Tuesday, April 01, 2008


For the next couple of years, international air carriers are restricted to 25% ownership of US carriers. By treaty, US carriers can purchase up to 49% of international carriers. These restrictions will eventually be negotiated away. In the "new free world", the weight of the evidence is that restrictions to foreign ownership of US lines should be eliminated. Indeed, people from all around the world have recently come to more fully understand the laws of the free market and in particular the law of comparative advantage. If any peace loving private investor from any country in the world wants to buy a piece of America and if the seller is willing to accept the price offered, this "free trade deal" is one that should benefit both the buyer and the seller.

One fact that is surprising to many is the amount of outsourcing being done by India. Most Americans are aware that a growing number of American workers work for Toyota, BMW or some other international company and that a growing number of American companies hire people in other nations when that is the best deal available for the company. Americans are perhaps less aware that people in Ireland, the USA and many other countries work for Indian companies. India sends hundreds of thousands of modest wage contract construction workers to many a "hot spot" in the middle east. At the same time, India does not have all the highly educated and trained people it needs to perform other business tasks. As a result, in a manner similar to American companies, businesses divide themselves in ways that move certain jobs to other countries while maintaining certain jobs within India. Because America is a land of highly educated people, some of the best and highest paying jobs of Indian companies have been moved to America.

In Winston-Salem, NC a heated debate has been raging about requiring middle school foreign language classes. Because the US covers the North American continent from "sea to sea" and because our media dominates the world markets, we are automatically more isolated than the typical developed country. A few months ago, I got into a heated discussion in regard to making the English language the official language of the US. Did you know that there are now more non native people who speak English than there are native speaking English people? The beauty of America is that it is the land of the free. You can speak any language that you wish to speak. People have come to America from nations all around the globe and they have been free to speak their "home language". It is the concept of freedom that has drawn these people to American and English is tightly associated with freedom. As a result, people in Russia, China and all over want to speak English. Some want to speak English simply so they can easily communicate with their grand children who have grown up in America speaking English.

Even though English is widely spoken around the world, it is my hope that my grand children will learn to speak several languages. The most successful people in our "new free world" will be those who feel comfortable in other nations.

The justice department is expected to grant KLM-NWA-DAL permission to do an international joint venture. These three airlines will share routes, costs and profits on international routes. Should NWA and DAL merge, it will be all the more easy and profitable for these companies to share resources. As always, the consumer and business are best served by a careful balance between competition and cooperation. Businesses engaged in pure competition can not earn a penny of economic profit. Businesses that fully cooperate with one another charge the consumer exorbitant monopoly prices. The consumer needs profitable airlines that are free to enter and leave markets at will. The regulated system of long ago resulted in extraordinarily high prices and air travel reached relatively few markets and was used by relatively few people. The other extreme was reached when discount carriers entered markets at lost leader pricing to drive out competition. Today we are approaching the "great middle". Profitable companies are offering flights to double the number of cities of just a few years ago. The world does not need hundreds of international carriers. Maximum efficiency cannot be a constant but it can be approached. The KLM-NWA-DAL deal will lead to AMR-BA deals and other deals which will improve the travel experience and provide profit opportunities for the carriers. The big growth in air traffic is going to be between underdeveloped nations and developed nations. The US carriers will maximize their share of profitable traffic by continuing to form partnerships with foreign carriers. If memory serves, CAL now has 227 partnerships. People around the world can buy one ticket from a local source that will take them to hundreds of locations in America. We ain't seen nothing yet!