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Comment by gozur88 | Hacker News Reader

>The profit bit of the picture, though, has changed a lot. Last year America’s airlines made $24 billion—more than Alphabet, the parent company of Google.

Wow, that's profound. An industry with 600k employees made more than Google last year! Next you'll be telling me the banking industry makes more than Microsoft!

Airlines need to make big profits in good years - they lose money like crazy in bad years. I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number.

To the larger point, this is what happens when you pile on a bunch of regulations and then allow industry to capture the regulators. The barriers to entry are raised so high it's impossible to have real competition.

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I think it is a myth that all companies want is light regulation and the evil guvmint comes in an cover them in red tape. A lot of the regulations have been lobbied for by companies to keep out competition. Just look at the recent Tesla cases.

You can go hundreds of years back and companies and businesses were already then busy at pushing through special privileges to keep their profits high.

It isn't a matter of whether you regulate or not, but about the quality of regulation and who it is aimed at regulating. When politics can be bought by power business interests you can bet there will be ever more regulations piled on which don't actually help consumers much.

> You can go hundreds of years back and companies and businesses were already then busy at pushing through special privileges to keep their profits high.

Guilds are probably the prime example. Government-enforced cartels established by the industries to keep up prices for centuries.

I don't disagree here, but I am concerned you may be overstating your point.

Regulation is rarely a case of being good or bad. Rather, various competing interests have valid points and some arbitration must be found between them. As the old saying goes (paraphrased), politics is about slogans. Governance is about choices.

Political systems exist for political purposes. So what happens over time in a democracy is that regulations that sound good get enacted while regulations that don't sound good are not. In addition, regulations are enacted that sound good even in cases that may not require any regulation at all.

To fix this, politicians use cartoonish slogans -- "all government is bad" or "we need somebody to protect us from corporations"

This response, while great for the political system, does nothing to address the underlying bug in the regulatory system.

>Regulation is rarely a case of being good or bad. Rather, various competing interests have valid points and some arbitration must be found between them.

A lot of the time it's just plain bad -- just the result of monetary influence and lobbying for unfair advantages.

It's good that this thread is pointing to quality rather than quantity of regulation -- but remember that "we" (i.e. voters and chattering internet posters) have no control over the making of regulation.

What we have some control over, is the process that makes regulation. And a process that makes it easy and convenient, will be easy and convenient for the insiders who work it.

Yes, agreed. Just trying to clear the field of all the straw men. I believe if folks can grasp why it doesn't work like that, they've got a better chance of working out how it might work. Otherwise we're still in slogan territory.

Yup, companies want regulation that isn't onerous for them. There's a big problem today in how the public talks about regulation, generally it's a very unsophisticated talk about the amount of regulation. This is like talking about programming in the form of SLOC, it's practically useless. The problem with regulation is making it effective, efficient (in terms of costs incurred by the government and by those being regulated), and not onerous. Unfortunately, in many cases we've missed the mark on all three of those. The result is that regulation sometimes actively drives out competition (because it's streamlined for the megacorps) while not being nearly effective enough to protect those it's intended to protect (consumers, workers, etc.)

The recent Tesla cases are examples of small companies trying to prevent their larger suppliers from making them obsolete.

A lot of anti-competitive law in the US is not "big vs small". Many of the biggies are small vs small or even small vs big - occupational licensing, exclusionary zoning, agricultural laws, lots of state level regulations designed to protect (not very large) incumbents.

Sadly protectionism is a widespread plague that doesn't fit any easy narratives.

Those not very large groups have very substantial lobbying efforts.

I don't dispute that. And they aren't necessarily small groups in aggregate - e.g., auto dealers are a large collection of small businesses.

I.e. that's a large number of small political donors in your state (highly motivated to donate to your opponents) vs one big corp in another state, plus of course rationally ignorant consumer/voters.

How about "old vs. new"? That fits Tesla (who are trying to disrupt old auto maker markets). That fits other scenarios that I've seen like, say, large media companies trying to use streaming Internet royalty rates to drive small streaming stations out of business... or (here in Florida) large brewery distributors attempting to prevent direct brewery sales from microbreweries.

