Ho Hum, Another Airline Merger

American and US Air are thinking of merging, so naturally it’s time for a scare story about how mergers will lead to higher prices. Not likely.

A few years ago, there were six big airlines, but four of them–Delta & Northwest, United & Continental–merged into two. But Southwest is now one of the big four, Jet Blue is growing fast, and Alaska Airlines is growing and reaching into new markets. Meanwhile, Delta and American both carried about 5 percent fewer passengers in 2011 than they did in 2006.

Some long-time air travelers wistfully remember the days before airline deregulation, when airlines were more profitable and pampered their passengers with free in-flight meals and other amenities. They forget that, after adjusting for inflation, average fares per passenger mile were more than twice as much as they are today–about 29 cents before deregulation down to 13 cents today. (Amtrak fares, meanwhile, have gone from 21 cents to 30 cents, making trains the most expensive form of intercity travel.) As a result of the reduction in real air fares, the number of airline passengers carried each year has more than tripled since 1975.

If you want better airline service, concentrate on privatizing air traffic control, the airports, and security. A private air-traffic-control system would invest in modern equipment that would allow more planes to safely land and take off from many airports. Privatized airports would offer better service, including a wider range of airport shops and cafes at more reasonable prices. A privatized TSA would have incentives to safely move more passengers through security faster.

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29 thoughts on “Ho Hum, Another Airline Merger

  1. C. P. Zilliacus

    The Antiplanner wrote:

    If you want better airline service, concentrate on privatizing air traffic control, the airports, and security. A private air-traffic-control system would invest in modern equipment that would allow more planes to safely land and take off from many airports.

    Agreed. Plenty of other nations have privatized their air traffic control services.

    Privatized airports would offer better service, including a wider range of airport shops and cafes at more reasonable prices.

    Some people complain about the (privately-owned) airports in the United Kingdom, including Heathrow and Gatwick (both were privatized while Mrs. Thatcher was Prime Minister), but I have found them clean and reasonably well-run, though crowded. Security is more-thorough and moves faster than in the U.S.

    A privatized TSA would have incentives to safely move more passengers through security faster.

    Nobody loves the TSA screeners, including me.

    But recall that the agency was formed under the Bush Administration after the attacks of 2001-09-11 and the inept screening done by private-sector security screeners working for bungling contractors such as Argenbright Security (and at least a few of the screeners were undocumented aliens). So in my perfect world, the screeners would work for the airport (and if the airport were privately-operated, the screeners would work for that private entity, as they do at London Heathrow, where the screeners work for BAA Plc). I am decidedly less enthused about screeners working for private security guard companies (that tend to pay minimum wage, or close to it, since that’s the only cost that companies providing such services can control).

    bennett Reply:

    “Some people complain about the (privately-owned) airports in the United Kingdom, including Heathrow and Gatwick (both were privatized while Mrs. Thatcher was Prime Minister), but I have found them clean and reasonably well-run, though crowded. Security is more-thorough and moves faster than in the U.S.”

    I could not disagree more. My dad lives in London and I travel there quite often. I have never seen an airport as filthy as the baggage claim area in Heathrow. Also, my experience has been that security is much, much slower at Heathrow than Atlanta, DIA, O’Hare, DFW, etc. Maybe you were there at a good time and have no sense of smell, but my experience at Heathrow has been the polar opposite of what you describe.

    C. P. Zilliacus Reply:

    bennett, which of Heathrow’s terminals do you go through. I am speaking favorably) of Terminals 4 and 5 in particular.

    Regarding sense of smell, mine is poor and has gotten worse with age.

    bennett Reply:

    4 & 5 are the nicest, but during the high travel season I’ve seen those terminals exceed capacity, including the restrooms (hence my smell comment).

    I wish my nose was getting worse. My hearing is going which is a bummer. I’d trade it for the loss of smell in a second.

  2. bennett

    A commercial pilot recently told me that US Air hasn’t turned a profit since 1983. Also, with every major airline not named Southwest going bankrupt every 5 to 10 years I’m not convinced the system is working all that great.

    The Antiplanner Reply:

    Jet Blue and Alaska are both financially healthy. The other airlines are stuck with an older model that doesn’t work as well. The system works great for travelers even if it is not so great for investors.

    bennett Reply:

    I’m a big fan of the newer model as it is much nicer for the typical traveler (though it’s a significant downgrade for your 1st class/business class traveler).

    I’m also not convinced that the model can’t be significantly improved upon re: travelers. Sure investors loose out but travelers get hit too with cancelled flights that are not full (this is an illegal practice but major carriers not called SW, Jet Blue, AK do it often under the guise of mechanical problems), delays from over selling, and cramped cabins (I’m 6ft 7in tall and am sensitive to this, and one reason why I only fly Southwest).

