The Pitch: Economic Update for Thursday, November 28th, 2024
Hello!
My name is Paul Constant, and I’m a fellow at Civic Ventures. I’m guest-writing this week’s issue of The Pitch because Zach Silk is out traveling and spending time with family. He’s not alone, of course: Thanksgiving week is the busiest travel week of the year, and more Americans are traveling now than ever before. Experts project that this year, roughly “6 million Americans will travel by plane within the U.S., a 2% increase from last year and a nearly 11% increase since 2019.”
It’s an unfortunate truth that most of those air travelers are going to be unhappy with at least some aspect of their experience. The airline industry has been slashing away at the customer service experience for the last three decades, raising fees on checked luggage, providing slower service than 30 years ago, aggressively shrinking seat sizes, and raising ticket prices even higher than inflation.
“In the last year, the consumer price index for airline tickets has shot up by 25% — the largest jump since the Federal Reserve of St. Louis began tracking the index in 1989,” Brett Holzhauer wrote for CNBC this month. “In April alone, airfares spiked 18.6%, according to the Bureau of Labor Statistics”
Rather than addressing the growing chorus of customer complaints, airline CEOs are busy becoming political pundits. Last week, Delta CEO Ed Bastian sang the praises of the incoming Trump Administration. President-elect Trump promised, Bastian said, “to take a fresh look at the regulatory environment, the bureaucracy that exists in government, the level of overreach that we have seen over the last four years within our industry.”
“I think that will be a breath of fresh air,” Bastian gushed.
Bastian was echoing the earlier comments of Southwest Airlines CEO Robert Jordan, who earlier this month publicly hoped “that the new administration could be a little more business-friendly. We are hopeful for a [Department of Transportation] that is maybe a little less aggressive in terms of regulating or rule-making.”
I always like to pay attention to what CEOs and other extremely wealthy people do and do not describe as government overreach. Neither Bastian nor Jordan complained when the federal government delivered a $54 billion bailout to passenger airlines during the pandemic, with Delta and Southwest Airlines getting more than $15 billion in total:
Some might consider Delta’s roughly $11 billion bailout to be surprising, given that Delta gave away almost exactly that amount of money in stock buybacks over the decade before the pandemic, essentially handing out $11-and-a-half billion dollars in profits to shareholders with no strings attached. That’s money that could have gone to strengthen the company and prepare for future challenges, rather than simply enriching a wealthy handful of shareholders and Delta executives. Instead, Delta transferred $11 billion from profits to shareholders during the 2010s and then got $11 billion transferred back to the company from taxpayers in 2020.
So what do airline executives actually mean when they complain about government overreach? It seems likely that Jordan’s complaints about the Administration not being “business friendly” enough has something to do with the $140 million fine that the Biden Administration levied against his company after Southwest “canceled 16,900 flights, stranding more than 2 million passengers” around the country over the holidays in 2022.
And Bastian is probably upset about the “overreach” of the Department of Transportation investigating Delta’s especially lackluster response to the Cloudflare hack from earlier this year that left 7000 Delta flights canceled and hundreds of thousands of passengers grounded.
Both airlines are currently “suing to block the Biden administration from requiring greater transparency over fees that the carriers charge their passengers.” In April, the Biden Administration finalized a rule to end junk fees in the airline industry by requiring Delta, Southwest, and other big national carriers to “tell consumers upfront what fees they charge for a first or second checked bag, a carry-on bag, and for canceling or changing a reservation.”
As a result of these new regulations, the Biden Administration estimates that “consumers are expected to save over $500 million annually that they are currently overpaying in hidden airline fees.” But in their suit against the regulations, airlines argue that the new transparency requirements “would confuse consumers by giving them too much information during the ticket-buying process.” That’s one of the laziest trickle-down arguments I’ve heard in a while.
The Biden Administration also “now requires airlines [to] provide automatic refunds to passengers if their flight is canceled or significantly changed,” according to Conde Nast Traveler. “That means cash refunds will automatically be granted if the passenger refuses their changed flight schedule, rebooking on an alternative flight, or other compensation like a flight voucher.” The CEOs are undoubtedly disgruntled over this regulation, though travelers probably feel differently.
Big airline CEOs are pushing back against the Biden Administration in the latest iteration of the classic trickle-down-versus-middle-out battle. Biden’s Department of Transportation is passing rules that will improve the customer experience for air travelers, saving them hundreds of millions of dollars a year and requiring airlines to actually provide the services that they promise customers. In return, airlines have told scary stories about the Big Government Boogeyman constricting them from efficiently providing service in a free and unregulated market.
