Book Reviews

Up in the Air

The government helped make air travel miserable. Can it now help to make it better?

By Silke Forbes

Tagged AirlinesEconomicsTravel

Why Flying Is Miserable: And How to Fix It by Ganesh Sitaraman • Columbia Global Reports • 2023 • 172 pages • $17

Last summer, I was finally able to go on a trip abroad that had been delayed by the pandemic. I have long enjoyed traveling, but for years now I have felt a sense of dread building in me every time I make my way to the airport. How badly will my plans be disrupted this time? Minutes before boarding was supposed to start for my flight from Boston, I heard the announcement: “We are sorry that this flight is delayed.” Our co-pilot was still on his way from New Jersey. I felt clever to have booked my connection with a three-hour layover, which turned out to be just enough to catch the next plane. On my return trip, I had paid extra to fly direct, but we were still delayed for hours because of an air traffic control problem.

Ganesh Sitaraman has an explanation for such ubiquitous hassles. Sitaraman is a professor at Vanderbilt Law School and has written previous books on the link between economic inequality, democracy, and the Constitution. His new work, Why Flying Is Miserable: And How to Fix It, tackles the U.S. airline industry and promises to provide solutions to its maladies, such as poor service quality and high prices.

Most of the book is dedicated to telling the history of the regulation and then deregulation of U.S. airlines. The early parts of this history are tightly linked to airmail service, which first started in 1918. Lucrative airmail contracts given to private airlines encouraged investment in the nascent industry. Over the next two decades, the government experimented with various approaches to regulation, which culminated in the landmark Civil Aeronautics Act of 1938. The act imposed price and entry regulation, ultimately leading to a system of high prices in which airlines competed against one another by providing more and more extravagant service. By the 1970s, the price of air travel had risen so high that the need to change the system was widely recognized, and the Airline Deregulation Act of 1978 was passed. This act did away with the prior system of price and entry regulation and established the deregulated airline industry that we still have today. For those seeking to learn more about this history, the book is an interesting, entertaining, and informative read.

However, the author’s ambitions go beyond informing us about history. Sitaraman wants to “fix” the experience of flying. The book lays out in detail what he sees as the failures of the airline industry. He attributes these failures largely to deregulation and claims that regulating the industry again would lead to improvements for the flying public. The last chapter of the book is dedicated to exploring possible solutions to the industry’s current woes, such as a regulated but privately owned monopoly airline, or a government-operated national airline—either as a monopoly or as a “public option” in competition with private airlines. Another option he considers is to continue with the status quo of competing privately owned airlines, but with additional regulation.

Alas, to fix flying is a tall order, and for those who are familiar with the challenges of imperfectly competitive markets, it should come as no surprise that this book cannot offer many convincing solutions to the industry’s problems. This is not the author’s fault. Many people have tried to fix these problems, but there are no easy answers, due to inherent features of the industry that both regulatory and deregulatory regimes need to grapple with. Nevertheless, Sitaraman lays out a range of possible approaches in an accessible manner. While he puts too much faith in regulation, the book is likely to spark new and much needed discussions in policy circles. As such, it may prove to be a valuable contribution to the policy discourse on how to erect new guardrails around the airline industry.

Sitaraman looks at all of the industry’s major stakeholders: customers, employees, shareholders, and the taxpayers behind the federal government that has repeatedly had to support (or “bail out”) big national airlines during major crises, such as the 9/11 attacks and the recent COVID-19 pandemic. He goes into detail on how regulation and deregulation have affected these groups, especially consumers and employees.

According to Sitaraman, chief among the problems facing customers are poor service quality and insufficient flights in some parts of the country. One important aspect of service quality in this industry is the frequency of flight delays and cancellations. The book recounts several incidents of extreme delays, including during the infamous 1999 blizzard in Detroit, when 24 planes carrying thousands of passengers were stranded on the tarmac for 11 hours. However, the book lacks systematic data-based analysis or engagement with academic research on the topic.

The disruptions due to the COVID-19 pandemic and the rocky recovery are probably still fresh in the memories of many readers. Yet, as my own research shows, in the years leading up to the pandemic, flight delays had become less common. The airlines achieved these improvements largely by scheduling more time for flights, not by flying faster, but nevertheless, reliability had improved. Again here, the reliance on a few carefully picked anecdotes rather than on systematic analysis of the data (whether conducted by others or his own) leaves Sitaraman at times painting a picture of the airline industry that is not representative but instead highlights its extremes. This approach may help to rouse his readers to political action, but it is not well suited to objectively informing them.

