U.S. Airlines and Carmakers Need to Go Global

Policies that insulate them from competition created the conditions that led to bailouts and bankruptcies

By Clifford Winston of the Brookings Institution. Excerpts:

"While we rightly celebrate the 1978 Airline Deregulation Act, airports and foreign competitors that could serve U.S. routes weren’t deregulated. Public airport monopolies and duopolies allow airlines to raise fares. With foreign carriers prohibited from flying domestic U.S. routes, domestic fares have been kept artificially high even while load factors approached 85% just before the Iran war. As a result, when a domestic shock hits, the system lacks the diversified global networks and capital depth needed to absorb the blow.

The car industry suffers from a similar condition. While the automakers aren’t currently liquidating, they are operating on a margin-over-volume strategy that has pushed the average transaction price of a new car to a record $50,000. This wasn’t a natural market evolution. It was manufactured by decades of trade barriers.

From the 1964 “Chicken Tax” to the 100% tariffs on Chinese electric vehicles in 2025, Washington has walled off the American consumer. These barriers have allowed domestic makers to abandon the low-cost econobox segment entirely, focusing instead on $80,000 SUVs. Because they are shielded from the $15,000-a-car global competitors that are modernizing fleets in Europe and Asia, automakers have become addicted to a narrow, affluent demographic."

 

Mass Transit in the Sky: How Air Travel Went from Elite to Affordable

The golden age of airline service was also an era of restriction and high prices. From deregulation to the downfall of no-frills Spirit, competition exposes what travelers are truly willing to pay for. 

By Donald J. Boudreaux. Excerpt:

"Prior to deregulation that began in the late 1970s, interstate commercial air travel was governed by the 1938 Civil Aeronautics Act. With that legislation, the federal government restricted entry into the industry. It also established and assigned interstate routes, and regulated the fares that airlines charged passengers for seats on planes that flew those routes. This regulation was meant to ensure airline profitability and, thus, aimed to restrict competition among the airlines. On interstate routes, airlines could not compete for customers by lowering prices, which were set by the Civil Aeronautics Authority, later to become the Civil Aeronautics Board (CAB).

The airlines in the mid-20th century did indeed profit from the government’s regulatory efforts on their behalf. Nevertheless, even the government cannot prevent competition; its interventions can only divert competition into other channels that are less beneficial for consumers.

Unable to compete by lowering fares, airlines competed on the customer-service front. Compared to today, the standard coach seat during the era of regulation had more legroom. Full meals were common. As opposed to today’s use of the hub-and-spoke system, direct flights were the norm. (Although this costly feature was required by the regulators, it likely would have been commonplace even without being mandated.) And flight attendants were overwhelmingly young and attractive single women. Forced to pay high prices to fly, at least customers got something in return for the additional dollars the regulators obliged them to fork over for the privilege of flying.

Deregulation of fares allowed market experimentation to discover how better to serve airline passengers. Airfares fell dramatically, which seems necessarily to be an obvious benefit for consumers. But we know this fall in airfares to be a benefit to consumers only because it happened in a more-competitive market. Obviously, consumers would love to pay the lower fares while still having more legroom, more direct flights, and full meals with free booze in coach class served by attractive and charming flight attendants.

These nice amenities aren’t free, however. They must be paid for. If the flying public had valued those regulation-era amenities enough to continue paying regulation-era airfares, airlines would have been happy to continue to supply those amenities at those high fares. But the public spoke with its purse: competition revealed that most air passengers prefer to pay lower prices, even if doing so means fewer amenities, than to pay higher prices in exchange for the many amenities. (The relatively few customers with different preferences choose to upgrade to seats in ‘economy plus’ or in first class.)

Flying today is much less costly, in real terms, than it was before airlines were deregulated. (And, by the way, deregulation did nothing to slow the improvement in airline safety.) As such, the commercial-aviation experience today — unlike when I was a boy and young man — is commonplace and hardly luxurious (adjusting for the reality that, nevertheless, when in an airplane you are flying through the air while seated in a chair, an experience that everyone before the twentieth century would have regarded as miraculous). Even for a working-class American family today, going to the airport simply to behold a relative boarding an airplane is as unimaginable as going to a local bus stop simply to behold that same relative boarding a bus.

It’s worth noting that competition also reveals the limits to consumers’ tolerance for sacrificing amenities for lower fares. Spirit Airlines’ business model was to eliminate as many as possible ‘free’ amenities, stripping the base ticket price down and charging separately for virtually everything else, including carry-on bags, seat selection, snacks, even water. Spirit also offered infamously little legroom.

Because ‘optimal’ market outcomes cannot be divined in the abstract — because these outcomes can only be discovered through competitive market processes in which entrepreneurs are free to experiment — it was a good idea to run this experiment. As it happens, though, too few consumers were willing to pay even low fares for that level of minimal amenities. Spirit was on the verge of bankruptcy well before the price of aviation fuel was sent soaring by the war in Iran, which is why JetBlue in 2022 offered to merge with Spirit – a move that would have enabled JetBlue to obtain Spirit’s equipment and landing slots.

In a monumental feat of economic ignorance, the Biden administration sued to block the merger on the grounds that it would reduce competition and raise fares. Spirit has now gone forever to the economic spirit world.

Here’s the view from 30,000 feet. When producers are allowed to compete on all margins, including price, they discover the optimal mix of prices and amenities that best satisfy their customers. When governments obstruct that competition, it gets redirected into changing the quality of goods and services such that the resulting price-quality mixes are less desirable than would be the mixes that emerge without government intervention.

After airlines were deregulated almost 50 years ago, consumers revealed that they wanted lower prices with less quality. And by more recently rejecting the bare service offered by Spirit Airlines, consumers revealed that quality can be so low that even very low prices are insufficient compensation to put up with such low quality. These results emerged from competitive market processes and deserve respect. But alas, just as airline regulation forced American air passengers to buy what they would have preferred not to buy, the government’s continuing itch to override market processes will oblige consumers in the future — whenever such interventions occur — to suffer worse economic outcomes."

Airlines and Overzealous Antitrust Enforcers

It’s a mistake to blame deregulation for Spirit Airlines’ demise

Letter to The WSJ. 

