The Battle for Open Skies

An article in the New York Times this week described how domestic airlines are conspiring with their unions to weaken open skies agreements. These agreements permit American and foreign carriers access to one another’s markets on a reciprocal basis. They empower airlines to decide where and how often to fly internationally, based on market conditions, not national quotas or other irrelevant considerations. The result are good for airline passengers. Fares become lower, and more international flights go from more cities in the United States to more cities abroad.

The most troubling aspect of the article was that the Secretary of Commerce, Penny Pritzker, and the Secretary of Commerce, Anthony Foxx, were entertaining the American airlines’ and unions’ request for restrictions on the entry of new foreign airlines into the American market. Their complaint is that deep pocketed airlines from the Middle Eastern countries, like the United Arab Emirates, were engaging in “unfair” competition and thus their flight plans needed to be blocked.

These Secretaries should have directed the airlines and their unions to take their complaints to the Justice Department, because competition laws are the best way to assess whether the foreign airlines are acting anti-competitively. And the standards here are clear:  unless US airlines can show that these new foreign entrants have monopoly power or are likely to get it and are engaged in below cost pricing, their entry, however damaging to the profits of American airlines, is good for consumers. And it is the welfare of consumers that should be the concern of the Secretaries of Commerce and Transportation. That is particularly so in the airline industry, where other government regulations, especially local restrictions on the location of airports, keep prices artificially high.

Airline unions have previously encouraged the Obama administration to help their industry at the expense of the consumers. Unions complained when the Justice Department sued American Airlines and U.S. Airways to prevent their merger. A merger without divestiture of certain landing slots would have led to important routes with very few competitors and no realistic prospect of entry because of the difficulty of building or expanding airports to provide more landing spots.

Fortunately, the Department of Justice insisted on divestiture despite the protests and the airlines divested.  But the Department’s antitrust decisions, made by professional lawyers and economists, are more insulated from political pressure than decisions about international agreements. Moreover, while international routes should be as subject to market forces as domestic ones, airlines and unions can appeal to xenophobia and national pride to restrict foreign carriers.

This issue is a test of the Obama administration’s willingness to put the interests of the public over those of its union allies. The first signs are not encouraging.