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Thread: New York Times Calls Airlines "Abusive Cartels"...

  1. #1
    NonRev Correspondent
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    Nov 2012

    Default New York Times Calls Airlines "Abusive Cartels"...

    The recent United Airlines bumping debacle has prompted calls for reforms in the system of auctions that reward fliers for voluntarily giving up seats. Delta Airlines has now authorized payments as high as $9,950 to induce passengers to give up seats on overbooked flights.
    But no refinement of voluntary market remedies will fix the deeper mess of the airline industry. For air travel is far from a free market.
    When the airlines were deregulated in 1978, economists led by Alfred Kahn, then chairman of the Civil Aeronautics Board, argued that airlines and airline tickets were really like any other free-market product. He called them “marginal costs with wings.” Nearly 40 years of deregulation have disproved that premise.
    Previously, the C.A.B. had ever since the 1930s regulated both fares and routes and guaranteed the airlines a decent but not exorbitant profit. The airlines, in turn, had the predictability to invest in new generations of more fuel-efficient aircraft, which allowed fares to drop over time. Prices actually dropped at a faster rate in the decades before deregulation than afterward.
    Continue reading the main story

    Kahn believed that if new competitors could enter markets and charge whatever prices they liked, fares would drop even faster and more people would fly. But airlines do in fact have fixed costs in the form of expensive capital equipment. And one seat is pretty much like another — as economists say, there is little product differentiation — so in a competitive free-for-all, everyone goes broke.
    In the first years of deregulation, there was too much competition and the airlines collectively lost a fortune. Their strategy was to consolidate. All 21 of the proposed mergers presented to Reagan administration antitrust officials in the 1980s were approved, and some 20 more have been approved in the years since.
    The airlines devised frequent flier programs and “fortress hubs” to maximize their pricing power. Carriers knew to stay out of each other’s hubs. By 1988, 85 percent of airline markets had only two airlines competing, and they closely monitored each other’s fares, so that true price competition was rare.
    An industry that is not naturally competitive went from being a regulated cartel, to a brief period of ruinous competition, and then to an unregulated cartel — with predictable effects on the quality of service. This restored profitability, but at awful costs both to customer convenience and to economic efficiency as well.
    With the hub-and-spoke system used to defend airlines’ pricing power, there are fewer nonstops. Passengers waste time and often miss connections, while airlines waste fuel.
    Flying more miles than necessary to reach a destination is known in the industry as circuity. All of these profit-gouging strategies add up to a false brand of “efficiency” that actually increases the system’s costs at passenger expense.
    ddagencylv - NonRev Correspondent - Global Aviation News

  • #2
    Super Moderator MRSDS1DONNA's Avatar
    Join Date
    Jun 2002
    Phoenix, AZ
    Oh, please. Customers do not want to pay what it actually costs to operate their flight and make a reasonable profit so airlines have to find other ways to make it worth even doing. Lots have not been able to make it work and have either gone out of business or merged with another carrier. While they may not like the lack of legroom (who would?) and the fees for bags/changes, etc, no one wants to pay the rates from the 70's (with increase for inflation) either. What would they have the company do?
    MRSDS1DONNA - Senior NonRev Correspondent - Arizona

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