It is a disease, and it won't go away until everyone stops playing the game of trying to legislate competitive advantage. Some of the worst complainers about protectionism unfortunately are the biggest players. Example: I remember when Gibson complained about their factories being raided, reportedly for using illegal timber (an environmental regulation that some also view as protectionism courtesy of the Pacific Northwest timber industry). It got a lot of press, but my initial reaction was one of schadenfreude. Because Gibson was notorious for playing their own "protectionism" game courtesy of a lot of dubious patent / copyright lawsuits on various competitors (eg Paul Reed Smith, Warmoth, Elderly), virtual rock band games (Guitar Hero and Rock Band), Paper Jamz guitars, and probably others I can't recall at the time.

I think the Tea Party story has nothing to do with companies wanting light regulation. The story is that "evil guvmint" enables the big boys in the private sector to seal up their industry with red tape. It matters little whether the government folks or company bosses gain more from the deal.

And that story is about making it harder to regulate. If regulations are technocratic decisions made according to vague or ever-changing rules, then lots of cosy deals are going to be done.

After working in the banking industry writing regulatory software, I realize that these regulations, while sometimes needed, can often be a way to keep other rivals out. There is no way a smaller bank can handle some of these without teams of hundreds.

Same in medical. It's too hard for startups to bring something to market so the big guys just wait to buy them up. And they like it that way.

>I think it is a myth that all companies want is light regulation and the evil guvmint comes in an cover them in red tape.

Oh, I agree. My point is once you set up a powerful regulatory apparatus the companies involved are going to capture it, or at least try to.

You need regulations, and you need regulators. But too much regulation is bad for consumers, because once it reaches a certain complexity only the insiders understand what's going on.

>Airlines need to make big profits in good years - they lose money like crazy in bad years. I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number.

Famously, Richard Branson once said:

If you want to be a Millionaire, start with a billion dollars and launch a new airline.

However, Branson (Virgin) has three of them. https://www.virgin.com/gateways/virginairlines

Virigin tend to take small ownership stakes in companies and just lease their name and branding out to them. In the case of Airlines they own 25% of Virgin America, 51% of Virgin Atlantic and 10% of Virgin Australia.

25% is the maximum "aliens" can own or vote in an airline flying domestically in the US, so while it might be a small stake, it's also the largest possible stake.

In which years did American Airlines last lose $24billion (or its equivalent accounting for inflation). Or do they have long streaks of smaller losses?

There is a small miscommunication here. It's America's airlines (the entire industry) not American Airlines (the company).

This article from November last year has more details: http://priceonomics.com/can-airlines-make-money/

> Overall, the industry has lost $35 billion since deregulation.

So in the last year alone, they made back 2/3rd of what they lost in the last 30 years?

Nominal dollars gets tough to think about. You should probably normalize to 2015 dollars and recalculate.

To the larger point, this is what happens when you pile on a bunch of regulations and then allow industry to capture the regulators.

Not using up one of my economist.com free articles per month, but I think this is what happens when an industry has the cost of their biggest variable expensive crash: http://www.macrotrends.net/1369/crude-oil-price-history-char...

Note that they'll tend to hedge their purchases, which protects them for a while from fuel cost increases while also delaying the benefit of decreases.

Not that I disagree with you, but it's a country's industry. I'm sure as a whole, airlines as an international industry bring much more than Alphabet/Google.

>I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number.

Out of curiosity, what does the landscape look like if you excluded carriers that went outright bankrupt?

Also, how are dividends considered?

Why would you exclude them? Survivorship bias is something that needs to be eliminated, not baked in.

I think it's worth seeing how the breakdown turns out between the survivors and failures. Are the losses concentrated in a small number of major train wrecks or dispersed evenly? etc.

That makes sense, I would be interested to seeing that too.

For the purposes of assessing the industry's profitability though, we cannot exclude them - if losses are because they were badly run and lost market share to other players, then their losses will be offset by the survivals (who then buy them out).

But what I'm interested in is to measure the general health of the living. Counting in the dead (from the entire history) makes no sense.

If you are interested in the general health of the current companies over the last few years, that would make sense.

But it does not properly assess the profitability of the industry - unless you think you can pick in advance who the survivors are going to be.

If you systematically ignore the companies that go bankrupt, you will have a picture of the industry that is far healthier than the reality.

Further - especially in the airlines industry - you can't even go back too many years with the examination of the current companies - because they are the results of many mergers. So you should also be including the companies that used to be, but got merged in the existing ones.

