Scott Mayerowitz and David Koenig have a piece out on airline industry consolidation titled “Airlines carve US into markets dominated by 1 or 2 carriers.” The point is to suggest that airline mergers are driving up prices and reducing choice. I’m not sure that gives a fair read to the situation. At least to some extent though it seems like the conclusions flow from the way the piece is framed rather than clearly from the data.
Here’s the lede:
The wave of consolidation that swept the U.S. airline industry has markedly reduced competition at many of the nation’s major airports, and passengers appear to be paying the price in higher fares and fees, an Associated Press analysis has found.
Framing effects matter. Let’s take a look at the key pieces of evidence they offer.
At 40 of the 100 largest U.S. airports, a single airline controls a majority of the market, as measured by the number of seats for sale, up from 34 airports a decade earlier. At 93 of the top 100, one or two airlines control a majority of the seats, an increase from 78 airports, according to AP’s analysis of data from Diio, an airline-schedule tracking service.
… Overall, domestic fares climbed 5 percent over the past 10 years, after adjusting for inflation. And that doesn’t include the $25 checked bag fee and other add-on charges that many fliers now pay.
Framing effects matter.
- Most large US cities aren’t dominated by a single carrier.
- Despite consolidation, and the up until recently record high fuel prices, airlines have only managed to raise prices about half a percent a year.
- Indeed, inflation-adjusted airfares even including add-on feels are lower than they were 15 years ago — or any time prior to that.
This is therefore one of the best times in the near-100 year history of commercial aviation to fly.
The relevant issue here is: compared to what?
What should we expect to see? Should we have a domestic aviation market as brutal as India (where the government protects Air India from international competition and everyone else slugs it out domestically trying to survive long enough to be allowed to fly beyond the nation’s borders)? Or should we expect to see one as uncompetitive as France’s?
Would we expect to see the 50th largest aviation market bloodying itself with three or four instead of two competitors? And why don’t we think that two major carriers, in addition to flights from a third and fourth, comprise competition? Having two strong players in a market creates a critical mass that may be better for consumers than four or five weak players.
I’m not actually arguing that this is the best of times, on the contrary my point is that whether things are relatively good or bad depends on your point of comparison and your counterfactual.
And the reason this matters is because it becomes suggestive and supportive of (or at least used to support) a course of action.
- Do you rail and complain how much you hate the airlines, or that you wish the government would have pursued a policy that didn’t allow consolidation during a time of unprecedented losses (for some airlines, over half a billion dollars a quarter)?
- Or do you propose a simple change that US airlines hate but that could make a real difference?
If you do buy the premise of the piece, though, the simple approach is to lift foreign ownership restrictions on domestic airlines. If you want competition, you should shout from the roof tops that the government should allow it instead of protecting the big US airlines from new market entrants like Singapore Airlines and Ryanair.
At the very least it makes no sense to complain about a ‘lack of competition’ while at the same time supporting policies that block competition.