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Free Minds & Free Markets

Flying the Fairer Skies?

Big airlines look to bring protectionism to the skies.

A Boeing 767-300 of Delta Air Lines landing at Frankfurt AirportConsumers have benefited for decades from the presence of Open Skies agreements that lessen government interference in the market for international air travel. Now, a coalition of the big three U.S. airlines—Delta Airlines, American Airlines, and United Airlines—along with labor unions, are hoping to ride the wave of economic nationalism and roll back these bilateral agreements, opening markets to foreign competition under the guise of "fairness."

Deregulation of the U.S. airline industry has led to lower prices and greater choice in routes and service. The Open Skies agreements provided a means to achieve similar results in the international market by encouraging other governments to do the same. These agreements mean that U.S. airlines can fly at will to treaty countries, and vice versa. They have also made it very profitable for domestic airlines to partner with Emirates Airline flying to the United States.

That's proven good for consumers, who have more choices for international travel than ever before, and at better prices, but it isn't appreciated by certain legacy carriers facing increased competition.

Like many who seek special dispensation from the government, legacy carriers couch their appeals as one for "fair competition." This is a common euphemism for government interference and should be rejected as such.

They want the Open Skies agreements between the United States and Persian Gulf governments thrown out and to deny Etihad Airways and Qatar Airways access to American cities because they're subsidized by their governments. But so are other U.S. airline partners, many of whom happened to also be government-owned. Such subsidies are unfortunate, but they're hardly a reason to rip up the very system that's pressuring governments around the world to reduce protectionist behaviors.

U.S. airlines have also received, and continue to receive, their unfair share of government handouts, which is all the more reason to question their stated interest in fairness. As my colleague Gary Leff recently noted on his popular "View From the Wing" blog, "This isn't my preferred way of fostering commerce, but the history is clear that airlines have been intertwined with governments since their inception."

He goes on to give the gory details of an industry with close to a century-long history of government subsidies, protection from competition, pension liability rescues and bailouts.

There is also your everyday government-granted handout: the Fly America Act, which requires federal travelers to use U.S. carriers for federally funded travel without consideration for cost or convenience, or the Essential Air Service program and its generous subsidies for airlines serving rural communities. In addition, as Leff notes, "In the U.S. nearly all commercial airports are owned by government, and they generally share revenue with airlines for all the business activity that takes place inside." The bottom line, Leff says, is that "it's impossible to disentangle the airline industry from U.S. government."

Let's not forget the biggest losers when a government subsidizes particular industries: taxpayers. If anyone should be upset about subsidies from Persian Gulf governments, it should be their citizens, who are poorer for having to help pay for Americans traveling more cheaply. But, as mentioned above, they're hardly alone in that behavior.

Open Skies agreements succeeded in reducing subsidies and other forms of government interference, but it's true that there's much more to do on that front. Subsidies are still all too common throughout the world, reflecting just how connected with governments the air travel industry has always been.

Still, Open Skies agreements have proven a commendable step in the right direction, encouraging governments throughout the world to reduce interference in the market and remove barriers to international travel. They have also benefited numerous other American carriers that are able to access routes throughout the world and compete against foreign airlines.

The proliferation of Open Skies agreements created a boom in international air travel. To prevent a regression by governments to old protectionist behaviors, the United States should continue to set an example as a leader in promoting free market competition. That means rejecting appeals for protectionism, even when couched as a matter of fairness.

Photo Credit: Wo st 01/Wikimedia Commons

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  • Scarecrow Repair & Chippering||

    It's hard for me to imagine, now, going full Smoot Hawley on trade restrictions. I'm still a long term optimist and a short term pessimist, but maybe the definitions of "short" and "long" aren't what I think they are.

    Always come back to coercive governments making this possible. If government simply could not intervene, because it was simply too puny and had too little revenue and power, we'd be so much better off. People would literally have to mind their own business instead of competing to make government mind their competitors' businesses. Life would be so much simpler and more rational.

  • Longtobefree||

    Instead of "fair competition" for justification, they should be using "make America great again". That will give them more leverage in DC for the next 18 months.

