Consumers Desperately Need Competition in the Airline Industry — Let’s Start By Just Making Competition Legal

Continually better product at lower cost is the hallmark of vibrant competitive industries.

The US legacy airlines, with Basic Economy fares, are striving to provide less at the same price.

And they work hard to limit competition — they tried to keep out transatlantic discounter Norwegian, and they’re trying to get the government to limit flights to the US by Emirates, Etihad and Qatar and limit their ability to discount fares.


Etihad at Abu Dhabi Airport

It’s time to say enough is enough. I know plenty of passengers are fighting the last battle, lamenting industry consolidation, but there wasn’t a ton of legal ground on which to prevent the big airline mergers and regardless that’s done and in the past.

We don’t have to relitigate past battles, though, if we want competition. The first thing we need to do is simply to legalize competition. Right now there are strict limits on who can own an airline. Instead, we should allow foreign ownership of US airlines — let Singapore Airlines and Ryanair and those Gulf airlines the US majors are so scared of offer service on US domestic routes.


Singapore Airlines Boeing 777-300ER

Why doesn’t this happen? The major US airlines don’t want competition and they have a strangehold on the House Transportation Committee. Congressman Shuster (R-Conquistadores del Cielo) seems to want to give the airlines whatever they wish. Consumer choices, convenience, and competition-lowering fares don’t appear to factor.

The major airlines have succeeded in regulatory capture at DOT which improperly ignores consumer complaints. This matters because the Supreme Court has nearly eliminated the ability to sue so your only avenue of redress is the DOT.

Bringing about competition still wouldn’t be easy. US airlines have a stranglehold on the major airports and wouldn’t let new entrants in. They manage to block expansion of the airports, too, except when they’re the ones expanding. (Remember that the deal to ‘allow’ flights beyond perimeter states from Dallas Love Field included destruction of about a third of the gates there.)

Incumbent airlines lock up the politicians behind government-owned airports the way we get regulatory capture at DOT and cronyist relationships with influential members of Congress. So there are infrastructure barriers to growing competition at major US airports, with politicians standing in the way there too cheered on by the US legacy airlines.

You’ve had airlines colluding with the federal government since the 1925 Kelly Act, the 1930 Air Mail Act, and the corrupt ‘Spoils Conference’.

Consumers who wish to ‘bring back regulation’ forget that the Civil Aeronautics Board took as its mission preventing ‘ruinous competition’ and so the government dictating who flew where and set (high) prices in order to ensure airline profits.

Enough is enough.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. What people need to do is be the change. Fly the smaller airline, fly the ME3 airline next time to Europe, even if it means giving up your laptop. I plan to fly to Greece on Emirates later this summer.

  2. This blog should be renamed “View from the Left Wing”. I miss the days when you posted non-political, helpful travel information. Leftist bloggers love to blather on about competition, but forget that inflation adjusted airfares are near all time record lows. Consolidation happens in every industry, it doesn’t mean there is not enough competition. What’s the alternative to consolidation? Propping up failing airlines with subsidies? No thanks. Besides, there have also been about as many new market entrants as takeovers.

    @Nick your solution to lack of competition is to give your business to a state owned (i.e. extremely anti-competitive) enterprise? And quite a tolerant state at that! You’re quite the social justice warrior.

  3. us airlines are a no match for asian airlines like CX, OZ, NH, BR, JL, SG… all of them. they say they are the best but need protection against others from coming in.

  4. @WR When did enhancing capitalism and competition by decreasing regulation become a leftist position?

  5. Bemused but tickled that deregulation of the airline industry to permit free-market competition is considered a “leftist” position by some readers of this blog…

    Keep up that Hayekian “left-wing” advocacy, Gary!

  6. @Ed

    Presumably the same time that keeping cheap labor out of the country, ballooning the budget and paid maternity leave became stalwart right wing positions. Who even knows anymore…

  7. And let us not forget how our legacy airlines have been at the forefront of ensuring well financed shills against high speed rail programs in TX and FL.

