Introspective
By Calixto V. Chikiamco
Alfred E. Kahn is considered the “father of airline deregulation” in the United States. A former professor in economics of Cornell University, he was chair of the Civil Aeronautics Board (CAB) under former US president Jimmy Carter, and was in charge of regulating commercial airfares. He then he ordered the deregulation of airfares. Essentially, Kahn presided over the abolition of the CAB. He deregulated CAB out of its existence as a regulator of air fares by airlines to set their own fares.
Kahn’s impact on the US transportation industry was huge. His deregulation paved the way for low-cost airlines, such as People Express and Southwest Airlines, to enter the industry. In time, other countries followed Kahn’s policy, and the sheer variety of airlines with different business models, from low-cost, budget airlines like AirAsia, to premium ones, like Singapore Airlines, owe much to the legacy of Alfred Kahn.
Alfred Kahn comes to mind because the Department of Transportation and its related transport agencies like the Land Transport and Franchising and Regulatory Board (LTFRB), seem to be stuck in pre-Kahn thinking that more regulation can solve transport problems. On the contrary, consumer welfare is sharply diminished with more regulation.
Take for example the LTFRB’s attempts to regulate Uber and Grab.
At first, it banned them, Uber in particular, citing the need for these companies to register their operations. After getting Uber to pay a hefty fine, however, it set a cap on the number of driver applicants it could process. The result is that demand exceeded supply, forcing the riding public to wait longer to get a ride, or even pay higher.
Meantime, complaints continue to pile up over the regulated taxi industry. Many riders complain about the refusal of taxi drivers to accommodate them if they refuse to pay fares in excess of the metered rate or if their destinations are far. The regulated taxi industry is also known for dilapidated vehicles, poor service, and rude, if not dangerous, drivers. In other words, regulation hasn’t produced the kind of service the commuting public expects.
The LTFRB’s ire over surge pricing is also misplaced. Surge pricing incentivizes Transport Vehicle Network (TVN) drivers from Uber and Grab to log in and thus increase the supply of transport vehicles for hire on the road. By banning surge pricing or capping it, riders are inconvenienced by the lack of rides when they most need it.
The problem is that transport authorities think like the old Soviet economic planners: they think they know everything — have all the information on hand to set the correct pricing — and can anticipate everything. One example of this is their PUV Modernization plan, a well-meaning but impractical plan to phase out the smoke-belching, diesel-guzzling jeepneys from the roads. Under the plan, current jeepneys are to be replaced by “environmentally friendly and safe” jeepneys. These modern jeepneys would have automated fare collection, speed-limiters, CCTVs, GPS equipment, and dashboard cameras, and would be PWD-friendly.
Fine. However, the rub is that it would cost jeepney drivers P1.2 million to P1.5 million acquire such a vehicle. The investment would be beyond what most jeepney drivers could afford. It’s also questionable whether the investment will yield a good return under the present regime of regulated jeepney fares. Understandably, the PUV modernization program was met with protests and strikes by jeepney groups.
The answer to the problem of lack of public transport, traffic congestion, rude taxi drivers, and even the jeepney modernization program is not for transport officials to act like Soviet apparatchiks but to deregulate the industry, i.e. transport fares should no longer be determined by LTFRB. Registration of public service vehicles should be as simple and as easy as possible.
What happens if the market is placed as the center of transport policy? Taxis may increase fares, but they would have to improve to get their share of the riding public. Various business models will arise, as had happened in the airline industry, from low-cost, no-frills transportation to premium services — all competing for their share of the affections of the commuting public. Transport companies, whether taxi operators, buses, or jeepney operators, will start developing and protecting their brands. Commuters will then know which kind of service they will get from the brands that these vehicles carry. Operators will then be more conscious of the service they are offering because the reputation of their brands and their market share could suffer if they give anything less than what they are purportedly offering.
Taxi and other transport operators may then start using technology, like what Uber and Grab are doing, to get more efficiency from their operations and to distinguish themselves in the marketplace. For example, clearly for parents, having the power under Uber and Grab to track and monitor the movement of the transport of their sons or daughters contribute to their peace of mind. That is something that taxis may also incorporate, but only if they are deregulated.
Jeepney operators will likely modernize on their own if they are also freed from regulation. Riders will naturally shift to jeepneys which are safe, clean, and provide a good service, and will boycott those that don’t. Jeepney operators therefore will upgrade and modernize their vehicles voluntarily, but only if they can charge what they want and get a good return on investment.
There should be no fear that deregulation will result in higher prices.
As we have seen in the airline industry, deregulation brought lower prices. It also brought wider choices, resulting in higher consumer welfare and satisfaction. An airline passenger, for example, can choose to bring only a backpack and pay a lower fare, while another one can choose to pay extra to bring for two bags. One can also choose to bring his own sandwich while another would pay for a full meal.
Dr. Kahn’s deregulation policy was an unqualified success. More people were able to travel by air. Dr. Alfred Kahn, an economist who only saw airplanes as “marginal costs with wings” died of cancer at the age of 93 in 2010. May his spirit descend on our transport officials.
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.
