Is The Airline Industry Competitive? The Biden Administration Wants To Make 7 Changes

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,

  1. Reconstitute and engage the Advisory Committee for Aviation Consumer Protection and ensure it has a balance of airlines, airports, consumers, and governments.

  2. 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’).

  3. 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.

  4. Report on airline refusal to provide refunds during Covid-19 (hello United and JetBlue, also foreign carriers like Air Canada and TAP Air Portugal)

  5. Reverse DOT’s narrowing of what constitutes unfair and deceptive practices

  6. 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.

  7. 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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. They need to add something about the airlines providing a seat that a passenger can physically fit into for the normal ticket price. No, I am not talking about the “can’t figure out how to put down the fork” crowd flowing over the arm rest into your seat, charge them for a seat on either side or put them in the cargo hold. I am 6’5″ and about as broad shouldered as one can be. It is not my choice to be this way, why the hell should I have to pay three times the price to get a seat I actually fit in? Why should I have to pay extra to not be in literal pain by the time the flight ends from trying to squeeze into the ever shrinking, no padding, greed driven seats in todays planes?

  2. Mandating a minimum seat pitch would be welcome news. Also on non refundable tickets that go unused – who benefits from the taxes that are collected but not returned to the passenger? Does the carrier pocket those taxes or are they remitted to the government? I think the passenger should get those taxes back if the ticket is unused.

  3. The hotel industry is what needs government attention. You can’t mandate that airlines provide good service, but you can ask hotels to stop offering misleading pricing structures.

  4. Southwest is now participating in GDSs because they want to gain a bigger piece of business traffic which is more heavily booked via GDSs than leisure travel. That doesn’t mean they will show up in all searches but they are changing their historic objection to CRSs/GDSs.

    There is no other industry where a newcomer would be allowed to gain prime real estate or market access just because they have come to challenge the status quo. U.S. airlines are required to provide access to upstarts and non-lease holders even at slot controlled airports which is far more than other countries require. Upstarts can’t gain equal access to incumbents unless you want to argue for true socialism. And concourse D and E at ATL is not exactly relegated to upstarts; American, Delta and United all operate there or have.

    The biggest thing the Biden Administration could and should do is tighten restrictions on poor airline on-time and high rates of cancellation. There are far more passengers impacted by horrible airline operations than any other issue. JetBlue’s operation is currently in full meltdown mode; they are starting the day with 20% plus percent of their flights delayed and total delays grow to 50% by the end of the day – with many of them very lengthy delays. Like American and Southwest last month, B6 is simply overscheduling and do not have enough time to reset their horrible operation at the end of the day. If the DOT can propose that bag fees have to be refunded for delays in delivery, then there needs to be greater punishment for passenger delays, esp. when they are repetitive.

  5. I agree that the Biden administration should focus on refunds for services not rendered- cancelled/delayed flights, bags, wifi or other parts of the product that are not delivered but were promised. In most cases airlines already offer miles as compensation, which is a good start but should be the passenger’s option of what kind of compensation to receive. Airlines should then self manage this and provide reporting for accountability (number of issues and resulting refunds). Outside of that the government should not need to regulate any other aspect and hopefully they wont.

    A quick note on this article- US airports are in most cases owned by local governments/municipalities and not the US government. The US government does provide subsidies to airlines to serve smaller airports/markets to keep them operational (essential air service) as well as airport improvement program grants to all airports (varying degrees of funding based on size). Notably, recent major infrastructure project funding has been in the form of public-private partnerships (LGA’s recent terminal renovation for example).

  6. “Airport slots shouldn’t be permanent property rights, ten-year leases should suffice. The same holds for gates at congested airports.”

    I would add that these rights should be auctioned and rationed so that no carrier can dominate an airport. As things stand now these access rights are another form of government subsidy that prop up monopoly interests.

  7. The Biden regime, if it wants to meddle in transport, should have ended destination charges and any other sum mandatory but not in the room rate.