  8. @WR — yes, Capitalism belongs to the Communist/Socialist/radical left; that’s why Marx called his book, “Das Kapital” . . . .

    In a free market, the Japanese and German car manufacturers kicked Detroit’s ass! And as a result, some US car manufacturers disappeared, but those which are still American-owned (GM, Ford) are producing the best cars they’ve ever made; Chrysler (now owned by Fiat) is making better cars as well, and no one is saying, I’m not buying a Dodge pick-up because the Italians own the company . . .

    I’m going to miss Virgin America, which would probably still be independent and profitable had Richard Branson been allowed to actually own and run the company. As it is, I’ll be happy to fly Alaska — or Southwest — as long as it’s not trying to nickel-and-dime me to death like BOTH the legacy and low-cost carriers are trying to do.

  9. There’s certainly no evidence that airfares are getting more expensive in the USA these days: we’ve had a couple years now where they’ve empirically gotten cheaper.

    First of all, there is essentially no restriction on competition from foreign airlines in int’l markets from the USA. Other than the one-off situation of competing with the Middle East airlines and their tens of billions of dollars in government subsidies, there are no examples of the US carriers being unable to compete. The idea that we need more competition on these routes than what we currently have seems silly.

    So that leaves the domestic market. It would be very unusual for the US to open this market to foreign carriers, and I doubt it would make much difference. There’s no shortage of airline management talent in the USA: if there was a better mousetrap, it would have been built. Without government subsidies, I’d be very surprised if the foreign carriers could offer better service in the USA at current fare levels. How successful has anyone been in the USA by doing so? Alternatively, on the cheapo front, would Ryanair be cheaper than Spirit? Why? And would you want more Ryanair-like service?

    I know folks like to complain about air travel, but this seems like a solution in need of a problem to me.

  10. I would also note that if you are savvy and price sensitive, there are a zillion ways to get astonishingly cheap airfare as a US citizen. I assume most of the people reading this blog do so on a regular basis. Would any of you trade our system — including our generous credit card bonuses — for that existing in any other country? I know I wouldn’t. I wish everything I wanted to buy was as cheap as air travel! Would I like that air travel to be a nicer experience? Sure but, you know, I’m already getting more than I pay for, so it seems pretty hypocritical to complain.

  11. @iahphx You speak of generous credit card bonuses. If anything, increased competition will lead to more bonuses.

  12. We often hear the mindlessly repeated assertion that airfares have gotten less expensive over the years. Nothing could be farther from the truth.

    People making such assertions are comparing the far superior product of the past with the cattle car like product offered today.

    Yesterday’s economy seat came with:
    * more legroom,
    * more elbow-room,
    * full meal service,
    * freedom to correct any spelling errors free of charge,
    * freedom to change dates of travel for a modest or no fee,
    * open return ticketing
    * free checked baggage allowance of two suitcases weighing 70 lb each,
    * customer service phone answered immediately by a real person, etc.

    It is somewhere between idiotic and lunatic to compare today’s economy fares to what was offered in the past.

  13. Gary, maybe I misunderstood, but didn’t you advocate for consolidation in the recent past? My perspective is that consolidation has gone way overboard, particularly on this last round of DL/NW, AA/US and UA/CO. This isn’t just nostalgia. There are reasons so few of the legacy airlines aren’t around any more, but the time is well past that the airlines needed consolidation just to survive. Your points about how bad the domestic market is, and your solution are very common sense. Sadly, it seems exceedingly unlikely that any changes in policy that might actually benefit the consumer will occur in the near future.

  14. If anything, the increasingly less competitive market in the US means that the goodies of rewards points and frequent flyer miles are more likely to be taken away in the future. Given the way that lots of mid sized Midwestern cities have lost their hubs due to consolidation, I don’t really have a lot of sympathy for the US3. Subsidies or not, the ME3 have showed the US3 how to run their business, instead of complaining, they should fix their service so US customers will naturally be inclined to pledge loyalty to their own country’s carriers.

