Money in Aviation in the Reaction Paper

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Overregulation

Finally, Pilarski reviews the explanations which blame airline underperformance on onerous government-imposed restrictions and obligations. Many observers, especially deregulation-fanatics, claim that airline companies are inhibited by excessive government regulation and public ownership of airlines. Pilarski rejects these explanations which attribute financial performance to government interference, stating that airline carriers outside of the U.S. subject to much more regulation have performed better than unregulated airlines.

Analysis

Overall, Pilarski seems to agree that it is difficult to be profitable in aviation. What Pilarski is saying is that, for this very reason, only serious, competent players should enter the aviation business. The airline industry is a high-risk, high-overhead business, a point which appears to be ignored by the financiers, lawyers, and business consultants who help the foolhardy set up airline companies.

From a methodological perspective, Pilarski does a good job of refuting dubious claims through sound economic reasoning and historical evidence. For example, he refuted the claim that there is excessive supply in the airline industry by citing statistics that show that airplanes are running fuller than ever.

Another area Pilarski excels in is separating the truthful elements of an argument from the untruthful elements of the argument. The most resilient arguments tend to contain some element of truth along with some element of deception. Pilarski is able to extract the valid parts of the argument from the more specious elements of the argument. He does not throw the baby out with the bathwater.

Product Differentiation

Pilarski makes a particularly good critique of the argument that excessive competition in the airline industry is causing poor financial performance.

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However, he seems to overlook a very important factor in the underperformance of airline companies. The numerous competitors in the industry are underperforming not because there are too many competitors, but because there are too many competitors offering the same product.

In other words, the poor financial performance of the airline industry arises from the lack of product differentiation by the various competitors. There are far too many major airlines that lack an identity and a true strategic focus. One would be hard-pressed to explain how Continental differs from Delta, or how United differs from American Airlines. The airline industry is populated with inefficient, uncreative behemoths who are accustomed to surviving off of government subsidies.

In one sense, I actually agree with the argument that there are too many players in the airline industry. However, that does not necessarily mean that there is too much competition in the airline industry. This is because the players mentioned above are not truly competing against each other. They use the same business practices and pricing strategies, relying on rewards programs and random chance to give them an edge over other "competitors."

Conclusion

Pilarski's book is a welcome wake-up call to all observers who believed that the aviation industry is just a flawed business model. Pilarski shows that the most significant problems facing airline companies are self-inflicted. This does not just mean that airline companies are to blame, but that airline companies can help themselves back to profitability......

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