I was a senior in college in 1978 when I wrote my first opinion piece that touched on airline deregulation. It was an editorial in The Cornell Daily Sun (“Ithaca’s only morning newspaper”!) titled “Our Man in Washington,” and it was about Alfred Kahn, a colorful Cornell economist who presided over deregulation of airlines at the Civil Aeronautics Board from 1977 to 1978 before becoming President Jimmy Carter’s inflation czar.
I wrote, “When Kahn began hacking away at airline protectionism the airlines screamed, but today fares are lower, passenger volume is way up and airlines are actually profiting. Everybody except the small cities that no longer have nationwide air service is happy.”
“Happy” isn’t a word you hear a lot these days when it comes to airlines, except in their own advertising. People complain about high fares, unreliable service, lack of legroom and so on.
The public’s disgruntlement has created an opening for talk about some pretty extreme solutions. In a book last year, “Why Flying Is Miserable and How to Fix It,” the law professor Ganesh Sitaraman broached ideas such as replacing today’s system with a single government-run airline, or a single private carrier regulated like a public utility, or a government carrier operating alongside private ones (“the public option”).
Sitaraman, a professor at Vanderbilt Law School, has higher hopes for a more politically palatable option, “regulated competition,” which is more along the lines of what the United States had from 1938 until 1978.
This week I interviewed and exchanged emails with Sitaraman, who directs the Vanderbilt Policy Accelerator, and William McGee, a senior fellow at the American Economic Liberties Project. They gave me an early look at a white paper the two groups are presenting on Tuesday, “How to Fix Flying: A New Approach to Regulating the Airline Industry.”
For another perspective, I also interviewed Clifford Winston, a senior fellow at the Brookings Institution who is a longtime supporter of airline deregulation.
But let me first say more about Alfred Kahn, because he looms large in the stories of both supporters and foes of deregulation. Kahn had an impish side. After a Carter administration official complained in late 1978 that Kahn’s mentions of a possible depression were scaring people, he started calling depressions “bananas.” Kahn never claimed to be an expert on airlines. “I really don’t know one plane from the other,” he once quipped. “To me they are all marginal costs with wings.” But he was convinced that more competition through deregulation would lower fares for customers.
Support for airline deregulation was not a right-wing position at the time. Kahn was a Democrat. Among those calling for deregulation was Senator Edward Kennedy, the liberal Massachusetts Democrat.
Sitaraman wrote in his book that Kahn admitted that things didn’t go as well as he had hoped in some respects. That’s true. But Kahn continued to believe that deregulation was the right decision. “I certainly don’t want to have the government back in the business of trying to restructure the airline industry. That would be catastrophe,” Kahn told PBS NewsHour in 2003, seven years before his death.
Kahn might be considered bananas in today’s Washington. Both Democrats and Republicans are critical of big companies across a wide range of industries, and there’s growing support for vigorous antitrust enforcement and industrial policy. In other words, things are moving in Sitaraman’s direction. “In the midst of these big changes, remembering and reviving the American tradition of regulated capitalism should be on the table too,” he wrote in his book last year.
I’m sympathetic to Sitaraman’s point that certain industries need to be regulated because they’re natural monopolies. Competition won’t ever thrive in an industry where the bigger one company gets, the lower its costs get, increasing its advantage over rivals. Or where one network gets more valuable the more people join it, starving others of customers.
The question is how closely airlines fit that description. One way to tell is to set theory to the side and look at data. Start with airfares, since lowering them was one of the main objectives of deregulation. Kahn once calculated that between 1976 and 1990, the average revenue yield per passenger-mile — an indicator of fares — fell 30 percent in inflation-adjusted terms. Fares adjusted for inflation have continued to fall since, as this chart based on government data shows.
That chart doesn’t look like a picture of failed deregulation.
It’s true that mergers have left the United States with four carriers that operate about 80 percent of domestic flights: Delta Air Lines, American Airlines, United Airlines and Southwest Airlines. On the other hand, the number of competitors per domestic route actually rose (albeit slightly) from 2000 to 2022, according to Department of Transportation data cited by Airlines for America, a trade group.
And it’s what happens on particular routes that matters. “Competition occurs at the route level, not the national level,” Winston, of Brookings, told me.
I asked Sitaraman and McGee for their responses. Sitaraman wrote that the average fare masks some routes where fares are exceptionally high, perhaps because there are no low-cost carriers competing. “So we shouldn’t just look at how things are, but also at how policy could improve things further,” he argued. McGee added that the government figures don’t include fees for checking bags, which have risen sharply, and other optional services.
Sitaraman and McGee told me that fares are only one concern for them. Another big one, they said, is that without regulation, the big carriers are free to stop serving some cities entirely. Dubuque, Iowa, and Toledo, Ohio, haven’t had a major carrier since American Airlines pulled out in 2022.
