Skyway Robbery: 6 Ways the Out-of-Control Airline Industry Is Ripping Off America
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High-fives are happening on Wall Street. Airlines are making giant profits again, record-breaking profits! The days of bankruptcies, which peaked between 2001 and 2008, may soon be a memory.
Have bold thinking, dramatic innovation and better service turned things around? Not exactly.
Sky-high profits are coming at the expense of the taxpayers, airline workers, and the traveling public, particularly in North America, where carriers like Spirit Airlines have been adding fees in a nickel-and-diming rampage. It’s ugly up there, and it’s likely to get uglier.
Let’s take a look at what is turning into a nightmare in the sky.
1. Serving Wall Street
The small Czech town where I taught school in 1994, just after the Velvet Revolution, had exactly two phones. Frequently neither of them worked. It was maddeningly inconvenient, but like the snowy winters, people just thought of it as a fact of life to be endured, rather than the outcome of a particular kind of social and economic system that prioritized social control and central authority over free two-way communication between citizens.
Americans complain about flying the way people in communist countries used to complain about telephone service. Rarely do we reflect that the bad and limited service we endure is a result of our unregulated market economy, where corporate profits and limited government are prioritized over citizens’ access to affordable and reliable air travel.
How did we get here?
Back in 1978, a group of policy-makers cooked up a plan they thought would drive down the cost of airline fares by encouraging competition among airlines. In practice, what it did was pretty much get rid of the Civil Aeronautics Board (CAB), which had overseen the industry. Phillip Longman and Lina Khan, in their eye-opening report, “ Terminal Sickness,” explained that the effect “was to shift control of the airline industry from experts answerable to the public to corporate boardrooms and Wall Street.”
For a long time, defenders of deregulation have claimed that it brought us lower prices for airline tickets (though nobody has argued that it brought better service). Turns out that recent research delivers a serious blow to that claim. The reality may be that deregulation actually slowed a decline in ticket prices that was already underway.
Unfortunately, we have found that increased competition without adequate regulation is not much better than monopoly conditions.
John Kay, one of Britain’s leading economists, has discussed how competitive markets often fail, especially when the state doesn’t intervene to make sure that things are fair (like enforcing contracts) and that businesses are properly run. All kinds of things can go wrong, like fraud, capture of the political system, and so on. Kay describes how an especially destructive form of competition can develop in which companies battle with each other through sneaky practices, like charging low prices, but then extracting money through invisible and unavoidable additional fees. What you end up with is a scam-alicious race to the bottom where customers get screwed, thuggish executives get rich and public trust in business dissolves. Sound familiar?
When an industry as essential to life as air travel is cut loose from any public responsibility, not only individuals, but whole cities can be left economically stranded. Cincinnati, for example, has lost key businesses (like Chiquita, which moved to Charlotte) because carriers decided to hike fares and abandon service. Before deregulation, regulators working in the public interest could assign routes and set fares. Afterward, airlines were free to do pretty much whatever would bring short term-profits, often at the expense of whole communities.