    That practise is sheer fraud.

  8. @Ryan Waldron: Why should I subsidise you? You get all the advantages, and all the disadvantages, of a large frame.

    Your solution is to start your own airline.

  9. @Ben: People who want a larger seat pitch buy it. Most people don’t want it and choose the least expensive offering, known as coach.

  10. Ryan. Totally agree. I have watched obese people squeeze themselves into seats to the point of breaking the seat. They need to be in the hog pen section. I was stuck between two and I could relate to “ I can’t breathe. “

  11. Biden should change this:
    The Guatemalan government recently revealed that the in-airport (GUA) Covid testing site has never been licensed.

    That means Biden has allowed untold thousands of Guatemalans and other Central Americans with illegal (and probably 100% reporting “negative” results) Covid tests, while denying reentry of US citizens carrying a US-issued CDC vaccination card.

    Biden has no interest in or way to verify the legality or accuracy of Covid tests given in other countries.

    https://lahora.gt/alvarez-laboratorio-para-pruebas-covid-19-en-la-aurora-no-cuenta-con-licencia/

  12. Those people who argue that the federal government should involve itself in slots would do well to look at Dallas Love Field.
    The City of Dallas – with federal government approval – has restricted Love Field to a ridiculously low level of gates of which Southwest Airlines has control over 18.
    The remaining two used to be controlled by American but had to be divested as part of their merger with USAirways. The US DOJ thought that Alaska would be a good candidate to use those 2 gates and yet Alaska has never come close to using those gates to their full capacity for any period of time in the years since they were given the right to use them.
    The only other airline that serves Love Field is Delta which has repeatedly told the City of Dallas that it will not leave and lawsuits between Dallas and Delta have dragged to a halt after going up to the appeals level. Despite Southwest’s rhetoric about Delta trespassing by remaining at Love Field, the case is not resolved and probably won’t be until the current round of federally sanctioned restrictions expires in 4 years. Delta operates just 5 flights/day meaning less than 2% of flights are operated by carriers that the Federal Government has not hand-picked.
    Even the Federal District Judge in Dallas says it is hard to believe that an airport in the top 25 busiest airports in the US is not more open – and the residents of N. Texas pay for the duopoly between American and Southwest which has allowed each to dominate Dallas’ two airports to the exclusion of each other and, in the case of Love Field, to the exclusion of any other competition.

    No thank you on further federal control of airport access. Leave airport and terminal assignments to local airports with the requirement that any carrier has a shot at getting access to an airport. Spirit serves LaGuardia, multiple carriers serve Orange County and National. There is no reason for Dallas Love Field to be a federally sanctioned Southwest stranglehold.

  13. What US flyers would benefit most from right now is an equivalent law to EU261. Give us that and any other tinkering is just gravy.

  14. @Tim Dunn – “Those people who argue that the federal government should involve itself in slots..” slots in the US are created by the federal government.

    As for Dallas Love Field yes the federal government has mucked that up, first by protecting incumbent airlines against Southwest (Wright Amendment) and then colluding with Southwest to limit competition against it (by eliminating all but 20 gates of which Southwest controls nearly all).

  15. Thank you, Gary, for agreeing what an economic disaster aviation is in N. Texas because the DOJ has repeatedly gotten involved.
    Yes, slots are created by the federal government at FAA slot-controlled airports – of which there are just 3 left – NYC LaGuardia and JFK and Washington National.
    However, slots are created solely to manage capacity, are fairly generous based on excellent weather (which is why delays in NYC are so common when any type of bad weather occurs), and the FAA has not used slots to pick preferred carriers.
    Even at DCA, new outside perimeter flights above slot control limits have been CREATED with new slots, not taken away from existing operators.

    Slots are considered property just like any other private business – including radio frequency for cell phone and broadcast media. Those companies do not run the risk of losing those assets as long as they meet basic operational requirements; new frequencies are auctioned but not at the expense of existing licensees.

