How the Airlines Became Cartels
nytimes.com
nytimes.com
That's why I wish we could get past this mindless anti-regulation political trend into a "smart regulation" political trend. Whenever I see "regulations are bad" these days it's always associated with mindless deregulation; deregulation is a difficult thing that must be done carefully, and it has to be adjusted later on to adjust for all the unforeseen consequences. Regulations are not bad, it's needless regulations that are bad.
Yes, but the bill is totally ineffective for the average person and only helps the big players.
What we arguably need is more "stupid" (as in "keep it simple, stupid") regulation. Constitutional Amendments are written in this style; also some antitrust legislation [1]. Complex regulations are vulnerable to
a) hidden flaws - that tiny exception in article 57 paragraph 30 might turn out large enough to overturn all 56 previous articles.
b) regulatory capture - lobbyists will, of course, introduce as many exceptions as possible if the text is long enough.
c) the revolving door - if only a small group of people know the intricate details, they will soon be hired by the affected companies at a multiple of their previous salary.
d) compliance cost - only large companies might be able to afford the compliance cost, which ends up concentrating the market further at the cost of the consumer (Dodd-Frank, anyone?).
[1] https://en.wikipedia.org/wiki/Sherman_Antitrust_Act#Original...
That said, regulations that are less specific in the text of the law often yield cumbersome lawsuits and may end up with a huge volume of case law. Just because the law is 2 pages long doesn't mean you don't need an army of lawyers to comply with it. They'll just be parsing 2,000 page case law briefs and judicial rulings.
Of course even specific laws generate lots of case volume, but still, short laws aren't a panacea. Smarter laws that seek to even out knowledge in the marketplace might be a better way to go as the economy gets more complex.
Yes, but at least you have the chance beforehand that someone will say "this is not specific enough and will yield cumbersome lawsuits". If it's super long and complex then either a) there will be cumbersome lawsuits over parts of the law that are not completely consistent or b) the big guy with the big legal team will always win by default.
Any regulation that's over a sentence is too much for the lay person to bother reading or being aware of.
In the case of the airlines I've seen this a lot were consumers have a lot of opinions how things ought to be. They're oblivious to the consequences of their demands. They don't have a clue what the current regulations are, so can't really have an opinion whether they're good or not. They just assume any time they're mad, regulations must be bad.
You don't have to be a direct regulatee to be affected by a regulation. But... as someone that does read a lot of regulations, I generally agree that simpler is better.
Or... in the case where we have complex regulations that all the large regulatees are implementing in expert systems anyways. Maybe we should just write executable regulations, we can still have a long list of ambiguous parameters for the lawyers to argue over.
Double right on. Needless complexity is probably the number one enemy of technology projects, consumer protections, market regulation, and good governance. Everybody at heart is a freaking architecture astronaut, and it's doing us no good at all.
As an example of how things might work, government certainly has a role in defining products in a complex market; otherwise consumers would be at the whim of anybody who could make a good sales pitch. In the airline industry, I buy a ticket to go from point A to point B at a certain time. You can do a lot of hand-waving about how "normal" tickets don't guarantee any of this and how a more nuanced pricing system can allow all the seats to be filled, but that's bullshit. You can accomplish the same thing by simply having a two-tiered system: tickets that get you somewhere at a certain time, and ad-hoc tickets. Add one rule, say ad-hoc tickets can only be purchased in the 48-hours prior to a flight leaving, and you've got all the features of our modern system without all the crap that goes along with it.
I think everybody means well, it's just that there are a ton of people in any regulatory system that can stop or slow-down things, yet they have absolutely no feedback mechanism in place at all to tell them whether what they're doing is actually helping rather than hurting. It's the same exact thing as we technologists see when we work in large organizations with byzantine structures that get in the way of progress and make no sense to anybody.
Look, we don't have a problem with overbooking in this country (USA). I saw a chart with numbers of how many voluntary and involuntary losses of seats there were on each airline. Even if you add everything together for all the airlines, for the whole year, it's like 10,000. And a huge percentage of those are voluntary rebookings.
Do you know how many people fly every day?
You've just introduced an idea for yet another regulation to fix a nonexistent problem that will screw up the airlines pricing strategy and most likely raise ticket prices for everyone.
Just let the market sort it out, and it appears it already has. Most of the airlines have already revised their rebooking procedure.
We. Don't. Need. More. Regulation. Smart or not.
This is exactly the problem. Everybody wants smart regulation, and everybody thinks they are the smart ones.
My point was 1) the government has a role in product definition moreso than regulation, and that one regulation might do the work of 10,000 other ones.
I'll stand by that, but congrats on calling me out. If I were suggesting an _additional_ regulation, you would have nailed it.
But I was not. I was suggesting replacing about 5,000 pages with two sentences. Different thing entirely. I liked and sympathized with the rant, though.
Be careful you don't accidentally sound like the guy the OP was talking about: the person who just wants to tear it all down with some kind of blind faith that no structure at all is needed. Ever since the first markets were set up, there has been structure, provided for either by the traders or some external party. Product definition allows the maximum amount of freedom with the fewest rules. People can trade any way they want, but they deserve a simple and clear label for the thing they're trading -- which is not the current situation. I'd argue 99.9% of the people flying have no idea at all of the trade they made when they gave up their money for a ride somewhere. That complexity and obfuscation is an even bigger enemy than overregulation.
ADD: If I don't know what the hell I'm doing when I participate in a market, how could you possibly argue that regulations were either good or bad? They're impenetrable. No matter what side you come down on politically, that's way fucked up.
I appreciate your response, and I'm struggling to take it seriously, but I think you just admonished me for being one of those knee-jerk deregulationists while in the same breath suggesting that you can replace 5000 pages of regulation with two sentences.
I'll do my best to add a serious comment though:
The government has no business defining products. The government doesn't know what the market wants or what companies can offer, and it has no idea what the appropriate supply and demand curves look like or what features people value or not.
Again, we just witnessed a situation in which an unregulated part of the market bit United in the ass and cost them a few million dollars, and now are they are rushing to fix it, along with all of the other airlines. No intervention from the government was needed, and now the problem no longer exists. I don't understand why you think the government stepping in and "defining" a product is going to help.
There are many reasons why, but I'll just pull one out of my head: Governments have no idea what's coming. Any regulations or definitions for service unavoidably make it harder for new entrants to offer unique services and products.
Maybe one of the airlines wants to move to your two-tiered system. If the government mandates it, then we have one choice, whether it is the best or not.
I struggle to lay out my argument any more clearly, but I feel like you still, deep down, believe that the government has this secret cabal of smart people who are going to step in and, for example, sensibly define all of our products for us. Who are these people?
/edit In the spirit of trying to agree on something, I will agree that regulations are too complex across the board. It's one of my personal causes. That said, calling for "smarter" regulation is not going to help.
I ventured into this to try to show my fellow libertarians that most times we are our own worst enemy. We can find common ground and make progress without having to break out Hayek every five minutes. I still believe that, but I've had enough for one day.
"...I feel like you still, deep down, believe that the government has this secret cabal of smart people who are going to step in and, for example, sensibly define all of our products for us...."
No. I do not. I believe in consent of the governed, and making progress through reaching agreement on items that both sides can accept. That's it. Thanks for the chat.
Frankly, I don't understand what your argument is, because "I believe in consent of the governed, and making progress through reaching agreement on items that both sides can accept" doesn't mean anything.
I mean, consent of the governed usually means representative democracy, which is what we have. So, if that's what you're for, then all the regulations we have are perfectly reasonably determined. If that's not what you mean, I don't know what you mean. How would the system specifically change to be more "consent of the governed"?
We also have a system where we "reach agreement on items that both sides can accept". That's the problem with regulatory capture. We have lobbyists on one side and politicians on the other, and they both agree on things and then we get regulations. Ostensibly, politicians are acting on behalf of their constituents. If they are not, then you have a problem with our structure of government, not the regulatory system.
So far, your only concrete suggestion is that we replace 5000 lines of regulations with two sentences of regulation, which I've already explained why I think is a bad idea. Everything else you said is just feel good words that could mean anything to anyone.
You also seem to be assuming what my position is. My position is that in order to justify a regulation, we have to find a true and significant market failure. In such case, the first option should be investigating ways that the market failure could be addressed without regulation. And before a regulation is promulgated, we should require a cost-benefit analysis that results in the calculation that the regulation will create more benefit for society than it costs.
Your regulation suggestion would fail both of my tests. First, because the problem you're trying to fix is already fixed. Second because your proposed solution would cost much more than we are actually paying in inconvenience right now.
I have a lot of experience working in complex systems, and I have some government experience, and I know that systems are always much more complex than we think they are. I have an extreme amount of modesty toward thinking that I can introduce easy solutions to problems in complex systems. Government workers, most of the time are ill-equipped to step into a market and make it better.
