I told you back in September that you’d start hearing a lot more about re-regulating the airlines in the months ahead. An advisor to Elizabeth Warren was coming out with a new book making that case. But the arguments are weak and maybe even disingenuous? Because Professor Sitaraman is a really smart guy and he’s studied his topic in depth so surely he has to know that the arguments he’s marshaling are superficial and wrong?
Here he’s interviewed in Salon laying out the reasons why airlines need to be re-regulated.
- Reduced air service to small cities. He says that unregulated airlines have left too many small cities. But he never stops to ponder why this is. It’s a result of government regulation, not the lack of regulation. Specifically, it’s airline pilots capturing the regulatory process and erecting barriers to entry to becoming a pilot that have nothing to do with safety. That exacerbates a pilot shortage, and drives up pilot wages. Without enough pilots, airlines can’t offer all the service they want to and they cut back on the cities with the fewest fares. In a world of $200,000 to $500,000 a year pilots they can’t amortize the cost of 30 or 50 seat jets as well as they can across 120-180 seat planes.
- Hubs are inconvenient for passengers. He says that airlines used to fly point-to-point but now passengers have to connect. But he doesn’t look at actual schedules showing how many more flight options customers have with connections, and how that increases competitive options (that, for instance, American, Delta, United and Southwest may all be options in a given city to get between two points).
And point-to-point certainly wasn’t how the small cities airlines are abandoning used to see air service. He’s implying a world where you could fly from Peoria to Dubuque, Iowa non-stop several times a day on a choice of airlines. That world never existed. Instead many small cities were connected with 8-plus segment milk runs. Allegheny Airlines (later US Airways and now American) would operate routes like DC to Hagerstown to Harrisburg to Williamsport and on to Philadelphia. Ozark Air Lines flew out of St. Louis to Springfield, Joplin and Fayetteville and more.
Hubs didn’t begin after deregulation. The first major hub was Delta in Atlanta and that dates back seventy years, leading to the old saying ‘whether you’re going to heaven or hell you have to connect in Atlanta.’ Hubs also aren’t just ‘airline choice at the expense of passengers’ they allow people in one small city to reach another small city, and even to have numerous options for doing so. They connect the country in a way that point-to-point routes did not.
Airlines are one of the most heavily regulated industries in the country. “Deregulation” meant that the government stopped telling airlines where they were allowed to fly and what prices to charge (and prices were kept high, not low, to ensure airline profitability). When government is telling airlines where to fly, it’s a highly political process, and airlines made circuitous journeys through important congressional districts. They were run as public utilities like Amtrak.
- Hubs are fragile. Here he almost hits on something. If an airline like Southwest flows most of its aircraft through Florida, then a large part of their system is affected by Florida weather. If an airline runs a hub with planes out and back, then that hub’s weather remains localized. Sitaraman wants to see planes scheduled so that weather in one part of the country doesn’t affect travel in another. Indeed, that is the European low cost carrier model that Frontier is increasingly moving to in its scheduling with more focus cities and crew bases, as Brian Sumers recently observed in his excellent Substack.
Sitaraman says we need robust air service in small communities because,
it’s a lot harder to imagine a young entrepreneur with an idea of that’s going to be the next Fortune 500 company starting up that company in a place that has no airline service, or even maybe one flight a week.
That was always true. There are returns to clusters of talent, and to attractive cities that people want to live in. You’re much more likely to start a company that hits big in New York or the Bay Area than in North Platte, Nebraska. But if you want more robust air service to small cities, the solution isn’t for the government to set schedules and prices (the regulated era priced out many small businesses). It’s to grow the supply – to stop standing in the way of new air service concepts.
In the U.S., governments own and operate the airports. The perform security screening. They direct planes from gate push back to arrival at their destination. And the product on board requires extensive government approvals. Moreover you can’t just start an airline. It’s almost always a matter of buying an existing airline for its government approval and then launching a carrier on the back of one that’s mostly failed, rather than going through the bureaucratic process to launch anew. And governments grant monopolies as property rights to incumbent players in the form of slots and gate leases at congested airports.
Even if a small airline wants to start in a small city, they can’t just fly to New York or even Atlanta where the local government there is exceedingly friendly to Delta and goes to great lengths to make it difficult to new entrants into the market. If you want more flights and seats and lower prices you need to increase supply.
It’s sort of odd for Sitaraman to complain about lack of competition today, when the regulated era he says he prefers literally outlawed airlines from competing on price. He notes they competed on service. Prices were set high, with the government working to ensure airlines were profitable. Since airlines couldn’t lower prices to attract passengers they spent more on food. And this angered the bureaucrats who once considered whether they needed to regulate the thickness of sandwiches served on board to prevent airlines from competing in this manner.