"Regarding your editorial “Spirit Airlines and the Antitrust Left” (May 4): Many people think that because carriers like Spirit Airlines have lower costs, they should be able to compete with the major airlines by offering lower fares. That’s a fallacy.

On any route involving a hub city of a major airline, the major airline’s network will support more flights (and therefore more possible connection options) than the low-cost carrier, which relies on point-to-point traffic. This product advantage, among others, generally allows the major airlines to charge and receive higher ticket prices than the low-cost carriers.

The revenue from these premium tickets will normally cover the cost of a network carrier’s flight before all the seats are sold. This means the remaining seats can be sold profitably at any price necessary to fill them. Unless travel demand is so high, or industry capacity so low, that major airlines can fill their planes at premium prices, it will generally make economic sense for them to match any price that a low-cost carrier offers if doing so is necessary to fill a seat.

The antitrust left is now blaming deregulation for Spirit’s demise. But there are far more airline flights, with more destinations served, at lower prices in real terms, than before deregulation. This is because deregulation allowed airlines to develop networks, that efficiently aggregate and distribute traffic through mergers, international alliances and organic growth.

During the era of deregulation, I was on the staff of the Civil Aeronautics Board, which regulated airline routes and prices until 1978. The architects of deregulation, Michael Levine and Alfred Kahn, didn’t know what form airline competition would take. They were confident, however, that business executives, freed from regulatory constraints, would find the most effective ways to increase output and reduce price. That is what has happened, despite resistance from regulators and occasional missteps by misguided judges. Unfortunately, the Biden administration’s antitrust enforcers and Judge William Young prevented Spirit Airlines and JetBlue from helping airline competition continue to evolve.

Ben Hirst

Wayzata, Minn.

Mr. Hirst is former executive vice president of Delta Air Lines." 

Spirit Airlines and the Antitrust Left

A case study in how Lina Khan’s theories about competition failed in the real world

WSJ editorial. Excerpts:

"In 2022 JetBlue offered Spirit a $3.8 billion merger lifeline so the combined companies could offer more competition for the four U.S. airline giants. Mr. Kanter’s Antitrust Division sued to block the merger in 2023 and prevailed in court in January 2024"

"Federal Judge William Young admitted Spirit’s financial troubles. He also agreed that “an expansion of all aspects of JetBlue’s business—including network, fleet and loyalty program—would allow for more vigorous competition with the Big Four, which carry most passengers in the country.”"

"He still ruled the merger an antitrust violation because it would eliminate one low-fare option on some routes."

"Spirit declared bankruptcy in November 2024, long before the Iran war fuel spike. Now it’s shutting down for good."

"there will be less competition than if the merger had been allowed." 

From Fatal Conceit to the Friendly Skies: How Deregulation Made Flight Affordable

By Jeffery L. Degner AIER. Excerpt:

"With FDR’s creation of the Civil Aeronautics Board (CAB) in 1938, its designers claimed that it would centrally administer, “safety-related rulemaking, accident investigation, and economic regulation of commercial airlines.” Eventually, it would go far beyond such broad claims and do far more than that, engaging in price-fixing and the prevention of new entrants, just to name a few. Ultimately, the hubris of social engineers led them to declare what “fair” prices were across the airline industry.

In a 1975 report, no less than liberal senator Edward Kennedy admitted that “the Board’s experience suggests it is extremely difficult, if not impossible, to develop a cost-based ratemaking system that uses fair procedures and keeps fares in such an industry low.” In a more damning admission, “This is not to say that inherent defects are the only cause of the CAB’s failings. These may, for example, also reflect the human tendency to listen more closely to representatives, such as those for the industry, who are powerful, well-informed, and can reward regulators with future jobs or contracts.”

The ultimate effect of this centralized planning was to “control prices, restrict entry, and confer antitrust immunity.” In brief, the CAB was used to create a government-backed cartel in the interest of existing large carriers. In what amounted to a public confession of crony-capitalism, the CAB’s days were numbered. 

In the wake of the report, American Airlines was allowed to discount its fares up to 45 percent in an attempt to see whether airline travel could be “made available at a price all can afford.” Once this mild form of price competition was allowed, rivalrous competition showed suspicious legislators and regulators that allowing competition did indeed create greater value for consumers. Eventually, Senator Howard Cannon along with bipartisan supporters including Ted Stevens and Wendell Ford helped pass the Airline Deregulation Act in February of 1978. 

Since industrial leaders at the time, like Delta Airlines, had grown accustomed to the many protections they received under the CAB, they lobbied against the deregulatory move. They made claims that “free entry” and “free exit” were “untested concepts” that would result in the concentration of the industry into the “hands of only a few carriers…causing service deterioration at smaller cities and in smaller markets.” Delta’s doom-mongering didn’t materialize in either the short or long run. 

In the nearly 50 years since the abolition of the Civil Aeronautics Board, routes and flexibility have proliferated, and prices have declined continually. In fact, the last three decades have seen inflation-adjusted domestic airfares fall from $614 in 1995 to $397 in 2025. Further, the industry continues to grow, nearly doubling the number of employees since 1990. Prior to deregulation, air travel was undoubtedly a luxury good. Now, it has become so affordable that 80 percent of Americans with annual household income below $50,000 have taken flight at some point in their lives." 

 

 

 

Time to Privatize U.S. Air Traffic Control—Copy Canada’s Model

By Alex Tabarrok.

"Yesterday, the FAA grounded flights at Reagan (DCA) because there weren’t enough air traffic controllers. By mid‑afternoon, thousands of flights were delayed nationwide. The same thing is happening at major airports across the country.

The proximate cause is that the FAA is short about ~3,500 controllers, forcing the rest to work mandatory overtime, six days a week, and now, during the shutdown, sometimes without pay! The more fundamental problem is that we have a poorly incentivized system. It’s absurd that a mission‑critical service is financed by annual appropriations subject to political failure. We need to remove the politics.

Canada fixed this in 1996 by spinning off air navigation services to NAV CANADA, a private, non‑profit utility funded by user fees, not taxes. Safety regulation stayed with the government; operations moved to a professionally governed, bond‑financed utility with multi‑year budgets. NAV Canada has been instrumental in moving Canada to more accurate and safer satellite-based navigation, rather than relying on ground-based radar as in the US.