> Cabotage rights are the right of a company from one country to trade in another country. In aviation, it is the right to operate within the domestic borders of another country. Most countries do not permit aviation cabotage, and there are strict sanctions against it, for reasons of economic protectionism, national security, or public safety. One notable exception is the European Union, whose Member States all grant cabotage rights to each other.
Virgin America is usually regarded as one of the better airlines, and personally I've had pretty good experiences with them. I'll pay an extra twenty dollars for the extra customer service. It would have been nice to see the company grow larger and become a threat to the big 4 (Branson himself wanted to go in that direction), but it got bought/merged with Alaska Airlines. Alaska Airlines has announced they are killing off the Virgin America brand sometime in 2019.
> "Because I'm not American, the US Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover," Branson wrote of his powerlessness to halt the pending merger. "So there was sadly nothing I could do to stop it."
Cabotage ends up being a form of protectionism, though it's usually touted as a national security thing.
Compare this to the EU, which has some dirt cheap flights. Ryanair might suck, but I've flown from Dublin to Amsterdam for $10. The EU has less restrictions (almost none for member states, I think?), so there's more competition. Some domestic airlines have been trying the Ryanair model, but I'd like to see what would happen if Ryanair was able to expand to the states.
This also means that foreign airlines can't operate flights between US cities, even if they'd be a leg of a larger journey. Instead they're reliant on US carriers to get people to their hubs. Toronto, for example, is the largest hub for Air Canada, and they have flights to dozens of American cities. There's no real fear that Canadian planes are any less safe than American ones, yet you can't use Air Canada to fly on a single ticket from an American city, via Toronto, to another American city. Air Canada's website won't even let you search for flights between two American destinations.
It's even worse for someone like Air Emirates. They only have a handful of places they fly out of in the states, so if you're flying from Dubai to somewhere not on that list you'd need another ticket. Maybe they'd like to do a San Francisco to NYC to Dubai flight, moving to a collector model, but they're stuck doing point to point. I'd imagine flying people into a domestic collector city first would be cheaper than the many non-stop flights they currently have.
http://fortune.com/2016/04/04/richard-branson-virgin-america...
Whether or not it would be a good idea to permit foreign airlines to operate domestic flights, such restrictions are open and straightforward protectionism. They are not some "tiny exception in article 57 paragraph 30" that a regulator snuck in weeks before being "hired by the affected companies at a multiple of their previous salary."
True. To my experience, though, I think that Alaska's customer service is comparable to Virgin's. I despite most US domestic airlines, with the exception of Virgin, Alaska, and to a lesser extent Delta.
Cabotage might kill off a handful of potentially viable routes between the largest cities for relatively unusual multi-stage flights, but it's not really the reason why most domestic routes end up being local monopolies or duopolies. Emirates might have an interest flying an NYC-San Francisco leg, but it's difficult to imagine a foreign competitor being interested in a Denver-Houston route, never mind Denver-Wichita or Denver-Durango
(Map: http://www.gcmap.com/mapui?P=pvd-mke,+pvd-yyz-mke,+pvd-dtw-m...)
An existing regulation might not be perfect, but that still doesn't mean you should get rid of it without considering why it was put into place initially.
Conflict of interest appointments result in probably the vast majority of anti-market, cartel-style behavior.
You can eliminate conflicts of interest via financial disclosures etc, without eliminating competence.
For the past two Presidential elections where the incumbent was term-limited, we've chosen the outsider candidate twice.
If these positions weren't appointed but elected - one could assume that the outsider would be preferred.
If conflicts of interest could be eliminated (I'd say reduced) via financial disclosures, why aren't they happening? I can name several appointees in the current and past 2 administrations that had conflicts of interest.
I'm thinking about it in the government-to-industry direction, and particularly where compensation is so high for these ex-govvies. Why are these people worth so much? Either because:
1. The regulations are so complex to get around that companies need to pay a premium for that knowledge. (Bad.)
2. The regulations have so many loopholes that I need to hire someone to help me do whatever it is I want to do, but legally. (Bad.)
Both of these would appear to favor entrenched players who can afford this talent.
No, you can expose conflicts of interest that way, but merely disclosing who's on whose payroll does not actually eliminate any conflict of interest.
And it's a false dichotomy that you either get industry insiders or "people who have no idea what they are regulating".
This isn't inherently true. Industry alums can and have taken regulatory actions in the public interest. Tom Wheeler, the former Chairman of the FCC, used to be a cable industry lobbyist and passed regulation in favor or net neutrality and despite the protests of the industry he used to regulate.
It turns out that the person and their intentions matter. When a revolving door person happens to take pro-industry actions it's not because they somehow fooled the government into thinking they'd act in the public good. The government knowingly appointed someone with pro-industry biases because the industry lobbied the government.
If we want the government to appoint people who will act in the public interest at the expense of the industry, we have to demand that. Sometimes that person will be from the industry. We may call them a dingo. But they'll turn out to act in our interests.
Claiming that "no regulations" is the default position, and that all existing and future regulations must be reasoned, argued and articulated from first principles sounds like a distraction, more so than a reasonable way to approach the current political atmosphere.
Arguably it's not that law makers are incompetent at recognizing good regulation vs bad, but the incentive structure is messed up.
The article in question seemed to lay out useful and appropriate regulation for the airline industry.
Sometimes markets have incumbents with so much entrenched power that regulation can actually make the market more capitalist and create more choice for consumers.
American politics however is poorly structured so that corporations who have economic incentive to game regulation/deregulation have concentrated power and the broader public or smaller competing interests do not.
Corporatist regulatory capture and the status quo biases that come with it are the source of some of the biggest problems in our society - booming healthcare and education costs as well as entrenched oligopolies in infrastructure markets like telecom, internet and airlines.
Good regulations prevent potentially catastrophic situations. For example, good fire regulations help prevent whole cities from burning down. It's also hard to sell people on prevention when they haven't been through disasters themselves. Unless they have direct experience then, in general, people have trouble understanding just how bad things can get.
I'd love to see, as an experiment, having laws written with a preamble explaining the context and goals of that particular law, with the intent of qualifying the purpose of the law. Then there would be something stating how to quantify that law... in other words. That way there are clear statements of the intended purpose and intended effect of the law. Finally, the law would be set with a re-evaluation date, or maybe an expiration date, and, if the goals were not met, then the law would be up for debate again. Then the cycle repeats, maybe with a longer delay each time, until the law just gets passed without debate every time.
I know it's unrealistic. It would be a difficult way to get anything passed, but a culture would build up around this system, just like the current U.S. system, and every other major political system, and it would eventually work. And, the important thing, it would make a lot of the current system much more explicit, bring a lot of stuff to light, and I think we'd end up with much better laws and regulations in general.
Facebook also has no qualms on encroaching on net neutrality rules in developing countries, and they have set up services in cellular networks all around the world where they provide customers with free access to only their own social network. Many citizens are under the impression that Facebook == internet. Some countries such as Chile have banned this practice quoting their own net-neutrality laws. However, currently the US seems to be taking a big step backwards for little economic or political gain.
1. There are two types of regulations:
- Custom Regulations (smart, particular, specific)
- Bulk Regulations (generic red tape, not reasoned or desired)
2. All regulations are custom regulations.
3. All discussion (like your point) is about bulk regulations, which do not exist.
Regulation is tough. Everything that you believe to be needless, may actually serve a very specific and important purpose.
[1] https://www.bloomberg.com/view/articles/2017-01-24/metrics-f...
It may or may not, and it may have served a purpose once upon a time but not anymore because the context has changed or because it's been superseded, it may have failed to achieve its goals or led to undesirable outcomes (either aside from its success or making the situation worse), it may have had a (now considered) horrendous purpose, …
That one must be careful with regulations and understand why they exist is more or less GP's entire point:
> deregulation is a difficult thing that must be done carefully
I like this old quip/aphorism that you shouldn't be able to ask for a law's removal if you don't know why it exists, though I'm not sure it's always feasible, especially for the older texts.
And of course the recorded purpose may not have been honest in the first place (see: many voting regulations in the US).
I'm sure others could get similar things for other markets, but this one was a complete give-away.
[1] http://www.nytimes.com/2002/02/21/business/panel-s-ruling-on...
In the late 1970s through the 1990s, we rolled back that sort of regulation all across the economy. Instead of micromanaging prices and routes, we refocused the government on regulations like safety and maintenance standards. And it was a huge success: http://www.econlib.org/library/Enc1/AirlineDeregulation.html. So much so that Europe copied it: http://www.economist.com/node/146627. It's not just because ticket prices are way cheaper than they used to be (though it's partly that). Carriers like FedEx and UPS (and companies that depend on them, like Amazon) wouldn't have been able to exist under the previous model where bureaucrats micromanaged the air cargo industry.
