After Southwest Scare, What's Next for Airline Regulation?

The U.S. airline industry is flying anything but high. The recent emergency aboard a Southwest Airlines jet, in which a part of the fuselage ripped open in flight, added yet another black eye to the industry.

Southwest Airlines planes
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Southwest Airlines planes

The latest near-tragedy is prompting new questions about the federal government's role in the aviation industry. In some countries, airlines are controlled by the government. Nobody CNBC spoke with advocates nationalization of American carriers, but some industry observers say the government should toughen inspections and regulations to improve safety.

“If the government took over the airlines, either ticket prices would go up or our taxes would go up," Peter Schiff, President of Euro Pacific Capital, told CNBC. He opposes any type of nationalization and says that the airline industry needs to go through somewhat of a natural selection process to solve its problems.

Under financial pressure, carriers have been cutting services, adding fees and reducing perks for years. Anyone who has flown recently knows that most airlines now charge for everything from pillows to pretzels.

According to economist Severin Borenstein at the University of California Berkeley, the airline industry has lost $60 billion domestically since the Airline Deregulation Act of 1978. The Air Transport Association says 188 U.S. air carriers have declared bankruptcy during that same period.

U.S. carriers fail to rank in the Top 10 for passenger satisfaction among the world's airlines, according to industry research firm Skytrax. Among state-owned airlines to make the list: Air New Zealand, Qatar Airways, and Thai Airways.

World's Top Ranked Airlines

1. Asiana Airlines
2. Singapore Airlines
3. Qatar Airways
4. Cathay Pacific
5. Air New Zealand
6. Etihad Airways
7. Qantas Airways
8. Emirates
9. Thai Airways
10. Malaysia Airlines
Source: SkyTrax

"Of the top 5 consumer-rated airlines, Asiana Airlines is 100 percent private, Cathay Pacific is 100 percent private and Singapore Airlines is privately-run. The problem in the U.S. is that we don't have enough deregulation," Schiff said.

Schiff suggests privatizing airports—not airlines—to make air travel more efficient. "Airports are our biggest problem. All of our airports are owned and operated by local governments. The trend around the world is to have them privatized and they are much more efficient."

David Callahan, Senior Fellow at Demos, says deregulation has come at the cost of consumer safety. "I think the government can to a better job at regulating air safety and that's the biggest issue.”

Callahan says more government regulation is needed and more resources need to be invested in the industry. "The past three major U.S. air incidents all involved regional carriers who aren't well-supervised. It's just an example of what happens when you don't have strong enough government oversight."

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