  15. I don’t see why americans complain so much about their domestic service. I’m Portuguese, I fly in Europe very often (Lufthansa, TAP, Portugal, Aegean, SAS, Brussels Airlines), which we can compare to US domestic market. I’ve also taken a few domestic US flights (on United, since I’m Star Gold), mostly between EWR and places like Houston, Las Vegas) and I don’t see that much of a difference.

    Could it be that the compain is more about what it used to be in the past and not so much about how it is in other places at the present?

    Like someone said, there’s no other place like the U.S. to play the points game. You get huge bonuses for credit card subscriptions, not seen anywhere else. You have credit cards to most big airlines, both US and foreign ones. Thanks to those cards, you have access to things like Priority Pass (I have to pay for mine) and so on.

    I don’t have experience with the U.S. low cost carriers but I can’t see Spirit being much worse or much more expensive than Easyjet or Ryanair.

  16. Gary once again shows how little he actually knows about the industry. The airline industry is among the most transparent with ample publicly available data from the USDOT. Few industries and publicly traded companies share as much with theur customers, investors, other stakeholders and the vgeneral public at large as the airlines.

    And Gary passengers on the airlines today get more value than before. Wifi, AVOD, fully flat seats, restaurant style meals, top shelf booze. Those $2k intl J fares demonstrate that. Any hedonic pricing analysis would show that for each dollar people are getting more product, much like any entry level vehicle today now includes a full complement of safety features, Bluetooth, back up camera, etc.

    Amazing even a self professed “thought leader” would put this nonsense out!

  17. Hmmm….I’m not so sure about the premise that we are restricting foreign ownership because domestic airlines “don’t want competition.” The airline industry is a strategic industry with national security implications. Remember how people flipped out when Duetsche bourse wanted to buy the New York Stock Exchange? Or how everyone goes bonkers anytime a port authority wants to hire foreign management to oversee port operations?

  18. @Rob: As it is, a large number of foreign carriers are flying into and out of our airspace already, dropping off and picking up passengers anyway. What are the “strategic national security implications” if they made one more domestic stop and carried a few extra pax?

    For example, BA is ferrying pax between LHR and LAX already. What national security problems do you foresee if the plane stopped in ORD as well?

  19. Gary,

    What happens if Chinese-, Russian-, or ME3-owned airlines come to dominate the U.S. airline industry, and a conflict then breaks out where the interests of the U.S. are adverse to the owners of these strategic assets?

    The reason for foreign-ownership restrictions has a national security component.

  20. There is definitely some value to the Civil Reserve Air Fleet program. If a war broke out overseas, the US airlines fleets would be valuable in providing transport to our soldiers. I don’t think it would be worth having if it meant higher USA airfares. But I don’t think it does.

    I appreciate Mauricio weighing in with his European experience. That’s exactly what I’m talking about. Objectively, as savvy USA-based flyers, we have a sweeter deal than anyone else in the world when it comes to achieving value on our airfare purchases. “Demanding” more when most of us already get more than we pay for doesn’t strike me as a correct argument.

    Finally, Paul raises the issue of whether more competition in the USA airline industry would create even better credit card bonuses. It might, but I doubt it. As I said, high-quality domestic air service has not been shown to be a profitable business strategy. I am sure that DL, UA and AA would LOVE to provide this service — if customers were willing to pay for it. But, time and again, high-priced, high-service business models have not worked for USA domestic travel. There is absolutely no reason to believe foreign-owned airlines would have more success with this model.

    Rather, the result of allowing foreign-airlines to compete in the USA would be more ultra low cost carriers entering the market — and FURTHER reducing service levels on USA domestic flights. Whether we like it or not, most customers — especially unsophisticated customers — buy airfare mostly on price. I’m not sure about you, but I really don’t want more “basic economy” service on the “legacy” airlines. I’m pretty sure that’s exactly what we’d get if we thought it was a good idea to invite Ryanair into the USA market.