The article isn't espousing "smart regulation." It's asking for the government to get back into the business of micromanaging prices and service:
> There should also be rules on how many passengers an airline can cram into a plane, and what extras it can charge for. And there should be limits on price gouging. It makes no sense to allow airlines to charge an astronomical fare just because a flight is nearly full, and a dirt-cheap fare for an advance booking.
There is no economic rationale for the government to tell airlines what extras they can and cannot charge for, any more than there is for the government to tell app or game developers what kinds of DLC they can charge for.
Airline service is crappy for the same reason pop music and fast food are crappy. People are willing to give up almost everything in the way of amenities in return for saving a few bucks on the ticket price. It's not the government's place to tell them they shouldn't do that.
The decline in quality has two major causes - people not willing to pay for it, and people comparison shopping by headline ticket-price. If it was just the first, the airlines wouldn't offer the option on flights, since nobody would pay for the extras. Airfare is heavily commoditized by comparison shopping, in that many levels of service get lumped into the same bucket and are considered equivalent.
I suspect that if airlines were allowed to offer a discount for not checking a bag, that amount would be smaller than existing checked-bag fees.
It is the government's place to regulate how prices get advertised. Standardizing service levels and requiring airlines to provide something like a "one checked bag + in-flight meal" price would likely ameliorate these issues.
In short, I'm arguing that discovering how much you can be expected to be charged for the in-flight extras you want is too difficult under the current system. This is a market design failure.
Indeed, the government has already done this, to mandate that advertised prices are all-inclusive, with all the taxes, fees, charges and so on included in the advertised price you see when you're searching for tickets. Before that regulation, airline tickets were more like phone bills where the taxes, fees, charges, tolls, surtaxes, surcharges, sur-fees, and so on mean you pay $65/month for a "$40/month" plan.
This would just result in higher (probably much higher) ticket prices for the vast majority of people. Breaking passengers up into fare classes based on how much they're likely willing to pay for a ticket is one of the most fundamental ideas behind ticket prices.
If only the world was populated by dollar bills instead of human beings this would all be so easy.
For example, people say that regulating the coal industry should be done, and is common sense. I largely agree, but they say that without taking into account society's responsibility to provide for these people if we're going to essentially ban them from their jobs. If you spent 30 years working in the coal industry, you've built up expertise in that industry and regulation effectively destroys your ability to leverage that expertise to make a livelihood. We can say "oh they should retrain/relocate" but to me that's just abdicating responsibility for decisions. If we're going to do something that benefits society as a whole, we need to make sure that we're minimizing the harmful impact that will have on others. In other words, regulations can be very bad depending on who you are.
Another example from a recent Planet Money podcast rerun. Because of state regulations she wasn't permitted to perform braiding hair in African style for profit unless she went to school for it. Businesses successfully had lobbied to create regulations that protected their interest. Fortunately (as far as I'm concerned) these laws were repealed. BUT at the same time, this regulation (let's say the whole thing was repealed) would have made the barrier to entry into that industry, as well as the time/money spent going to cosmetology school virtually worthless. Regulations are hard. It's incredibly difficult to get them right.
To paraphrase - he went looking for government regulation causing a problem and didn't find it. "But I found that—though that was a part of it—what was more important was the difference between how the Japanese corporations and the American corporations were organized and who controlled the corporations."
The biggest power differential is between the government and "everything else." Far too many people think regulation is the right answer, right up until the "other party" gets their hands on it. People say regulations are bad because they see the results of the bought and paid for regulations that our governments are writing. One need only recall the Princeton study which demonstrated there's a near zero correlation between what voters want and what gets enacted into law.
The FAA's issuing of new safety regulations has historically been reactionary, they are generally enacted in response to an accident or specific incident. It is actually only very recently that they have shifted from a reactive event based system to a proactive form of risk management.
The amount of regulation comes from that, as does the industry embracing safer procedures by itself.
Why use more fuel than needed in a flight, if you are going to get there anyway? Is that safety measure so important? Without regulations this will be more common:
"Colombia's Civil Aeronautics agency concluded in its investigation that the plan for the flight operated by Bolivia-based charter company LaMia did not meet international standards." "Neither the company nor Bolivian authorities should have allowed the plane to take off with the flight plan submitted, said Freddy Bonilla, air safety secretary for Colombia's aviation authority." http://www.independent.co.uk/sport/football/international/ch...
Also, Tabaco happens. Kill your customers, get new ones.
Killing them quickly and violently tends to go poorly.
Aircraft kill quickly, violently, and in headline-leading ways...
I don't disagree with this, but I strongly believe there are better paths to regulation than most of what we see today. In particular, you get a very long way by regulating founding principles -- Transparency, Access, Anti-Collusion.
The problem with a lot of regulation and regulators is they become a party to the market. This creates a whole lot of issues. A lot of the regulation then is designed to protect the market as an entity, rather than the consumers.
What you're describing isn't regulation; you're describing the results of regulatory capture.
Unfortunately, you have one party that has been able to systematically defund and break the executive branch for about 30 years. So stuff doesn't work as well.
You have an airline cartel because the government allowed it.
For example, obvious anti-competitive, anti-consumer mergers like Delta/Northwest (monopolizing traffic to Minneapolis) are allowed to go through.
At the fare level, the airlines are allowed to rollout the circus carnival pricing scheme where nobody pays the same price, and nobody has a way to actually compare prices at an apples/oranges level.
As for the assertion that "regulations are not bad, it's needless regulations that are bad" -- the argument sort of falls flat without specifics. The argument can be boiled down to "good things are good, bad things are bad."
Markets should be free but fair, by fair I mean encourage competition. Regulations should make it easy for competition to happen not harder needlessly. Regulation is important for a healthy fair market.
AT&T breakup was big and did encourage competition, though they may be back soon. Microsoft 90s ordeal really did shake them up and in the early 2000s competition happened again.
Dark side of monopolies are AT&T created modern software/C++ and wired the US up first, Microsoft got everyone on the internet and a computer on every desk. Sometimes there are benefits to big fish but you can still create competition. It may also create other important growth areas when big fish are broken up.
We only need regulation that creates markets that are fair competitively but otherwise free, net neutrality is an example of a fair competitive regulation.
As far as I know, regulations would mean a set of rules spelled out by the executive branch of the government, imposed upon businesses that qualify by existing in some industry. Contracts seem to be way broader than that. But I am not a lawyer.
I agree that some form of standardized terms for communication should exist in the market. And I don't know enough about airline regulations to say they don't already exist. I assume the article in question would not tell me if such regulations exist, as it does not advance the "deregulation is bad" narrative.
That also happened with the long-distance phone industry. Remember MCI Long Distance, Sprint Long Distance, etc. Also banking, where the US is down to four big banks.[1]
[1] http://www.motherjones.com/files/images/big-bank-theory-char...
- Unregulated markets often become oligopolies or monopolies, see the 19th century US robber barons (the reason for existence of FTC, antitrust laws, price dumping regulation etc)
- Unregulated markets can pose massive health and safety hazards, because operators pursue cost cutting at the price of safety - see the accident rate Chinatown buses between Boston and NYC, or see the regular food scandals in any developing country of your choice (reason for existence of OSHA, FDA etc)
- Unregulated markets can pose big fraud risks - particularly unregulated securities markets (reason for existence of SEC, NASD, etc)
- Unregulated markets will ignore externalities like pollution, public health, damage to commons both environmental and infrastructural [roads, buildings, trash, spectrum interference]. Regulation is needed to avoid the externalities or to internalise the costs into the market which causes these costs (reason for existence of EPA, FCC)
While "free markets" are a bit of an ill-defined, political term, "perfect competition" is well-defined, in a mathematical sense, well-studied in Economics, and generally regarded as a good thing.
But (as you'll read in the wikipedia article) there are a number of required conditions for it. So good regulations could help ensure those conditions are met.
For example, one of the conditions is "no externalities", which are things that affect 3rd parties not involved in the buying/selling decision. Pollution could be relevant to airlines; perhaps one airline can offer cheaper tickets by burning dirty and dumping soot all along the way. That's not perfect competition because it affects all the people who suffer from the pollution, but not the person buying the ticket (who naturally would be incentivized to buy the cheaper ticket). But if the government mandated pollution standards that protects all the non-flyers, and that all the airlines are subject to, then it's a fair competition on price again.
He's stating a lot of things that would be nice, but the fact of the matter is that a lot of people still fly Spirit Airlines - despite their constant low ratings - because it's costs $50 bucks.
The real discussion should be about fare transparency as a bunch of airlines are rolling out basic economy fares that don't include food, limit space even further and don't accrue points, etc. Instead of making a new, nicer tier class, they're taking away items from the basic economy fares and maintaining the same pricing.[1][2]
The fact that none of these pieces are talking about this makes me think these are outrage opinion articles by talking heads rather than people who regularly fly
[1] https://thepointsguy.com/2017/03/is-basic-economy-really-a-d...