The specific claim that today “You don’t have much choice, you get bad service, and bad prices” makes little sense when deregulation has driven down prices. But he goes back and forth from complaining about a lack of competition to saying that competition doesn’t work in the airline industry. He thinks competition should only exist in unimportant areas like “making coffee mugs or selling office chairs.”
He complains about “monopoly capitalism” but the regulated era wasn’t competitive, and the lack of competition today comes from regulation that protects incumbent carriers. Look what happens when a startup like JSX starts providing better service out of Dallas? American and Southwest run to the federal government to stop it, and the FAA opens a regulatory docket. The last time a startup based itself out of Dallas Love Field, incumbent airlines (especially American) dragged them through the courts over whether existing regulation (under the Wright Amendment) permitted them to operate.
But then he doesn’t seem to understand what actually works in this industry. He says the problem with airlines is that they are trying to maximize their profits by ” cut[ting] all their costs.” Except that the most successful airline currently is Delta, and their mantra is premium, which is to say that they invest in earning a revenue premium rather than pursuing a strategy as low cost leader. Indeed, it’s the ultra low cost carriers that are struggling most right now! So he prefers a system where prices are higher and airlines compete to provide more service to attract passengers since they aren’t allowed to compete with lower fares…. even though that shuts many people out of air travel, and even though that means more people driving rather than flying which is less safe.
Ultimately there’s real reason to be dissatisfied with air travel in the United States, but going back to the regulated era where government told airlines where to fly and what high prices to charge would actually make things worse.
well said, Gary.
There will always be those that want to tax private enterprise to the max because those companies are making money and then impose draconian government rules which will make business less efficient.
Elizabeth Warren is a champion of failing to advocate for the very principles that made herself rich; apparently pull up the ladder behind herself is the way she operates.
A book by anybody doesn’t mean anything. Let’s not forget how heavily unionized airlines are and how no politician is going to do anything to tick off such a huge block of voters.
And that union point is why smart democrats won’t mess with interchange and loyalty programs
I mean, it sure would be nice for the Big 3 to offer direct point to point flights that don’t run through a hub. They treat it like it’s illegal.
For example, United could easily fly from Sacramento to Las Vegas 3x a week and fill up a 737.
Why they don’t and instead give Southwest all the business and only snare loyalists trapped by status that have to fly through SFO or LAX seems silly.
In regards to high pilot wages and costs, the solution for most other industries with high operator costs is to continually operate larger and larger machines, thus increasing the productivity of the operators. In the case of the airlines, this would mean reduced frequencies and larger planes on the routes that can support them. I see no need for 10 flights a day between city pairs, when you could offer five flights a day on a plane with twice the passenger capacity.
For some reason, all the major US airlines have decided that only single aisle planes can be used on domestic routes, and every wide body plane they buy needs to be able to fly 10,000 miles and be used on long haul international flights only.
I am also not very sympathetic to the argument that our (so called) high powered businessmen need a flight that leaves every hour so that their valuable time is not wasted–that is what lounges, cell phones, and private jets are for.
Gary..sorry we won’et work for $30,000 per year anymore.. I did it. $18.50 per hour is what pilots made at Comair. Go pound sand on all your ridiculous rhetoric. There should be even greater barriers to entry to keep flying in America the safest in the world.
Why cant you just let us know next time Delta is selling mils for 1.1 cents a piece and stop pretending to be any kind of industry expert?
Readers have to understand how lost this guy is when you read the crap he posts.
What strikes me is that since most ppl have never been capitalists in a capitalist society they have no idea how useless most regulation is. Competition solves problem which necessitates deregulation. The govt should regulate safety (not subcontracted to Boeing) and customs/immigration. ATC should be a nonprofit with industry/labor/govt board. And then everything else should be the market. Thats the path to lowest cost and most availability of service to customers. Most regulation ends up just benefits crony capitalism (1500 hr pilot rule, municipalities controlling slots outside of regular competitive bidding). Of course the cronyism of the 1,500 hour rule is a reason for more regulation? The problem is that most people don’t see it because they don’t know what to look for. Our schools have failed us so tremendously because they don’t teach about money, how to use debt to create value, why being a “worker” is akin to economic lifetime indentured servitude and that the government is competent.
Would I love point-to-point service? Of course I would! As someone who flies SFO-MSY a few times a year, it was great to fly VX nonstop. WN and UA also flew nonstops. Then Katrina hit, and all nonstops were cancelled…and only United flies nonstop out of SFO. No other airline brought them back into service. I have to either overshoot to ATL and then fly back to MSY on DL, stop at DFW and change planes (typically with a 40-45 minute connection time) to continue to MSY on AA. At least with Southwest, I can choose: do I want to change planes at LAX? PHX? DEN? MCI? And if you let AS book your itinerary, there’s a long layover at SEA and then a red-eye that arrives at MSY around 5;30 am — but if you do a multi-city itinerary, you can book yourself SFO-SEA-MSY and arrive by 5:30 in the AFTERNOON!
