Reference no: EM132204823

Current domestic passenger air carriers are a much-changed collection of firms relative to, say, a generation ago. Gone are Pan American, TWA, Eastern and Braniff. Merged carriers include America West and US Air to make US Airways, and under consideration today, the joining of Delta and Northwest Airlines. Upstarts like Jet Blue, Southwest, Virgin, Midwest Express, and Trump have proven able entrants into specialized, regional, and /or niche markets. But, in summary, a few, maybe 10 or so, large air carriers dominate the nationwide domestic market with small markets like Sioux City IA, Fort Dodge IA, Lincoln NE, West Lafayette IN, and Moline IL wondering “where are these 10 carriers and this deregulated competitiveness we’ve been hearing about for the last 25 years? We’re lucky to have one airline service us, and the fares aren’t cheap!” So as an appointed undersecretary of transportation/air travel in our new President’s administration, what recommendations will you take to the new President on 22 January 2009, two days after the inauguration festivities have concluded? Namely, what general market corrections, regulations, policy changes and/or proposals will you forward for consideration? Please raise and discuss at least three issues for the President, posing your (governmental) responses to each of the issues. Some acceptable (governmental) responses are to interfere, lessen the interference, or do nothing. Please enumerate your policy response(s) and justify your actions by focusing on the intended results of your recommendations. [HINTS: Use the language and metrics we have used in this class regarding market concentration, pricing power, normal vs. monopoly profits, collusive behavior, consumer surplus, threats of entry, HHI, and the structure-conduct-performance of the industry in recommending free and uninhibited mergers, the encouragement of upstarts, relaxed safety and regulatory burdens and/or the like. Also, remember that a generation ago, only the top 30% of earners were considered “flyers,” willing and able to afford air travel, where now it is generally thought that only the bottom 30% of earners are ground-bound (meaning 70% are “flyers”). The profitability of air carriers and bankruptcy protection some are being given might also be germane to your discussion.]