The book’s discussion of service availability reveals another problem with Sitaraman’s approach. He posits that the wide availability of flights to cities all over the country, including small cities, should be an important policy goal. In his view, air travel is a piece of infrastructure that everyone should have access to, akin to potable water or electricity. Many readers may agree with him. (Climate advocates might disagree because flying is a major source of greenhouse gas emissions, but the book addresses climate change only in passing.)

The question is how to get there. Sitaraman looks favorably on policies that would require airlines to provide service to small communities as a precondition for being allowed to serve other routes. Airlines currently do not offer service to many small communities because it is not profitable. A requirement to serve a whole bundle of destinations would most likely mean that airlines would charge higher prices on routes that they currently serve in order to cross-subsidize unprofitable service to small communities. This would result in the redistribution of money from larger communities, where passengers would pay more, to smaller communities, which would get new or cheaper service. Some may consider this to be the right policy, but the book is too cavalier about the fact that some passengers would end up paying higher fares. Do residents of small communities inherently deserve transfers from those living in more densely populated areas? Rather than focusing only on the benefits to small communities, I would have liked to see the book engage seriously with the downsides of such a policy. Ensuring air service to these communities will either raise prices for other travelers—to subsidize service they may never make use of—or need to be financed from general tax revenue, which would require higher taxes or spending cuts for other government services.

A similar issue arises in Sitaraman’s discussion of the benefits of regulation to airline employees. He argues in favor of paying airline workers more and guaranteeing their jobs during times of crisis. To this end, he urges Congress to require airlines to create rainy-day funds that would cover employee compensation during crises. In addition, he advocates that Congress establish a national labor agreement that would apply to all airlines. By removing competitive pressures between airlines, such a system would result in higher employee compensation. This sounds wonderful at first glance. However, the money for rainy-day funds and higher compensation needs to come from somewhere. Unless we start paying airline employees from tax coffers, travelers will be on the hook. Here, too, I miss a serious discussion of the downsides of the proposed policy.

I also disagree with Sitaraman’s characterization of the effect of deregulation on airline prices. High prices for air travel were a major motivation for deregulating the airline industry in the late 1970s. Prior to that time, U.S. airlines were not allowed to freely enter routes or set their own prices. Both entry and rates were regulated by the Civil Aeronautics Board. Rates were set above costs, and airlines that served the same routes competed against one another by raising service quality to higher and higher levels. Airlines added lounges to their planes, followed by piano bars, meal service with steak and champagne, and complimentary Chivas Regal—in coach. Flights were often half-empty, leaving ample space for travelers. Customers enjoyed nice meals and comfortable seats, but today’s experience shows that passengers often prefer to save money by bringing their own food or selecting less comfortable seats. Soon after deregulation, no-frills airlines such as People Express entered the market and attracted many customers with their low fares. (American Airlines saw itself forced to match these lower fares and engaged in aggressive price competition with People Express until the upstart succumbed to an acquisition by another major airline, Texas International.)

Many scholars agree that deregulation led to lower prices while also reducing the quality of the experience for many travelers. Whether or not this is a welcome development often depends on whom one asks. Economists like to draw conclusions from observing people’s behavior. For example, what do passengers choose when given the option of a narrow seat at a low price or a wider seat at a higher price? If travelers have to pay for carry-on bags, will they? Empirical observation shows that not everyone makes the same choice. When given these options, some passengers prefer to save money, while others opt for more comfort. Not surprisingly, these choices often depend on one’s income or on who pays for the ticket—the traveler or an employer, for example. Of course, everyone would prefer to receive great service at a low price. But there is usually a tradeoff: Providing better service costs more and therefore leads to higher prices.

Sitaraman claims that deregulation did not lead to lower prices. He cites an analysis by Melvin Brenner, who examined revenues per passenger mile between 1970 and 1986, before and after the deregulation of rates in 1978. Brenner’s analysis showed that revenues per passenger mile declined throughout this period and did not fall any faster after deregulation. An analysis by the Government Accountability Office showed a similar pattern over a longer time horizon. Sitaraman takes these findings as evidence that deregulation did not lead to lower prices. But this requires one to assume that prices would have continued to decline at the same pace absent deregulation. That is not the case: An authoritative analysis by economists Clifford Winston and Steven Morrison in their 1995 book The Evolution of the Airline Industry found that prices were lower under deregulation than they would have been had the regulatory regime continued. During regulation, airlines were not allowed to offer lower fares and instead competed by offering more and more extravagant service. The end of price regulations meant that airlines could now offer the low fares that many customers wanted, and the removal of entry regulations allowed them to enter routes with high prices and offer cheaper tickets.

