Thirty years ago this fall, Congress passed the Airline Deregulation Act of 1978. Since then, America’s airline system has greatly deteriorated.
I suppose that’s one way of looking at it. Another way to look at it is that air travel has become much less expensive than it used to be. Airlines have learned to produce a low-cost product. Naturally, there are some compromises which result in poor service, but that seems to be a trade-off people are willing to make.
The second paragraph elaborates on the claims of the first paragraph.
Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time.
Translation: Air travel has become a price-competitive business. It used to be the Ritz, now it’s Motel 6.
Airport congestion has become a staple of late-night comedy shows. An ever higher percentage of bags are lost or sent to the wrong airports.
Translation: The airports—which have not been deregulated—aren’t run very well.
Last-minute seats are harder and harder to find.
Translation: Airlines are making more efficient use of their passenger-carrying capacity, leaving fewer empty seats, thus reducing prices.
Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.
No, not by any standard, just by the standards of guys like Crandall. Passengers may not be thrilled by airline service, but they certainly find it acceptable by the standard that matters most: People are flying a lot. In 1975, commercial air travel amounted to 136 billion passenger-miles. Thirty years later, in 2005, commercial air travel had more than quadrupled to 584 billion passenger-miles (far outracing population growth).
Airline service may not be the high-quality product it used to be, but it’s certainly the low-cost product everybody seems to want.
Kip goes on to point out a strange internal conflict in Crandall’s piece. At one point, Crandall writes this:
Although the system could conceivably be operated by a single efficient carrier, consumers clearly benefit from the existence of multiple airlines. The absence of competition never fosters better customer service.
But the very next sentence says something else:
Market-based approaches alone have not and will not produce the aviation system our country needs.
Kip’s response is apparently genuine befuddlement:
So “competition” is good, but “the market” is bad? Don’t worry — I don’t understand it either.
Oddly, I do understand it, so let me see if I can help out poor Kip.
Competition among suppliers is a state of the market in which sellers face constant pressure to make their product more attractive to customers out of fear of losing sales to other suppliers. They can try to attract customers by making their products better, or they can try to make their products cheaper. Airlines seem to have chosen the latter course. In either case, the essence of the definition is that suppliers are trying to win customers.
Crandall, however is using a different definition of competition, one that puts the emphasis not on the actual competition, but on the presence of competitors. He believes—or hopes to convince us to believe—that a good competitive market requires vigorous competitors.
This view—also popular among regulatory agencies—turns competition on its head. Instead of focusing on the benefits to consumers, Crandall and the regulator agencies want to focus on the financial health of suppliers. The result is a hodge-podge of recommendations that help the airlines stay in business, usually at the expense of their customers.
Consider this recommendation by Crandall:
The financial standards for new airlines also need to be made more stringent. In the years since deregulation, nearly 200 airlines have come and gone. These inadequately financed carriers — whose principal goal has often seemed to be merely to exist long enough to reap the rewards of an initial public offering — have consistently cut prices to attract passengers. This downward pressure on prices has hurt airlines that seek long-term success.
Here, Crandall is blatantly abandoning clear competition—cutting prices to attract passengers—to keep airlines in business. By his definition of competition—the presence of healthy competitors—that makes complete sense. Of course, that’s not what competition really is. That’s not what capitalism is.
At the end of his op-ed, Crandall makes this disingenuous declaration:
We need to be realistic: whether there are mergers or not, airline fares are going to increase. Every business must charge enough to cover its operating and capital costs. Regulatory and oversight changes intended to make our carriers more successful may well force prices up faster than would otherwise be the case. But we will be better off with higher fares and more competitors than with higher fares and fewer competitors.
Notice how he concedes that regulations will increase prices, but then goes on to effectively equate both possibilities by referring only to “higher fares.” Let me try to recast that last sentence in a more honest way:
But we will be better off with much higher fares and more competitors than with slightly higher fares and fewer competitors.
Personally, I’d prefer the slight fare increase. I’d prefer to receive the benefits of competition rather than spending my money to preserve Crandall’s bogus definition of competition. Judging by the statistics on air travel, most passengers agree with me.
Finally, there’s this sentence in the last paragraph:
The enormous economic importance of our once peerless aviation system is indisputable.
True enough. However, the benefit of an aviation system does not come merely from its existence, but from how we use it. Agriculture is important because it allows us to eat, the auto industry is important because it allows us to have cars, and the aviation industry is important because it allows us to fly.