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American Airlines Files for Bankruptcy: Is Nationalization Next?


In the least surprising development since this morning's sunrise, the parent company of American Airlines, AMR (AMR) officially filed for bankruptcy. Indicting of American bankruptcy laws, AMR whined that they were at a competitive disadvantage to the other majors due to not having filed for bankruptcy during either the wake of 9/11 or the financial crisis. Pride goeth before the fall indeed.

In the attached video I discuss AMR's fate with Reuters blogger Felix Salmon. Salmon says the failure of giant airlines is more the rule than the exception. "If you look at the history of all the airlines on the planet earth since the year dot, they've lost untold billions of dollars." he says. "In the aggregate it's a dreadful business."

Salmon says we'd be better off not bailing out our flying behemoths. "Let them die and get replaced by a large number of nimbler airlines like they have in Europe where you actually get much lower prices, much better service," he offers.

It's the nicest thing anyone has said about European governmental policy in at least six months. But for my money, its wrong. A free market in the U.S. airline industry is illusory, impractical, and impossible. Every aspect of the system except the airlines themselves operate in a Draconian regulatory environment rife with collusion, pork funding and inefficiencies from top to bottom. The regulations aren't going away and any industry in which bankruptcy is the norm in an industry propped up by both taxpayers and the gullibility of shareholders.

For those who believe a combination of government and private operations results in efficient business, I've got two words: Chevy Volt. I'd prefer for the hand of the free market to decide the fate of airlines. Since that's not ever going to happen we should give nationalization a shot. Put it this way, my train runs on-time, but I haven't been on a single flight that could say the same for in at least five years.

Salmon has the audacity to disagree. "What we don't want is nationalized airlines because there's not a good nationalized airline anywhere in the world and they cost a fortune to taxpayers," he says. "What we want is lots and lots of private airlines which just fly higgledy-piggledy all over the world."

Salmon says such a system works in Europe. I'd note that AMR is the 100th airline to declare bankruptcy since 1990. Suffice it to say there aren't many entrepreneurs ready to start a new company in hopes of being the 101st.

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