  21. “We often hear the mindlessly repeated assertion that airfares have gotten less expensive over the years. Nothing could be farther from the truth.”

    Au contraire, I am seeing some of the cheapest fares to Europe from USA this summer. Just yesterday I saw “Huge sale from the USA to Europe from only $380 roundtrip” and “Boston to Reykjavik, Iceland for only $292 roundtrip”.

    We have cheaper fares due to Open Skies and healthy deregulation. Open Skies and healthy deregulation should not result in amorphous security regulations whose intent is unclear but on the surface appears to damage certain foreign-flag carriers by insisting their passengers check their laptops and tablets prior to boarding nonstop flights to the United States.

    I am therefore pleased to be flying on Qatar and Royal Jordanian in August. These airlines have provided substantial benefits to consumers in the United States and deserve our support in good times as well as troubled times.

  22. @ALCO first of all, there’s a reason I take the position of ‘foreign ownership of US airlines’ rather than ‘allow foreign airlines to operate in the US’ that’s a subtle but important difference. but ownership of the air fleet would have no impact on national security, or prevent the US government from doing what it does not need to do.

  23. @Josh G – you’re trotting things out which do not in any way refute what I’ve said here at all. There’s tons of mandated data (apart from 10-K filings) required of the cartelized industry by the federal government. Real prices have fallen even inclusive of fees. I’ve trumpeted that loudly, and written many times about the offsets against slimline seats and basic economy. Point remains that barriers to entry in the industry are both extensive and artificial, and that consumers would benefit from their removal.

    I’ve got a challenge for you Josh — the next few comments, try to make your point without personal attacks? Do you have the intellectual heft to do that?

  24. @Christian I didn’t advocate for consolidation, I suggested that there wasn’t much legal basis for the government to STOP the american/us airways merger (even though it made me sad)

  25. “Conquistadores del Cielo”, lolz! Love it.

    Gotta agree with @Steven M on the pricing tho: it’s a desperate bloodbath out there right now. And now mid-500’s 1e-3e? Yowsa!

    Feels like trade-war comin’ too, this won’t be pretty…

  26. Let’s not forget the plethora of new entrants after the airlines were de-regulated in 1978, and how they were either financially squeezed out by the majors, or, just gobbled up, e.g., Jet America, Air California, Morris, NY Air, etc, etc.

    True competition should allow for “cabotage” to allow overseas airlines to fly passengers on intra-U.S. routes, as part of their long haul overseas flights, e.g., Lufthansa SEA-BOS-FRA. The only pressure on the legacy carriers to improve services and lower prices has historically been due to competition.

    The key pivotal element in our transportation has been competition, as evidenced how Megabus shook-up Greyhound (causing the dog to create Bolt in response).

  27. @Gary, I was writing in the same context of foreign ownership as you were. The USAF Air University Air War College wrote a very interesting paper on this issue in 2008. Their analysis and recommendations are quite interesting from the perspective of the national security implications of foreign ownership:

    http://www.au.af.mil/au/awc/awcgate/maxwell/mp42.pdf (link is to a PDF)

    Their analysis recognizes the tension between the economic and security interests of the U.S., and there are some interesting alternative recommendations or options outlined there. The USAF paper strongly implies that foreign ownership is a serious national security risk that it would prefer not to deal with, but begrudgingly offers up some ideas for liberalization of the current regulatory scheme (mandating U.S. incorporation, DOD control over grant of DOT authorization to airlines, etc.)

