TIME: Airlines Are Terrible. Small Cities Are Still Paying Them Millions of Dollars to Stick Around

January 17, 2023 Media

For each of the past five years, Wendy Volk, a real estate agent in Cheyenne, Wyo., has raised money from local businesses, philanthropists, and government officials to pay millions to SkyWest, an airline that made $50 million last quarter. The payments are to ensure that the airline will keep running the only commercial flight out of the Cheyenne airport, which is scheduled and sold by SkyWest’s partner, United.

How deregulation destroyed the airline industry

Today, four airlines—American, Delta, United, and Southwest—control 80% of the market and the airline industry is smaller and more concentrated than at any time since 1914, says William McGee, a longtime Consumer Reports editor who is now a senior fellow for aviation and travel at the American Economics Liberties Project. The promise that deregulation would allow new airlines to enter the marketplace and compete has fallen flat too; until 2021, when Breeze Airways started operations, the market had gone 14 years without a new entrant, he says.

“There was a promise that was made with deregulation—that the advent of wide-body, further-range aircraft was making the world smaller and all Americans had a right to it,” he says. “Well, you don’t, right now.”

Just about everyone has felt the effects of deregulation in recent years. Before deregulation, airlines were required to honor each other’s tickets, so people whose flights were canceled on one airline could easily move to another, says McGee. Ticket prices were more predictable, as were air routes, so you could buy a ticket for a few months out and be reasonably sure the airline wasn’t going to change the ticket or go out of business.

Anyone who has had to fly to an out-of-the-way hub to get somewhere else, or on a small prop plane to get to a mid-sized market, can thank deregulation. Airlines developed hub-and-spoke models once they weren’t mandated to fly to and from certain cities. Deregulation also dramatically increased the responsibilities of the Federal Aviation Administration, which has been underfunded and understaffed in recent years, says McGee, as was evidenced by the agency’s recent meltdownleading to thousands of flight cancellations and even more delays.

‘Red states’ have suffered the most

Still, deregulation’s impact on American travelers has not been felt evenly. After deregulation, airlines dropped cities that had once served as hubs and pulled out of routes that were unprofitable. Their actions caused a ripple effect—when airlines left, business moved too, since their workers and executives couldn’t get around the country as easily.

“The states that have been most harmed by deregulation, and the states that have seen the biggest private fare increases on average and the biggest reductions in service, they’re overwhelmingly red states,” McGee says.

Can air travel be saved?

“Going forward, all industry forecasts call for further consolidation and continually rising fares and fees, accompanied by declining service on all but the most heavily trafficked routes,” Lina Khan, the current head of the Federal Trade Commission (FTC), wrote a decade ago in a Washington Monthly essayarguing that deregulation was killing the airline system. Khan’s prediction proved right—in the last year alone, airfare prices were up 25%, the biggest jump since the Federal Reserve began tracking the index in 1989. Meanwhile, the amount of money the airlines are making per passenger mile has risen 84% since 2002.

But even now, in a position of power, there’s not much she can do about it. Past calls to re-regulate the airline industry—even when coming from the former CEO of American Airlines—have led nowhere, in part because Congress has become more skeptical of the role of government in the free market in the decades since deregulation.

There are other small fixes that advocates are pursuing: The FTC is now challenging a planned merger of Spirit Airlines and JetBlue under antitrust grounds. McGee, of the Economic Liberties Project, is advocating for new legislation that would eliminate a federal preemption clause in the 1978 Airline Deregulation Act that prevents states from taking action against airlines. Hartz, the consultant, says another solution could be to expand federal funding to help communities woo airlines back.