At other points in the book, I found it easy to agree with Sitaraman, and I enjoyed his clear way of writing about sometimes complicated policies. He is right to talk about the increasing lack of price transparency as airlines unbundle more and more of their offerings. “Unbundling” means that the base ticket includes nothing except the right to fly from one place to another, and passengers need to pay extra for each add-on. Because airlines advertise the prices for these base tickets but not, say, the cost of including a seat reservation and a carry-on, it has become harder and harder for consumers to compare prices and shop effectively between competing airlines. (Online travel agencies, such as Travelocity and Orbitz, facilitate price comparisons for no-frills coach tickets, but their listings obscure the add-on service fees that now make up an increasing share of the final price.) This is hindering competition and hurting consumers. I agree with Sitaraman that price transparency regulations can fix the problem, and indeed, some of these regulations have already been implemented in recent years.

Similarly, the book rightly calls out the limits to competition that arise when a small number of institutional investors, such as Vanguard and BlackRock, own large holdings in multiple competing airlines. Because these investors benefit when airlines compete less and reap higher profits, “common ownership,” as it is called, can curb competition in harmful ways. This problem could perhaps be fixed by more aggressively enforcing existing antitrust laws.

More broadly, however, regulating airlines is not an easy task, and it is not at all clear that an airline industry regulated to pre-1970s standards would make all stakeholders better off. If this was what economists call a “perfectly competitive industry,” then we would have many relatively small airlines. For any trip that customers might want to take, they would be able to choose among many different carriers with good service quality that could transport them at low prices. If customers had a bad experience or felt that they were paying too much, they could search for a different airline offering them a better product or a lower price. Airline employees would receive a “fair market wage,” that is, about the same wage as they could earn elsewhere, possibly adjusted for factors like work hours, location, or the like.

Anyone who has purchased plane tickets and flown on commercial airlines knows that this is not the industry we have. As Sitaraman explains well, the industry has several features that make it imperfectly competitive, leading to what economists call “natural monopoly” or “natural oligopoly.” Among these features are economies of scale: The average costs of transporting passengers become smaller when an airline gets bigger. This happens because the airline can fly larger planes or share resources such as gates and ground staff across many flights. Another feature is network effects: The costs of flying fall when an airline connects more locations. Airlines that operate a hub airport can connect passengers from many different locations through the hub and operate fewer flights overall compared to a system that connects every origin and destination separately.

Sitaraman rightly points out that these features mean that a deregulated airline industry will not be fully competitive. In principle, regulation could make the industry more efficient, improve service quality, and lower prices. As described in the book, antitrust investigation of common ownership is another possible avenue for achieving this. However, as the history of the airline industry and other industries has shown, regulation often has its own problems. For example, regulators need to be well informed about the companies they are regulating, but companies have an incentive to distort the information that regulators receive in ways that lead to higher prices and larger profits. Companies employ lobbyists to influence regulators and politicians. And because there is no perfectly competitive market for air travel, it is difficult for regulators and the general public to know how rates should be set and what level of service quality can be expected.

Other solutions that Sitaraman proposes—such as nationalizing airlines or introducing a “public option,” a government-operated airline that competes with existing airlines—face similar problems. Nationalization would lead to a government-owned monopoly airline that would not face any competition and would therefore lack incentives to keep costs low and service quality high. The experience of the airline industry prior to 1978 indicates that regulators can be captured by the industry they are supposed to control and then enforce regulation in a way that benefits the industry and harms consumers. High air fares and limited route entry during that era are examples of this behavior. In fact, many other countries have chosen to privatize their national airlines and open their markets to foreign competition to foster more choice and lower prices for their consumers.

When considering the “public option,” Sitaraman concedes that it would be “unlikely to succeed” given the current oligopolistic structure of the U.S. airline industry. He finds a successful example in Australia, which had one private and one public airline serving identical routes with roughly identical schedules, planes, and rates before the country deregulated its airline industry in 1990. However, he admits that the size and geography of the United States does not make the Australian model readily applicable. I would be surprised, too, if American voters endorsed such a one-size-fits-all approach over the current system, which offers vastly more choices.

Overall, the book left me disappointed by the lack of detail in its policy prescriptions. The proposed government interventions, such as nationalizing a whole industry or using public funds to start a government-run airline, would be major undertakings with their own costs and potential for failure. Such interventions would have winners and losers. Before presenting such proposals to voters, one would need to conduct careful cost-benefit analyses to investigate who would be better off and who would be worse off. Policies that have many winners and losers are not really a “fix”—they are forms of redistribution. Honesty requires that they be described as such.

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Silke Forbes is a Professor of Economics at Tufts University.

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