One of the Carter administration’s great achievements was deregulation, and in no sector was the success greater than in the airlines industry. The result was more competition and lower fares that democratized travel. It is a troubling sign of America’s lurch from liberty and free markets that Democratic legislators are trying to re-regulate the airlines and that the Obama administration is dampening competition.
The most egregious offender is Chuck Schumer, the incoming Democratic leader of the Senate (he will be majority leader if the prediction markets are right). He wants to regulate the width and leg room of airline seats. This is hardly a safety issue: the FAA has not expressed concern, and airline travel has never been safer with no fatalities on domestic commercial passenger flights last year.
Airlines already offer more room in first class and economy-plus for additional money. Are consumers not capable of choosing how much leg room they want to pay for? What other decisions does Schumer want to make for us? And these restrictions will raise the cost of the cheapest air travel, harming most of all the young and the poor who want to move around the country.
The Obama administration is also keeping airfares high. The Transportation Department has refused to permit a Norwegian carrier to offer no-frills, cut-rate transatlantic flights. This action has earned the applause of labor unions, but is bad for consumers who face far higher costs on European flights than transcontinental flights in the United States. Again this obstruction contrasts with the decision in the 1970s to permit Laker Airways to enter and transform the transatlantic market.
The Obama administration has even relaxed its usual antitrust policy for airlines, although stricter scrutiny is warranted in this context than in other areas. In general, a relatively permissive view of mergers is warranted. If a merged company does not offer a superior product, the market is likely to facilitate entry of new ones. But given the limited number of landing slots at airports, airline entry is extremely hard, and government zoning regulations make it notoriously hard to build new airports or expand existing ones. Thus, it is particularly bizarre that the Obama administration has presided over consolidation of major airlines carriers, like American Airlines and US Air, while preventing merger in products that do not face regulatory barriers to competition, as when it blocked GE’s sale of its appliance business to Electrolux. The most obvious explanation for this inconsistency is the power of unions in the airline industry, which have strongly supported consolidation so that their members can be insulated from the effects of competition.
These developments are bad enough for air travelers. Even worse, they may well be harbingers of future competition policy, as the Democratic Party moves back to anti-market positions that serve their key interest groups, like unions.