NAV CANADA – in conjunction with the United Kingdom’s NATS – was the first in the world to deploy space-based ADS-B, by implementing it in 2019 over the North Atlantic, the world’s busiest oceanic airspace.

NAV CANADA was also the first air navigation service provider worldwide to implement space-based ADS-B in its domestic airspace.

Meanwhile, America’s NextGen has delivered a fraction of promised benefits, years late and over budget. As the Office of Inspector General reports:

Lengthy delays and cost growth have been a recurring feature of FAA’s modernization efforts through the course of NextGen’s over 20-year lifespan. FAA faced significant challenges throughout NextGen’s development and implementation phases that resulted in delaying or reducing benefits and delivering fewer capabilities than expected. While NextGen programs and capabilities have delivered some benefits in the form of more efficient air traffic management and reduced flight delays and airline operating costs, as of December 2024, FAA had achieved only about 16 percent of NextGen’s total expected benefits.

Airlines bleed money when planes idle, gates clog, and crews time out. The airlines have every reason to demand reliability, capacity, and modernization—Congress does not. Thus, fund air traffic control with user fees paid by those who depend on performance. Put the airline executives on the board of the non-profit, as in Canada. Give them the power to tax themselves to benefit themselves.

Align power with incentives and performance will follow."

America’s Air Traffic Fiasco

Here’s why you’re waiting hours to land at Newark airport

WSJ editorial. Excerpts:

"Congress in 2003 directed the FAA to modernize its systems. Yet the NextGen overhaul isn’t set to be complete until 2030."

"the FAA still uses floppy disks."

"76% of FAA systems are “unsustainable” or “potentially unsustainable,” which may have “critical operational impacts”"

"GAO says “completion dates for planned investments for systems” it deems “especially concerning were at least 6 to 10 years away.”"

"FAA labor agreements also require the government to “work collaboratively” with the air traffic controller union on modernization, which can delay upgrades and divert staff from their day jobs."

"The FAA aimed to ease the congestion by shifting control of Newark to its Philadelphia facility last summer, but the union opposed the move"

"Americans who want to become controllers must undergo three to five months of paid training at an FAA academy in Oklahoma City, followed by a three-year apprenticeship at a control facility."

"Half of the students who enter the academy don’t finish their training."

"the best reform would be if the U.S. followed Canada and other nations and turned air traffic over to a private nonprofit."

Advice for DOGE: Privatize Air Traffic Control

By Dan Mitchell.

"Based on economic trends, I don’t want the United States to copy Canada.

But there is one big exception. As explained by John Stossel, we should copy our northern neighbors and privatize air traffic control.

I harbor a special distaste for government bureaucracies that deliberately try to screw taxpayers by playing the “Washington Monument game.”

So that’s a strike against the Federal Aviation Administration.

But let’s focus on the more substantive issue of how to maximize safety and minimize costs.

If those are the two main criteria, the answer is privatization.

Indeed, this is a great opportunity for Elon Musk’s Department of Government Efficiency if it wants to show how to save money and make things work better.

The above video has some of the details, but let’s also look at an article in City Journal by John Tierney.

Here are some excerpts.

America’s air-traffic control system, once the world’s most advanced, has become an international disgrace. …chronic mismanagement…has left the system with too few controllers using absurdly antiquated technology. The problems were obvious 20 years ago, when I visited control towers in both Canada and the United States. The Canadians sat in front of sleek computer screens that instantly handled tasks like transferring the oversight of a plane from one controller to another. The Americans were still using pieces of paper called flight strips. …It was bad enough to see such outdated technology in 2005. But they’re still using those paper flight strips in American towers… The basic problem, which reformers have been trying to remedy since the Clinton administration, is that the system is operated by a cumbersome federal bureaucracy. …after the Washington collision, could the second Trump administration and a new Republican Congress finally create a state-of-the-art system? …Experience in Canada and other countries shows that an independent corporation, able to issue its own revenue bonds because it’s funded directly by user fees instead of taxes, can modernize air-traffic control far more efficiently and cheaply than a government agency.

In an article for Discourse, Gary Leff adds his analysis.

…after 1978…the federal government no longer told airlines where they’re allowed to fly, and how much they can charge. …However, nearly every other element of the experience continues to be dictated—and even directly managed—by the government. …Elsewhere in the world you’ll find nonprofit organizations conducting air traffic control, with better technology to direct planes more effectively and efficiently. …The private nonprofit NavCanada (which rolled out electronic flight strips way back in 2002!) oversees not just Canadian airspace but also the North Atlantic. It operates much more cost efficiently than the FAA. And they’re way ahead technologically as well.

Leff’s article cites other policies that would improve air travel, so privatizing air traffic control is just one piece of the puzzle.

But it’s an important piece, so let’s wrap up our discussion with some passages from Dominic Pino’s column in National Review.

Get the federal government out of air traffic control. I’d call it “privatizing,” but if you want to call it “depoliticizing” air traffic control, that’s fine by me. The air traffic control system should not be affected in the slightest by which politicians are in power… Air traffic control is not a public good in economic theory. It’s a club good, which means it can be provided privately through a system of user fees. …Canada illustrates that the private alternative works: Canadian air traffic control has been provided by a nonprofit since 1996, at zero cost to Canadian taxpayers. …Privatization has been proposed for the U.S. on and off since the 1980s, so DOT doesn’t need to come up with any groundbreaking ideas or ask for more money from Congress.

Amen.

By the way, if you’re not familiar with the concept of “public goods,” click here. Pino is right. Air traffic control does not qualify.

There is no logical reason why we don’t learn from other countries and get politicians and bureaucrats out of this line of business.

P.S. Where we’re on the topic of airlines, click here and here to learn why we should blame government when passengers get hit with so-called junk fees. Leads me to wonder whether the annoying “resort fees” at hotels also are consequence of government interference.

P.P.S. Eight years ago, I shared a very amusing British video that mocked the notion of privatizing the air traffic control system. Since the video is very clever, folks on the left doubtlessly were amused. But folks on the right got the last laugh since the British system is now privatized and working very well."

Honesty About Boeing Accidents

The firm’s culpability is clear but anyone who cares about air safety (and truth) wants the whole story

By Holman W. Jenkins, Jr. Excerpts:

"a report that the U.S. National Transportation Safety Board issued expressly to highlight its finding that “flight crew performance played a critical role in the accident sequence.”"

