How to Fix Flying: A New Approach to Regulating the Airline Industry
By William J. McGee & Ganesh Sitaraman
Air travel in the United States suffers from serious problems. For passengers, the flying experience has become a source of frustration — from smaller seats and junk fees to delays and cancellations. Passenger fury is often taken out on airline and airport workers, some of whom are overworked and face unsafe conditions. Meanwhile, the industry itself is unhealthy. Boom-and-bust cycles are common, leading to bankruptcies and bailouts. Competition has become more and more limited, both between carriers and at airports. The many carriers that existed in the 1990s have now consolidated down to a mere handful. Meanwhile, airlines are pulling out of small and even midsized cities, with serious downsides for their economic opportunities.
It doesn’t have to be this way. We don’t need to have an airline industry that gets taxpayer support while failing to serve important cities. And we don’t need to have a concentrated airline industry that squeezes passengers financially — and literally. Fixing the problems with flying is fundamentally a question of public policy, because policy choices determine what the airlines do, the quality of the flying experience, and the structure of the industry itself.
For 40 years, from 1938 to 1978, airlines in the United States were comprehensively regulated by the Civil Aeronautics Board, which assigned routes and set fares for airlines operating domestically. Despite the shortcomings of this system, during those years the United States had a decentralized air travel industry with a dozen carriers, maintained reliable service to large and small regional markets, and did so without the intermittent need for the bailouts of the industry that we experience today.
In 1978, the industry was deregulated, on the promise that without regulation, competition would lower fares, allow for more airlines to enter, and offer a greater variety of flying options for passengers. Over the past several decades, however, we have seen a slew of airline bankruptcies and waves of consolidation, to the point where we now have only four major carriers, which use opaque and deceptive pricing systems and yet still depend on government support in bad times.
In this paper, we offer a menu of options for policymakers to reform and structurally regulate air travel and address the problems in the airline industry. The options we provide range from bold and transformative, such as expanding geographic access by assigning routes and airport slots, to incremental solutions like requiring airlines to have resilience plans.
Our aim is to expand the universe of ideas that policymakers can consider to restructure the airline industry. We offer a set of policies that take seriously the problems in the industry and are designed to address them. These policies fall into four categories:
(1) Resilience, Competition, and Geographic Access
(2) Fair and Transparent Pricing
(3) Protecting Passengers and Ensuring Safety
(4) Oversight and Enforcement.
In each of these areas, we offer concrete proposals for how policymakers can improve the flying experience for passengers, workers, communities, and the country.