The Crony Capitalist Airline Market Makes Your Ticket Cost More
In The New York Times, Clifford Winston, a senior fellow in economic studies at the Brookings Institution, advocates opening the domestic U.S. airline market up to foreign carriers:
With five airlines now serving 85 percent of the domestic market -- four, if American Airlines and US Airways merge, as industry analysts expect -- the major carriers are worrying less about the one factor that could disrupt their cozy, cram-'em-in strategy: competition.That is, unless policy makers do what they should have done a long time ago and allow foreign airlines, including discount carriers like Ryanair and global players like Qantas and British Airways, to serve domestic routes in the United States. Why, after all, should an industry that has ingeniously used free-market principles to squeeze the most revenue out of each middle seat be protected from competing in a real free market?
As things stand now, the United States allows foreign airlines to serve its major cities as part of international agreements -- conventions that have been around for decades. Foreign airlines have never posed a threat to national security or to the safety of air travelers; there's no indication that such carriers have resisted American security measures in the past or any reason to think they'd violate any protocols required for domestic routes either.
Competition from foreign airlines would put downward pressure on wages, something that union workers may object to. But by reducing fares and expanding service, it would also increase the demand for air travel and related services -- thus, presumably, creating additional jobs during a time of persistently high unemployment.
Airline travelers, in fact, have already benefited significantly from increased competition among international carriers. Beginning with a successful agreement with the Netherlands in 1992, the United States has pressed for liberal free-trade pacts, called "open skies" agreements, with several nations.
In collaboration with Jia Yan of Washington State University, I have estimated that travelers have gained at least $5 billion annually as a result of lower international fares and additional flights generated by open skies agreements.
By allowing foreign airlines to serve American domestic markets, the process of creating a truly free market in airline services here would be complete and, as in the case of international markets, would provide travelers the benefit of more flight choices and lower fares.







This is somewhat at odds with the general thrust of articles by Patrick Smith, who points out that travel delays are not caused by TSA but by traffic - particularly the "regional" jets.
And it's not the carrier. The pilot may not roll until the destination has a landing slot open.
I'd be interested to see why a big carrier overseas would want to do Atlanta-Newark, or San Diego-Phoenix. As it is, short runs in the USA are done by affiliates, not by the majors directly.
Radwaste at November 21, 2012 2:17 PM
It's more complicated than that. Most of the world's airlines are subsidized in one fashion or another by their home-country governments: either they are owned outright by the government, or they receive direct subsidies, or they are indirectly subsidized by being granted protected markets ("flag carrier").
There's a whole host of negotiated rights, defined by something called the Chicago Convention, that defines when and where airlines based in country A can enter the airspace of country B, and for what purposes. AFAIK all Western nations and most of the Far East grants righs up to the "fourth freedom" to foreign carriers (with a few exceptions, mainly for safety). That means that an airline from country A can land in country B, drop off passengers, pick up passengers, and fly them back to country A. What the airline can't do is land in country B, pick up passengers, and fly them anywhere other than back to country A -- that's known as "fifth freedom" or "beyond rights".
There are a bunch of negotiated fifth-freedom rights, but they tend to be done piecemeal -- a certain airline is allowed to fly a specific route. As an example, Pan Am used to have some fifth-freedom rights through London; they could, for example, have a New York to Paris flight land in London, pick up pax, and fly them to Paris.
The thing this article is really talking about -- the right for the airline from country A to fly domestic routes within country B -- as far as I know, there is no nation anywhere on Earth that currently grants those rights on a general basis. (That's known by the scary-sounding name of "cabotage". All it really refers to is the freedom to operate domestic routes in a country other than the airline's home country. But it's been a controversial subject for the airlines for a very long time, going back to WWII. The word should give you a hint of how scared some people are of it.)
So what the article is talking about is really uncharted territory for the airline industry. I'm for competition, but I am not for a free-market vendor having to compete with a subsidized competitor, and that's the current situation with a lot of the foreign airlines. (Example: Alitalia, which is essentially an arm of the Italian government.) Plus, cabotage rights within the U.S. are worth a whole lot more than they are in almost any other country. Take, for example, Switzerland: if the U.S. negotiated unlimited cabotage with them, Swissair would get to fly all over the U.S. In exchange, U.S.-based airlines would get to compete on the Geneva-to-Zurich run (which is about the only domestic route within Switzerland where flying might make sense vs. other modes of travel). Big whoop.
