Last week American Airlines took two extraordinary actions that confirm that the airline industry has become an entrenched oligopoly. First, American Airlines began a bizarre new advertising campaign. Its message: be a good flyer by showing consideration to your seatmates and maintain equanimity in the air. This advertisement makes little sense in a competitive industry. It does not tout low prices or any distinctive amenities of American that might help it gain market share. An industry that implicitly coordinates on price and amenities, however, might benefit from the such an advertisement, if it got more people to fly generally.
Second, American Airlines gave a $13 million severance payment to its President even though he was joining a rival, United Airlines. And the severance was not a matter of legal obligation but at its discretion. It is wholly against usual business practices to give gifts to a high level executive who goes to work for a rival. The more frequent reaction is to sue the official for endangering trade secrets. But again this course of action makes sense if American, United and other airlines are engaging in the implicit coordination made possible by oligopoly. The President of American would then still working for a common cause. Why not maintain goodwill in those circumstances?
One of the Carter administration’s great achievements was deregulation, and in no sector was the success greater than in the airlines industry. The result was more competition and lower fares that democratized travel. It is a troubling sign of America’s lurch from liberty and free markets that Democratic legislators are trying to re-regulate the airlines and that the Obama administration is dampening competition.
The most egregious offender is Chuck Schumer, the incoming Democratic leader of the Senate (he will be majority leader if the prediction markets are right). He wants to regulate the width and leg room of airline seats. This is hardly a safety issue: the FAA has not expressed concern, and airline travel has never been safer with no fatalities on domestic commercial passenger flights last year.
Airlines already offer more room in first class and economy-plus for additional money. Are consumers not capable of choosing how much leg room they want to pay for? What other decisions does Schumer want to make for us?
When I went to Oxford in 1978, I had looked forward to spending many weekends in London, one of the great metropolises in all of history. But after an initial visit, I rarely returned. Outside of a few well-known precincts it was a shabby city. But even worse than its appearance was the general sense of lassitude, even paralysis. For instance, it was hard to find places to sell you the simplest groceries outside of very strict business hours. And I was always worried about getting back to Oxford. Industrial action in the form of railway and tube strikes could occur at any time. The economic and spiritual climate of the country was as dismal as its fall and winter weather.
But now London is again one of the great cities of the world, vibrant, innovative and resplendent. One woman is responsible for the transformation of the city and the nation of which it is the capital. That is why it is such a wonderful event to have a superb new biography of her glory years by Charles Moore: Margaret Thatcher at Her Zenith: In London, Washington and Moscow. The book shows why she is one of the rare leaders who transfigured her nation for decades, if not centuries to come. The comparison is less to other British Prime Ministers, but to other transformative world leaders, like Peter the Great or Ataturk. And what separates Thatcher from those leaders is not only her sex, but her democratic methods. She was able to accomplish her goals while persuading fickle and shifting popular opinion.
In this volume Moore details the manner in which Thatcher replaced the state with the market in occupying the commanding heights of the economy.
I travel a lot and one of most unpleasant problems I encounter is the TSA. The lines are frequently long and the employees on occasion discourteous. But the most annoying aspect is that I have very little confidence that its procedures are well designed to keep us safe or that its personnel even assiduously follow these procedures. Over the summer confirmation of my fears came in the form of Homeland Security’s revelation that in over ninety percent of the instances, a “red team” designed to test security got through with some sort of dangerous contraband. Such failures should force us to reconsider the structure of TSA.
What the agency most needs is more private competition. Currently few passengers go through private screening. If the agency put more private contracts out for bid, the government could incentivize better results. The contracts could include clauses that would reward companies for passing the tests that the government run screening has so miserably failed. More competition would also aid innovation and efficiency over time. A centralized bureaucracy is unlikely to come up on its own with the all best ideas. At first, the government could continue to centralize various aspects of security, like background checks of screeners. But even those could be outsourced as if contractors could show that they had better methods.
The government should also reconsider unionization of TSA screeners currently employed by the agency.
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.