[2] https://thepointsguy.com/2017/02/united-selling-basic-econom...
Ask people what makes them choose an airline and they'll probably tell you a tale about reputation, service, legroom, amenities, what have you.
Now stick them in front of a computer and tell them to buy a ticket with their own money and watch them pick the cheapest option regardless of the rest.
It's a race to the bottom because that's what people really want. When the rubber meets the road, most people want a horrible, cheap experience.
Why do airlines overbook flights? Because people would rather save $5 with a chance of being bumped than pay a little extra.
Obviously, we'd all love direct flights with sixteen feet of legroom, a hundred free checked bags, gourmet meals, free access to a library of every movie and TV show ever made, and for a price of $3.50. But that's not going to happen, because amenities cost money. When we're faced with the tradeoff, we favor low prices.
Once I truly realized this, I became a lot less annoyed with many airline shenanigans. Yeah, it's pretty annoying that as a tall guy I barely fit into the seat. But it's what I paid for. If it was that important to me, I could pay extra for more space. I don't, because, like most people, I prefer cheapness above all else.
You can get a much nicer experience if you pay for it. If you don't feel like paying for it, then what are you complaining about?
Not particularly related, but this line from the article caught my eye:
"It makes no sense to allow airlines to charge an astronomical fare just because a flight is nearly full, and a dirt-cheap fare for an advance booking."
What planet is this guy from? Of course it makes sense to charge high fares for a scarce product in high demand, and low fares for an abundant product in low demand.
There are "I only shop on price" seats and "money is no object" seats. I wish we had more of a middle, beyond the usual +$150 for an exit row or +$100 for a regular economy seat, but in the forward half of the plane.
True Premium Economy (such as what exists on Lufthansa, Air NZ, and now Delta international routes) does not exist for US domestic travel.
Boston (BOS) – San Francisco (SFO)
JetBlue 833 · Airbus A320
Above average legroom (33")https://www.united.com/CMS/en-US/products/travelproducts/Pag...
Exit row seats are also often first available to members of various frequent flyer programs and usually have a modest amount of extra legroom.
From the FAQ on the linked page:
> Who can purchase Economy Plus seating? All customers who are not traveling on a Basic Economy ticket may purchase Economy Plus seating subject to availability. Advance complimentary access to Economy Plus is available to Premier® Platinum members and higher (for themselves and up to eight companions), and Premier Gold members (for themselves and one companion). Premier Silver members and one companion enjoy complimentary access to Economy Plus seating, when available, upon check-in.
I just... what is this even? How about just putting the legroom on ticket sale data—including for sales on 3rd party sites—and selling different ones at different prices? I don't want to become an expert on all this weird tricking-you-into-spending-more-money-with-us-than-you-should-if-you're-not-super-careful crap for every airline I might fly with, I just want to buy a ticket and fly every now and then, and I'm willing to pay for more legroom. How would I even begin to comparison shop for this upgrade vs. other airlines? I know the answer is "you're not supposed to because they're trying to screw you" but that's an awful answer.
This is precisely where regulation is useful: transparency in WTF you're buying and standards in how it's presented so competition can work its magic without consumers having to learn a bunch of otherwise-useless junk (the worst of which is "how to navigate systems and jargon that are specific to one vendor") in order to confidently make a simple transaction.
Anyway, basically all the major airlines except Southwest offer this. It's Economy+ on United, Delta Comfort on Delta, Premium Economy on American, Main Cabin Select on Virgin America, Even More on JetBlue, etc. I found this out through looking at the front page of each of their websites. Prices range from $40-50 (additional) per seat per leg. You can select it upon seat selection at the airline's website (which is where an aggregator will take you, anyway): the extra economy+ seats that are available are shown together with the price for the update, and you just have to click on them and it will adjust your fare accordingly.
So now you know. Incidentally, this is pretty good evidence of this subthread's point: you expected to be told all of this by going through a 3rd-party aggregator where you can search by cost. If you are representative of the average American consumer (which is probably pretty likely), it's no wonder the airlines compete on cost.
They should probably work to ensure it's possible to accurately filter by other criteria on aggregators then, if they actually care about getting people to shop based on other features. They choose not to make any effort there, because even small levels of obfuscation enable extraction of rents. It weakens the ability of the market to improve quality and reduce cost, the more difficult it is to gauge quality.
If they cared the tickets would be per-seat and tell you the properties of that seat in some machine-parseable manner, not be upgrades (that change the seat you're in) that may or may not be available at all depending on how you bought your ticket, whether you're part of some special program, and so on. Ah, travel—the one context in which not-at-all-rich people are encouraged to temporarily act like petty nobility. Almost certainly another trick to extract more money from people. No accident it's also an industry that's managed to make something inherently amazing and awe-inspiring resemble one of the only-moderately-unbearable parts of hell.
At least with your Amex Platinum card and all those points you've racked up you can be baron in the Fourth Circle for a day.
You can buy economy plus unless you got a super discounted flight. Frequent fliers get first access depending on their level.
Just use google.com/flights (lists leg room data), or just hit the "i" mark on each fare and you can usually see the actual leg room on the ticket.
Don't bother using aggregators to buy the ticket. They're useful at finding fares, but the same rates are usually available through the airline's site as well.
Rather, frequent fliers out of necessity soon learn these things, and start to speak the language(s) that the airlines use instead of language that muggles understand. Even frequent flyers don't always instantly know why I don't fly in row 1, though I do fly first class.
It's easier to know what you're getting when you buy a TV than it is to do so when buying an airline ticket, even if you buy the TV on impulse, and even though TV vendors are looking to extract as much as they can from TV buyers.
You want to control every detail of the result while also spending as little money as possible? That takes some effort, with both flights and apples.
Actually, getting the best price for a flight is easier than with apples. I'd have to spend all day calling (or visiting!) stores in my area to see who has the best price for apples, since most stores don't make that information available online in any form. Accomplishing the same for a flight takes literally thirty seconds.
I can't fit in there - I'm 6' tall (183cm), so I fly Delta and buy their Comfort+ seat upgrade. But I'll also look at their 1st class fare, because after checking a bag and getting the upgrade, sometimes going all the way to First is only like $100 more (and the bag check is free, and you're first off the plane, and first to get your bag at the carousel).
I otherwise agree with the sentiment that the data should be more available (I spend way too much time on SeatGuru trying to find plane/seat info before booking), and I desperately wish we had an option to pay for a few more inches of leg and elbow room (NOT just legroom), but Economy Plus is about as straightforward a program as it gets in the airline industry.
Basic status on AA will give you economy plus seating for free. HUGE for anyone over 6'
JetBlue and Delta both offer this.
JetBlue has plenty of leg room anyway, I'm 6' FWIW and I find paying for the upgrade to be needless. Delta it can be worth it for longer flights.
Where can I filter flights from multiple carriers to not show tickets providing under some level of legroom?
I haven't tried these myself, but it seems like one of those things you can pay some money to get someone else to worry about it for you.
I'll forward the suggestion of having this information (seat dimensions, extra legroom) more readily available to agents when booking (I work for the largest "traditional" travel agents group remaining).
I haven't used a travel agent in ages. What's the experience like these days? Are they something that would be good for the average Joe like myself to use, or is it more of a specialized niche now? I understand you may be biased, but I'd still be interested in the inside perspective.
What I do think is that you're not getting much of a discount going online (and agencies get their own exclusive deals too) - what you do get buying with an online travel agency (OTA) (and I personally like) is more control, but at the expense of advice and experience. If you're comfortable taking the risk of taking wrong choices and like setting your own itinerary, online offers more "freedom". However, it seems that customers 50 and over value the agents' experience a lot. Personally, there are several things I would have missed if I booked flights myself: legroom, connection times, the fact that you need to have a ticket be the same "segment" to get protected if things go wrong - although separate "segments" can be cheaper, etc., and, most importantly, someone to call if things go wrong (as they unfortunately often do in travel), who will have more leverage with the supplier than a mere customer. Of course, there must be good and bad agents, as with all services. Also, agents don't make much money (if any) on air tickets anymore, they rely on hotel and cruise and other ancillary services to make their money (or a service fee).
I've been told that top travel agents are worth their weight in gold (and are paid as such!), the guys working for the Elite travel division make the lives of business and luxury travel a lot better, they know the arcane commands in the mainframe-terminal GDSs by heart and can do permutations that are simply not allowed in most web interfaces.
Of course, this is only a good thing if the airlines are transparent about it, and offer enough compensation to bumped passengers for them to take it voluntarily.
Agree. Not to mention spoken by a person who almost certainly has never run a business. And make no mistake 'charging high fares' when you can allows you to lower the price of other seats and fees. Eliminate that excess profit and it will be made up somewhere else in the pricing scheme. No different than concerts or alcohol or premium water in restaurants.
