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The Scam of Airline Deregulation
Published on Wednesday, April 17, 2002 in the Boston Globe
The Scam of Airline Deregulation
by Robert Kuttner
HERE'S THE LATEST twist from the annals of airline deregulation. Guess who gets the biggest bargain air fares? Not folks who plan way ahead and risk penalties or Internet bargain hunters willing to fly to Lauderdale by way of Laramie. No, the big bargains go to corporate travelers and government bureaucrats. And the rest of us pay.

Herewith an example from my own family: My wife and I happened to be attending the same conference in Philadelphia. Her round-trip fare from Boston was $257.50. Mine was $645.50. Imagine, $645.50 to fly to Philadelphia! W.C. Fields would have forgone the pleasure.

Why does USAirways get to charge so much? Because it's a monopoly, silly, and they stopped regulating air fares in 1978.

You can always fly a puddle-jumper on another carrier or you can spend almost six hours on Amtrak. But USAir has the only nonstop big jets, and USAir charges whatever it pleases. But, then, why does my wife pay less than half what I pay? Not because she planned ahead or because she surfs the Net. She happens to work for a large institution that is part of a travel consortium that negotiates lower air fares. Most large corporations do this. And guess who gets the lowest rate of all? Uncle Sam. The government negotiates super-low fares for officials flying on government business.

For instance, the basic Boston-Washington round trip on USAir (which, again, just happens to have a monopoly on nonstop big jets on that route) costs $630.50. But government officials pay just $150.50 round trip, or less than one-fourth of what us chickens pay.

So we taxpayers pay twice. We pay once every April 15, when our taxes go to support the basic costs of government. And we pay again when our overpriced air tickets subsidize the government's underpriced tickets.

Why, you might ask, does the government get to negotiate such a sweet deal? For the same reason that cops never get parking tickets. Imagine the USAir official in charge of relations with the feds declaring: ''I'm sorry, sir. You will just have to pay what everyone else does.''

Here's the best part. In principle it makes sense for large purchasers to get lower prices because of what economists call economies of scale. Presumably it's cheaper to service one big corporate customer than lots of small ones. But not in the case of airline tickets. They are still sold one transaction at a time, whether the traveler is a government official, a corporate executive, or John Q. Public.

In fact, according to a travel agent who works on both individual and corporate accounts, it is actually much more time- consuming to book a trip for a corporate customer in one of these discount programs because the corporation wants a lot more information for its records. When she sells me a ticket there is no extra bookkeeping.

In short, the whole premise of airline deregulation is nuts. Deregulation was supposed to bring about more competition, but it has brought more consolidation. Yes, you can get bargains from fringe airports like Manchester, N.H., and you can get last-minute price breaks if you are willing to take bizarre routes. But on major city direct routes there is little such discounting on straight coach fares because so many routes are monopolies.

Even on routes with nominal head-to-head competition, like Boston-New York, the ''competing'' fares just happen to be identical. Large corporate customers can bargain for cheaper fares not because it is more efficient for the airlines to serve them but because they can match market power with market power. And it's the individual traveler who is suckered, for no good economic reason.

Meanwhile, in the age of deregulation, the airlines have lost a small fortune. This was true long before Sept. 11, and it's true even with the latest federal subsidies.

Deregulation is the worst possible mix of ruinous competition on some routes and compensatory price gouging on others - a crazy quilt of some travelers subsidizing others for no reason except the airlines' hit-or-miss market power. And the service? Well, we all know about that.

So it's time for a big congressional investigation and some judicious reregulation. You'd think that our leaders, having heard from disgusted constituents, would be clamoring for redress. But no. Then again, our representatives get cut-rate fares. And the universal, bipartisan party line is that airline deregulation worked.

Gentle reader, it didn't. That's why your seatmate paid double, or half, your fare. And that's why it's cheaper to fly to Paris than to Philly.

Robert Kuttner's column appears regularly in the Globe.

© Copyright 2002 Globe Newspaper Company


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