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Coming in 2002: A Nationalized Travel Industry?
Opinion · December 20, 2001

Remember all those efforts to re-regulate the airline industry earlier this year - bills like the "Fair Treatment of Airline Passengers Act" and the "Aviation Consumer Right To Know Act" that would have compelled carriers to offer passengers the lowest airfare or inform them of air traffic delays?

Turns out that was just the warm-up act. The re-regulators have quietly ditched their narrow goal in favor of a broader agenda for 2002: nationalizing the travel industry.

No one will 'fess up to trying to take key parts of the travel business into the public sector, at least not yet. But well-meaning efforts to prop up our faltering airlines, hotels and car rental companies could effectively make taxpayers part-owners in those businesses by next year.

Take the airline industry, for example. Let's not fool ourselves into thinking that the government's $15 billion bailout of the failing airline sector will actually work. The extreme fare cuts that came after September are only hastening the inevitable bankruptcy filings. Airlines are in denial that they're hemorrhaging millions of dollars a day and completely incapable of stemming the losses. When United Airlines Chief Executive Jim Goodwin warned of his carrier's imminent financial collapse earlier this year, he was rewarded with a pink slip - an action that may have boosted the morale of United's employee-owners but did little for the airline's bottom line.

As carriers line up at Uncle Sam's cookie till for a handout next year, they'll have to offer something in return. America West Airlines, which applied for up to $426 million in government subsidies recently, gave taxpayers the option of buying 10 percent of the airline. But if the Phoenix, Ariz.-based airline fails to recover from its tailspin and is bought by a stronger airline, then the government will likely own part of the acquiring carrier, too. And if that airline has also been the beneficiary of government subsidies, then the American taxpayer will own an even bigger stake - maybe a controlling one - in the airline.

We ought to get used to the idea of a consolidation on this scale. Delta Air Lines CEO Leo Mullin already has. Earlier this year he asked a U.S. Senate Judiciary Committee not to "close the door" on future mergers in the airline industry. Mullin apparently sees Delta as the winner in a race to create a massive mega-carrier.

So what would happen if Delta merged with Northwest Airlines, only to get gobbled up by United or American Airlines next year? Fares would go through the roof; an unwieldy socialist-style bureaucracy would be created overnight, and customer service, such as it is, would go out the cabin door. What's more, taxpayers could end up owning something they never asked for: a national carrier, and a very bad one at that.

The hotel industry is in a similar quandary. PricewaterhouseCoopers projects that hotel occupancy rates will plummet to 59.6 percent in 2002, the worst level in three decades. In order to lure guests back, properties are likely to slash rates, which in turn will cut into profits. How will hotels make up the difference? Why, by asking for government help, of course. Industry executives did just that when they met with Commerce Secretary Donald L. Evans after the September terrorist attacks. Among their suggestions were tax credits for travelers, a reduction in payroll taxes for hospitality workers, and $100 million to be used for advertising.

It isn't inconceivable that the government could step in to rescue a hotel chain that's flirting with bankruptcy, just as it has for airlines. More mergers aren't out of the question, either. A mega hotel chain like Marriott-Starwood or Hilton-Six Continents could fix hotel rates across the country, ensuring that we'd never pay less for a room than its shareholders, the American taxpayers, would permit.

And how about car rental companies? In October, Rep. Clay Shaw (R-Fla.) introduced the Car Rental Firms Stabilization Act, which proposed to make $1.5 billion in federally guaranteed, low-interest loans available to car rental businesses hit hard by the travel slowdown since the terrorist attacks. Shaw cited the car rental industry's heavy dependence on air travel and its role in keeping the auto industry healthy. The bill, cosponsored by Rep. Brad Carson (D-Okla.), has been referred to the House Transportation and Infrastructure Committee, according to the trade publication Auto Rental News.

Only a few weeks later, ANC Rental Corporation filed for bankruptcy protection, blaming a "drastic decline" in travel. ANC happens to be the parent company of National Car Rental, and what bureaucrat could resist bailing out a car rental company whose name doesn't have to be changed once the government owns it?

Christopher Elliott is a travel commentator based in Key Largo, Fla. All e-mailed questions may be edited, condensed or republished at the site's discretion.