    The DOJ has repeatedly extracted slot concessions out of US airlines as part of mergers and asset transfers.
    And there have been opportunities to add flights at currently slot controlled airports. LGA and JFK were not slot controlled for periods of time post 9/11. Southwest, for example, has been around for 50 years but never bothered to see the relaxation of slot controls at those two airports as an opportunity to grow. Spirit is not exactly an upstart either.

    It is doubtful that current slot holders will be forced to forfeit them and it is also doubtful that the FAA will fully relax slot controls at the 3 remaining airports.

  16. Just what anyone who understood what the liberal waccos would do. In every corner government overreach and unnecessary intervention. Also, typical smokescreen that does nothing to address the several executive management problems that have left the travelling public hanging out there with no relief. And, yes, the guy running the department is a clueless lightweight that couldn’t even manage a minute transit system in South Bend!

  17. @L3 You are an idiot. I’m not asking you or anyone to subsidize my air travel, just for the airlines to stop using their own greed to put seats on a plane that are unusable. Starting an airline? What kind of moron are you. You are already subsidizing half the people in greed class up front who got upgrades rather than paying their way. You should seriously should think through the insanity in your head before you go posting it in public.

  18. @Ziggy EU261?!? What a joke. What they should do is make the airlines work like any other business. If you intentionally sell something you don’t have, it is fraud and punishable by criminal and civil penalties accordingly.

  19. In a true competitive market the entities would be constantly trying to improve their product to make consumers choose their brand. In the airline industry it is the exact opposite. One brand reduces a service or starts charging for things that once were included in the price of a ticket and the others quickly follow. It has been an industry mode of operation for over 20 years. There was an article in the Economist magazine a few years comparing the cost to fly in the EU v. the U.S. Much cheaper fares in the EU per passenger mile plus I would argue the service on European airlines both domestic within the EU and to the U.S. is superior. The article pointed out several regulations including the percentage of gates allowed to each airline at a hub airport as reasons for more competition. I would love to see more restrictions on gates at hubs and domestic U.S. market opened up to Asian and EU airlines.

  20. @Mike: In a “true competitive market” providers would try to better provide what consumers want. 90-95% of consumers want the lowest price on flights < 3 hrs. That explains why Ryanair is the largest carrier in Europe (by passenger numbers) by a large margin. It increased sales by reducing seat pitch, charging for bags, charging for at-airport check in, charging for water, removing shades from windows of its uniform B737 fleet which it flies only on point-to-point routes to the cheapest airports ( fly to Vienna from London on Ryanair and you will land in Bratislava, Slovakia), even getting local governments to pay them to fly passengers. We see all of these trends parallelling in the US because the lowest price is what virtually all customers want.

    A true competitive market does not imply higher quality, it implies the quality that consumers want.

  21. @Tim Dunn: Exactly right. Time to rebuild/reopen those other 20 gates and auction them to carriers other than Southwest.

  22. “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”

    Because passengers have demonstrated, through their conduct, that they are driven almost exclusively by price and simply will not pay more for better quality or more space. That is the general rule, despite some limited exceptions. They’ll complain, but they won’t put their money where their mouth is.

    @Ryan: Do you get a Toyota Camry for the same price as a Corolla because you don’t comfortably fit into a Corolla?

  23. Then why is flying a pain/ grueling experience/ dreaded experience, as opposed to the fun/ exciting/ enjoyable experience it used to be?

  24. @Tom Martella: Almost entirely things outside the airlines’ control. Also, remember that “used to be” refers to pre-deregualtion. Coach fares then were higher than first class fares now, in real terms. Fly first class now to compare the experience in your memory.

  25. @Ryan Waldron: Based on your comment, you appear to think that EU261 only covers situations where seats are oversold. It doesn’t. It covers considerably more than that.

