The Air Travel Revolution
By David Henderson
Derek Thompson’s “How Airline Ticket Prices Fell 50% in 30 Years (and Why Nobody Noticed)” is a nice round-up of the facts about the effects of airline deregulation. People who know the story well–I guess Derek would call us “nobodies”–won’t be surprised, but he tells the story nicely.
Some excerpts followed by my comments.
Derek’s opening is great:
Frank Sinatra’s “Come Fly With Me” was the best-selling album in the United States for five weeks in 1958, but the irony of its popularity (or, perhaps, the source of its aspirational appeal) is that practically none of us could take up the offer to “glide, starry-eyed” on an aircraft with anybody in those days. More than 80 percent of the country had never once been on an airplane. There was a simple reason. Flying was absurdly expensive.
And there was simple reason why flying was absurdly expensive. That was the law.
There are many sad stories to tell about the U.S. economy in the last 30 years, but here’s a happy story for everybody (except the airlines), from radical capitalists to the most liberal consumer advocates. Getting government out of the business of regulating the skies has led to a remarkable collapse in airline prices.
I remember Sinatra’s song–I was 7 at the time. It seemed like a fantasy song, kind of like hearing about Disneyland and just knowing that I would never go there. Nobody in my family had ever flown. My father was the first to fly and that was in the early 1960s when my great aunt Violet had died in Peoria–she was a spinster–and my father took Northwest Orient from Winnipeg to Chicago to wind up her modest estate.
One other memory of this time. In April 1965, when I was 14, I wanted to travel from Carman, Manitoba to Nacogdoches, Texas to visit my uncle and aunt. I was paying my own way. Just out of curiosity, I checked airfares. Round trip fare: $288 in 1965 dollars. So my sister and I took the bus: 50 hours but the round trip fare was $50.
With prices skyrocketing during the energy crisis of the 1970s, an all-star team of senators and economists decided that Washington should get out of the business of coddling the airlines.
Derek then quotes from Stephen Breyer, now a Supreme Court Justice, who helped get deregulation through Congress. He links to a good piece by Breyer on that battle. One of the heroes was Alfred Kahn, whom I commissioned to write the airline deregulation piece for the first edition of The Concise Encyclopedia of Economics (originally called The Fortune Encyclopedia of Economics.)
One of the untold stories here, by the way, is that I had a small role in this. When I was a summer intern at the Council of Economics Advisers in 1973, my boss, Bob Tollison, recommended that I fill in as an acting senior economist between the time he left in early July and the time his replacement showed up in early August. My big boss, Herb Stein, went for it. The airline deregulation movement was in its infancy and that was one of the issues I was covering. I represented the CEA at meetings with the Undersecretary of Transportation and pushed deregulation of airlines and trucking. One day, Herb asked me if we just shouldn’t bother because we would never win. I said that the cost of my going to these meetings was not high and I thought we should do our part to keep the issue alive. Herb bought my argument.
When US Airways and American Airlines announced their mega-merger this year, it set off national hysterics, as flyers claimed the new behemoth would painfully raise prices. The reaction seemed unaware that consumers have enjoyed an amazing (and unsustainable) three decades in cheap flying while the price of fuel, which accounts for more than a third of airfare costs, has gone up 260 percent since the turn of the century.
Well put. When friends get upset about the coming air-fare increases, I like to remind them of what Bob Crandall, former CEO of American Airlines said: “I’ve never invested in any airline.”
Why do we hate fees if they keep basic prices low? Because we’re Americans, Heimlich said: “It’s the American way to want a product approaching first-class for a price approaching zero.”
In an earlier post, I quoted the words of wisdom from a flight attendant I talked to on a flight:
In every transaction with an airline there are two customers. The first is the one who buys the ticket. He wants the best deal and is willing to go to another web site to save ten bucks. The second is the customer who shows up and acts as if he bought first class.