Airline dereg: more a failure than Matt Yglesias says
Years ago, I wrote a piece on deregulation of all kinds and developed a mini-obsession about the absurdity of the airline sort. It had produced bankruptices, savage wage-cutting, union-busting, awful service, and the abandonment of marginal cities while not producing any improvement in affordability. It’s hard to get people to believe this, but it’s true.
Matt Yglesias is out with a post (“Passenger Aviation in the United States: 40 Years of Failure”) on how the airline industry is a “stunning business failure.” Is it ever. But he doesn’t mention deregulation.
The industry was deregulated in 1979. Though it’s forgotten now, dereg—even though it’s destroyed unions—was a project of Democrats. Their initial base was in Teddy Kennedy’s office (as a wit once remarked, this shows Kennedy’s merchant origins, since merchants—bootleggers in the case of the Kennedy family—always want to reduce transport costs). Dereg’s intellectual guru was Alfred Kahn of Cornell, an advisor to Jimmy Carter, who signed dereg into law as president. Route and fare regulation was replaced by a free-for-all. The result has been disastrous.
A few numbers to make the point. Good stats on the industry (Annual Results: U.S. Airlines) begin in 1948. These tell us that the entire industry has cumulatively lost money since then. Add up all the gains and losses between then and 2011, and you get $37.7 billion in total losses. Adjust that for inflation, and you get $12.9 billion in total losses (2011 dollars). But what a difference deregulation has made. Between 1948 and 1978, the industry made $5.5 billion in total (or $28.7 billion in 2011 dollars). Between 1979 and 2011, it lost $37.7 billion (or $41.6 billion in 2011 dollars). Of course, I’m not here to defend corporate profits, but it’s hard to see how an industry can survive under capitalism in a chronic state of loss.
Ah, but fares are down and ridership has grown faster, right? No.
First prices. Between 1963 (when the figures begin) and 1979, the airfare subindex of the CPI grew 25% more slowly than the overall CPI. Since 1979, it’s growth 2.4 times as fast as overall inflation. A major reason for this is that there are many fewer nonstop flights than in the regulated days, and far tighter advance purchase restrictions. To the Bureau of Labor Statistics, which computes the CPI, such quality decreases are the same as price increases. (This is the opposite of the logic prevailing in computers, where rapidly increasing power is the same as a price decline.)
And then ridership. Between 1948 and 1978, annual passenger miles flown grew 12% a year; since then, they’ve grown less than 4%.
And, man, are flights ever more crowded. From 1948 to 1978, planes were an average of 57% full. Since 1979, they’ve averaged 68% full. Over the last three years, they’ve averaged 82% full.
But almost no one respectable will ever say airline dereg has been a failure. You read it here not quite first (because if you’d been subscribing to LBO in 1989 you would have read it there), but it’s not too likely you’ve seen it elswhere.