Having said that, however, I can’t imagine — short of re-regulation and the Feds *forcing* airlines to fly P2P — the return of point-to-point flights. My only real complaint about hub-and-spoke is the ludicrously short connection time at airports like CLT and DFW (yes, I’m looking at you, AA…though I readily admit you aren’t the only one…just the worst).
I actually have changed my view on government regulation over the years, and am much more sympathetic to the argument that it won’t help the consumer.
Having said that, the consumer needs to be compensated when the airline screws up, just as we pay compensation when we screw things up (or change our minds, for example). The EU regulations can be replicated here without hurting competition; in fact, it might improve it.
Our contracts with the airlines are designed to help them. It’s time to make it a slightly more even playing field.
@Joe…should the airlines get compensated when the government screws up? How much fuel every hour and profits are gone because of ATC?
P2P will happen naturally as the energy cost per seat mile recedes to a fraction of today with the pending renewables revolution.
Regulatory Capture and Pilot’s Wages? C’mon Gary.
The insanity of insanity as a business model is what’s captured.
2 regulations will fix EVERYTHING: no fare lower than the CASM for that segment, and no chair smaller than the passenger with a minimum pitch of 40″ – if you can’t afford the seat, then you hoof it on the street
Also, re: Peoria to Dubuque, you don’t want me to pull any of the Ozark schedules from the mid’70s, because that world pretty much did exist.
Many Canadian cities regulate building housing a lot such that many people don’t want to build in cities like Vancouver unless absolutely necessary. This causes housing to be expensive. Their answer is more regulations, such as banning Americans from buying houses and taxing them as much as 6% per year if it’s not rented out. Some Canadians are caught in the tax because they have slightly unusual characteristics, such as a husband who works during the week in Alberta but the family lives in Vancouver.
@SMR – I actually don’t have a problem with that in theory. If you buy something – from the airline or the government – and they fail to provide, there should be suitable compensation.
But if we’re going to penalize the government as a vendor who fails to meet their obligations to the airlines, it’d be hard to argue for the billions of bailouts and subsidies that the government / taxpayer / vendor has provided to the airlines every time they ask for it.
Actually, to add an example for something that drives me nuts.
Last week I bought a one way ticket for $700, which was $300 more than the next flight, due to leave an hour later. I paid for the privilege because I needed to be at my destination a little earlier.
When the second flight left before the first one due to a delayed crew on my own aircraft, I was offered nothing despite having paid more for my flight to get there before the other one. If you’re going to have dynamic pricing, surely it should return funds that have been overpaid for a service that was not provided as advertised?
If you buy an overnight service from FedEx and it fails to arrive overnight, you get paid the difference. If I overpay my tax, I get a refund. If interest rates go down, I pay less for my credit card or mortgage debt.
The airlines are an example of companies operating with general impunity. Calls for regulation will go away when people don’t constantly feel like the business model is fundamentally unfair.
Well said, Gary, an excellent thesis about the Industry on Economic terms, something a Pilot would not necessarily understand.
Hey @SMR, “Readers have to understand how lost you are when they read the crap you post”
It’s tough to run an airline. You can’t expect civil servants to do a better job. Even something like tree management for your home, our city screws it up by overly bureaucratic tree ordinances.
His comments are also outdated. Breeze is doing point to point for smaller markets
All I know is that every domestic ticket I buy these days costs fewer dollars –not even adjusting for inflation! — than tickets I bought 30 years ago And the flights are safer, and at least as punctual Airline tickets are by far the best deal in travel. Anyone who thinks more regulation would improve this value equation is simply wrong.
All I know is that flights are safer now than they were 30 years ago because of the FAA which does … regulation.
I also know that flying in sub-Saharan Africa is much more dangerous than flying in the US because sub-Saharan Africa lacks … regulation.
In other words, regulation is actually very good when done right. We should aim for good regulation, not NO regulation. I would never swap the FAA for the no-regulation of sub-Saharan skies.
Your comment on “barriers to entry” for pilots is just plain wrong. The simple truth is that too many pilots are coming into the airlines without the requisite number of hours that can and should be required ( 1200 minimum). Too many pilots are coming in without military backgrounds and it shows. The services and airlines should work together to find a happy medium to produce pilots who are schooled in the proper approaches to safety and airmanship.
Don’t try to blame pilots for a situation that is caused by corporate greed.
So many things have wrecked the pilot wage scale. Considering how much automation is involved in flying, $300-$500K is preposterous and destroys the business model. No wonder we can’t afford to have small jets serving small cities anymore.
Yes, Breeze does fly point to point in smaller markets and I hope they survive but, the massive amount of cash they are burning through makes one a bit doubtful.
