Kirby Lee via AP
Passengers wait in line to check baggage at the American Airlines ticket counter at Miami International Airport, May 2, 2022.
Ever since the Airline Deregulation Act of 1978 collided with the Reagan administration’s evisceration of antitrust enforcement in the 1980s, the airlines have become more and more concentrated, at the expense of consumers. As I reported in this post, airfares have risen a staggering 40 percent in 2022, and only a small fraction of this results from more costly aviation fuel.
The failure of deregulation has caused the airlines to oscillate between profitability and bankruptcy. It can be said that the deregulated industry has served none of its stakeholders—not passengers, not employees, not shareholders. Prices have been a crazy quilt of bargains and rip-offs. Mainly, deregulation served the investment bankers and private equity players who kept orchestrating the mergers.
Right through the Obama administration, as the industry became ever more concentrated, the Department of Justice exhibited more solicitude for industry profits than for the flying public. And the Department of Transportation, which has broad powers to protect consumers, did not use them.
Under George W. Bush, the Justice Department’s Antitrust Division opened an investigation of the proposed merger of Delta and Northwest, but cleared it for takeoff in 2008 saying it would be good for the traveling public. Obama made noises about cracking down on airline concentration, but his Justice Department ended up approving three mega-mergers—United-Continental, Southwest-AirTran, and American-US Airways, requiring only that some carriers give up some gates. By the end of the Obama presidency, there remained just four major U.S. carriers—United, American, Delta, and Southwest—forming a cozy oligopoly, plus a few minor and regional ones.
Joe Biden has breathed some life back into the Justice Department’s Antitrust Division and its sister agency, the Federal Trade Commission. Last November, the Justice Department went to court to challenge an anticompetitive joint operating agreement between American and JetBlue.
Antitrust officials are also skeptical of JetBlue’s effort to acquire Spirit Airlines, bigfooting yet another dubious proposed merger of Spirit with a competing low-cost regional rival, Frontier.
The point of all these mergers is not more efficient service, but less head-to-head price competition. And though the FTC and the Justice Department have rediscovered their long-dormant powers, another major player, the Department of Transportation, has barely begun.
Though airline routes and fares were deregulated in favor of market competition back in 1978, the DOT through the Federal Aviation Administration retained broad power to crack down on anti-consumer practices. Federal law explicitly empowers the transportation secretary to “investigate and decide whether an air carrier, foreign air carrier, or ticket agent has been or is engaged in an unfair or deceptive practice or an unfair method of competition.” And if the DOT finds evidence of an unfair or deceptive practice or unfair method of competition, “the Secretary shall order the air carrier, foreign air carrier, or ticket agent to stop the practice or method.”
This formal power was actually used more intensely under Trump’s transportation secretary, Elaine Chao, than under Pete Buttigieg, Biden’s appointee. Since February 2021, the Biden DOT has issued just seven such orders, and only three major ones.
A consent agreement last September directed United to reduce tarmac delays and fined United a paltry $1.9 million for its failure to adhere to a previous commitment not to allow delays to exceed three hours. This followed a similar order against JetBlue from February 2021, which included a fine of all of $60,000. The most expansive of these was an order that fined Air Canada $4.5 million for repeated delays issuing refunds to thousands of consumers for canceled or rescheduled flights. In 2021, the total value of fines levied against airlines exceeded those in any year of the Trump administration.
Buttigieg’s main pro-consumer activity, to his credit, has been in the area of compelling airlines to stop denying consumer refunds. In addition to issuing orders directed at individual carriers, DOT has induced the major airlines to make their refund policies more transparent and has initiated a rulemaking to expedite DOT’s ability to file complaints generally.
One other area ripe for investigation, beyond tarmac delays and slow-walking ticket refunds, is the piling on of airline fees, such as seat selection, baggage, and priority boarding. Last November, and again this past April, Consumer Reports sent Buttigieg letters asking him to move more aggressively in all of these areas.
Where DOT could be doing a lot more is in investigating structural abuses and the manipulation of monopoly and oligopoly routes that give airlines the market power to price-gouge in the first place. According to Paul Dempsey, one of the leading scholarly critics of anticompetitive abuses in the airline industry, DOT has the power to “reduce airport concentration, cap market share, or untie long-term exclusive gate agreements.” Under Buttigieg, DOT has used its power to increase competition by compelling changes in gate arrangements, but only sparingly.
Dempsey adds that DOT has long contributed to oligopoly pricing power on international routes by permitting airlines to combine into three major global “alliances” with antitrust immunity. The alliances (Star, SkyTeam, and Oneworld) are worth a fresh investigation to determine whether this immunity should be repealed.
More fundamentally, with consumers anxious about inflation, the administration urgently needs to educate the public regarding how much of the inflation people experience is actually the result of industry abuses that government is in a position to counter. The airlines, along with the drug companies, are Exhibit A.
