Notes on airline industry economics and government involvement

In an in-depth piece on the economics of airlines and why despite deregulation nearly four decades ago, they have struggled to make a profit, writers at Priceonomics.com highlight an interesting trend with which Arkansas travelers are familiar.

In an epic takedown of the airline industry, Phillip Longman and Lina Khan point out that the government spent more bailing out the airline industry in the 2000s than it spent on Amtrak and General Motors, that airlines have not delivered on low fares, and, most of all, that airlines’ meager profits have come at the expense of stranding America’s heartland. They write:

The loss of airline service to rural and remote areas is an old story; by the 1980s, even some state capitals—such as Olympia, Washington; Dover, Delaware; and Salem, Oregon—became places you could no longer fly to except in a private plane. But over the last five years, service to medium-sized airports fell by 18 percent. This latter trend is much more disruptive to the economy, reflecting lost service to important centers of commerce that until recently had major airports but are now isolated—most often due to the frantic pace of airline mergers and downsizing.

The authors offer a variety of theories on why airlines have struggled financially, including the complexity of how deregulated the industry actually is.

While airlines have been deregulated, the government still runs or regulates the airports. Critics blame slow-moving bureaucracy for the slow pace of innovation around managing busy airspace: air traffic control still infamously uses radar rather than satellite systems, and most airports hand out takeoff and landing slots rather than auctioning them. This leads to delays and prevents competition.

They give an uneasy prediction of future profits for the companies, concluding, “we wanted cheap flights. Instead we got baggage fees and connections through Houston.”

Link here to read the full report.