The French Aren’t Alone in Trying to Dictate Market Conditions

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Yes, this post from Tuesday picked on the French for trying to dictate to Apple how it should run its iTunes/iPod business.

But it’s not as if the French are alone in trying to dictate what the market will look like.

In 1993, airline executive and entrepreneur Frank Lorenzo was prevented (last sentence at link) from starting up a new airline in the US. An ordinarily strange-bedfellows coalition of existing airlines and airline unions sought to prevent a man who had a long history of conflict with everyone else in the industry from getting back in again. The new Clinton Administration’s Departement of Transportation. The rejection had nothing to do with Mr. Lorenzo’s management skills, and everything to do with his aggressive competitiveness and confrontational labor tactics.

Ancient history, right? Wrong. Tuesday’s Wall Street Journal, in a subscription-only editorial, notes that the same cast of characters is attempting to prevent the startup of another airline, though the fig leafs available as reasons for stopping Lorenzo aren’t there this time:

Not So Virgin Territory

Which brings us to Virgin America, a start-up carrier seeking approval from both the Department of Transportation and the Federal Aviation Administration. The new company is the latest brainstorm of United Kingdom mogul Richard Branson, who wants to start a low-cost carrier in the mold of Jet Blue. Aside from the Virgin brand, the new company has nothing to do with Mr. Branson’s better-known British airline, Virgin Atlantic.

That hasn’t stopped U.S. airlines from trying to torpedo the application (and avoid more competition) on the basis of a few antiquated laws. Since the 1920s and ’30s, the U.S. has limited foreign ownership in domestic airlines to a maximum of 49%, and 25% of voting rights. The rules date to the days when lawmakers considered U.S. ownership of any air fleet to be vital to national security — an argument that has become increasingly absurd given today’s self-sufficient, high-tech military. Only last year the Transportation Department proposed new rules relaxing the ownership requirements.

None of this even matters to the Virgin America filing, since the company has structured itself to comply with current law.

….. Nonetheless, within weeks of Virgin filing its application on December 8, Continental Airlines — joined by Delta, American, United and various unions — filed an objection. The group is alleging that, contrary to all evidence, Mr. Branson is secretly controlling the whole show.

….. It seems far-fetched that Mr. Branson would endanger all of his interests by breaking multiple federal laws for the sake of a small start-up. Far more likely is that the billionaire is merely following through on his long-stated ambition to get in on the ground floor of a U.S. airline — albeit as a minority investor. The incumbent U.S. carriers surely know this but seem to think that the answer to their own high fuel prices, temperamental labor unions and crippling pension costs is to use regulation to kneecap any new competitor.

And the strategy may be working. The Department of Transportation, which evaluates the “economic fitness” of proposed airline entrants, has long been a promoter of competition and sports a good record of approving new carriers — from JetBlue to AirTran. Yet the department is also legally obligated to investigate any allegations, no matter how bogus or protectionist, a process that can take considerable time.

So the airlines and the unions are trying to kill an airline startup that has major involvement from a legend in the airline industry who has none of the baggage of Mr. Lorenzo by stalling for time, and holding up the creation of what the new company believes will be 3,000 jobs.

Please, people. Put your largely bankrupt houses in order (if you can), and let the new airline and Richard Branson get on with it.