Airlines

Airlines are a classic case of free market versus regulation, competition versus monopoly, and consumers versus business. Thursday's Senate Judiciary hearing on the pending United-Continental merger laid out the issues. Airline executives touted lower costs, better travel options under "an unparalleled global network," and more stable employment for its workers. The Consumers Union charged consumers would face less choice and fewer flights, loss of service to smaller cities, higher fares, reduced quality of service, and the creation of another "too big to fail" corporation. My recent travel experiences -- fewer available and more costly seats plus annoying extra charges for my first bag, for poor food, and for an Internet connection -- support charges of growing monopoly power for the four major U.S. carriers that would remain if this merger goes through. We're awaiting a Justice Department decision.

Today, the Senate turned to the Federal Aviation Administration authorization, H.R.1586. The last four-year authorization expired September 30, 2007. What caused this 2½ year delay? Congress couldn't agree on how to apportion the excise and ticket taxes to pay for a desperately needed modernization of the air traffic control system. Your car has GPS. Your phone has GPS. Commercial airliners have GPS, but the air traffic control system still relies on radar and radio position reports. That costs billions of dollars in extra miles traveled every year. The airlines correctly believe they pay more than their fair share of the costs, but private pilots (I used to be one.) have more political clout and refuse to share more costs. Then there's the problem of Memphis, TN-based Fedex's avoidance of a union for its workers, which puts it at an advantage over its main competitor, unionized United Parcel Service. The House version of H.R.1586 would apply existing labor laws equally to both companies, but that prompted Tennessee Senators Lamar Alexander (R-TN) and Bob Corker (R-TN) to hold up the bill.

Donald Marron hits upon one of my pet issues: fees for checking bags on airlines.  A year ago, I concluded:

Airlines can charge all they want for a checked bag that is too big to carry on. They should not charge to check a bag that is small enough to carry on. This would avoid giving incentives to passengers to carry bags on, where the external costs in terms of delays and crowding are high.

I think that strikes the right balance.  In other posts, I declared American Airlines a "Microeconomics-free zone" and linked to a pretty smart analysis that suggests that bag fees may not yield any additional revenue for the airlines.

I wish I had the answer to the big problems we are facing in the financial markets. Since I don't, I'll take aim at a smaller one. With a few months of experience, I think we have enough information to go on to resolve the "should the airlines charge for checked baggage?" argument. (See an earlier installment here.)

The answer: airlines can charge all they want for a checked bag that is too big to carry on. They should not charge to check a bag that is small enough to carry on. This would avoid giving incentives to passengers to carry bags on, where the external costs in terms of delays and crowding are high. These costs were particularly evident on some flights I took a week ago.

That is all. Back to your regularly scheduled financial market meltdown.

Combined with all the travel I've been doing lately (see my post above on "Democracy in America"), this article by Ron Lieber in yesterday's New York Times got my juices flowing about a subject that I'm close to irrational about to begin with: frequent flier programs.

With the exception of one mid-day, mid-week trip between DC and New York, I haven't been on one flight in the past six months that hasn't been close to or completely full.  Many of these flights were oversold.  Cancelled afternoon flights meant that passengers had to wait until the next day because there were no other flights to the same destination that day or, if there were, no seats were available.

Yes, I know the summer is a heavy travel season.  But I also know that the airlines are planning substantial cutbacks in the number of flights starting in September and that the number of seats will be reduced at the same time that demand is falling.

So...