Back in the days of point-to-point flying, you had the government give certain airlines the rights to certain routes (such as the milk route that Gary described above). I distinctly remember flying AA nonstop IAD-SAN back in ’69 and that UA had a flight that went DCA-TYS-HSV. Neither airline was in it’s “core” area on these routes, but they basically had a monopoly (or a near monopoly) on them. Service was great, seats were roomy and fares were sky high. Most people couldn’t (ever) afford to fly, which was great if you were lucky enough to be able to.
At best, this is how it was with a regulated air industry. Yes, many more airlines. But fewer competitive routes and MUCH higher prices (that cannot be overstated). Sure, most of us dislike hubs. But back in the day, there were many routes for which is was incredibly hard to get from A to B. Even many transcons (like BOS-LAX) had intermediate stops back then. The concept of an airliner having stops like a bus was just part of flying back then. Most of us have forgotten this.
Sure, I pine for the day when a typical economy seat came with a nice meal, gorgeous FA and 35″ pitch. And when airports were pleasant and civilized. But those days are gone and I think it’s for the best. The market has done a pretty good job. For example, most cities with air service are merely 1 stop away from the world, thanks to hubs. That wasn’t the case back in the pre-reg days. You had to get to a PanAm or TWA fortress (for the most part) to cross an ocean. That often took multiple stops to do. And cost thousands of dollars in todays money. On the whole, we’re better off now. More people can go more places – and isn’t that better?
@angryflier, international traffic rights were and still are negotiated between the US and foreign government of a given country. PA and TW were the chosen instruments for only 20 years from 1950 to 1970 for the US, but their international gateways such as SEA, ORD and BOS were hardly “fortresses” as you think of them. Most PA stations in the US had fewer than 5 flights a day.
National was granted the MIA-LHR route in 1970, and the Bermuda II agreement in 1977 changed the world. Suggest you read the wiki: https://en.wikipedia.org/wiki/Bermuda_II_Agreement
Many other airlines began to serve international destinations from cities in the interior US. Western even operated a DC-10-30 from HNL to LHR via ANC for 2 years. Air Florida, Braniff, Delta, Eastern, even regional Piedmont flew to LGW for 2 years before the USair takeover in 1989.
The decline of p2p and the regionals as a result of US deregulation is entirely unrelated to the expansion of international travel which is a result of the economics from advances in long-range aircraft and the expansion of international flying authorization.
Gary is right about this becoming a “thing”. It rated an article on . . . (drumroll) . . . Politico! Ideas from people too young to remember the Soviet Union or who miss it.
I’ll take issue with portions of the historical narratives as related by both Messrs. Leff and Sitaraman.
Though much recent attention has been cast toward JSX, et.al./Part 135/Part 380 operators, pilot unions erecting barriers, et.al., the die was cast for commuters/regionals when the FAA moved to mandate certification to Part 121 standards.
The mandate consisted & stipulated 33 different requirements in the operations/safety/training realm just to qualify for a Part 121 certificate – many of which were uneconomic for the smaller and/or unaligned operators. This was the action that killed the 19 seat segment of the industry. And, arguably, that segment would still be the gauge appropriate for many of the smaller markets that lost air service over time.
Mr. Sitaraman is romantically nostalgic with regard to the pre-deregulation point-to-point networks. With the CAB authorizing routes, the fragmented nature of the industry during that time (fragmentation among operators resulting in fragmented networks) resulted some carriers (often, the “Big 4” – AA, EA, TW, UA) having pockets of strength among a few markets. Couple that with barrier to market entry and a supportive fare structure, point-to-point was tenable despite often low load factors.
If there is one element of scheduled air transport that may be rife for limited (re)regulation, I think it would be cabin configurations (minimum pitch between seats) for evacuation purposes.
My understanding is that the 2018 FAA Reauthorization bill contained a provision for the FAA to examine (and live test) whether the densification of aircraft cabins had compromised the “90 second” mandate to clear a full aircraft cabin during an emergency evacuation.
Apparently, the FAA took until March 2022 to issue a report that suggested, [“seat SIZE was not a determinant in meeting the evacuation timing standard.”]. In Summer 2022, a couple of senators proposed a bill to mandate FAA to revisit the issue as a result of perception and lack of action by the FAA.
I find it hard to fathom how a B737-800 could go from 150 seats to 172 seats without having an impact on the emergency evacuation timing standard.
AA gave up its final two gates at DAL in 2009. The world’s largest airline moved most of its fights and its headquarters to Fort Worth and DFW in 1979.
Elitists like Warren want less access for fewer people, and they know higher prices will accomplish this. They don’t believe rachetts and thots should have the privilege to travel by air. The problem is that the airlines believe this too. They want a return of the hayday, before deregulation, where even lowly gate agents will make six figure incomes. When given the choice between profits by scale or profits by premium, the airlines will choose the latter.