On each of the ~20 jetblue flights I've been on in the last few years. They ask for volunteers to gate check carry on bags to the final destination for free because there isn't enough overhead space. But they're the ones that force us to try to get into a carry on by charging for normally checked bags. I've tried asking outside security if I can check my carry on since I'll eventually be asked to voluntarily gate check it, and they don't let me. Instead we make boarding this competitive experience that takes longer than it needs to as passengers fight for overhead bin space.
I am puzzled by the various choices that airlines make that seem to dramatically increase their aircraft's turnaround time at the gate. I can only assume that either it doesn't do as much harm as it seems to, or short turnaround isn't as valuable as I think it is.
Relevant to what seems to be your local optimization, if you are trying to get your bag checked for free, you are combining all the possible inconveniences: carry the bag to the gate, have its contents qualify as carry-on contents, and wait for it at the carousel when you land.
It does seem like a better idea to waive the fee at times, in order to streamline operations. But I pay the fee 24 hours in advance (when online checkin opens). How would they implement a waiver fairly?
These are all very easily quantifiable variables. Maybe you can find out how on-time that flight normally is. You have to do a lot of research to figure out how much legroom you'll have on a specific flight. And knowing what your risk of getting denied boarding is almost impossible, so I'd argue that is in fact not priced into the current model.
Right now it's also not possible to choose based on these variables since the choice of airline is so strongly correlated with travel time, unless you are travelling between one airline's hub and another's.
Southwest is a great example that the current model is working. Don't want to pay baggage fees, and get nickeled and dimed for everything? Fly Southwest.
I frequently recommend them as the best domestic airline for people who don't fly enough to get airline status, and aren't willing to pay for first/business class travel. They've got a pretty good route network, and the difference between the highest tier passenger on a Southwest flight and the lowest tier passenger on a Southwest flight is far less than traditional carriers.
I hope the free market punishes the ultra-economy fares that traditional carriers are offering. Flying a traditional carrier on an economy ticket without status is already such a degrading experience. Hopefully passengers won't be willing to suffer further degradation, and will just switch their business to Southwest, Alaska or another carrier that doesn't offer ultra-economy fares.
There is also real competition occurring at many airports throughout the country. For example, Delta and Alaska Air are waging an all-out war in Seattle right now, with both airlines aggressively pursuing flyers in that market.
Now, I do think some additional regulation is necessary. The fact that airlines aren't responsible to take care of stranded passengers during weather delays is inexcusable, and increased fare transparency would help the competitive side of the marketplace. And I agree with the article that regulators should also be much more skeptical of mergers that decrease competition and establish de facto monopolies.
Southwest is called out in the article as an example of an airline doing things right.
I fly Southwest and prefer it to other domestic airlines, but are they actually beating the other airlines? I just looked up their Q4 earnings out of curiosity, and they seem to be doing well compared to their competitors:
Southwest Q4 2016: $522M net profit on $5.1B revenue United Q4 2016: $397M net profit on $9.1B revenue American Q4 2016: $289M net profit on $9.7B revenue
This piece fits much better as a NYT article. Maybe one day soon I'll learn to read properly.
I had read elsewhere this is specifically to avoid an incentive that would otherwise exist for airlines to fly in potentially unsafe conditions.
And as a backstop, still give the airline the power to decide on a no-go... even if the "weather service" says it's ok to fly, if the captain doesn't feel comfortable, they can make that call.
Probably. Even then, though, what's the significance of the airline paying? On a practical level, this means they raise prices to account for that risk (and likely a higher estimate to be on the safe side) and consumers are paying anyway.
So the real choice is whether you want to charge the consumers that booked the flight that got cancelled for the cost of the hotel rooms when this happens or all consumers a smaller amount to account for it. Like an insurance policy, basically.
I guess at the end of the day, I understand not wanting people to be stuck in an airport for a while because they have no money in an unfamiliar place, but I also feel like occasional bad weather is a fact of life and legislating more complexity onto the airlines is moving the wrong direction.
> And as a backstop, still give the airline the power to decide on a no-go... even if the "weather service" says it's ok to fly, if the captain doesn't feel comfortable, they can make that call.
This has always existed, as far as I'm aware. You just don't want to put airlines in that position, and it's pushing it to expect captains to overrule that decision when the airline is paying their salary.
As someone who actually flies, the existing system works amazingly well, and delivers a service at a surprisingly low cost. Undersold aircraft and regulated fares are great for business travelers who are price-insensitive, but virtually every "fix" he cites will cost people money.
Personally, I just wish some airline would test "the market" for a premium level of services (few more inches of elbow room is "premium", apparently) that doesn't cost 5x the money for 10% more space.
http://articles.chicagotribune.com/1998-11-08/travel/9811080...
Sadly, they were merged into Frontier in 2011.
When I had to fly cross-country due to a parent's sudden serious hospitalization, I paid an arm and a leg to book a fare for a same day departure, but I sure am glad I had that option, I'd rather pay $1300 when I really need to be somewhere than having no options at all because all of the seats sold out at $400.
People won't book a flight -- especially on short notice -- just because it's cheap. They book because they actually want to go somewhere. Sure, there are people who occasionally want to make a trip on a whim, and a higher price is a disincentive and deterrent to making that decision last-minute... but it doesn't automatically follow that low prices mean that they'll always be snatched up and there won't be available tickets for people who "need" one more.
Demand pricing (plus full fare flexible tickets and first/business class) is what helps less affluent people being able to afford a ticket at all. So instead of everyone having to pay a flat $600 for a seat, people with flexible travel dates can buy early and pay $300. They'll lose some amenities (like legroom, food, "free" baggage, etc), but for some people, that can make the difference between being able to afford a ticket at all or not.
If the plane is so full that the airline can triple the price over what they cost 2 weeks ago, it's likely that there would have been no seats at any price when I wanted one if they kept prices steady at $400.
I'm by no means wealthy and $1300 was painful, yet still I was thankful that I could get a seat at all for a very time sensitive trip.
Are they really low cost? And having worked abroad recently, it's shocking how much cheaper European flights can be compared to U.S. flights. And maybe my memory's off, but it seems like domestic flight costs were much lower just 5-10 years ago. In college, I could get a round trip ticket to Las Vegas for under $100, and checking right now, the lowest price is $296.
Budget European carriers that fly to airports you've never heard of are another story entirely.
puts tin foil hat on. I wonder if the fear is that if they improve economy with more leg and arm room and charge a little more, they will lose first class customers to the better accommodations. Essentially the intentionally make economy a bad experience so that people upgrade to first class which is multiple times more expensive.
If it was just about the extra space over a normal coach seat, the premium would only be 10-20% for a much larger seat.
"If [Spirit] asked people what they wanted they would have said 'more legroom'." --apologies to Henry Ford
The reason airlines "hate" passengers is because they basically break even on shuttling economy passengers and look at economy passengers as more of a cost than a profit center.
Sure they're making more money now because of all the tacked on fees, but those are a relatively recent trend. The real profit is from business/first passengers and from the miles/credit card game they play.
[1] https://www.washingtonpost.com/news/wonk/wp/2013/03/01/amtra...
https://www.youtube.com/watch?v=BzB5xtGGsTc
And another great one about AmTrak in relation to flight:
I'm having a hard time taking this argument seriously. While I may not enjoy air travel, the most abusive part of flying is the part run by the federal government, namely the TSA and CBP. If they want to improve the air travel experience, start there.
Really there's very little evidence that the TSA has had any practical success, despite huge expense. I've traveled internationally and I've seen huge containers of cosmetics walked right through the TSA, only to be stopped on simple inter-terminal x-ray/metal detector inspection in Zurich.
Just because we have it now doesn't mean we need to have it; TSA regulation is clearly in the useless category.
I'm also curious how it would work practically. If I fly around the country frequently, will I need to be aware of all the differences in screening processes at each local destination? Will airlines need to comply with security standards across all localities, instead of dealing with a single agency?
I don't know how old/young you are, but you probably don't remember a world without passports. They were a temporary measure in response to war; now they are the somewhat Orwellian document without which it is illegal for you to leave the U.S. Imagine making the argument today for rolling back mandatory passports, in a world where few people remember life without them. Sooner than you think, if not already, the TSA will be in that same boat.
I would assume you are old enough to have a solid memory of 9/11, but today's younger college students have no memory other than the pre-9/11 world. I was in first grade at the time, and traveled with family a (very) short time after. The airport was guarded by soldiers at the time and I got to witness their guns trained on my father when he couldn't find the key to his luggage. It was quite tense later when my GameBoy Color set off the metal detector. Fun times.
History is important, if only so that we can remember that what is today has not always been. (Don't be offended if you already know all this; someone reading this comment will be blown away by the idea of a world without pornoscans, patdowns, and shoe removel).
Oh, and for CBP, that is explicitly ("...provide for the common defense...") the exclusive role of the federal government. They should probably keep screening at the border, just ideally with more of a customer service/land of opportunity/"welcome to the USA" vibe rather than the "Muslims/brown people GTFO" vibe.