    Andrew Reply:

    So if the system does not work great for investors, why are you trying to incinerate more investor dollars by getting them tangled up with building and operating airports and ATC?

    What kind of dope buys airline stocks anyway?

  3. LazyReader

    TSA was founded by chairman Mica, who now regrets the agency he helped create. Over half of the employees that started there have quit. It was never the TSA that saved the day, it was the passengers, Richard Reid, the diaper bomber; even the Times Square bomber, he ordered his ticket on his phone, got to JFK, went through TSA, it was the passengers and crew that detained them until authorities could arrive. Of course if we wanted security we could have allowed for stronger doors to the cockpit or allow the entire flight crew to carry guns aboard. They’re certainly not underfunded, they spend ten times what the previous security firms spent. If you could see the waste. Remember the puffers. Devices that were supposed to blast a small jet of air and detect chemicals used in explosives and bombs. The TSA has a warehouse in Texas filled with hundreds of these devices that did not work. They cost $150,000 each, they sat in warehouses where they failed to work and later spend $600 a piece to destroy each unit. TSA determined that private screeners were 17% more expensive. But the GAO looked into that study and found 10 different problems with it, noting that the TSA had simply ignored many costs, including “workers’ compensation, general liability insurance, certain retirement packages. The GAO says that the TSA’s revised study is better, but that it still fails to address four concerns. “TSA needs to take additional actions… to address the remaining four limitations,” the GAO said, noting that the TSA makes assumptions about some costs in their study that they were unable to justify. TSA makes assumptions about some costs in their study that they were unable to justify. TSA bends reality because bureaucrats don’t like having competition any more than private businesses. Imagine if McDonalds starting comparing their own food to Burger King. Simply says sorry BK you cant open a restaurant here, there’s no clear advantage.

    San Francisco is the one major city with private security screeners. And based on studies, passengers seem to enjoy it. One analysis found that private security personnel were more efficient, screening 65 percent more passengers for each employee than their government counterparts, and estimated that the government could save $1 billion over five years by using private screeners at the nation’s 35 largest airports.

  4. Southeasterner

    “Privatized airports would offer better service, including a wider range of airport shops and cafes at more reasonable prices”

    Have you ever traveled outside of the US? I would argue that the US airports have better shops and amenities than any other place in the world. Of course it isn’t constant airport to airport but some of the offerings at privatized airports in Europe resemble what the US had 20-30 years ago…and I have never seen proof that a privately owned monopoly leads to lower prices. In fact all evidence points to the exact opposite.

  5. MJ

    “…and I have never seen proof that a privately owned monopoly leads to lower prices. In fact all evidence points to the exact opposite.”

    Feel free to provide some of that evidence if you’re so convinced.

  6. climberguy1974

    I agree with privatizing the TSA but air-traffic control? This is the dilemma that many libertarians seem to avoid – whenever you privatize an industry whose sole job is to ensure public safety and give them no mandate without any regulations you invite disaster. OK sure the “free market” could technically figure this all out after enough people died due to safety precautions being ignored in the name of profit but that’s putting the cart before the horse. People shouldn’t have to die to figure this stuff out – really some regulations are in our best interest and can’t be mitigated by the private sector alone. I don’t know why libertarians constantly refute this point – it is an unwinable argument. The problem imho is the whole mind-numbingly false left-right dichotomy that attempts to brainwash people into thinking in one of two camps – either one that stupidly claims all government is really good for you and just wants to keep you safe (from yourself) and another that stupidly claims that all government is purely evil and wants to enslave you and that corporations are just like people and will protect you from the big bad government. These are both very childish and unfortunately very American views…

    The Antiplanner Reply:

    Canada, Britain, Switzerland, and nearly 50 other countries have privatized (or “commercialized”) air traffic control. The U.S. ATC system is antiquated and has become a political football–the Obama administration has openly said it won’t upgrade it unless the airlines do what it says (like “don’t oppose high-speed rail”).

    C. P. Zilliacus Reply:

    The U.S. ATC system is antiquated and has become a political football–the Obama administration has openly said it won’t upgrade it unless the airlines do what it says (like “don’t oppose high-speed rail”).

    As I think you know, I am no fan of taxpayer-funded high-speed rail, be it in California (which seems an especially bad project) or elsewhere.

    But in defense of the Obama Administration, the computer hardware and software that runs air traffic control in the United States has been a mess ever since the Reagan Administration (and perhaps before – some of the serious problems came to the attention of the public following President Reagan’s decision to fire the striking air traffic controllers in 1981).