Another way to tell that the airlines’ claims of regulators running rampant don’t stand up to scrutiny is the historical record. The relationship between passengers and air carriers in the United States has been largely unregulated for the past four decades. When you factor in the catastrophic safety failures of airplane manufacturer Boeing, which Zach wrote about at length earlier this year, and Boeing’s contentious behavior toward its unionized machinists, who were on strike until just last week, it’s pretty clear why consumers have lost faith in pretty much every aspect of the aerospace industry.
Earlier this year, Ganesh Sitaraman, a former adviser to Senator Elizabeth Warren and director of the Vanderbilt Policy Accelerator for Political Economy and Regulation, joined the Pitchfork Economics podcast to discuss his excellent book, Why Flying Is Miserable And How to Fix It. Sitaraman explained how deregulation has turned flying into such an unpleasant experience.
“We’ve got four big airlines, and those four big airlines now have a larger market share than the biggest four airlines had under regulation in the 70s,” Sitaraman explains. Even though neoliberals promised that deregulation would make flying cheaper and more efficient for all, “we actually have less competition now under the so-called unregulated competitive market system.”
The federal government used to require that airlines provide service to many of the smaller cities that are less profitable than the densely populated big hubs that provide most of the business for air carriers. Sitaraman says that “74 cities have lost service since COVID from at least one big carrier, and a number of cities have now lost all major carrier service. So if you live in Dubuque, Iowa, or Toledo, Ohio, there are no more big carriers coming to your town and offering flights.”
Airlines offer much less service to a growing number of air travelers, and they keep cutting amenities and conveniences in order to jack up their profit margins. Left to their own devices, airlines like Delta and Southwest have consolidated their power and throttled the abundance of choices that used to be available to consumers.
That’s obviously bad news from a customer service standpoint, but since airlines are a crucial element in our national transportation system, it also hurts our entire economy. “If you want to have economic growth and opportunity in places that aren’t just New York, Washington, LA, San Francisco, and Chicago, you need to actually have people be able to get to other cities,” Sitaraman says. “And you need airlines and transportation infrastructure for that to work.”
“If you think about this from the perspective of economic growth and opportunity in different parts of the country, if you think about the resilience of our airline system, if you think about competition and what that means for prices, and about the cost-cutting on the part of the airlines and safety concerns that we’ve seen in recent times,” Sitaraman says, “the industry itself is in, I think, a really problematic state.”
The solution is to institute more, not less, regulation. Sitaraman calls for a system to ensure that airlines provide subsidized service to smaller cities around the country. He also says that airlines should get “no more bailouts and no more bankruptcies.” Because they provide an essential service, Sitaraman says airlines should be required to have a crisis management plan in place for surviving the inevitable next disaster.
And with incredibly profitable credit cards and mileage reward programs in place, many airlines have basically become financial institutions that offer transportation on the side. “There’s a bunch of abusive practices in these airline point systems and programs that we should tackle,” Sitaraman says.
Overall, “we should have some minimum standards of service, which include things like minimum seat sizes and inclusive fares that include very basic things,” because “we can’t just constantly have this race to the bottom where the seats get smaller and smaller and smaller and smaller until we’re all sitting on each other’s laps in order to fly,” Sitaraman says.
Unfortunately for American travelers, it seems as though Sitaraman’s commonsense solutions aren’t likely to be passed anytime in the next four years, at least. Airline executives like Bastian and Jordan have “praised Trump’s pick for transportation secretary, Sean Duffy, a former Republican congressman from Wisconsin and reality-TV star who is a co-host of ‘The Bottom Line’ on Fox Business,” reports the Associated Press’s David Koening. Duffy also lobbied on behalf of U.S. airlines from 2019 until as recently as 2023.
In voting for Donald Trump, the American people weren’t signaling their desire for smaller seats, worse airline service, fewer and more expensive flights, and more hidden junk fees buried into the price of every ticket. But that’s likely what we’re about to get under his administration.
The sad state of American air travel illustrates the real-world impacts of economic choices. Under capitalism, you can either have an economy that works for the vast majority of the population, or you can have a trickle-down society that works overwhelmingly in favor of a few super-rich people and the CEOs of a handful of big corporations. Under the trickle-down system, only a few people win while everyone else loses wealth and economic security. But in a middle-out economy that invests in working Americans, everyone does well — yes, even CEOs like Jordan and Bastian.
I hope you’re spending this Thanksgiving with friends and loved ones. And if you had to travel to be with those you love, I hope your flights were as comfortable as possible, given the circumstances.
Zach will return next week.
Happy Thanksgiving,
Paul
Come Fly the Unfriendly Skies was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.