Note that "deregulation" in the airline industry (primarily) means the government no longer controlled which airlines flew which routes. Before deregulation, route ownership was decided by an oligopoly that would and could set high-margin prices on routes since the control of those routes was a) assured by the government and b) agreed on by all the major carriers.
After deregulation, airlines competed primarily on price. While this lead to the hub-and-spoke system and the low-fare carriers we see today, it also meant that almost anyone could fly anywhere in the US and abroad for (relatively) little money and a high amount of safety.
As an aside, airline reservations technology benefited immensely from deregulation, and the carriers that controlled the reservations systems ended up killing of the carriers that didn't (see, for example, Eastern Airlines). If you're interested in the tech of the airline industry, I recently gave a talk about this at Systems We Love: https://systemswe.love/archive/san-francisco-2016/life-of-an...
The main issue is price sensitivity. People would rather pay less and suffer rather than pay full premium prices. As a result people largely get what they're asking for.
Because of my inability to try out all my choices I can see how it's hard for the market of nice restaurants in LA to function properly. Clearly the government should step in and decide what they should cook and how much they should charge for it.
There are lots of goods where people don't personally test all the available options where markets work just fine. People can rely on all sorts of recommendations to make informed choices. With the internet this is easier than ever. For everything from LA restaurants to airlines.
I do occasionally hear praise for Soutwest which I personally dislike because their boarding process makes me sort anxious. But then I hardly ever have them as a choice anyway. Maybe we less talk about our favorite airlines because there is little actual choice?
Your definition of "a little money" and mine are very different. The three largest US airlines ( American, Delta, and Southwest ) each had net incomes over $2 billion for 2016.
American: $2.6 B Delta: $4.3 B Southwest: $2.2 B
Hardly a high margin business.
"It's easy to make a small fortune running an airline. Step 1) Start with a large fortune..."
If you talk to airlines, the "cartel" they fear are the distribution gatekeepers (GDS providers and OTAs like Priceline and Ctrip). This world is rapidly changing too though with the arrival of NDC and airlines investing in their own direct to channel APIs (a practice, incidentally, pioneered by LCCs).
1. Lots of different languages and cultures in the EU make it easier for startup airlines to quickly grow from their local base. So, for example, you see WizzAir and BlueAir competing successfully with Ryanair and Easyjet in Eastern Europe. Transavia from the Netherlands, Norwegian from Norway, Vueling and Volotea from Spain, Germanwings/Eurowings from Germany.
2. The population distribution in Europe lends itself ideally to the LCC model (point-to-point networks and sector times under 5 hours). We have lots of regional cities with sufficient populations to warrant basing a few aircraft and opening up profitable routes. That's why Europe has the densest regional/secondary route network in the world.
3. The LCC explosion really started in the early 2000's (despite Easyjet first flying in ~1995 iirc). It exploded thanks to a perfect storm of airspace liberalisation, cheap aircraft leases 'post 9/11', widespread internet adoption (so LCCs could cut out travel agents and GDS fees) and booming EU economies fuelling consumer demand for flights and travel.
The open question is whether or not Europe will see consolidation within the LCC market but I personally don't think it will any time soon. LCC passenger count is still growing at ~6%/year.
I'm an old enough fogey to remember the launch of Laker SkyTrain back in the early 1980s that brought unbelievably low fares to the trans-Atlantic market, compared to the big airlines participating in the IATA 'tariff agreement' cartel. But Laker also discarded all the ticketing restrictions, you just bought your one-way fares and any extras you wanted.
It was those airlines, such as TWA and BA, that ran SkyTrain into the ground by pricing in response with fares that were uneconomical for them; Laker held-on for several years but eventually went bust,and fares returned to 'normal'.
So it's with great satisfaction to me that 30 years later the heirs of those airlines are scared of the modern-day Lakers.
I had an anecdote about a Hawaiian Airlines' maintenance problem: http://www.taxiwars.org/2015/03/airplane-maintenance.html
>"With the hub-and-spoke system used to defend airlines’ pricing power, there are fewer nonstops"
I hadn't considered the hub and spoke system as a means of defending pricing power before. Is the idea that since there are more flights by that airline into its hub region they can offer better fares to passengers? Is that right? But don't passengers generally try to avoid flights with lay overs? The logic is escaping me.
With the hub and spoke model instead they fly 60 people from Des Moines to a hub, and then 4 transfer to the plane to El Paso, 2 to the flight to (pick a random tiny city). On the return trip they collect all those people again.
Of course if you live in New York city this doesn't matter to you: New York is large enough to have a direct flight to nearly every small city, and could fill them even without being a hub (though as a hub they can fill larger, more efficient planes). To those of us to live in tiny cities we cannot get to other tiny cities because the flights just don't exist. The downside is we pay about twice as much for our tickets as we are paying for two tickets, but we can still get there.
Any time an airline notices a lot of people trying to get from one city to another they will add direct flights. Computers are good at figuring out where the demand is and airlines know a nearly full direct flight will capture the a lot of tickets that otherwise might go to competition. Big vacation destinations thus do not have to be a hub to get regular direct flights.
In the past, I've hypothesized [1] that the sole reason low-cost airlines like RyanAir can even fly to such outlying European airports is because there's significant competition among lesser airports desperate for business and the (supposed) positive knock-on effects that will result. This encourages them to provide subsidies, discounts, or other perks to airlines, because losing commercial air service would be a more severe economic blow.
The US is not adverse to subsidising and providing large tax discounts to companies, if anything this is much more common in the US than the EU because of state aid rules in the EU. Why wouldn't US regional airports also try and attract more airlines?
I've done some research and apparently LCCs now make up 30% of travel in the US. It looks like the US is catching up to the EU now.
The reason airlines thought hub and spoke was more profitable was because they could basically guarantee that every flight would be full. If a flight is only half full, you're lugging an entire airplane around for no reason which is very costly.
Hub and spoke is worse than airlines thought, though — newer planes like the 787 are far more efficient, so that cost of lugging the airplane around is reduced.
Is it simply that that they can charge customers in those small secondary markets a premium on fares into the hub areas? Is that the pricing leverage?
That being said when you look at the locations of some of these hubs they are in pretty undesirable places in terms of incurring flight delays due to weather - Chicago? San Francisco? Minneapolis, Denver, New York?
Chicago [same for New York] is large enough that it will be a hub: enough people want to get from Chicago to every other city that if you don't offer the direct flight someone else will. From there people will figure out you can get from Chicago to anywhere they will will make it a hub despite your wishes.
The other part is historical. Minneapolis was a hub for Northwest Orient Airlines because it started in Minneapolis and thus made that their home hub. Delta eventually bought Northwest and got the hub with the deal. They decided to keep Minneapolis as a hub.
I don't know what the situation is with San Francisco. I suspect historically planes needed to stop there for fuel before crossing the ocean. That is just a guess though.
I am not trying to slight Denver or Minneapolis in any why I'm just using them as an example. It just seem that a strategic rebalancing of hub locations might make help with delays and rescheduling. The situation now seems to be the airline inherited the hub through consolidation and that's where it will stay because they're too cheap to move it.
Though why Fargo isn't a hub by this logic I don't know. Also a population weighted geographic center is probably a better consideration than just pure geographic.
It's more that airports are only so big. It's expensive to build a new terminal, so if one airline takes over most of an airport, the others can't turn it into a hub. If you don't mind a layover, that's not a big deal. If you want nonstop from your nearest airport, the airline that made it a hub will be able to charge you more. But that's only fair, because they invested the capital in making that airport a hub. If they over-invested, that's a lot of capital lost.
Is this really so?
I tend to believe that, smartphones with camera and the cam apps are having their wonder in that they fix "abuses" of companies and institutions by bring them to light.
Maybe hotels and car rental agencies don't have much do disguise but still can abuse, like in poor car maintenance for car rentals, or food quality or cleaning for hotels.
Continental merged with United. They need to get the facts right.
2 stories on the front page now peddling outrage over United. HN is better than this.
I imagine this seems like it makes sense because it happens to fit into the Republican view of regulation = bad, deregulation = good.
The regulation applies to passengers denied boarding involuntarily (https://www.law.cornell.edu/cfr/text/14/250.5). There is no mention of a maximum amount of money that can be offered to individuals volunteering not to board an overbooked flight (see https://www.law.cornell.edu/cfr/text/14/250.2b).
Indeed, it was reported that United never even approached the $1,350 mark, though I can't find these references at the moment.
Delta just raised their minimum to $10k-ish if you read the article...
Then Delta called government law enforcement offers to enforce existing regulation and remove the passenger.
Without this regulation there would have been no maximum for damages in violation of their contract, thus the passenger could of sued for a potentially unlimited amount. Thus Delta might of been inclined to offer more as their losses would possibly be higher than the maximum in the regulation. Having a maximum, and having government law enforcement enforce said maximum certainly contributed to this issue.