    It has been one large-scale (and expensive) failure after the other, and I believe most of the blame correctly should be attributed to the USDOT’s Federal Aviation Administration (full disclosure: I worked for a contractor doing work on the FAA’s now-defunct Advanced Automation System (AAS) in the 1980’s – most of the AAS was never placed in service).

    You can more read about the AAS disaster here and here.

    LazyReader Reply:

    Some US air traffic control systems are so antiquated, they still use vacuum tubes! Think, vacuum tubes, we took these things out of our TV’s.

    C. P. Zilliacus Reply:

    Some US air traffic control systems are so antiquated, they still use vacuum tubes! Think, vacuum tubes, we took these things out of our TV’s.

    I don’t think any of the ATC computer systems themselves use tubes any longer, but some of the supporting hardware (radars, communication systems and the like) may still have tubes.

    Andrew Reply:

    There is nothing wrong with using old hardware in failure critical circuitry where vital circuitry is a must to prevent catastrophe.

    Think of how often computers crash and ask yourself if you want microprocessor based technology performing safety functions.

  7. LazyReader

    “privatize an industry whose sole job is to ensure public safety and give them no mandate without any regulations you invite disaster”.

    No one ever said that there wouldn’t be standards to uphold. But by your logic we wouldn’t have any theme parks or outdoor parks. In the 1970’s Bryant Park had been taken over by drug dealers, prostitutes and the homeless. It was nicknamed “Needle Park” by some, due to the heroin trade, and was considered a “no-go zone” by ordinary citizens and visitors. What worked was a coordinated program of amenities, including a bookmarket, a flower market, cafes, landscape improvements, and entertainment activities, was initiated by a parks advocacy group called the Parks Council and immediately brought new life to the park, an effort continued over the succeeding years by The Bryant Park Restoration Corporation, a privately funded re-design and restoration was begun. Central Park undergoes similar private induced management and the parks are cleaner and safer.

    Private roads are pretty well paved, certain public roads are pothole laden wrecks. What’s safer and which would you rather live in; private housing or would you rather live in public housing? The only thing public housing has mostly done is locked poor families in graffiti, vandalised, dilapidated, crime written ghettos. They wreck neighborhoods. What about safety of your kids. The one major city where the federal government exercises near omnipotent control over schooling is Washington DC. They spend over 20,000 dollars per student per year, they pay to have cops patrolling hallways, drug sniffing dogs, metal detectors in high schools, etc; Still they have more reported guns, drugs, dropouts, gangs than nearly any city. DC of course has nearly as many private schools as it does public that appeal to nearly all income brackets. So the average total per pupil spending in DC area private schools, some of the most elite private schools in the entire nation, is about $10,000 less than the comparable figure for DC public schools. The difference is about $12,000 when we consider the median total spending in private schools, because the average is skewed by grand institutions with lavish buildings. All and all private schools are safer and spend less money keeping it that way.

    So even if the private sector isn’t even trying, they improve safety for customers. A private sector provider with a bad reputation doesn’t last long. The only exception being the tobacco industry, inadequate or dangerous service provisions means no repeat customers.

    Andrew Reply:

    My school system spends $20,000 per student and is top ten in my state. And we don’t have the problems you associate with public sector venture, as if government is their cause instead of personal moral failing by the criminals.

    Crime, filth, and dilapidation can be found all through the privately owned houses that make up most of the inner city. Ownership structures do not create or force types of human behavior.

    Average DC private school spending is skewed by Catholic and Christian schools who pay their teachers peanuts and tell them to do the job for the love of Jesus. If you think you will pay $10k for the likes of Sidwell Friends, you have another thing coming.

  8. climberguy1974

    Riiiiigght…

    And private industry created the national highway system too, the energy grid, etc.

    The end result with private road systems will be that wealthy neighborhoods will have great roads but roads that go anywhere outside of those neighborhoods will not and again we circle the drain as a society. Isn’t this what we are trying to avoid?

    You know the argument you keep making is called a tautology – you just keep going around in circles claiming the evidence you need to support your argument is the conclusion of the argument itself.

    Not all government is bad
    Not all government is good

    When you decide that either one or the other is true to the exclusion of all other possibilities and can be applied universally to all problems in society you have effectively turned your mind off and are simply preaching to the choir of YOU

  9. climberguy1974

    Also for the record, Personally I consider myself to be a “progressive libertarian” (surprise surpise!). I prefer the government stay out of my life but I also prefer that corporations do the same – make sense? People think such a thing is impossible but actually its quite logical. All you have to do is remove the concept of corporate personhood from the political vernacular and then instead of psuedo-libertarians screaming about the rights of fictitious entities that have no true existence in reality we can get back to protecting ordinary people from both big government and big corporations. Thinks about it….

