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Chuck Schumer Wants to Raise Your Airfare

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.

Reader Discussion

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on March 28, 2016 at 11:55:19 am

"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."

Was this not also true with GE / Electrolux. Unions would have faced somewhat less favorable conditions under Electrolux. It is not clear from your statements.

Although, this does take me back to comments that both nobody.really and I made some time back:

Re: Unions and Big employers - where are the grownups. I don't *blame* the unions. There practices / policies may indeed be shortsighted; yet, given current law, they are free to pursue them. It is the corporate management that needs to act grown up and either *educate* the unions on the folly (long-term) of their position(s), instill in them a sense of economic realities, OR hold the line against unreasonable and self destructive demands of the unions. While the Administration can do much to bolster unions, still, there is a limit to how much it can do. Management ought to find that limit and then operate at the margins of that limit - provided, of course, it is legal (whatever the heck that may mean today).

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gabe
on March 28, 2016 at 12:09:46 pm

The 2006 film Last Holiday depicts a passenger complaining to flight attendants about the cramped seating space, to the approval of the other passengers. But at 1:45 into the linked clip, the flight attendant notes that she could have additional space if only she were willing to pay for it (which she then does). So the movie panders to egalitarian/populist sentiments, while ultimately vindicating a market solution.

But here’s the rub (pun intended): People are getting bigger in every dimension – and the Americans With Disabilities Act raising the idea that discrimination based on size violates people’s civil rights.

Now, maybe we don’t want undue discrimination – but arguably airlines do have a bona fide interest in discriminating on the basis of size. So that’s due discrimination. But a very unpopular kind of discrimination.

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nobody.really
on March 28, 2016 at 12:21:08 pm

I concur w/ gabe as far as he goes -- but I think he's missing the point.

Here, McGinnis isn't talking about management capitulating to unsustainable union demands.

Rather, he's talking about unions acting as a special interest and capturing the apparatus of the administrative state to achieve private objectives, arguable at the expense of the public. In this respect, unions don't warrant any more solicitude than any other special interest. When an anti-competitive airline merger gains regulatory approval, while a pro-competitive manufacture merger is blocked, people buying those services and goods (including managers in other firms) may bear higher costs -- and no amount of "firm bargaining" would let them evade these costs.

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nobody.really
on March 28, 2016 at 12:23:47 pm

Of course, there is always the solution offered to Procrustes and it doesn't cost any money!

https://s.yimg.com/fz/api/res/1.2/swrN36hkFOBJ03DLu_IyCw--/YXBwaWQ9c3JjaGRkO2g9MzAwO3E9OTU7dz0yNTA-/http://blog.heartland.org/wp-content/uploads/2014/04/procrustes07.gif

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gabe
on March 28, 2016 at 14:11:32 pm

You are right - we don't disagree on this.
I guess I was being a little too obscure again - my fault.

My point re: the laws permitting unions to do what they do is precisely this: The Laws have enabled the unions to ACT as a special interest; indeed, it grants them special dispensations to do so.
Heck, if someone tells you that you not only can take as many cookies from the jar as you like, but that we will provide you all the tools necessary to do so, and failing that we will let you break the cookie jar, what is a poor cookie monster to do - not be (a state ordained) cookie monster!

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gabe

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