"“French aviation safety authorities this week joined U.S. investigators in a harsh critique of the final report by Ethiopian authorities into the March 2019 crash of a Boeing 737 MAX. . . . Both the U.S. National Transportation Safety Board and the equivalent French agency identified pilot error as a critical contributing factor.”"

"in the Seattle Times article, Mr. de Luis doesn’t deny pilot error played a role"

"it would be idiotic to try a second time to persuade our readers that pilot error wasn’t involved when the world’s premier safety regulator has investigated and found otherwise."

DOJ Makes Our Skies Less Friendly

By Tarnell Brown of AIER.

"There should be an adage regarding the dangers of 100-page  — or longer — judicial rulings that claim to protect the public interest. That was the length of US District Court Judge William Young’s musings on why he sided with the Department of Justice in blocking the merger between Spirit and JetBlue airlines. In his great wisdom, Judge Young decided that consumers must be protected from Schrödinger’s merger, an unholy union that would place downward pressure on the fares charged by major airlines, while also harming customers of low-fare airlines such as Spirit. As Kimberlee Josephson has noted in this space, this attitude stems from a larger, misbegotten belief that any combination of firms immediately leads to higher prices for consumers.

One major problem is that the Biden Administration has an antitrust obsession, though to be fair, so did the previous administration. In issuing an Executive Order on competition early during his first year, Biden embraced the paradigm of antitrust populism, a Brandeisian doctrine which holds that the consumer welfare standard – the use of empirical analysis to determine the merits or drawbacks of any proposed merger – is insufficient to the task of protecting…consumer welfare.

In competition law, the consumer welfare standard is the measurement of mergers to determine whether they would harm consumers in any relevant market. While empirical tools of econometrics are often used, it is inherently a judicial paradigm in which the end goal is to ensure the highest level of consumer welfare that cannot be increased by judicial decree. Proponents believe that any combination of sizeable firms into a larger entity is bad, and that small-to-midsized firms are inherently beneficial to the “public good.” This ignores innovations and the economies of scale that often accompany the combination of resources, and the inefficiencies that often doom even the most promising of smaller firms.

The poster child for Biden’s antitrust shenanigans is, rightly, Federal Trade Commission head Lina Khan, who seems to take the President’s EO as a mandate to pillage and destroy. But she is hardly the only party energized by this increasingly quixotic mission. Jonathan Kanter, the head of the DOJ’s Antitrust Division – and, because bad ideas aren’t the only things that get recycled, a former antitrust attorney at the FTC – has also risen to the challenge, having brought some 26 enforcement actions in fiscal year 2022. Interestingly enough, the combined enforcement actions of the FTC and DOJ are slightly lower in number than they were under the Trump Administration, but attempts to deter mergers through other means such as stonewalling consent agreements has risen.

There is little to suggest that a consolidation of Spirit and JetBlue would be harmful to consumers, and much to suggest that it would be beneficial. If, as the DOJ argues, lack of cost competition is injurious to the consumer welfare, then prohibiting a merger between two popular but money-losing low-cost carriers…adds to the lack of cost competition. The top four airlines control roughly 70 percent of industry market share. If the merger were to go through, the top four carriers would still control roughly 70 percent of industry market share. Moreover, while network effects generally prevent smaller carriers from expanding nationally, the same network effects would somewhat loosen the price floors the Big Four’s dominance creates.

How can I make that argument after pointing out that the Big Four’s market share would still be roughly the same? Well, ironically enough, I didn’t; the same DOJ that deep-sixed the merger did. In US v. American Airlines, the DOJ noted that there was a “JetBlue Effect,” a lowering of airfares across all carriers when JetBlue expands its routes. A good deal of this effect can be attributed to the higher level of amenities JetBlue offers to consumers who purchase more than their lowest-cost Blue Basic fare. Unlike their barebone counterparts Spirit, Frontier, and Allegiant those amenities are not terribly different in quality from the discount options offered by major carriers.

Additionally, the majority of low-cost carriers offer a menu of a-la-carte amenities that often substantially raise their prices beyond that of the initial basic ticket. Historically, JetBlue’s prices tend to be more transparent, which in itself provides a service to those looking for lower-cost options. Combining fleets would extend this transparent pricing structure to a greater number of customers, while also upgrading the quality of the current Spirit fleet, as JetBlue intended to bring Spirit’s inventory up to its own standards. Current Spirit employees would also benefit, as they were in line to receive significant pay and benefits increases.

Even if you were to disagree with everything written here, and hold that this was some sort of victory for the consumers, you would likely have to deem it a pyrrhic one. Spirit faces a bill of some $1.1 billion in maturing debt next year, the airline has been losing money for half a decade, and likely needs to be acquired in order to survive. Some observers believe that it may be facing bankruptcy proceedings sooner rather than later. As Frank Easterbook once pointed out in his excellent article Limits of Antitrust, there’s really no way for a court (or regulatory agency) to know the proper balance between competition and cooperation, as real equilibrium in the market is a constantly shifting target. As such, while the damage done by allowing “anticompetitive” mergers dissipates over time, the benefits of erroneously prohibiting beneficial ones are lost forever.

There’s an excellent chance that the DOJ and Judge Young have caused the very thing they purport to protect against: fewer choices among low-cost carriers and lessened price competition."

How Covid-19 regulations has made the air-traffic-control controller shortage worse

See Fatigue and Mandatory Overtime: America’s Air-Traffic Controllers Are Stretched Thin by Andrew Tangel, Micah Maidenberg and Alison Sider of The WSJ. Excerpt:

"The FAA has fallen behind its training and hiring goals, a situation exacerbated by the Covid-19 pandemic, earlier government shutdowns and what former agency officials complain has been years of inadequate funding. As the coronavircovus began spreading more than three years ago, the agency suspended training at its academy for new hires for four months and paused training elsewhere for stretches ranging from seven months to almost two years, according to a Transportation Department inspector general’s report."

Airlines might raise fares or reduce services due to proposed regulations

See Biden Says Administration Will Propose Airline Rule to Compensate Passengers for Delays, Cancellations by Alison Sider and Ken Thomas of The WSJ. Excerpts:

"Other observers argued that there would likely be unintended consequences—reductions in service or higher costs for consumers.