    Maybe they should shut up while they are ahead. I suspect any democrat asked to vote for this nonsense would insist on passenger rights being codified.

  • Jerryskids||

    I don't think any airline would have a problem swapping regulation for monopoly pricing. And there's plenty of airline passengers that don't make a connection between low prices and cattle car conditions on the airlines. Remember the good old days when airline travel was cushy and pleasant? No I don't, because I was going by Greyhound because my Walmart-shopper ass couldn't afford an airplane ticket.

  • Scarecrow Repair & Chippering||

    One of the most regrettable aspects of monopoly government is people lose all perspective with nothing to compare it to.

    Imagine a government which did the absolute minimum, which of course would depend on who was defining that minimum.

    I imagine a lot of people would handle charity, unemployment insurance, even a lot of morality enforcement, through combinations of churches, mutual aid lodges, and the like. They'd range from just advice on worthy charities to full blown cults demanding you sign over your property and income.

    But even the full-on socialist ones would still face fiscal reality or fade into bizarre little cults pretty quick. People would have examples to compare with their own associations. There's be a lot fewer old Russians pining for Soviet glory, a lot fewer Osties pining for Stasi stability, and lot fewer Bernie followers whining about too many choices.

    Markets are damned good things, not just for their choices and efficiency and innovation, but also because they provide so many choices and set so many bad examples. Monopolies would be fine if everything stayed the same -- no new ideas, no weather, no natural disasters, no thinking people. I sometimes wonder if that is what scares proggies so much -- change -- and if that is why they want the status quo frozen so horribly.

  • Cynical Asshole||

    I sometimes wonder if that is what scares proggies so much -- change

    Well, a static economy and society would be easier to centrally micro-manage.

  • I'm Not Sure||

    "I sometimes wonder if that is what scares proggies so much -- change -- and if that is why they want the status quo frozen so horribly."

    From Coyote Blog, Progressives are too Conservative to Like Capitalism

    In fact, here is a sure fire test for a progressive. If given a choice between two worlds:

    1. A capitalist society where the overall levels of wealth and technology continue to increase, though in a pattern that is dynamic, chaotic, generally unpredictable, and whose rewards are unevenly distributed,

    or...

    2. A "progressive" society where everyone is poorer, but income is generally more evenly distributed. In this society, jobs and pay and industries change only very slowly, and people have good assurances that they will continue to have what they have today, with little downside but also with very little upside.

    Progressives will choose #2. Even if it means everyone is poorer. Even if it cuts off any future improvements we might gain in technology or wealth or lifespan or whatever. They want to take what we have today, divide it up more equally, and then live to eternity with just that. Progressives want #2 today, and they wanted it just as much in 1900...

    http://www.coyoteblog.com/coyo.....es_di.html

  • jelabarre||

    ...and lot fewer Bernie followers whining about too many choices.
    ...
    Markets are damned good things, not just for their choices and efficiency and innovation, but also because they provide so many choices...

    Too much choice. You know how much I hear that around the Linux/Opensource community? It's like a microcosm of the outside world. Every month or two another pundit complains there are too many distributions, too many desktops/environments, and Linux would do *so* much better if we could just pick ONE. Yeah, we've got our dimwits too.

  • Fear and Loathing in DC||

    @Jerryskids - great freaking post.

  • loveconstitution1789||

    Fully deregulate airlines, cut subsidies, and sell off government owned airline property.

  • Fear and Loathing in DC||

    Transport networks tend to require more government interaction than other areas because they influence so many other things, like the rest of the economy in those regions. We depend on having huge air networks where other countries don't - we have benefited economically from having thousands of small airports, etc. If there weren't some of these subsidies in place, no airline would go to cedar rapids, or spokane, and the surrounding economies would suffer greatly. So its complicated. You can maybe argue that the death of small town america has been a long time coming, and we should just stop trying to prevent it, but the US is huge and rebuilding networks we already have doesn't make sense if we want to make use of much of the land we currently have.

  • NotAnotherSkippy||

    Bullshit. Those 10 daily passengers flying locally instead of driving a couple hours to a major airport are not critical to the local economy. EAS needs to die.

