Anticipating disruptions to airline travel over the Labor Day weekend, Secretary of Transportation Pete Buttigieg sent a letter to the 10 largest airlines’ chief executives censuring their recent behavior as “unacceptable.” “These aren’t just numbers. These are missed birthday parties, graduations, time with loved ones, and important meetings,” he wrote in August. Buttigieg threatened to post an online chart assessing the airlines’ performance if things got worse.
The secretary should and could do much more. Nightmarish airline travel conditions have become a fixture this summer. It has gotten so bad that 38 state attorneys general, from both red states and blue states, sent a joint letter on Wednesday to Senate and House leadership explicitly calling out Buttigieg’s Transportation Department for failing “to respond and provide appropriate recourse” for frustrated airline flyers. Airlines delayed more than a million flights and canceled almost 129,000 from January to July, more than in 2021 and surpassing pre-pandemic levels by 11 percent. In many cases, the airlines know beforehand that they’ll have to cancel flights at the last minute because of staffing shortages or scheduling complications. They sell tickets anyway, betting that many customers won’t cash in the vouchers they receive. According to a Wall Street Journal investigation, the airlines made $10 billion in 2021 from unredeemed vouchers.
Yet Buttigieg’s idea of getting tough on airlines seems to mean pummeling by PowerPoint. Instead, the secretary needs to use his powers. Section 411 of the Federal Aviation Act, for example, grants the secretary of transportation the authority to “investigate and decide whether an air carrier, foreign air carrier or ticket agent has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation.”
In 2010, Transportation Secretary Ray LaHood used this authority to issue severe penalties for airlines that left passengers waiting on tarmacs for hours before canceling flights, a widespread problem at the time. Many members of Buttigieg’s party, including Senators Elizabeth Warren and Bernie Sanders, are urging him to use that power again. New York Attorney General Letitia James has even told him exactly how to do it. “Airlines knowingly advertising and booking flights they do not have adequate staff to operate are flying in the face of the law,” James said at a press conference.
Buttigieg shouldn’t stop there. Most of what’s gone wrong with flying is rooted in monopoly, and, as it happens, federal law also gives the Transportation Department substantial authority over airline mergers.
After a wave of large mergers from 2010 to 2013, just four airlines now control most of the market. The Big Four can tacitly collude to keep prices high and lower seat supply, which helps explain why fare hikes this summer have far surpassed inflation. Amplifying the effects of monopoly, a small group of giant institutional investors—notably BlackRock—all hold major stakes in each of the four major airlines. A 2018 paper by the economists José Azar, Martin Schmalz, and Isabel Tecu showed that this concentrated ownership structure reduces the incentive to compete and increases consumer costs.
The flying public pays. Domestic ticket prices jumped 18.6 percent from March to April, the biggest increase since the Bureau of Labor Statistics started tracking them in 1963. This summer, leisure fares are up about 25 percent from pre-pandemic levels and 50 percent higher than in 2021, according to the travel advisory site Hopper. Fares always go up when fuel prices do, but now ticket costs are rising far faster than jet fuel.
Inflation has been very, very good for the airlines’ bottom line. American Airlines raked in $13.4 billion, up 12.2 percent from the same period in 2019, along with the highest quarterly revenue in its history (from the second quarter of 2022). The other major airlines—United, Delta, and Southwest—have posted record earnings.
Consolidation also means that airlines can put customers through hellish conditions without worrying about losing market share. Loss of competition is the root cause of the industry’s most egregious practices, such as leaving passengers waiting on the tarmac for up to 12 hours before canceling their flights.
Buttigieg can take major strides toward fixing the airline monopoly problem. In addition to using the Department of Transportation’s power to block mergers, he could, under Section 411, enact a rule prohibiting institutional investors and individual shareholders from holding more than a 1 percent share of the publicly traded airline market. In the Michigan Law Review, the antitrust attorney Jonathan Edelman wrote that “the DOT has the clear legal authority—and the responsibility—under section 411 to address common ownership among airlines by promulgating a rule that limits investors’ ability to own large shares of multiple airlines.” While not a short-term fix, diversifying the ownership structure of the airline industry could help incentivize competition and lower airfare prices.
Adding to the legal case is a political one: Airlines are taking advantage of consumers despite the $50 billion bailout the industry received from taxpayers during the pandemic.
Yet instead of implementing such policies, Buttigieg publicly expresses his sympathy for frustrated air travelers while cajoling industry leaders to cut down on canceled flights. The secretary often seems more inclined to “collaborate” with the airlines, as he put it in a Fox News interview in July, rather than acting as their regulator. After meeting with airline executives before the July 4th holiday, Buttigieg expressed confidence in the industry. “They have assured me about a number of steps that they’re taking, including making sure their schedules are realistic,” he told KIRO7, a CBS affiliate in Seattle.
To his credit, earlier this month Buttigieg took steps to strengthen consumer protections for airline travelers. The Transportation Department proposed rules requiring the major airlines to offer passengers full refunds on delayed or canceled flights. The proposal also defines deceptive practices that the department can combat, such as neglecting to inform customers about luggage fees. These rules aren’t proportionate to the problem at hand. They redress lousy customer experiences but don’t disincentivize the airlines from malpractice in the first place.
During the 2020 Democratic primaries, “Mayor Pete” found success as a small-city chief executive from flyover country. He spoke to heartland voters’ genuine concerns about regional inequality, an economic force accelerated by airline deregulation. As the top airline regulator, Buttigieg would be wise to discipline the airlines—for his own sake, for the country’s sake, and for passengers everywhere.
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