“They’ll find a way to raise fares,” said Clifford Winston, a senior fellow at the Brookings Institution. “They’re not in the business to lose money, and if the government is going to force them to do something, they’re going to try and find a way to get the cost covered.”"

Mayor Pete and the FAA’s Plan for Higher Fares

To alleviate air-traffic woes, the government proposes to commit an antitrust offense

By Holman W. Jenkins. Excerpts:

"The FAA last week called on carriers to cut flights 10% this summer in the busy New York region to accommodate its controller shortage, virtually guaranteeing higher fares and fewer choices. Yes, the Biden administration is committing the antitrust sin it accuses JetBlue and Spirit of."

"London City Airport now has a digital control tower allowing personnel to be used far more efficiently. Canada’s system has been commercially self-funding since 1996 and speedily incorporates new technology. The U.S. still relies on radar operators handing slips of paper to each other.

Reforming air-traffic control would actually be the best way to enhance competition. Fuel costs and delays would be lessened. Carriers could more quickly deploy planes wherever price signals dictate."

"Near misses at airports, apparently due to the post-Covid introduction of thousands of less-experienced workers, are being addressed the only way the system can: by slowing things down and aggravating customers."

"In 1993, Vice President Al Gore, as part of his Reinventing Government initiative, attempted a root-and-branch reform of the air traffic control system and succeeded—his idea was adopted in Canada. Donald Trump strove to revive the plan for the U.S. but was thwarted by a pork-barreling Congress."

"JetBlue and Spirit make a reasonable case that their deal would create more competition against the four giants that account for 80% of the domestic air-travel market. Their merger is remarkably unopposed by economists except a few cultists who long for 1978’s deregulation to be undone.

Justice’s opposition seems mainly a matter of adhering to an anti-merger bias the administration has adopted to appease progressives. Permeating its case is an unrealistically static notion of airline competition: Though airplanes are highly mobile assets, competitors somehow won’t descend on routes where fares go up if JetBlue and Spirit no longer are rivals."

End Speed Limits on Aircraft

From Alex Tabarrok.

"Fifty years ago today, on March 23, 1973, Alexander P. Butterfield, the Administrator of the Federal Aviation Administration, issued a rule that remains one of the most destructive acts of industrial vandalism in history.

“No person may operate a civil aircraft at a true flight mach number greater than 1 except in compliance with conditions and limitations in an authorization to exceed mach 1 issued to the operator under Appendix B of this part.”

This text was slightly modified in 1989 and again in 2021, but the upshot remains the same. The rule imposed a speed limit on US airspace. Not a noise standard, which would make sense. A speed limit.

This speed limit has naturally distorted the development of civil aircraft. For fifty years, the aviation industry has worked to improve subsonic aviation. Commercial passenger aircraft are safer and more economical today than they were in 1973, but they are no faster.

If we had propagated the rate of growth in commercial transatlantic aircraft speeds that existed from 1939 to the mid-1970s, we would have Mach-4 airliners by now. But the overland ban put an end to all that. It made small supersonic aircraft, which need to fly shorter overland routes, essentially illegal, closing off the iteration cycle that could drive progress in the industry.

That’s Eli Dourado who notes that modern designs greatly reduce sonic boom. I would also add the following. In 2019 there were 811 million passengers on US domestic flights and 241 million passengers on US international flights. The average duration of a domestic flight is about 2.5 hours and an international fight about 7.3 hours so Americans spend about 3.7 billion hours every year on airplanes. If we could cut even 20% of that time that’s a saving of 757 million hours which has to be weighed against a few people experiencing sonic booms near airports. Indeed, since the people on the airplane are subjected to a lot of the noise the total amount of noise experienced could easily go down with faster aircraft!

End speed limits on aircraft!"

More than 60 countries have turned their air-traffic control over to self-funding entities

See Can Pete Buttigieg Fix the FAA? by Holman W. Jenkins. Excerpts:

"it’s been a 30-year-event, starting when Vice President Al Gore, leader of the Clinton administration’s “reinventing government” initiative, valiantly tried and failed to remove air-traffic control from the federal bureaucracy and its pork-barreling congressional overseers.

By now, more than 60 countries have taken Mr. Gore’s 1993 advice, turning their air-traffic control over to self-funding entities. If the U.S. had done the same, it might have an ATC system of the 1990s, 2000s, possibly even the 2010s—instead of one from the 1980s.

Inept salesmen have called the process corporatization but it simply means handing controllers, radars and facilities over to a nonprofit that would charge cost-based fees to users of the nation’s controlled airspace. Such an outfit would be free to float bonds in its own name to install 21st-century technology while the 21st century is still in progress.

Taking advantage of decades-old advances in computers, networking and satellite navigation, the long-promised era of “free flight” would finally be inaugurated. Planes could fly more direct paths between origin and destination. Tighter, more accurate spacing would effectively increase airport capacity, reducing ground delays."

Economists Are Still Right About Airline Deregulation!

By Cliff Winston of the Brookings Institution.

"Airplanes are crowded and uncomfortable, and what used to be viewed as routine amenities like blankets, snacks, checked baggage service — and even preassigned seats — are now seen as paid extras. What outrage will be next? 

How about Southwest Airlines’ recent miserable performance in winter weather, cancelling some 17,000 flights after its antiquated technology tanked? Or the Federal Aviation Administration’s follow-on fiasco, grounding all U.S. flights for hours thanks to a computer safety glitch? 

The New York Times thought enough of those maddening events to publish not one but two essays suggesting that the chickens have finally come home to roost from America’s grand experiment with airline deregulation and urging a return to kinder, gentler air travel under the guiding hand of Washington. If you’re convinced the Times is right — if you see regulation as the antidote for cramped seats, lost luggage, maddening delays on the tarmac and, if you’re lucky, Cinnabons for breakfast, lunch and dinner — give me a few minutes to dissuade you. 

Start with Elizabeth Spiers, the founding editor of Gawker, who wrote in the Times that the benefits of airline deregulation have been undermined by the drip, drip, drip of profit-maximizing policies that reserve amenities for full-fare business travelers and write off the rest of us as Spam in a can. For his part, William McGee of the American Economic Liberties Project is eager to catalyze a national conversation about regulating the airline industry as part of a broader conversation about taming the excesses of capitalism. 

