulted in new entrants in both surface and airline transport. However, the threat of new entrants was much greater in the surface transport than in the airline sector because of the relatively low capital required by startups in the surface transport.

Following the deregulation of both air and surface transport, competition between various modes of transport became evident. Prior to deregulations the freedom and incentive for both airliners and surface-bases transport companies to compete was limited. Additionally, the regulated transport industry meant that market segmentation was precise. In other words, local destinations were served by railway and road transport. On the other hand, air transport server national remote destinations and international destinations. For this reason, competition was largely between companies within the same mode of transport. A significant increase in competition between railway and road transport services and air transport was noted following the extensive liberalization efforts in the United States.

Direct and Indirect Cost as well as the Advantage and Disadvantages of Airline Deregulation

The air travel sector is an apt example of the network industries that are critical to the success of an economy. Besides facilitating the movement of goods and human capital locally, the availability of effective airlines serves as a contributor of foreign direct investment because it makes a country competitive in the global business world. Therefore, it is justifiable to note that the deregulation of the airline industry had numerous direct and indirect impact on various stakeholders. In the same line, the deregulation process was accompanied by some advantages and disadvantages.

Direct and Indirect Costs of Airline Deregulation

Airline deregulation in the United States as a monumental event and its costs can still be felt, as in the case of increased competition from the low-cost carriers (LCC). These LCCs challenge the dominance of legacy airlines. In this context, the threat of new entrants has a direct impact on the financial bottom-line of major carriers. Despite the fact that airline deregulation had a direct impact on the air travel traffic, the key elements of aviation-based infrastructure remained under the control of the state and national government for security and revenues purposes. The dollar savings secondary to allowing airlines the freedom to innovate in pricing and routes in a direct impact of deregulations. Following the deregulation, airlines adopted the hub and spoke system marked by centralization of operations in a major airport (hub) and serving passengers from other airports (spokes). Deregulation also induced innovativeness in regards to aviation technology and business models within the airline sector. For example, the low cost model is characterized by the use of electronic booking and ticketing systems; no flight connections; point-to-point services; simple pricing strategies; and no allocation of seats to increase the rate of booking. The model is also marked by minimal crew, lower employees unionization and low scales of wages. In that regard, the LCC model leads to minimal number of job opportunities. Following, the deregulation of the of the airline industry, competition between surface and air competition grew. For surface transports, the cost they had to pay was offering prices that were competitive for local destinations. In fact, the two dominating road transport companies in the US were compelled to reduce transport prices with the aim of maintaining their customer base, as well as prevent customers from using low cost carriers. LCCs became a threat to the surface competition because budget airlines provided competitive prices for local destination.

Advantages and Disadvantages of Airline Deregulations

One of the benefits of airline deregulation was the growth in air travel and fall in in airfares. In addition, airlines reconfigured their equipment and routes, thus improving their capacity. To consumers, the entry of LCC translated to increased competition in terms of quality and low air charges. As the efficiency of airlines increased, air travel became more accessible to the general public. The introduction of new airlines translates to the creation of new job opportunities. Additionally, the development and expansion of airports also creates more job opportunities, which in turn improves the income level of the locals. Consumers also benefited from the airline regulation following the increase in competition: legacy airlines were compelled to adopt some of the features of the LCC business model to sustain their competitive advantages in the deregulate airline industry. One of the disadvantages of airline deregulation was the abandonment of unprofitable routes, leaving passenger with the option of either railway or road transport. Lower frequencies in some unprofitable routes implied that passengers had to use surface transport, which was not only time consuming but inconvenient, especially for the business class.

Congestion in Urban Setting and Possible Changes to the Public Infrastructure

Urban settings are human settlements marked by high population densities and highly developed public infrastructure. Urban areas are a result of urbanization. Typically, urban areas provide higher standards of living and better infrastructure than those found in rural areas. Besides the density of settlement, additional criteria that can be used to classify an area as urban include the availability of energy and water utilities, ease of access to educational and medical facilities, percentage of population employed in both manufacturing and service sector; availability of financial and recreational facilities such as banks and public parks respectively. Using these parameters, Chicago is an urbanized area. As cities like Chicago continue to be congested and polluted, there is a need to adopt innovative technologies and effective business modes that can solve the present mobility challenges. Undeniably, congestion in cities is increasingly faltering the movement of not only people, but also cars, bicycles and other common modes of transport. The faltering movement is marked by traffic jams, noise pollution and greenhouse gas (GHG) emissions which are exasperations to urban life. For this reason, towns and cities need to come up with innovative technologies to address difficulties in urban mobility while upholding sustainability. In that regard, urban planners and other stakeholders must consider an integrated and holistic approach to urban mobility if they intend to deliver affordable, efficiency and sustainable mobility. Neglecting the link between land-use and mobility leads to urban sprawl, which makes the provision of sustainable public transport infrastructure and systems challenging. With these observations in mind, the research intends to propose possible changes to Chicagos public infrastructure.

Unlike in the private sector where private infrastructure is largely designed to fetch profits, public infrastructure are often managed by the government using taxpayers money. In that regard, public infrastructure such as roads and railways are mean to serve the public by offering public goods or services. In other words, profit is not the first priority in the development of public goods. Typically public infrastructure are developed and controlled by the government because of their sensitivity and huge initial capital needed to design and build public infrastructure.

Public-private partnership in infrastructure development and operation in cities such as Chicago can improve efficiencies because the business model and management competencies from the private sector can improve profitability. Using the both technical and specialist management skills from the private sector, Chicago can implement innovative transport systems and business model, whereby urban settlers exclusively move around Chicagos CBD using bicycles and public transport. Delivering an efficient and cost-effective public transport system in Chicagos urban setting is important because modern modes of transport influence travel habits and patterns. Changes in a mass transit system can be evaluated using surveys. Questionnaires can be used evaluate the quality of service and the overall improvement of the Chicagos public transport system.

Mobility in Chicago can be improved by building better cycling network connected to a rapid transport network. Bicycle networks are meant to improve accessibility to many public areas, while minimizing the noise pollution, traffic-jam delay and carbon footprint typified by the use of private car, even in the CBD. Linking cycling lanes to the rapid transport network developed through private-public partnership has the potential of improving the mobility index of Chicago. From an environmental perspective, transport network integration will reduce the citys carbon footprint. In that line, the citys carbon footprint measurements can also be used to assess the effectiveness of the proposed integrated cycling networks and rapid transport networks. In concluding, integrated transport network reduces air and noise pollution; improves city life; reduces congestion; shortens journey time; and reduces the cost of maintaining public transport infrastructure.

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