  26. 1KBrad: Has Toyota spent the last 20 years cutting 2 inches of length out of their cars so that the driver seat is now stuck 6 inches from the steering wheel, has a quarter inch of padding over the plastic frame, and now does not recline? No you moron, you can lift the bar underneath and push the seat back. Do you see Toyota upgrading people buying a Corolla to a Lexus because they bought a Corolla for the last three cars and raising the price of Corollas for everyone else to pay for it? No….because unlike the airlines, they have sane business practices. Try mulling over the ideas that come into your tiny little mind before you type them into a public forum next time and save yourself the embarrassment and the rest of us the time of having to deal with your stupidity.

  27. Ziggy: Sorry, I don’t have the next twelve hours to point out all the ways that EU261 falls short of forcing the airlines act like a normal business instead of legitimizing the way they operate outside the law and rake their customers and employees over the coals for their own greed and gain. I just thought I would give the most glaring example.

  28. @1kBrad: Did you notice that perma-whiner Ryan Waldron cannot disgree without being disagreeable? You and I are both “morons” (his most popular word in his 75-word vocabulary). You have a “tiny little mind” and I am an “idiot”.

    And all this from someone who has not contributed a single useful, or insightful, or accurate point in this whole thread.

  29. U.S. consumers may be driven by price but they have also demonstrated for over 20 years that they will accept less service without a corresponding reward in lower prices or pay for services that were once included in the base fare.
    Airline deregulation started in 1978 but the race to see who could provide the least for the most money and still fill planes did not start in earnest till the late 1990s. AA did away with meals in coach and went to grab and go Bistro sack lunches that passengers took out of refrigerated carts on the jet bridge but there was no corresponding reduction in price of a ticket. After a little grumbling by the passengers it was accepted. Then AA began to phase out the Bistro bags except on long flights. Finally they were gone altogether. Same with seat pitch getting being reduced incrementally. At least Southwest never claimed to be a comfortable experience. Their promise upfront was cheap fares and not frills. Yet Southwest has been the most consistent of the major carriers in maintaining their level of service. You were told you would get a bag of peanuts and a beverage and that was it. No blankets, no pillows, no assigned seats. Decades later you still pretty much get what they promised on their first flights minus mini skirts and short shorts. The other carriers offered more but incrementally reduce the service while charging at least as much if not more per ticket.

  30. L3: I’m sorry that you don’t like simple English, but I don’t believe in beating around the bush and sugar coating the truth. If you are going to try and use flawed analogies to put words in my mouth, I am going to call you a moron or an idiot because that is what you are. I believe in stating the obvious because most folks in society today can’t handle it. They want their little socialist politically correct ideologies pushed on the rest of the world and I am not standing for it. Sorry if the truth hurts your little snowflake feelings, but it is still the truth. At least I talk to you directly like a man and don’t hide behind my childish little buddies talking about you in the third person. If you want some alternative vocabulary, try this on for size. People like you should go have a pleasant little game of make yourself obscure and convey to have intercourse with own person instead of wasting our time with your puerile drivel. My is and always has been made plainly clear, the airlines should stop being allowed to abuse their employees and customers alike and start being forced to obey the same laws as any other business. Sorry if your miniscule mental capacity can’t allow you to grasp this simple point.

  31. @KENNETH J ATHON Grow up…..what are you, a spoiled little child? Going to go tell teacher? Didn’t the part about how we don’t need special little snowflakes with their fragile little sensibilities sink in? We need people in this world that can hack it, affect the needed change and don’t care about your delicate little feelings that prevent anything from getting done. Sorry if words make you sad….but in the end it’s not the words or those using them who are the problem.

  32. @KENNETH J ATHON: Ryan Waldron as obnoxoius, stupid, and flaky as ever “give me a wider seat. Me, Me, Me!”

  33. @KENNETH J ATHON: So by your own snowflake logic, you should now be banned from this site now. Amazing how the ignorant masses just can’t seem to grasp a simple point.

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