Economists, especially those who have long been immersed in debates about the deregulation of trucks, intercity buses and railroads, as well as airlines, are inclined to go back to the numbers. Think flying is too expensive? Turns out that inflation-adjusted airfares were 60 percent lower in 2020 than in 1980. Indeed, flying is no longer a luxury. It’s cheap enough to allow most Americans to fly — by 2020, 87 percent of the U.S. population had taken a commercial airline trip. And low fares have cost us nothing in terms of safety: no major airline has been involved in an accident in the United States since 2009. 
Such evidence is likely to be lost in the cacophony of complaints. As in, there is little choice of carriers, so airlines can charge sky high fares … airline seats are torture, and the cabins are noisy and claustrophobic … employees are grumpy and never tell it straight. But is there a good reason to believe that regulation would reduce the frustration of flying without raising its cost and creating other frustrations?  

Suppose regulators appeased those who claim that flying costs too much by putting a cap on air fares. The airline industry has periods of fat profits, but those profits are notoriously fickle. And if they’re expected to stay in business in down times, airlines can’t be expected to sacrifice revenue generated when demand is high without trying to make it up elsewhere.
Note, too, that their options to make up for lost revenue would create other problems. 

Paying employees less would mean more of that much-evident grumpiness, not to mention employee turnover and less competence. Raising the price of checked luggage would turn cabins into hand-to-hand combat zones for overhead space. Jamming more passengers into cabins would require narrower seats with (even) less legroom and longer boarding times.
What about service reliability? Suppose policymakers force an airline that cancels a flight to immediately provide a cash reimbursement to all affected passengers – as the European Union requires in many circumstances. All airlines, not just Southwest, scratch thousands of flights every year, sometimes due to human or equipment error — but mostly because of bad weather. If airlines are forced to incur all the financial risks of delayed flights, something else must give — back to amenities and/or fares. 

I can continue the exercise of proposing a regulation intended to make flying a more felicitous experience — and then making the obvious point that there’s no free lunch here. Indeed, if you look closely, you’ll notice that air carriers are constantly experimenting with amenities, separating charges and rebundling them, offering fare “sales” in lean times, adding intermediate seating classes to catch those willing to pay a bit more for a bit more. And often, they’ve decided that what most passengers value most is low fares. 

What, then, could be done to improve air travel without robbing Peter to pay Paul? Consider policies that would increase airline competition. One sure bet would be to allow foreign airlines to serve domestic routes. The entry of foreign carriers would regenerate the sort of competition enjoyed in the early days of deregulation, when the big established carriers had to look over their metaphorical shoulders to see who was chasing them. Imagine flying Ryanair or easyJet to Las Vegas — think lower fares, greater flight frequency, more experimentation with (and without) amenities. 

U.S. policymakers should insist, of course, on the quid pro quo, giving American carriers access to other countries’ domestic markets. One bonus: seamless international travel on a single carrier from, say, Des Moines to Vienna, reducing connections and waiting time when connections were necessary.; 

Another constructive policy would be to privatize airports and let them compete for passengers and airlines. It does not make sense for travelers in sprawling metros like Atlanta, Las Vegas and Denver to be served by a single monopoly airport, especially in cases where the single airport serves to funnel much of the traffic to an airline that is a legacy, not a low-cost carrier.
• • •
The media and politicians take an active interest in the airline industry because they are frequent fliers and have the points to prove it. They see the government involved in ensuring safety, providing infrastructure and raising antitrust concerns, and then leap to the conclusion that government also should be involved in fares and amenities (which excite them most) when those are best left to markets."

Don’t Let Government Be The Pilot

After its “meltdown,” Southwest Airlines will fix its problems not because of federal prodding but because its passengers demand it.

By David R. Henderson. Excerpts:

"Now let’s consider Southwest Airlines. The principle is the same as with the mom-and-pop laundry. The managers are accountable to the owners, also known as the stockholders. If they mess up, the company’s profit—its residual—falls.

Moreover, we don’t even need Facebook, Yelp, or Nextdoor to spread the word about their mistakes. Various major newspapers and news channels trumpet the facts. So the companies have to adjust, and adjust fairly quickly.

In short, the managers at Southwest Airlines are accountable. They’re accountable to the stockholders, and the stockholders’ concern with profitability causes them to be concerned about losing customers.

For that reason, I’m willing to make a prediction: by the end of 2023, and probably much sooner, Southwest will have a much better crew-scheduling system. Their profitable existence depends on it.

Buttigieg’s Idea of Accountability

In an interview with Judy Woodruff on PBS, Buttigieg stated:

I spoke to the CEO of Southwest Airlines. I reminded him of the stepped-up commitments that the airline made to our department over the summer. And we got those commitments in writing about how they take care of customers, passengers when there are issues like this.

We’re going to be holding them accountable to those commitments and expect them to go above and beyond the letter of the law in terms of how they treat passengers, making sure that they are paying for things like hotels, ground travel expenses, meals, and, of course, the refunds for passengers whose flights are canceled.

Notice two interesting things in Buttigieg’s statement. First, he got Southwest to make a commitment to his department, the Department of Transportation. For some reason, he must have thought he could step in and speak for Southwest passengers. But how would he know what they wanted?

Second, notice his expectation that Southwest go “above and beyond the letter of law.” The things he wants Southwest to do for passengers do seem reasonable. But neither he nor I knows what is reasonable. An airline that promises to pay for hotels, ground travel, and refunds will need to factor those expenses into future air fares. If it were a one-time thing, it wouldn’t: the expenses would be sunk costs. But paying passengers for all these things would set up an expectation that Southwest will do the same thing when there are future problems. One of the distinguishing features of Southwest historically has been its low air fares. I’m sure that virtually every passenger put at great inconvenience by the Southwest meltdown would want to be made whole, but future passengers might think differently: many would probably rather take the risk and, in return, get lower air fares. Buttigieg has no idea what future passengers would want, yet he is dictating arrangements between the airline and the passengers.