  28. @Paul —> in re: credit card bonuses, etc. There have already been numerous articles on how these are/will be shrinking or going away completely, as they have in other countries around the world. In part, this has to do with interchange fees and the caps being placed upon them. If you’re waiting for increased bonuses, I wouldn’t hold my breath over the long term. . .
    /\/\/\/\/\
    @ALCO & @iahphx —> Gone are the days when the US is going to seize US commercial aircraft for military service. That is a hold over from World War II. Between in-service airlift capacity and charter flights, there’s more than enough available space to get “boots on the ground” in a conflict. And if an all-out war were to transpire, the nukes would be going off before the boots ever got there, so the case is moot.
    /\/\/\/\/\
    @Mauricio —> Bom dia. I am the opposite of you: I live in the States but, relatively often, fly within Europe on TAP, Iberia, BA, etc. Generally speaking, I find the seats better in US business class, and what often passes for Business on European carriers to be a sick little joke. That said, I find the food and wines generally better on European carriers, regardless of class, when flying w/in the EU than on US carriers when flying here within the US. And while we don’t (yet) have airlines attempting to charge us here in the States for hot water should we bring our own tea bag, we have had airlines float the idea of pay toilets on board or charging fees even to use the overhead bin.
    /\/\/\/\/\
    @iahphx (again) —> I have no doubt that, adjusted for inflation, some fares today have declined over days gone by. However, it’s a mistake (IMHO) to claim that “most of us already get more than we pay for.” Can you quantify that? Looking at airfare alone, I know I’m getting far less than I pay for. Were I getting what I pay for, I would haven’t to be paying extra to check a bag, or to have a meal when all that used to be free¹.

    For example, LAX-SFO used to cost me $12.50/each way (nonstop) in what was then called “Coach.” That was the price, whether I paid 14 days in advance, or bought the ticket at the airport. I got a reserved seat (which I got to choose), two checked bags, and something more than merely coffee and peanuts to eat included in the fare. According to the US Inflation Calculator, that would be equivalent to $91.17 today. While it’s true that — with a 14- or 21-day advance purchase, I can (usually) find lower fares, it’s impossible to find a nonstop Economy fare that low for today or tomorrow. It’s basically $219 on AA, DL, UA, VX, WN², etc. All except Southwest will charge me $25 to check one suitcase (more for a second), presuming I have no status, credit card or other “special” consideration to waive that fee.

    In terms of an LLC, Spirit — which doesn’t fly into SFO; I’d have to fly into OAK — is $131, plus $35 for a carry-on, $30 for my 1st checked bag, and anywhere from $1 to $199 to choose my own seat — and another $2-10 if my printer is broken and I have to print my boarding pass at the airport. Food is between $1-10; drinks are between $1-15. At a minimum, that’s $207 for what I used to get for the 2017 equivalent of $91.

    Just sayin’
    /\/\/\/\/\
    @Josh —> Yes, really. Please try. Try harder.

    _______________
    ¹ That is, included in the price of the ticket.

    ² Southwest would be $174 – $221 to OAK, depending upon the flight.

  29. @Jason Brandt

    Nice touch with that bit of Portuguese 🙂

    And exactly….when it comes to business seats, all you get here in most airlines, it’s a blocked middle seat. That’s it. Sure, you get better food and service but the seat is just like any other on the plane. And yes, I agree that thr service in economy may be a little bit better here because there’s still food and drinks in many of the carriers. But just like I said, you have it better in some ways, we have it better in other ways, so it’s pretty much the same.

    I think a lot of people take long haul flights with european or asian airlines and think the short haul flights will have the same quality of hard and soft product. That’s not my experience. Sure, there are some exceptions, and sometimes they happen with small airlines. I got a decent meal on a 45 minutes flight with Air Mauritius. As a travel photographer, I have the chance to try a lot of airlines (52 so far from every continent) and honestly, domestic flights are not that different wherever they are.

  30. @Gary Leff — As I said, I’m not a huge supporter of the Civil Reserve Air Fleet but I think it probably makes sense from a defense perspective. Unless you’re going to buy more airplanes for the military or FORCE the airlines to provide necessary transport in time of emergency, I’m not sure what the solution is. Just eliminating the program and hoping there’s a way to move troops doesn’t seem like a great idea to me. Maybe Trump should negotiate a better deal for the gov’t? The program was used in both Iraq wars. Sometimes the government does need to pay provide enterprise to do things. If this is a “subsidy” it’s a darn small one — unlike the Middle East airline subsidies that you always think are equivalent.

