The battle over airline regulation

Two stories have come out this past week on the costs and benefits of deregulation in air travel. In the Sunday New York Times, Micheline Maynard examines the debate in the United States over airline deregulation. Some groups don’t like it: [R]epresentatives of labor unions and some consumer groups, long for the stability of the ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

Two stories have come out this past week on the costs and benefits of deregulation in air travel. In the Sunday New York Times, Micheline Maynard examines the debate in the United States over airline deregulation. Some groups don't like it:

Two stories have come out this past week on the costs and benefits of deregulation in air travel. In the Sunday New York Times, Micheline Maynard examines the debate in the United States over airline deregulation. Some groups don’t like it:

[R]epresentatives of labor unions and some consumer groups, long for the stability of the time, before 1978, when the government decided fares and determined where airlines would fly. Labor unions in particular are looking for an alternative to the current situation, having been hit this decade by five airline bankruptcies, the elimination of more than 120,000 jobs and cuts of as much as 50 percent in pay and benefits. These groups say it is time to consider reregulating airlines, or at least to start a debate about how to stabilize an industry that may be so vital to the nation’s fabric that government intervention is warranted…. “Are we willing to accept the results of a free marketplace, or do we think the role of commercial aviation is such a part of our economy that we have to have government influence?” asked Patricia A. Friend, president of the Association of Flight Attendants, a labor union that represents about 75,000 airline employees. “It’s a conversation I’d like to have before everyone wakes up and asks, ‘What the hell happened?’ ”

So what are the results of that free marketplace? Read on:

Since federal restrictions on routes and fares were removed, consumers have been saving $20 billion a year on air fares, when adjusted for inflation, according to Brookings. Fares have dropped by more than 30 percent, on average, and as much as 70 percent when tickets are bought in advance, the group concluded. At the same time, airlines have vastly expanded their networks, bringing air travel – a relatively infrequent experience [several decades ago] – to people all over the country. For example, American, the biggest airline, flew to just 50 cities in 1975; it now serves more than three times that number. Southwest, which started in 1971 with a single route in Texas, now flies to 61 cities, not counting those it serves through a code-sharing arrangement with ATA.

Read the whole thing — the major airlines are facing a serious financial squeeze, to be sure — but the 2001 post-9/11 government bailout worsened rather than aided their situation. Meanwhile, Matt Welch has a great piece in Reason that looks at the travel revolution that low-cost airlines have brought to Europe. The effect has transcended the airline industry:

In less than a decade, the Southwest Airlines revolution has swept through sclerotic Europe like a capitalist hurricane, leaving a fundamentally altered continent in its wake. Low-cost airlines have grown from zero to 60 since 1994 by taking Southwest’s no-frills, short-haul business model and grafting on infinitely variable pricing, aggressive savings from the contemporaneous Internet revolution, and the ripe, Wild West opportunities of a rapidly deregulating and expanding market. Europeans, fed up with costly train tickets, annoying motorway tolls, and Concorde-style prices from national “flag carriers” such as Air France and Lufthansa, have defected to the short-hoppers in droves—200 million, nearly 45 percent of the entire E.U. population, took a low-cost flight in 2003 alone. These airline upstarts are run by swaggering young CEOs whom the European press treat like rock stars, living up (or down) to the billing by issuing manly predictions of price war “bloodbaths” and pulling off daring publicity stunts, such as Irish carrier RyanAir’s post–September 11 sale of 1 million tickets for “free” (before taxes). Their companies have been rewarded with dot-com-bubble-like stock valuations—and the volatility that comes with them—while their long-haul counterparts dodder toward cutbacks, bankruptcy, and worse. (Switzerland became the first European country to lose its national airline when Swiss Air and Sabena folded in 2001.) In less than a generation, one of the Western world’s most notoriously regulated and distorted markets has become a poster child for unified Europe’s 21st century élan. In the process, Europeans have changed not only their travel choices but the way they behave. “We aren’t just teaching our customers about our brand,” says Stanislav Saling, the twentysomething Slovak public relations director of SkyEurope, a new Bratislava-based low-cost carrier. “We’re selling tickets to people who have never flown before, and showing them how to use the Internet.” Brits, who have led the low-cost charge with RyanAir and easyJet, are now the world’s biggest owners of foreign second homes as a percentage of population. Across the 25-country, 458-million-resident European Union, marriage between different nationalities is at an all-time high. Residents of post-communist countries, who not long ago were more than happy to take any handouts from their far richer Western neighbors, are now leveraging the low-cost revolution to compete with them instead. Old Europe’s postwar business culture, in which CEOs of highly regulated “National Champions” were virtually interchangeable with their schoolboy pals in government, has been battered by entrepreneurial mavericks of hard-to-define provenance, such as easyJet’s 37-year-old founder Stelios Haji-Ioannou, who was born in Greece, owns houses in four countries, and (as The New York Times put it in April) “feels Greek when he is in London, English when he is in Greece, and European when he is in America.”

One common theme in both of these pieces is that deregulation is not without its costs — there’s more uncertainty about the financial viability of some airlines, greater stress on airline employees as these firms are pressured to improve their productivity, and as the case of RyanAir demonstrates, a few airlines that appear to delight in irritiating their customers. The other common theme is that these costs are dwarfed by the massive benefits that consumers have accrued in the form of lower air fares and a greater variety of travel options. Be sure to read the Welch piece on how deregulation could go further.

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

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