  10. Sandy Teal

    The airline industry shows what happens with lots of competition. Not much profit to be made. Safety record gets exponentially better. Can anyone name a US carrier fatality since 2001?

    Who wins? The consumer has received a massive windfall from air travel. Yeah, tons of wishing that airline travel was as fun as it was at twice the price, but nobody wants to pay twice the price.

    Andrew Reply:

    2010 – UPS Flight 6 – 2 dead
    2009 – Fed Ex Fight 80 – 2 dead
    2009 – Colgan Air Fight 3407 – 50 dead
    2005 – Southwest Flight 1248 – 1 dead
    2004 – Air Tahoma Fight 185 – 1 dead
    2004 – Corporate Airlines flight 5966 -15 dead
    2003 – Air Midwest Fight 5481 – 21 dead

    Your convenient cutoff at 2001 certainly cuts down on the body count by skipping American Fight 587 and the 9/11 Air Disaster a d Alaska Air Fight 261.

    I really doubt this safety record has anything to do with competition. Improved safety regulations and compliance oversight are far more likely.

  11. Jardinero1

    climberguy1974,

    The electrical grid and the generating capacity that flows through it is privately owned. Furthermore, it is metered by usage and the price varies with demand to prevent the grid from being overburdened and shutting down at peak usage like our not “freeways”.

    Most of the roadway miles in the USA are built privately, in subdivisions, by developers and the developer usually connects the subdivision roads to the adjoining thoroughfare. A roadway that doesn’t connect to anything has no value to anyone who lives on it. To suggest that private roads would run in circles and not connect anything is just plain stupid. How you choose to fund the maintenance of those roadway miles is a subject for debate. I believe all roads ought to be metered just like the electrical grid.

    Prior to the depression, nearly all turnpikes were built privately as tollways. In the late nineteenth century, nearly all states had laws on the books prohibiting the use of state funds for the construction of turnpikes, preventing boondoggles such as you see today with bridges to nowhere and the big dig.

    An excellent tome on the potential of private roadways I would recommend Economist Walter Block’s “The Privatization of Roads and Highways” available here:

    http://mises.org/document/4084/The-Privatization-of-Roads-and-Highways

    Andrew Reply:

    The TVA, Bonneville Power Authority, Hoover Dam, etc. were not built due to private initiative. All around the country, there are dozens of municipally owned electric utilities.

    Regarding the utility of private roads from developers, look at the difference between traffic in any city or town with platted streets were every street is a thorofare, and suburban developments with private cul-de-sacs and major arterials overwhelmed with through traffic due to a lack of paralleling streets. There is no comparison as to which model works better.

    Jardinero1 Reply:

    ” any city or town with platted streets were every street is a thorofare” I choose to look at Manhattan, Downtown Chicago and how about Austin between Lamar and Red River and the river and MLK.

    The problem with any streets which sustain congestion is that they are not managed like the utility which they are. If streets were managed like power lines or gas pipelines and economically valid tolls were charged then there would not be the problems with congestion you have today. It doesn’t really matter if the owner is public or private, the key is metering and tolling. I would submit that if all streets were private and metered, the owner of said streets would maximize the value of the street by maximizing access. In fact a private owner or developer who had a financial interest in a street would have every incentive to “platt streets were every street is a thorofare”

    Andrew Reply:

    I drive through Manhattan and downtown Chicago frequently on business. I have no issues with the traffic there. The big issue is parking, not traffic.

    Traffic in Manhattan is bad only where it follows the suburban limited arterial models – i.e. around the tunnels and bridges where there is only one way to go somewhere.

    climberguy1974 Reply:

    “How you choose to fund the maintenance of those roadway miles is a subject for debate. I believe all roads ought to be metered just like the electrical grid.”

    Whoah – wait

    I thought we were arguing about less government/big-brother intervention in our lives. Who exactly would do the metering? You mean someone would have to keep track of where I drive and what I do with my free time….

    Now the cat is truly out of the bag – surprise surprise! The psuedo-libertarian, pro-big-corporation hath reared its ugly head yet again.

    “Everything must be metered and privatized! The miles we drive! The electricity we consume! The water we drink! Nothing can be free! And then we can data mine all of this oodles and oodles of information we collect on people to figure out how to classify them so we can predict their behavior for marketing purposes and well, just to mess with their minds too! What a bright future for humanity!

    Oh yeah and watch out for big government trying to push you around! Yeah, that’s it….”

  12. Andrew

    Amtrak fares are heavily biased by first class and high margin tickets in the Northeast Corridor and sleeper traffic and auto transportation charges on long distance trains.

    Why shouldn’t Amtrak charge extra for premium services and sell as much of them as possible?

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