  31. Obrigado, Maurico. That some (most?) Americans anticipate short-haul flights on European-based carriers to be a similar experience to that they had on a long-haul flight is, in a sense, their own fault. Certainly not the airlines! The experience within the US and traveling internationally on US-based carriers isn’t the same, but sometimes they fail to apply the same standing to intra-European and international travel on European airlines. The logic of that fails me.

    That said, I believe that many “mid-level” European carriers have shown solid improvement, while witnessing the decline in some “top-tier” carriers like BA, as well as several LLCs. Take TAP as an example: no longer does T-A-P stand for “Take Another Plane.” Their on-time performance is improving, service is improving, and so on.

  32. Yep….TAP has improved a lot, mostly the last year. Taking an airline from government hands usually has that effect. Sure, it’s still majority owned by the state but having almost half of it in private hands, and being those hands the guy who started JetBlue and Azul in Brazil, things start to improve. A lot of new planes have arrived to TAP Express (ATR’s and Embraer’s), all older planes have been or are in the process of being completely retrofitted (which means much better business seats on the A330’s) and early next year the new A330neo will start to arrive, giving new life to the long haul fleet. TAP is actually the launching customer of the A330neo. The airline was completely stopped in time due to huge losses and not having any money to buy new planes. A lot of strikes prior to the privatization didn’t help either. Better days will come for sure.

  33. @Jason — You’re probably right that some travelers compare foreign airlines transatlantic service to USA domestic service. People always think they know more than they know, and make inaccurate comparisons all the time. That said, on an apples to apples basis, USA full-service airlines provide worse in-flight service than foreign full-service airlines. I’ve flown enough (millions?) miles to know that, and it’s true in all classes. It starts with the flight attendants: the USA just doesn’t have the service culture of other countries, and the USA airline seniority system does not foster good flight attendant service. USA airlines also tend to be a little chintzier on food on beverage. Mind you, not all of these deficiencies are necessarily bad business decisions — just like it’s often not a bad business decision to offend Gary Leff’s belief in how generous a frequent flyer program should be. Just that you, as a consumer, are often better off choosing to fly a foreign airline if you want better in-flight service. There are certainly other things that USA airlines do better, and that generally includes providing better information on their websites.

  34. @iahphx . . . just some random thoughts . . . .

    On the one hand, in a apples-to-apples/oranges-to-oranges basis, my initial thought is that once the tickets are purchased, who cares about the website? Now that’s probably true (save for checking into the flight), but then I remembered when Iberia screwed me — yet again! — on a roundtrip flight from Milan to Madrid. Nowhere on the website did it tell me that I was flying out of Malpensa, but arriving back at Linate! It wasn’t until after the purchase was complete were the airline codes revealed (rather than just the cities). So, yes, generally speaking US airlines’ websites are better. (For that matter, so too, US customer service is generally better.)

    I do not subscribe to the theory that ” all of these deficiencies are necessarily bad business decisions,” but I do believe several of them are short-sighted. Without getting into a whole “thing” re: American capitalism, I wish more airlines took more of a strategic, long-term view, rather than the short-sided let’s-cut-costs approach that leaves customers grumbling and all too often, the bottom line hemorrhaging . . .

  35. @Jason — Listen to Doug Parker’s speech to investors last week (Gary even wrote about it on his blog). Parker has an insanely long term vision for his company, and is annoyed by analysts and investors who just want him to post tiny short term revenue and earnings improvements. The problem for consumers is that AA (and other well-managed companies) only want to spend money on services that either: 1) save the company money; or 2) provide product enhancements that customers are willing to pay for. That’s why we’re currently seeing a crazy “arms race” in transatlantic premium class product enhancements (like UA’s Polaris and all the fancy lounge building that’s going on. The airlines think people will pay for these enhancements. They don’t think they can get you to pay more for your coach flight by giving you a free sandwich. I’m guessing they’re right, but I’ve never seen specific data.

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