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Recommendations for Successful Airline Deregulation SO WHAT have we learned after decades of airline deregu- lation in the US and Europe, and more recently from India and other Asian countries? Is there a right way to deregu- late? Is it possible to glean recommendations for the best way to implement the deregulation process? Here are some recommendations for policy makers, new entrants, incumbents, and suppliers that will provide a smooth transition, ultimately result in an ordered field of compe- tition and provide benefit for air transportation consumers. RECOMMENDATIONS FOR POLICY MAKERS The experiences of USA and India have clearly shown that a rapid, or big bang, approach to deregulation is not a good model to follow. For the incumbent airlines, it is not reasonable to expect that overnight there will be a 180 degree switch from being a competition-sheltered organi- zation with protected routes, regulated pricing, and lack of meaningful competition to being a savvy marketing strategy and customer oriented organization that deftly fights off swarms of low-cost start-up airlines. It is not that protected carriers need sympathy or a guaranteed spot as a competitor; this is a matter of providing an opportunity to adjust from an industry
294 Deregulation and Competition structure that was mandated by the government to a new regulatory vision. Additionally, this helps to minimize the interruptions and uncertainty for airline industry consumers. It also takes into account the difficulty in exiting from investments in capital and labor that are an inherent part of being a major carrier, regardless of the regulatory environment. The airline industry is both capital and labor intensive, especially for common carriers. An in- cumbent carrier may realize it has to reduce capital and labor costs to compete against new low-cost and nimble entrants who can have lower cost structures and fewer obligations. But it usually cannot make the adjustments
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