Government Unaccountability

The biggest economic issue regarding virtually every policy topic is whether we should have more government or less government. Should we have more government control and even outright government ownership, or should we have less government and more private enterprise?

Advocates of more government often bias the debate from the get-go by pointing out ways in which private enterprise, the free market, has failed and then simply assuming that if government control were substituted, it would not fail. The late Harold Demsetz, one of my economics mentors when I was in graduate school at UCLA in the early 1970s, referred to this as the “Nirvana approach.”  It consists of comparing real markets with ideal and imaginary government. Surprise, surprise, government often wins.

Demsetz advocated instead what he called a “comparative institutions” approach. He argued that we should compare actual markets with actual government.

Because the specific issue here is accountability, let’s look at how accountable government is. The first thing to note is that in government, there is no residual claimant. If a government official makes a particularly good decision that creates huge value, he might get promoted and might get a slight salary bump. But that’s about it. If he makes a bad decision that creates huge losses, he probably won’t get fired and his pay won’t be cut at all. The result is that government officials have very little incentive to make good decisions.

We can see that in transportation or in pretty much any other area of government involvement. Take, for example, the so-called “high speed” railroad (HSR) being built in California. (If it is ever completed—a big if—it’s more likely to be medium-speed.)

When California voters approved the HSR in 2008, they were told that it would be ready in 2020 and would cost $34 billion. As Hoover economist Lee Ohanian has pointed out, “the cost has escalated to $105 billion” and it’s still not ready and not even close. Have major government officials who made these promises been fired? Not that I know of. So here’s a project that is two years overdue and is not even close to being done, and yet no one is accountable.

In a nutshell, the problem with government accountability is that it’s almost nonexistent.

How About Real Improvements?

Is there anything Buttigieg could do to improve the airline business? There is, and economists have talked about it for years: allow foreign airlines to compete in the domestic market.

Deregulation of airlines in the late 1970s and early 1980s was a tremendous success. Before deregulation, airlines had to give notice to the Civil Aeronautics Board (CAB) in advance of fare reductions, and other airlines could intervene to contest the cuts. They often did. Also, an airline that wanted to add a route between any two cities had to first get permission from the CAB. Other airlines that already flew that route could contest that also. But when economist Alfred E. Kahn took over as CAB chair under President Carter, he did everything he could within the law to allow airlines to change fares and to add routes. At the same time, a Harvard law professor named Stephen Breyer worked closely with Democratic Senator Edward Kennedy to pass an airline deregulation bill that ended CAB regulation of fares and routes. (Breyer later became a US Supreme Court justice from 1994 to 2022.) A cozy airline cartel that had existed since 1938 was ended. 

The results were noticeable almost immediately. Before deregulation, airlines had charged high fares and competed on meals and frequency (a famous airline jingle in the early 1970s was “Delta is ready when you are”). After deregulation, they competed on price and ultimately dropped almost all meals. Consumers were quite happy to save on fares and buy their own meals in the airport. Between 1978 and 2000, inflation-adjusted airline fares fell by 44.9 percent. Economists Clifford Winston and Steven Morrison estimated that half of this fall was due to deregulation.

In short, competition worked, and works. So let’s have more of it. Allowing foreign airlines to fly domestic routes would create more competition, more options, and lower fares. Even radical leftist Mexican President Andrés Manuel López Obrador sees the benefit of allowing that to happen in Mexico. If even a socialist can see the benefits of competition, then maybe Buttigieg can too. Of course, he would need the permission of his boss, President Biden, to start pushing for it, and Biden would need Congress. Maybe it’s a long shot, but in the mid-1970s, airline deregulation was a long shot. By December 31, 1984, the Civil Aeronautics Board had been abolished."

Flight Chaos Demonstrates Need for Systemic Changes in Air Traffic Control Policy

By Colin Grabow.

"Air travel in the United States was thrown into chaos earlier this week when a key system used by the Federal Aviation Administration (FAA) went down, forcing over 10,000 flights to be delayed and at least 1,300 canceled. While a damaged database file may have been the proximate cause of this upheaval, the episode appears yet another indication of systemic flaws in U.S. air traffic control policy.

Technological deficiencies in U.S. air traffic control operations are long-standing. Indeed, Congress mandated twenty years ago that the FAA establish a plan for implementing the modernized Next Generation Air Transportation System (NextGen) by 2025 in order to improve matters. The FAA’s technological woes, however, are unlikely to go away anytime soon. A 2021 Department of Transportation Office of Inspector General report noted that the agency has “struggled to integrate key NextGen technologies and capabilities”—a finding consistent with other reports on the topic—and the particular system that failed this week apparently won’t be updated for another six years.

Updated air traffic control technologies, meanwhile, are available in other countries right now. A key reason why: private management. As I wrote in the transportation chapter of the Cato Institute’s new book Empowering the New American Worker:

Regarding airline travel, Congress should improve efficiency and quality by transferring air traffic control duties to privately managed entities, as is done in numerous countries. A 2005 Government Accountability Office study, for example, concluded that commercialized air traffic control systems in Australia, Canada, Germany, New Zealand, and the United Kingdom had cut costs, boosted investment in new technologies, and either maintained or increased safety after being reformed.

My colleague Chris Edwards went into greater detail about the advantages of private management, citing Canada’s example in the 2022 edition of the Cato Handbook for Policymakers:

Dozens of nations have restructured their air traffic control systems to separate them from government budgets and political micromanagement. Canada privatized its system in 1996 in the form of a self‐​funded nonprofit corporation, Nav Canada. The Canadian reform has been very successful. Nav Canada has won three International Air Transport Association (IATA) Eagle Awards as the world’s best ATC provider. The IATA has said that Nav Canada is a “global leader in delivering top‐​class performance” and that its “strong track record of working closely with its customers to improve performance through regular and meaningful consultations, combined with technical and operational investments supported by extensive cost‐​benefit analysis, place it at the forefront of the industry’s air navigation service providers.”

In Canada, funding was changed from a government ticket tax to direct charges on aircraft operators for services provided. Nav Canada charges for terminal services, flying through Canadian airspace, and oceanic services. Those cost‐​based charges are a more efficient way to price ATC services than the U.S. system, which is mainly based on ticket taxes.

