The Airline Industry Is a Starving Giant That’s Gnawing At Our Economy

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United we fall. Photo: Gary Hershorn/Getty Images

By now, you’ve probably seen this video of United Airlines refusing to let one of its passengers “fly the friendly skies.

The airline had overbooked a Sunday night flight from Chicago to Louisville, Kentucky. When not enough passengers were willing to relinquish their seats voluntarily, a few were selected at random for de-boarding. One of those unlucky souls was, apparently, a doctor with patients to see the next day in Kentucky. He refused to exit the plane. So, security officials dragged him kicking and screaming — and bleeding — down the aisle. Some minutes later, they allowed him back onto the plane. Reflecting on his experience, the passenger stammered, “I have to go home … just kill me.”

From one angle, this incident might look too atypical to tell us much about the state of America’s airline industry. To travel by air, Americans must subject themselves to myriad indignities, including showing up for overbooked planes and learning gateside that they are no longer welcome aboard. But being randomly selected for assault by security personnel generally isn’t one of them.

It would also be reasonable to expect that the onboard assault of an elderly man, motivated solely by the United’s desire to save a few hundred bucks, might bring about some major changes. But the big airlines are dysfunctional at deeper level than most fliers realize. All industry forecasts paint greater consolidation, higher fares, and reduced service to midsize airports as the only path to sustained profitability. The incident on the Chicago tarmac might be a new low, but things are not going to get better anytime soon.

For decades, airlines have been cancelling low-volume routes, reducing service quality, raising prices, merging to achieve economies of scale, declaring bankruptcy, and sucking up billions in public subsidies, and the industry still teeters on the brink of insolvency. U.S. airlines were in the red for all but three years between 2001 and 2010, according to the industry’s trade group. Their net loss over that period amounted to $62.9 billion.

When the Carter administration began deregulating the airlines in the late ’70s, it did so in the name of fostering price competition. Sure, relinquishing public control might jeopardize smaller, rural cities’ access to convenient air travel, but free-market competition would also make flying more affordable for the vast majority of Americans.

But thanks in no small part to lax antitrust enforcement by President Reagan and his successors, deregulation ultimately turned a public quasi-monopoly into a private one. Or, as Phillip Longman and Lina Khan put it in a 2012 essay for Washington Monthly, Carter’s reforms shifted “control of the airline industry from experts answerable to the public to corporate boardrooms and Wall Street.”

This shift did little to nothing to make airfare more affordable in the long term. The cost of flying was actually declining at a faster rate before deregulation than it has since, according to a 2007 study in the Journal of the Transportation Research Forum.

But the shift has taken a big toll on customer service standards — and, more significantly, on the economic growth of America’s midsize cities. As Longman and Khan write:

The loss of airline service to rural and remote areas is an old story; by the 1980s, even some state capitals — such as Olympia, Washington; Dover, Delaware; and Salem, Oregon — became places you could no longer fly to except in a private plane. But over the last five years, service to medium-sized airports fell by 18 percent. …

St. Louis, for example, has seen “available seat miles” — an industry measure of capacity — fall to a third of their 2000 level, following the American Airlines takeover of TWA and Lambert International Airport’s subsequent downgrading as a mid-continental hub. Two of Lambert’s five concourses are now virtually empty, and another, which housed the TWA hub, is only partially used. A third runway — the building of which required demolishing hundreds of homes and cost local taxpayers a billion dollars to finish in 2006 — is now redundant. “This scenario,” notes Alex Marshall, a senior fellow at the Regional Plan Association, “can be likened to states building highways and then having General Motors, Ford, and other auto companies suddenly telling their drivers to use different roads.”

St. Louis’s loss of service comes despite the fact that the population of the St. Louis metropolitan area, the eighteenth largest in the U.S., grew by more than 4 percent between 2000 and 2010. The city is also the home of eight Fortune 500 companies and is a major center for such international players as Anheuser-Busch InBev, Monsanto, Boeing, Emerson Electric, Express Scripts, and Nestlé Purina. The GDP of the metro area, which is also propelled by such large research institutions as Washington University and a fast-growing medical sciences sector, rivals that of oil-rich Qatar. Yet like most other midsize American cities, St. Louis’s economic development is now hostage to the shifting, closed-door deals and mergers of a mere handful of airline executives and their financiers.

In the writers’ estimation, a return to robust antitrust enforcement can’t cure the airline industry’s “terminal illness” by itself, because:

[A]irlines — just like railroads, waterworks, electrical utilities, and most other networked systems — require concentration both to achieve economies of scale and to enable the cross-subsidization between low- and high-cost service necessary to preserve their value as networks. And when it comes to such natural monopolies that are essential to the public, there is no equitable or efficient alternative to having the government regulate or coordinate entry, prices, and service levels — no matter how messy the process may be.

Needless to say, radically increasing government regulation is a nonstarter in Trump’s Washington. And taking on the entrenched interests of the airline industry didn’t really fly in Obama’s, either.

Three years ago, the Obama Justice Department sued to block a merger between American Airlines and U.S. Airways, after concluding that “increasing consolidation among large airlines has hurt passengers … The major airlines have copied each other in raising fares, imposing new fees on travelers, reducing or eliminating service on a number of city pairs, and downgrading amenities.”

Then the airlines hired former Obama administration officials and well-connected Democrats to lobby on their behalf. Three months later, the DOJ cleared the merger for takeoff.

Still, it seems doubtful that our government will let a giant, profit-starved, private monopoly torture its customers and suffocate regional economies in perpetuity. And the growth strategies of our major airlines suggest they’re not going to stop doing either of those things on their own volition.

So maybe, someday, America will arrive at a sane air-transportation policy. But one thing’s for sure: All such departures have been delayed for four to eight years.

Airlines are Starving Giants That Are Gnawing at Our Economy