Now due to the losses in stock price Delta has reevaluated it's risk/reward on terms of bumping passengers and decided its more cost effective to offer more. This is a perfect example of how the free market can correct these sort of things without the government getting involved at all.
2. No one ASKED for any money. United was trying to get people to voluntarily bump by offering X - no one accepted (because the next flight didn't leave for a day). United should have realized that if they really wanted to get their employees on the flight & not have an international incident, they could go a bit higher...
3. Here's the rule:
> If the substitute transportation is scheduled to get you to your destination more than two hours later (four hours internationally), or if the airline does not make any substitute travel arrangements for you, the compensation doubles (400% of your one-way fare, $1350 maximum).
All of this is out the window anyways with the Dao case since it wasn't even an overbooked flight - one with too many ticketed passengers - but one where they were trying to get employees to another airport (which they could have easily booked on another airline due to internal agreements).
My mistake.
2. No one ASKED for any money. United was trying to get people to voluntarily bump by offering X - no one accepted (because the next flight didn't leave for a day). United should have realized that if they really wanted to get their employees on the flight & not have an international incident, they could go a bit higher...
Yes, but they don't have to offer any more. The truth is you don't get to choose if you are bumped from a flight they can simply bump you and the most you can sue for is the rate specified. Without a specified rate you can argue in court that "missing the flight cost me a multi-million dollar deal" or "I missed my grandfathers final moments" and potentially get awarded many thousands or millions of dollars. That risk likely would have resulted in a very different outcome. (probably the end of overbooked flights and increases in airline fares/stricter restrictions on missing flights to compensate)
>All of this is out the window anyways with the Dao case since it wasn't even an overbooked flight - one with too many ticketed passengers - but one where they were trying to get employees to another airport
That's something for his lawyers to look into of course, I have a feeling the 300K a year guys they keep on retainer who likely approved this policy have a good idea of how they can argue this was legal under current regulation. That or the legal department at United will have some openings soon.
They can argue. But will the judge or jury agree?
Regarding the boarding, this was posted by a lawyer and makes it look a little bit like a clusterfuck. Could get quite pricey for United.
1. First of all, it’s airline spin to call this an overbooking. The statutory provision granting them the ability to deny boarding is about “OVERSELLING”, which is specifically defined as booking more reserved confirmed seats than there are available. This is not what happened. They did not overbook the flight; they had a fully booked flight, and not only did everyone already have a reserved confirmed seat, they were all sitting in them. The law allowing them to deny boarding in the event of an oversale does not apply.
2. Even if it did apply, the law is unambiguously clear that airlines have to give preference to everyone with reserved confirmed seats when choosing to involuntarily deny boarding. They have to always choose the solution that will affect the least amount of reserved confirmed seats. This rule is straightforward, and United makes very clear in their own contract of carriage that employees of their own or of other carriers may be denied boarding without compensation because they do not have reserved confirmed seats. On its face, it’s clear that what they did was illegal– they gave preference to their employees over people who had reserved confirmed seats, in violation of 14 CFR 250.2a.
3. Furthermore, even if you try and twist this into a legal application of 250.2a and say that United had the right to deny him boarding in the event of an overbooking; they did NOT have the right to kick him off the plane. Their contract of carriage highlights there is a complete difference in rights after you’ve boarded and sat on the plane, and Rule 21 goes over the specific scenarios where you could get kicked off. NONE of them apply here. He did absolutely nothing wrong and shouldn’t have been targeted. He’s going to leave with a hefty settlement after this fiasco.
Unconfirmed reports say that some passengers did ask for more, but were "laughed at" by the United staff.
> Then Delta called government law enforcement offers
> Now due to the losses in stock price Delta has reevaluated it's risk/reward on terms of bumping passengers
You're confused. The recent controversy was caused by United calling law enforcement after the auction hit the cap, not Delta.
Delta is increasing the price they'll pay to bump to reap the PR benefits of appearing to be a better run airline.
So back to the point, how is it correct that regulations got us into this mess of ~$1300 capping?
Without this regulation, would airlines be able to bump people involuntarily with no compensation at all? If so, then the regulation is a clear improvement.
Or would airlines be unable to bump people involuntarily without this regulation, being required to offer potentially unlimited compensation? If this was the case, then the regulation gets a huge share of the blame for this.
I'd think it would me more like the second one here, but I could be wrong.
So it's not clear how this particular regulation brought us this mess when the airlines didn't even follow the regulation that required them to tell the passenger in writing what his rights (and compensation amount) were.
How do you figure that? Wouldn't a free market solution require United to honor its contracts and the legal system in the first place? Which they provably already ignored when they removed ALREADY BOARDED AND SEATED passengers?
This didn't fall into "involuntary denied boarding" situation so United was free to offer whatever they wanted to. Which they chose not to do. Essentially, they had the situation you think would have solved the problem, but did not solve the problem.
Here, let me fix that lie for you: The recent United Airlines initiated police assault and battery on a passenger
And that lie might have worked, except for a fairly recent invention called a "smartphone". How that clown CEO still has a job is beyond my comprehension.
It seems there is at least some competition, United is just not a very good airline.
Southwest has some of the highest labor costs in the industry, having never filed bankruptcy.
It does seem to be a tough business, but I guess don't see why it's not "naturally competitive" (as the author claims)
Southwest is great for no change fees and free bags, but the cattle call boarding sucks, and they have far more "involuntary bumps" per passenger than United does. That said, because Southwest runs many short hop flights, you're more likely to be able to get another flight to your destination in short order.
Ask 3 people if they prefer United, American, or Delta, and you'll get 3 different answers. It depends so much on your home airport, what kind of flying you're doing, and so on.
I love Virgin and Alaska both, but despite flying 4-6 times per year, all of my trips were too short to qualify me as a frequently flier. By sticking with United (for longer flights, at least) I was able to qualify for their bottom-rung frequent flier program, and even just the possibility of getting a free upgrade on a future flight is enough to make me stick with an otherwise undifferentiated product.
Some airline booking ploys result in passengers being literal no shows. This occurs when a round trip fare is cheaper than a one way fare (so the passenger is a no show for the return trip), or a trip from A to C with a layover in B is cheaper than a trip from A to B (so the passenger is a no show for the B to C flight).
I've done the latter, where my internship is at A, my family is at B and I go to University at C. I book a trip C-A at the start of the summer and then a return trip A-C with a layover in B after my internship ends but some time before the next semester starts.
one of the particularly valid points is that airlines shouldn't be allowed to overbook. By offsetting this with no-refund policies, it seems like a win-win negotiation. It may not be "free market," but it makes logistical sense as it takes resources to re-route passengers and deal with the negative PR from booting passengers.
One of the not-so-valid points is the author's statement that "It makes no sense to allow airlines to charge an astronomical fare just because a flight is nearly full, and a dirt-cheap fare for an advance booking." The fundamental idea of supply and demand is that when supply is high and demand is low (when a flight is immediately listed), prices are lower than they would be when supply is low and demand is high (last minute interest in a semi-full flight). While most economic models have varying degrees of subjectivity, this is not one of them.
Ideologies are brilliant for discussion, but in practice, they fail to capture every possible variable and account for the impact when arriving at an outcome. Some amount of procedure (i.e. regulation) improves operations and efficacy. By the same token, too much regulation stifles operations.
Transportation is less of "creative" business, and more of a "procedural" business. As such, it can benefit from regulated procedures. The key is not to hide behind a wall of ignorance and ideology, but instead try to find the procedures that optimize the output for consumers and businesses.
Nearly every industry overbooks (airlines, hotels, even restaurants) and it saves consumers money in the long run. The problem is that when it happens, the airline shouldn't be allowed to involuntarily deny boarding to anyone, they should be required to offer a high enough reward that someone takes it voluntarily.
Some might say that proves regulation is no longer necessary, but I would argue that it shows that it works.
Only if you exclude regionals, which doesn't make sense.
Other industries with less regulations tend to kill people due to cutting corners (e.g. the Takata airbag scandal, Ford acceleration issues).
> "There is a middle ground between an abusive cartel and a ruinous free-for-all in the skies. It’s known as regulated competition."
The author has an agenda. There are two problems: 1. Is the airline consolidation permitted by the Obama administration going from 6 airlines to 4 with the consolidation of US Air into American and Continental into United. It is baffling why the Obama administration allowed this which only meant higher costs for consumers. 2. Airline gates and takeoff/landing times lots are a scarce resource at major airports, limiting competition and adding costs to flights. Speeding up the implementation of the GPS guided flight control systems and in the longer term building more runways will help release the scarcity for increased competition.
Many airports (e.g.. Chicago's O'Hare) was built years ago with no surrounding houses and people built and decided to live near the airport. Then they complain about airplane noise. They knew what they were getting into. There needs to be federal regulations that override local control prohibiting runway construction which harms to national economy.
