Airways Magazine

Op-Ed: Thomas Malthus Would Love The U.S. Flying Market

 Breaking News

Op-Ed: Thomas Malthus Would Love The U.S. Flying Market

Op-Ed: Thomas Malthus Would Love The U.S. Flying Market
May 11
15:50 2017

It may come as absolutely no surprise to everyone that I disagree, frequently, with Airways’ Senior Analyst Vinay Bhaskara. The other day, a founder who shall remain nameless, contacted Vinay and me to discuss whether or not this arms race of densification and poor service should result in government regulation. Here’s what I had to say. Note to our collective fans: Vinay’s op will run later this week.

While I agree it’s shouting at clouds, I’m at a loss about this situation. Having said that, I feel like the stereotypical undecided voter. “I’m angry and I want the government to do SOMETHING!”

What? What could they actually do within the realms of law and possibility? That’s where it gets harder.

Outside of telecommunications, there is no business I can think of with as ridiculous barriers to entry as the airlines. In the case of airlines, most of these barriers are not ones the government, could, or should remove. The government has no right to set the price of an aircraft just so someone can compete. That’d ruin everything! Many of the rest exist in the name of safety. Many countries have airlines that are also beholden to their shareholders and must make a profit but don’t do this.

In Australia, Qantas and Virgin Australia compete on service as well as merely on the fact that they exist. In China, while ownership is all over the place and its government has so many different areas that it wants to focus on within the realm of transportation, there seems to be an airline for every single segment of the market.

Why, in the largest air travel market the world over, do the airlines not compete on things that actually matter to the customer? Sure, they say network. But does that even matter anymore? You either live in a fortress hub city, or you live in a city served by two regional carriers that fly you to a fortress hub. Sometimes, you are unlucky enough to live in a city with one regional carrier, or a drive to one regional carrier. That’s not really differentiation. The only difference is what’s painted on the tail.

Everything, through the arm of institutional investors, is forced to homogenize; with the shrinking seat pitch, decreasing benefits, and a plethora of unhappy passengers being beaten up, beating each other up, or experiencing the death of their giant lagomorphs. The Legacy carriers don’t seem at all different, they even usually charge roughly the same fares.

Now, because they don’t outright signal that they are all going to charge almost identical prices; it’s not collusion. So, I suppose it is also not collusion when every other airline called out Southwest for increasing capacity that time.

No, of course not. It’s reacting to market forces. It’s even reacting to market forces when United immediately says they also want to increase cabin density after American does.

Employees are seen as a cost, so paying them any more than necessary to prevent strikes is a waste of money that could go back to the shareholders. Premium catering? Hey, the passengers get a free meal. Isn’t that enough? No one said it had to be edible! Frequent flyer programs add value, but only if the customer can’t redeem their points for travel. It’s the little things, and they are all the same.

Therefore, no matter who you fly amongst the legacies, it’s a cornucopia of despair regardless of your class of service.

I would argue that JetBlue and Alaska are free of this ant-mill style institutional investor backseat driving to distraction simply because they’re not large enough to be forced to homogenize. However, as they expand expect their focus on things that differentiate them to the customer to disappear.

So there you go. I think I’ve figured out what the government should do: Make competition actually competitive.

The airlines have shown a willingness not to compete on price, service, product, amenities, frequent flyer program, and have become so big that any of them will get you anywhere on Earth with either their metal or an alliance partner.

The government, acting in the interests of a healthy marketplace and the consumer, then should tell them to actually compete. Instead of turning a blind eye to earnings calls where other airlines are called out as reckless for adding more seats. Investigate. Instead of allowing airlines to offload customer service issues to the taxpayer by way of using the police to argue for them, write legislation similar to what almost every Western nation has on the books that spell out how to handle what to do when operations go astray.

Why doesn’t America? Give people a reasonable legal framework, and then you’ll get fewer YouTube videos of bloody-faced passengers. There is no reason for the government to set a minimum seat pitch for purposes other than safety. Having said that, the government should be a tiny bit suspicious when every single airline decides to reduce (or increase) seat pitch within a very short timeframe.

Airlines aren’t restaurants. Travel is necessary for our economy to function. We can’t say “well, that was a terrible sandwich – I’m going somewhere else next time.” We can’t open our own airline. So the government, which apparently exists to enforce the social contract should stop the airlines from using “wall street forces,” and the myth of the customer who would rather pay 0.1 cents less for a ticket to ruin things for everyone to stay on each other’s core markets, all act the same, and get to a point where society is calling for hilarious and knee-jerk reactions.
The anonymous founder then reminded me, however, that we cannot turn back the clock on consolidation. We can’t ignore the fact that the airlines had been caught in a bizarre, cyclic market and this is the first time they’ve really had this consistent a growth pattern. He followed up with me with respect to my opinion on that.

To which I had to say:

We can’t turn back the clock, but simultaneously, the government is the one that let them merge. Everyone knew that once one mega-merger was approved, everyone else would merge soon after leaving the Department of Justice, forced to do nothing other than approve in the name of fairness (no matter what it’d do to the market).

So, I came up with a two-pronged approach to consider. Firstly, America already has laws on the books about competition and market power abuse. They just have no teeth. Perhaps the airline industry is an allegory for the American market writ large and we need to rewrite the laws so that corporations and the consumer are once again on an equal footing.

The other option. Well, remember AT&T? Be careful when you overplay your hand after you consolidate, voters get angry. There’s nothing a politician loves more than easy points and the airlines are sure making themselves one heck of a target.

Comments
0

About Author

Bernie Leighton

Bernie Leighton

Aviation media is the only career where you can be in Papua New Guinea one day, and then go to Bangladesh the next; for no reason than to fly on rare airlines, rarer aircraft, and visit new countries. I write about aviation. I mostly love Russian planes. I'm a Trivia geek who flies helicopters and loves meat.

Related Articles

2 Comments

  1. sawdust21
    sawdust21 May 12, 05:22

    You are probably correct in all your assertions, however, the world changed after deregulation in 1978 (I worked for Eastern at the time) when the traveling public went for ladies and gents to cattle (my apologies to the cows of the world). When cleaning crews and cabin crews at the smaller stations had to find tobacco spit cups, dirty diapers and used condoms in the seat back pockets, in addition to all the problems you mention, that’s when the whole thing went to hell in a hand basket. And then mergers, cheap fares and the cramming of people process just keeps adding to the problem.

Only registered users can comment.

0