Is there lack of competition in the airline industry? It seems like the opposite. For any given trip I have half a dozen fungible choices and can instantly price compare and choose the cheapest one. That's a highly competitive market, not an uncompetitive one.

Also, even a 24 billion profit in a good year isn't exceptional given the industry has $160 billion in revenue. Google in 2015 made 23 billion in profit on only 75 billion in revenue.

Is that really true? Sure there are plenty of airlines, but I find they don't all compete head to head. For a given region or set of source/destinations, it seems to me you get only around 3-4 carriers which actually fly.

I've been looking at fares from DC to Rome and DC to Edinburgh. In both cases, there were MANY options... United, Aer Lingus, Turkish Airlines, Lufthansa, WOW, Iceland Air, Delta/KLM.

I also had to book return tickets from DC to Denver. Fewer choices domestically, but still Southwest, United, and Frontier.

It really depends on the route. Personally, I live in Chicago, which means I have lots of options going to midsized and large airports, and prices can be very competitive.⁰ Small airports are often served only by one of the three airlines with a large presence here (United, American, Southwest), and it's these routes that have higher prices. In the past, I've taken 13 hour (overnight) Megabus trips instead of <2 hour plane trips just because United's prices on some small monopoly route or another were so outrageous. For those who live in a town or city with few options like that, airline travel is a lot more expensive than it is for us lucky ones in hub cities, takes a lot longer because of transfers, and is a lot less flexible with flight times and such. This is a factor behind a lot of corporate HQ relocations to big cities, as well.

⁰ I actually recently bought a roundtrip to Denver for $32 fully inclusive of taxes and fees. Granted, it's on Spirit, which is only marginally better than the bus, but can't beat the price.

I would argue that there is _effectively_ lack of competition in the airline industry, (at least in the US):

- there are ~ 6 major airlines for a country of 320 million people. In Europe, there are many more (all the national carriers, plus lots of low-cost airlines)

- where are the low-cost carriers (like EasyJet or RyanAir)? JetBlue or SouthWest are not really low cost, they just have marginally better service than the old guard.

- customers are treated like dirt. Not just the ever-smaller seats and lack of any free food on domestic flights. It is even worse than that - they can change the agreed-on contract at any time, example: I paid extra $$ for a non-stop ticket LAX-BOS in June. A few days ago, I received an email form the airline apologizing for changing my ticket to a non-direct flight (which will take 3-4 hours longer), but there is no mention of any refund whatsoever.

Airline competition is local. When I lived in Denver I had tons of choice and prices were low. Now that I live in a smaller city, I have fewer choices and prices are higher. Jet Blue finally came recently and caused prices to drop across the board. But, if they leave I'm sure prices will go back up.

The Economist has an article about this subject, too:

"But a new paper by Jose Azar, Martin Schmalz and Isabel Tecu argues that trustbusters now need to look in a new direction: at concentrated ownership. If, for instance, a mutual fund owns shares in two rival companies in the same industry, it would not be in their best interest as shareholders to encourage them to act in a competitive way. The boss of Delta Airlines might propose a price war to boost his business. But would a mutual-fund manager who also owned shares in United Airlines be supportive? And would company managements be as keen to cut prices and fight for market share if they knew that their shareholders did not want them to?

Mssrs Azar, Schmalz and Tecu find evidence for exactly this in the airline industry. Including levels of common ownership in conventional measures drastically increases market concentration to more than ten times the level authorities say would be "likely to enhance market power"."

Bottom line: it looks like there should be competition, but maybe there isn't due to ownership structures.

regulations are also important to ensuring competition

>The barriers to entry are raised so high it's impossible to have real competition.

once again the government is responsible for it.

don't worry though, im sure somebody will call for the government to 'reform' the industry and make all the problems go away.

It's certainly not entirely the governments fault. Airlines need to be strongly regulated with good reason and pretending that they don't lobby and campaign to increase regulation that acts as a barrier to entry is myopic at best.

Why did you assume the OC meant the regulators was bad rather than their capture?

any regulator is bound to be captured because the special interest has more concentrated power compared to consumers.

Thus regulation always does the opposite of what it is supposed to do in the long run. This is a common theme with interference with the free market.

I'm not sure it has to be that way, though the more complex the regulations are the easier it is to influence regulators.

Under that government regulation, the industry has produced the safest mode of transportation ever seen, healthy competition, and extremely low prices. If that's an example of what government regulation produces, I say bring it on!

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