Having said that, there was a chance to do something that both Clinton and W missed. Canada used to have two major carriers, Air Canada and Canadian Airlines. Starting in 1997, it became apparent that Canadian was in major financial trouble and wasn't going to be able to continue; it finally collapsed in 1999, and Air Canada bought it out in 2000. At the time, that left Air Canada as a monopoly carrier for much of Canada. At about that same time, the consolidation of the 1980s explosion of U.S. airlines was in full swing, and people were already getting worried about competition and lost routes. The government of Canada approached first Clinton and then Bush about solving our mutual problems by granting unlimited cabotage across the U.S.-Canada border -- Air Canada would be able to fly anywhere in the U.S., and Delta, United, et al would be able to fly anywhere in Canada. Both Clinton and Bush rejected it.
Eventually there should be worldwide cabotage rights (subject to safety rules), and once airline consolidation has reached a certain point, you will see more calls for it. But it's going to take decades of negotiation, and restructuring a lot of airlines and air markets.
Cousin Dave at November 21, 2012 2:32 PM
Cousin Dave is correct, and brings up a lot of good points. Remember that the airlines have always had a quasi governmental function due to regulation by the FFA, and also, the airports they land at are built and run by local and state governments.
I have heard that air travel is down over fifty percent since 9/11. In my opinion, it won't take much more regulation, taxation, and higher fuel prices to choke off leisure travel almost completely.
Isab at November 21, 2012 3:29 PM
It might be worth noting that airline fees have actually come down somewhat, but decreases airfares have been matched by corresponding increases in taxes .. in other words, when airlines lower their prices, government effectively uses the opportunity to sneak in tax increases by taking a larger percentage, leaving the overall amount you pay roughly the same - which makes people not notice that they're being taxed more:
http://web.mit.edu/TicketTax/
Lobster at November 21, 2012 3:46 PM
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Crid [CridComment at gmail] at November 21, 2012 4:01 PM
Even domestic airlines are subject to weird regulations. When Southwest went from a regional to a national carrier one of the stipulations was that they can only fly in and out of Texas via Dallas. I think this still holds true throughout 2014.
Elle at November 21, 2012 4:24 PM
I certainly have noticed the increase in prices. Maybe not domestically, but when you fly overseas, prices are up about 40 percent since 2008.
Isab at November 21, 2012 4:27 PM
Another thing that needs to be done is to stop protecting airlines from the common law on contracts. They breach the contract because they oversell the plane you get damages. They keep you imprisoned on the plane for hours you get damages for false imprisonment.
Bill O Rights at November 21, 2012 7:15 PM
Want a right to sue the airline for damages?
Don't sign your rights away when you buy the ticket.
Oh, they won't let you on the plane, if you don't buy the ticket and agree to their terms and conditions? Thats a problem, but not a contract law problem.
The airlines have been hamstrung by federal regulations that force them to do things that inconvenience passangers.
Remember what Cousin Dave said about not being allowed to take off until the plane has landing clearance at a destination? THAT is why you sit on the tarmac.
Don't like it? Be a true capitalist libertarian and buy your own plane.
Isab at November 21, 2012 8:32 PM
"Even domestic airlines are subject to weird regulations. When Southwest went from a regional to a national carrier one of the stipulations was that they can only fly in and out of Texas via Dallas. I think this still holds true throughout 2014."
Ah yes, the Wright Amendment. Even by industry standards, that bit is weird -- but it was also what grew Southwest into what it is today. Southwest had been just an intra-state Texas airline. When the Civil Aeronautics Board (which regulated the whole airline industry) was abolished in 1979, Southwest figured out how to exploit the Wright Amendment's loopholes to start flying service around the region from Love Field. At the time, DFW had a lot of problems and passengers were eager to find ways to avoid it. Southwest sneakily informed travel agents how they could stick tickets together so that a passenger from, say, New York, could fly on another airline to an airport that Southwest was allowed to serve (e.g., Houston-Hobby), and then fly on Southwest to Love Field.
Cousin Dave at November 22, 2012 7:43 AM
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