With the Biden Administration taking aim at ratcheting up competition regulations across the economy, the airline industry’s lobby shop came out with a claim that the industry is already highly competitive. Some of their arguments are true, others are misleading, and they skip over the role that government plays protecting big incumbent airlines from competition that might drive them to improve their products.
Here’s what President Biden’s Executive Order says about airlines,
- Reconstitute and engage the Advisory Committee for Aviation Consumer Protection and ensure it has a balance of airlines, airports, consumers, and governments.
- New regulations to “consumer access to airline flight information so that consumers can more easily find a broader set of available flights, including by new or lesser known airlines” this likely means requiring online travel sites to show Southwest flights, even though Southwest doesn’t pay to be included in all global distribution systems (free advertising ‘we can’t sell you these flights, and you may get a better deal on Southwest’s website’).
- New regulations on “advertising, marketing, pricing, and charging of ancillary fees” such as a requirement to refund fees when bags are delayed 12 or more hours and purchased wifi when inflight internet doesn’t work.
- Report on airline refusal to provide refunds during Covid-19 (hello United and JetBlue, also foreign carriers like Air Canada and TAP Air Portugal)
- Reverse DOT’s narrowing of what constitutes unfair and deceptive practices
- New regulations to “ensure that consumers have ancillary fee information, including “baggage fees,” “change fees,” and “cancellation fees,” at the time of ticket purchase” but consumers already do have this information.
The Obama administration worked on this issue but gave up. It was a bad idea to mandate specific bundles of optional fees be displayed as part of airfare searches, since traveler needs differ. And the industry is moving towards making optional fees easier to see and to buy. Rules here probably involve picking a single data standard and requiring information to be provided free (subsidy) to online travel agencies.
- Platitudes about more competition and managing infrastructure better, plus greater anti-trust enforcement
Airlines For America, for its part, says new rules aren’t necessary because the airline industry is competitive. In terms of the number of different airlines providing flights for consumers to choose from that’s true in most markets.
- There’s more competition than ever before.
[I]n 2019, there was an average 3.46 competitors on all reported domestic U.S. itineraries, compared to 3.33 in 2000. And, just this year, we have seen two new low-cost carriers burst on the scene and two others go public, injecting even more competition into the U.S. air-travel marketplace.
Competition is basically flat-to-up over 20 years despite industry consolidation. That’s certainly true if you look at connecting itineraries and not just non-stop routes. The Delta-Northwest merger, for instance, certainly improved connectivity between the Southeast and the Upper Midwest. Small cities benefited with flight options.
It’s hard to talk about new airlines Avelo and Breeze making a material impact on aviation in the U.S. at this point. Spirit and Frontier going public doesn’t really change anything for consumers even as it gave private equity a cash-out opportunity. That’s good news in the long run, though, because it may encourage more private equity investment in airline startups.
- Airfares are low they’re certainly lower than they were in the regulated era, even without using pandemic fare levels. There are flight options and low fares and that’s something we don’t celebrate enough.
The nagging question though is why airlines are such a commoditized industry, competing primarily on price, and not offering consumers meaningful options to buy up to quality on domestic routes – the quality of premium offerings has certainly declined over the last several decades. That’s a function of technology and the way airfares are sold, and limited ability for new entrants to compete in the most premium markets (generally blocked by government policy, as I’ll detail below).
- More people have access to travel this is related to the point about lower fares.
The facts Airlines For America spells out are basically correct. And the Biden administration shouldn’t tinker in ways that raise costs to consumers and put air travel out of reach of many. Remember that when consumers are pushed to drive instead of fly that means travel that’s more dangerous.
There are real problems of competition in the industry, however:
- The airline industry is hugely subsidized, and not just from the $79 billion in direct pandemic assistance. That helped keep industry laggards out of bankruptcy, dragging down other carriers. That’s government standing in the way of the effects of competition.
- In the U.S. government owns and operates nearly all commercial airports. They enter into long-term gate leases, and often collude with major carriers to keep out new competitors (regulatory capture). Atlanta is very tied to Delta, so the airport makes sure that the least desirable locations are available to new players.
- Some of the most valuable airports to fly into have government-mandates slots: New York LaGuardia, New York JFK and Washington National. These are basically gifted property rights from the government to the airlines who are operating at each. During the pandemic even ‘use it or lose it’ rules were suspended to protect incumbent carriers against new market entrants.
- And foreign carriers are prohibited from owning U.S. airlines, which limits competition as well.
- It’s tough to sue airlines, because the Airline Deregulation Act pre-empts state rules including, generally, common law contract claims. The Department of Transportation then becomes the only avenue for most consumer redress and they improperly ignore many complaints.
Where there are barriers to competition, it’s because of government policies where airlines have exercised significant influence over decision-making. The House Transportation Committee Chair is a clear example. Don’t expect government regulation to benefit the consumer since it’s the airlines, effectively, that are controlling the process.
Airport slots shouldn’t be permanent property rights, ten-year leases should suffice. The same holds for gates at congested airports. There should be no first right of refusal or right to extend these arrangements. Foreign ownership rules should be relaxed, so that foreign carriers can operate in the U.S. subject to U.S. law. Taxpayer pockets should no longer be picked by big airline businesses. And we should follow world best practices for regulating aviation, separating out the role of regulator and service provider. That means the government oversees but doesn’t directly provide airports, security, and traffic management.