Nav Canada is a private monopoly, so there might be concerns that its user charges would rise excessively. But that has not happened. Indeed, Nav Canada’s real customer charges have fallen as efficiency has increased. The system is handling more traffic than before privatization, but with fewer employees. One reason for the good performance is that airlines and other aviation stakeholders appoint members of Nav Canada’s corporate board, and those stakeholders have a strong interest in increasing both efficiency and safety.

Another advantage of privatization is innovation. Nav Canada is praised for its development of new technologies. Robert Poole noted, “The technical expertise at Nav Canada has led to a thriving business marketing innovative ATC hardware and software and advising other air navigation service providers.” In a 2013 address, Nav Canada’s chair Nicholas Geer said that the company has “sold and installed our home‐​grown technology around the world from Australia to Hong Kong to Dubai, and all over the UK and Europe.”

Privatization, Edwards adds, would would provide the “flexibility, incentives, and funding needed for [air traffic control] managers to increase efficiency and pursue innovation” with attendant improvements in flight times, airspace capacity, and fuel costs.

The FAA’s ongoing struggles to incorporate advanced air traffic technologies aren’t a strange aberration but part of an established record unlikely to change absent systemic changes. Some in Congress have recognized the need to move towards a private model, but unfortunately have been stymied in their attempts to advance reform. Let’s hope that recent developments provide renewed impetus for such efforts."

Privatizing Infrastructure: Evidence from Airports

From The NBER Digest. By Laurent Belsie.

"Privately owned and operated airports are prominent examples of companies running traditionally public infrastructure. As of 2020, nearly 20 percent of the world’s airports had been privatized. Private equity (PE), usually through dedicated infrastructure funds, is playing an increasing role in privatization, purchasing 102 airports out of a total of 437 that have ever been privatized.

In All Clear for Takeoff: Evidence from Airports on the Effects of Infrastructure Privatization (NBER Working Paper 30544), Sabrina T. Howell, Yeejin Jang, Hyeik Kim, and Michael S. Weisbach compare the performance of 2,444 airports in 217 countries under three types of ownership: public, PE, and non-PE private. They find that between 1996 and 2019, airports owned by PE funds improved their performance across many dimensions.

A key metric of airport efficiency is passengers per flight. The more customers an airport can serve with existing runways and gates, the more services it can deliver and the more earnings it can generate. When PE funds buy government-owned airports, the number of passengers per flight rises an average 20 percent. There’s no such increase when non-PE private firms acquire an airport. Overall passenger traffic rises under both types of private ownership, but the rise at PE-owned airports, 84 percent, is four times greater than that at non-PE-owned private airports. Freight volumes and the number of flights, other measures of efficiency, show a similar pattern. Evidence from satellite image data indicates that PE owners increase terminal size and the number of gates. This capacity expansion helps enable the volume increases and points to the airport having been financially constrained under previous ownership.

After privatization, the number of airlines and routes served by airports increases. At airports acquired by non-PE private firms, there are pre-trends in these outcomes before privatization, suggesting that those airports were on track to experience improvement regardless of privatization. With regard to airlines, PE firms tend to attract new low-cost carriers to their airports, which in turn may lead to greater competition and offer consumers better service and lower prices. With regard to routes, PE acquirers increase the number of new routes, especially international routes, more than other buyers. International passengers are often the most profitable airport users, especially in developing countries.

A PE acquisition is also associated with a decline in flight cancellations and an increase in the likelihood of receiving a quality award. When an airport shifts from non-PE private to PE ownership, its odds of winning an award rise by 6 percentage points. The average chance of winning such an award is just 2 percent.

The fees that airports charge to airlines rise after airport privatizations. When the buyer is a PE firm, there is also a push to deregulate government limits on those fees. For example, after three Australian airports were privatized in the mid-1990s, the price caps governing airport revenues were replaced with a system of price monitoring that allows the government to step in if fees or revenues become excessive. 

The net effect of a PE acquisition is a rough doubling of an airport’s operating income, due mostly to higher revenues from airlines and retailers in the terminal rather than cost-cutting. The driving forces behind these improvements appear to be new management strategies, which likely includes greater compensation for managers, alongside investments in new capacity as well as better passenger services and technology."

Why Trains Will Struggle to Replace Short Flights

Poor rail links to hub airports are a headache for those who see trains as a broad alternative to single-aisle planes

By Jon Sindreu of The WSJ. Excerpts:

"a new paper by Vreni Reiter, Augusto Voltes-Dorta and Pere Suau-Sánchez casts doubt over the extent to which trains can take over.

The authors use Germany as an example of a dense, distributed population with extensive access to high-speed rail. They identified 87 nonstop flight routes—about 32% of Germany’s annual seat capacity—that would be theoretical targets of a ban, with the longest train journey taking five hours and 37 minutes. 

Crucially, they account for something that most studies of this kind don’t: About a quarter of passengers aren’t traveling point to point, but rather going to a hub airport and then hopping on a long-haul plane.

As is the case with Air France, officials would presumably be more tolerant of such flights. But that would also limit the environmental benefits: In a scenario in which airlines would only be required to use 10% of seats for connections to preserve a route, air-travel carbon emissions would only fall 2.7%.

Increasing the threshold to 80% would yield a larger 22% cut, but 71% of passengers would be diverted to rail or direct long-haul flights which, on average, would make journeys two hours longer. In some extreme cases of popular routes involving non-hub airports, such as Berlin-Stuttgart, even a 10% threshold would leave more than a million people each year with no alternative but to more than double their travel time.

The lessons are applicable everywhere. High-speed rail will keep increasing its market share in short routes with a lot of point-to-point demand, such as Munich-Berlin, Barcelona-Madrid or Seoul-Busan. But to act as hub feeders, rail networks would need a massive upgrade.

Capacity must be sized to the few departure hours in which airlines fill their big planes, leaving wasted space for much of the day. Trains must also take people directly to airports, not city centers. Such “intermodal” networks are often nonexistent. Spain, for example, is only surpassed by China in kilometers of high-speed rail, but so far hasn’t connected its main airports to it. The investments needed to deliver all of this high-speed capacity to smaller cities aren’t just hugely costly, but also polluting.

“A cost-benefit analysis leaves blanket-ban policies in a bad place,” said Dr. Suau-Sánchez. “A surgical approach is best.”"