Fixing problems like this is to understand the economics and where the market inefficiencies or market failures occur and addressing them so that we again have efficient markets. Air travel is a commodity and should be low cost except for these market failures, market inefficiencies.
In summary:
1. Break up American and United to restore the status quo prior to the consolidation.
2. Speedup investment in the ongoing conversion to GPS controlled air traffic control. Financial allocation from Congress which could be paid for by taxes on airplane tickets.
3. Federal legislation overriding local laws which create a shortage of runways in key high traffic airports.
And we're already seeing renewed competition in domestic air travel: JetBlue and Alaska are coming up fast and threatening established carriers. JetBlue is my wife's favorite airline to fly on; she's gotten pretty good service on some very low fares.
I don't really see this as a market failure. People expect capitalism to give them great products at low prices all the time; it doesn't work like that. Capitalism just means that when things get too out-of-whack, the market adjusts and fixes it. Airlines were crazily unprofitable in 2008-2010; the market reaction was consolidation & mergers, such that airlines are now crazy profitable and give shitty service. The market reaction to that is that new competitors are springing up, saying "I can do better", and people are flying on them. Vote with your dollars and in another 5-10 years United will be bankrupt again.
Capitalists generally do not want market efficiency when it comes to providing a product or service but for customers that is the best deal. Firms fight commoditization of their product or service and tried to create "moats" that protect their business from competition.
Looking for good investments is often a case of looking for businesses that can't easily be commoditized.
Columbia Profs. Bruce Greenwald and (also Nobelist) George Stiglitz sometimes co-teach a course. Greenwald talks about making moats and Stiglitz talks about commoditizing to make products/services more accessible to people with lower incomes.
https://www.propublica.org/article/airline-consolidation-dem...
"Some lawyers and officials who worked on the American-US Airways case now say they were “appalled” by the decision to settle, as one put it.
“It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work,” said Tom Horne, the former state attorney general of Arizona, one of seven states that were co-plaintiffs with the federal government."
> "Foreign companies and individuals—think Richard Branson and Virgin Atlantic Airways—are forbidden by U.S. law from owning more than 25% of a domestic airline. That’s why Virgin America could be sold last year to Alaska Airlines over the express wishes of Virgin’s famous founder: He just didn’t have enough votes."
http://www.latimes.com/opinion/op-ed/la-oe-welch-united-comp...
So while it may have become a cartel, like the drug cartels, policy really matters. I find it disingenuous to complain about a "naturally non-competitive market" like the NYT does, and not acknowledge the un-natural acts of policy keeping it such.
The article starts with this premise, but fails to offer a shred of support for the idea.
> 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.
Airline deregulation has been a massive success. Inflation-adjusted ticket prices have fallen by 50% since 1978: https://www.theatlantic.com/business/archive/2013/02/how-air....
Moreover, airline deregulation had an unexpected side-effect. It led to the creation of modern parcel carriers like FedEx, who could not have existed within the old regulated system: https://www.mercatus.org/publication/unleashing-innovation-d....
> 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.
That's kind of the whole point of competitive markets--to drive prices for undifferentiated goods toward the marginal cost of production.
> 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.
Using markets without weighting by population makes no sense. There are tons of airports in the U.S., most in places that don't have very many people. In the markets with the most passengers, there are 4-5 of what the GAO terms "effective competitors": http://www.gao.gov/assets/670/664060.pdf.
> 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.
The article argues that the airline industry is a cartel, and suggests that happened by 1988 (see above). But the airline industry lost $51 billion between 2000-2011, and recorded net losses every year before that since 1981.
> 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.
This is handwaving. If the hub-and-spoke system wasn't a net efficiency win, nothing would stop one of the numerous low-cost airlines from coming in and using a different system.
> But in an industry that is not naturally competitive, tweaking market incentives will not fix what’s broken. For starters, planes should not be permitted to fly so full. That leaves no room for contingencies.
Another hand-waving assertion.
> There should also be rules on how many passengers an airline can cram into a plane, and what extras it can charge for. And there should be limits on price gouging. It makes no sense to allow airlines to charge an astronomical fare just because a flight is nearly full, and a dirt-cheap fare for an advance booking.
More handwaving assertions. These things aren't "price gouging" in need of regulation any more than its "price gouging" for Apple to charge $100 more for a 32 to 64GB upgrade that costs it $10-15.
> Would rules like these destroy the airlines’ business model? Ask Amtrak, which hauls three times the passengers between New York and Washington as all airlines combined, and doesn’t punish you for canceling a ticket.
I used to ride the Northeast regional every workday for almost two years. Even on that segment, the only profitable part of Amtrak's entire system, Amtrak is using cars that were all built between 1973 and 1982 (which themselves were a slight retooling of a 1960s design). Despite Amtrak not paying for its own CapEx, its infrastructure is near collapse, with key infrastructure like the Baltimore & Potomac tunnel operating far past the point of obsolescence.
Not that I would trust a random journo to know the economics, but this is the NYT. This is why journalism is dying - instead of checking up the science and basic definitions behind the article (by shooting a quick email to Krugman, perhaps), it's just an article that gets views by piling on the hate bandwagon against United and dragging the rest of the airlines with it.
The headline is wrong.
If you want a typical cartel/oligopolistic market - look at the telecoms.
With the above definition, couldn't any industry/company bailed out by the government (i.e. United Airlines, AIG, Citigroup) be considered a cartel due to the fact that they are not allowed to be overtaken by competitive market forces?
How do we get free markets to work in a system like this? 50 passenger self-flying planes?
"Founded in 1971 to take over most of the remaining U.S. passenger rail services, it is partially government funded yet operated and managed as a for-profit corporation."
The NYT has slipped so far.
The NYT is a rag now.
Or is HN just turning into a subreddit now?
The problem is we have decades of real world experience and data to draw from and it does not make the free market position compelling. In fact if we take ideology out of the equation it's pretty obvious most of the recommendations in the article are absolutely reasonable (unless you think the invisible hand solves all).
Outrage of the Week (TM) story, nothing to do with hacking or technology - 62 points in under an hour. Mind bending.
Let the circle jerk begin.
Indeed.
> 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.
False. Perfect competition leads to zero profits, which is not the same a "broke."
> For starters, planes should not be permitted to fly so full.
> Also, we need rules limiting penalties for changing flights.
> The Federal Trade Commission or the Justice Department’s Antitrust Division should take a close look, and if rules like these don’t do the trick, the biggest carriers should be broken up.
> There is a middle ground between an abusive cartel and a ruinous free-for-all in the skies. It’s known as regulated competition.
Author notes the lack of a free market in air travel, prescribes a bunch of additional regulations, then hints that a free market would be "ruinous."
As far as I know, we've never tried free markets in air travel.
In theory, commoditized industries are ruled by entry and exit of firms, based on how the capital costs and economies of scale affect marginal cost of production.
When the political process creates friction for the entry and exit of those firms, you get problems in the commodity markets. You have to allow big companies to fail, and have smaller firms take their place then merge-and-acquire or otherwise destroy each other until the magic optimal size for that industry is reached.
I'd probably have all airports auction off 5-year leases for 20% of their terminal gates every year, and base the number of takeoff and landing slots an airline can use per day on the number of gates it currently leases.
Is this a policy proposal or an airport management idea?
A child slowly learning what it is to be a country, a government, a society.
You can see it in many areas, especially in ones other, more mature countries and regions, hold as vital to the public good.
Health Care. Transportation. Communication. Environment. etc.
Just look at how the EU governs passenger rights. None of the utter SHIT that is ok in the US would fly.
Same with data privacy - look at the upcoming GDPR law and compare to what ISPs can do in the US. And look at the stick they attached to it - a fine of 4% of total, global revenue. Boy I hope Facebook and Google have their checkbooks ready.
The citizen comes first, never a corporation.
You can't skip a couple hundred or even a thousand years of development though. A society needs to learn its lessons, takes ages. That the US is fueled by immigrants from less developed nations does not make it easier, those lessons need to be re-learned all the time. Societal memory does not exist as it does in say, Germany.
Let's recall that the article is saying that 40 years ago the situation was different.
Ultimately there is a lack of a unified societal contract, ironic in a country so focused on its constitution. What is the purpose of government, rules and society?
A lot of the issues in the US stem from this lack of common ground. And I believe, at the root is poor education and a sense of me vs. the newly arrived. A constant struggle to keep your spoils and not wanting to share with new people who haven't contributed yet.
The US is not a coherent country and society (yet). Still confused as to its purpose.
And yes, Trump is a great symptom of this.
The UK has this personality crisis right now, the empire is gone and a lot of newcomers have shaken up society. Brexit is a similar outcome. It needs to find its core, but as a conglomerate it is hard. Common traditions should help - but when the Queen dies, it will shake them up even more.