  • Fear and Loathing in DC||

    And youre basing that on what, exactly?

    Even putting aside the indirect impact smaller airports might have on universities etc a quick google of studies brought up these numbers:
    485 commercial airports in the U.S.
     Support 9.6 million jobs
     Create an annual payroll of $358 billion
     Produce an annual output of $1.1 trillion

  • NotAnotherSkippy||

    And obviously all of that activity is evenly distributed amongst every single airport.

  • plusafdotcom||

    And was it Reason Magazine who reported that Chuck Schumer forced an airline to not drop a money-losing, low-loading-factor scheduled flight from his home-town airport to DC... because it would be less convenient for HIM?

    Yeah, I think I remember that one...

  • Zeb||

    Ug, no. What we need is more deregulation so US airlines have to become less shitty.

  • Fear and Loathing in DC||

    I agree with the general take, that we want low cost carriers like Qatari airlines to get access to the US, and that open sky agreements should be approved in this regard. But this article glosses over important issues and complications in the industry.

    Saying open sky agreements are good because they reduce government interference is bogus - they typically operate by granting antitrust immunity, which no free market enthusiast should applaud. This is so joint ventures, like the Delta/Aeromexico can go through without triggering Sherman Act concerns. And while this can be pro-competitive, they typically have ONLY aided the legacy carriers (see how many LCCs are part of a Global Alliance in the US - Even Southwest hasn't been able to effectively gain traction because of how dominant these global JVs are).

    And here we get to the real issue - Gates and hubs that are run by airlines who don't want increased competition. A CEO of a washington airport was recently talking about getting creative here, perhaps buying and renting his gates such that he could increase use, and stop airlines from choking supply. But even that is complicated, because in some cases even where airlines have agreed to gate swaps, it can take 12 months to effectuate due to all the surrounding complications that still require we use the gates. Doing something like this, that would provide long term benefits on a wide basis can risk shutting down an airport permanently.

  • NotAnotherSkippy||

    What part of government owned airports (and the gates) did you not understand?

  • Fear and Loathing in DC||

    Is this a workshop on missing the point?

    theres a reason the DOJ has agreed to bad mergers in order to free up gates at hub airports, and put in place stupid "use it or lose it" rules, because of the interplay between private investment and public space.

  • NotAnotherSkippy||

    Well you seem to be at the front of the class. You still haven't made the case for more government involvement or government involvement in general.

  • Robert||

    Reminds me of WFMU DJ Dan Bodah's job lawyering at the Court of Int'l Trade. They take cases administering GATT as to whether a country's dumping goods, which requires figuring what their fair market value is, which is hard to figure in the case of countries like China where there's no market. If you could figure those out, socialism would work.

  • Uncle Jay||

    RE: Flying the Fairer Skies?
    Big airlines look to bring protectionism to the skies.

    Protectionism only protects the politically connected.

  • Gflyer||

    The article leaves out a couple of key facts:

    1) The airlines are a huge cash cow for the government, and of course all of that cost goes to you, the passenger. For all of the money they collect, one would assume we would have a state-of-the-art air traffic control system; not even close.

    2) Until 2008, when the government allowed Delta and Northwest to merge, the US airlines had lost billions after 9/11. They are finally making money because the government got out of the way.

    Let's carry the foreign airline subsidy to an extreme and see if it holds up: imagine that Etihad, for example, decided to let people fly for free to and from the US. Would this still be considered "fair"?

  • AD-RtR/OS!||

    United endorses Open Skies, as it brutalizes its customers.
    Have they no shame?

  • MJH767||

    Veronique writes "They want the Open Skies agreements between the United States and Persian Gulf governments thrown out"... This is wrong. The three legacy carriers want the Open Skies Agreements with the UAE and Qatar enforced. Our governments have exchanged access to each others communities IF certain rules are followed. The UAE and Qatar are not following the rules related to subsidies and the US has the right to enforce those rules. Like any contract, details are important.

    Veronique can read the agreement here: http://bit.ly/2tXDaiS

    She should focus on Article 12.1.c and revise the inaccuracies of her article.

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