In Defense of Airlines

This probably is not the most interesting and relative blog of the day since the Supreme Court announced its King v. Burwell decision.  But for those who have thrown up their arms in despair over the SC’s obsession with protecting Obamacare, it’s time to move on to other, more mundane topics.

In little known news, TIME and a few other outlets reported that airline checked bag and reservation change fees have hit record highs, bringing in about $6.6 billion in revenue for the airline industry over a 12-month period.  This also comes at a time when the airline industry recently considered the idea of reducing the size of allowable carry-on luggage by 20 percent.  Of course, critic-in-chief of the airline industry, Sen. Chuck Schumer (D-NY), held a press conference last Sunday decrying the unfairness of it all, as he held two carry-on bags in front of him, one slightly smaller than the other.  “It’s just a way for airlines to make extra money,” he said.  By the way, this is the same Senator who called for an investigation last December into rising airfares in the midst of falling fuel prices.  Not to be outdone, Senator Richard Blumenthal (D-Conn) just three days ago called for an investigation into anti-competitive behavior and collusion among the airlines.  In a letter to the assistant attorney general, Blumenthal notes, “When one airline ‘leads’ a price increase, other airlines frequently respond by following with price increases of their own.”

This would all seem like a bad joke it wasn’t coming from the Senate, so I will address both airfare and carry-on luggage in the context of a free-market economy.  Sen. Schumer is older than me, so certainly he should remember how air travel used to be under the Civil Aeronautics Board.  The CAB regulated everything about how airlines operated, from where airlines flew, how often they flew, how much they charged, and variety of other issues pertaining to consumer issues, mergers, start-ups and safety.  As a result, air travel was prohibitively expensive for most families.  Growing up in the 1960s and 1970s, it was a rare treat for my family and I to travel from Tulsa, OK to Pittsburgh, PA to see relatives during Christmas breaks or summer vacations.  Certainly, air travel was a bit different during that time as well: full meals were served, people actually dressed up to travel (wearing shorts on a plane was a no-no, and jeans were rare), and kids got little “wings” pins and placemats with fun facts and games about airplanes.  But a family of four could pay as much as $1,000 round trip (this amount in 1975 is equivalent to $4,500 in today’s dollars).  Very few middle class families could afford air travel – that’s what a road trip in the big family station wagon was for.

Fast forward to 1985, when the CAB was disestablished and air fares were set by the free market.  Airlines are free to set their own prices (despite the government taxes and fees imposed on each ticket), and flights are more plentiful and affordable than ever before.  Sure, there are no more full meals, wings pins and cute placemats, but I will take peanuts and soft drinks (and the now socially-acceptable norm of wearing shorts, and even pajamas, on a plane) over the amenities of yesterday in order to get a fare for less than $200 round trip.  Even when adding in checked bag fees, the cost of pillows, headsets, and peanuts (incidentally, Sen. Schumer, peanuts are still free) airline travel continues to be more affordable than it was 40 years ago. Perhaps Schumer needs to look outside of his New York bubble and see what the market has done for him and many others.

I might add, Sen. Blumenthal is correct in his statement that when one airline raises prices, the others follow.  This is not news; this is what economists term an “oligopoly,” a market where a few firms dominate. Typically, an oligopoly has a dominant firm or two that sets prices and other firms follow. This is not perfect competition but it is an improvement over a private or government monopoly. And it works in reverse. When an airline reduces prices, others tend to compete by doing the same.

Regarding the carry-on luggage requirement, the government need not get involved in this one.  When airlines started charging for checked baggage, it was a matter of time before everybody started hauling everything they had onto a plane and stuffing it into an overhead bin.  While Schumer may not like the idea that he may not be able to carry everything onto a plane with him, let’s be honest here:  There is nothing worse than a delayed takeoff because boarding passengers are standing in the aisles pushing mammoth-sized carry-ons with the density of a 200-lb. dead body into limited-capacity overhead bins, particularly on smaller planes such as Embraer jets.  Yes, it is completely annoying, and the airlines have made some bad policy that most certainly inconveniences customers.  But the bottom line is – let them work it out without the heavy hand of government.

 

 

Comments (2)

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  1. Josh says:

    Even with an oligopolistic market structure there is still a strong market feedback mechanism, which Sen. Schumer doesn’t seem to grasp.

    Two things this brings to mind for me are:

    1)when, IIRC, in 2011 BOA announced plans to charge $5 fees for Debit Cards and the overwhelming negative response of customers, which ultimately led them to reverse their decision to keep customers.

    and
    2) I once bought tickets to fly Spirit Airlines, without realizing they not only charged for checked bags but also charged for carry-on beside a personal item. I wasn’t happy and I haven’t flown with them since. I also told my friends and family. Spirit operates one flight from CHI(ORD)-> SD(SAN) everyday and one flight back. Considering my friends and family are in CHI and I’m in SD they are losing out on some amount of business. Thankfully, Alaska Airlines, Southwest, American (Airways/Airlines) and United also fly that route so I can always pay for a different airlines services.

  2. Tyler Prochazka says:

    What Schumer also fails to grasp is that the price increase shifts the cost burden to those that are using the service. In other words, others can enjoy lower prices on the initial tickets if some are charged for excessive baggage.

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