“There are a lot of values that people might care about that economists don’t have a lot to say about,” Sitaraman said. “It’s important for a large country to be stitched together. It’s a value of who we are as a people, to be able to have flourishing lives in different parts of the country.”
That’s a fair point. I asked Winston about it. He said he does care about keeping America stitched together, and predicted that other carriers would respond to the opportunity to make money in Dubuque, Toledo and elsewhere.
In their joint white paper, Sitaraman and McGee offer some ideas for making air travel better for customers. I’ll cite a few: In big cities, limit any single carrier to 30 percent of the flights. Require the big airlines to serve smaller markets. Require “interlining,” in which airlines honor one another’s tickets if one has a problem. Ban or regulate the offshoring of heavy aircraft maintenance, which is now done in countries including China and El Salvador. Mandate minimum seat sizes and protect travelers from involuntary bumping.
Winston said one risk of such regulations is that they will reduce the profitability for airlines so much that they’ll have to shrink. His list of free-market solutions includes allowing foreign airlines to fly domestic routes and building more airports and privatizing those that exist. Airports owned by investors would have a financial incentive to make improvements such as heated runways that wouldn’t need to shut down in snowstorms, he said.
One thing you can’t say about airlines is that they’re raking in huge profits at the expense of customers. Warren Buffett joked in his letter to Berkshire Hathaway shareholders on 2007 that airlines have been such bad investments that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” The financial condition of the airlines hasn’t consistently improved since. McKinsey, the consulting company, wrote in 2022 that “the airline industry has failed to earn its cost of capital in every year of its existence.”
As a passenger, I’d feel safer if I felt the airlines were consistently profitable, because they would have more money to keep aviation safe. I’d also be happier if more cities were served, flights were less crowded and the economy cabin had a little more legroom. But it’s hard to see how any regulatory regime could achieve all those objectives at once.
There are, as economists never tire of saying, trade-offs. In 1975, when rates were still regulated, resulting in emptier planes and higher fares, the chairman of the Federal Trade Commission, Lewis Engman, testified: “The air passenger who finds himself next to an empty seat may be pleased with this state of affairs. But I wonder how pleased he would be if he were aware that he had paid not only for the seat he was sitting in, but for the seat his briefcase was sitting in, too.”
That’s a quip worthy of Fred Kahn.
In the News
This chart shows that fathers of adult children aren’t as involved in their children’s lives as mothers are. And they kind of feel bad about it. Yet they are more likely than mothers to say that their children’s successes and failures reflect on the job they have done as a parent.
I pieced together this comparison of moms and dads from various charts and tables in a report released Thursday by the Pew Research Center. Pew surveyed about 3,000 Americans with at least one child age 18 to 34 with whom they have contact, excluding any children still in high school. (They also surveyed about 1,500 young adults about their parents.)
Why are fathers more likely than mothers to attribute how their children have turned out to their own parenting? Could it be bragging? Could it be a sense that they should be able to steer their children’s fates? Or could it be that mothers are simply more realistic about how much — or little — influence they have over their children’s successes and failures as adults?
The Readers Write
Artificial intelligence is moving too fast for government regulation. My feeling is that the race to the bottom will be far faster than experts currently predict, accompanied by very harsh “cost-saving strategies,” creating revolutionary resentment. What will big business do when there are no more people that can afford their products? What will governments do in the face of mass unemployment and resentment plus a lack of tax revenue?
Scott Bell
Los Angeles
Whatever happened to all the job losses we were told were going to happen when stand-alone computers first came out? They also predicted a paperless society. A.I. can and will do only so much.
Terry Saltford
Welland, Ontario
Forgive me, but I feel it’s pie in the sky to say “we” and “humanity” can shape anything related to money. The realistic thing people in the M.I.T. conference talked about is power for workers and changes in the way corporations and unions work, but that’s still pie in the sky as unions get weaker every day.
Dorita Sewell
Lake Worth Beach, Fla.
Regarding your informative essay on how banks have been complaining about proposed regulation: Recent research suggests that larger and wealthier financial institutions (including bank holding companies such as Citicorp and Goldman) are especially influential during rule-making. Wealthier organizations comment more, and when they do comment, those comments are more likely to get taken into the final rule.
Before an agency proposes a rule, interested parties can meet with the agency. Research by Kimberly Krawiec at Virginia Law suggests that large bank holding companies dominate these meetings, too. Brian Libgober at Northwestern has shown that bank holding companies spend billions of dollars on the lawyers who attend these agency meetings.
Daniel Carpenter
Cambridge, Mass.
The writer is chair of the government department at Harvard.
Quote of the Day
“Our country’s infrastructure has been deteriorating for decades. In the Trump administration, the idea of doing anything to fix it was a punchline.”
— Treasury Secretary Janet Yellen, in remarks prepared for delivery to the Economic Club of Chicago (Jan. 25, 2024)