In response to the United fiasco of this weekend (read up here if you’ve been living under a rock, or are an Internet archaeologist reading this post from the 23rd century), I’ve seen more than one person call for the airlines to be “re-regulated.”
It just so happens that I was flying this weekend, so this was on my mind already. Also, the fact that I have hated United for many years is a matter of public record (look at the date on that one! PRESCIENCE!), so I really can’t resist posting about this.
Besides, airline regulation isn’t as simple as either “side” makes it out to be. Rolling back the Reagan-era reforms of airline regulations, as some left-wingers want to do, would be a disaster. But, then, so would eliminating all airline regulations, as some right-wingers want to do. Airline regulation is a tricky business, and deserves a tiny bit of close scrutiny before we pass judgment.
When people talk about how great flying used to be, and how airlines ought to be “re-regulated,” they’re usually referring to regulations from the Civil Aeronautics Board. Before Congress mandated airline deregulation in 1978 (two years before Reagan, actually), the federal bureaucrats of the Civil Aeronautics Board ruled the skies. Under the CAB’s administration, planes were spacious, checked bags were free… and tickets were twice as expensive in inflation-adjusted dollars. Flying was great, but nobody outside the top 5% or 10% of Americans could actually enjoy it, because the rest of us couldn’t afford it. The CAB imposed price controls, awarded route-based monopolies, barred airlines from opening new routes (it took Continental eight years to get approval to fly the San Diego-Denver route… and it only came with a court order), and imposed barriers to entry for new competitors trying to enter the market. It was a textbook case of regulations strangling the free market and annihilating competition. Rich people liked it; airlines (which were guaranteed profits under CAB price controls) loved it. But average consumers suffered under these suffocating regulations… as liberal Supreme Court Justice Stephen Breyer, who worked on the deregulation project, is happy to explain.
Today, of course, airlines are still regulated, but the regulatory regime is very different. Modern airline regulations generally permit competition and avoid messing around with specific routes and prices; instead, they focus on imposing a certain minimum standard of safety and (yes) comfort across all flights and all airlines. A good example of modern airline regulation is the Passenger’s Bill of Rights, which the Department of Transportation published on 30 December 2009 under the name “Enhancing Airline Passenger Protections.” This rule limited the amount of time passengers could be stranded on the tarmac (among other things). As someone who was once stranded on the tarmac for six hours (we watched Coach Carter twice and Sideways once) at O’Hare–and, yes, it was my first-ever flight with United–I support these very modest State interventions in a market where sellers otherwise exert overwhelming influence.
However, it was a regulation that (arguably) permitted the United fiasco to happen*. 14 CFR 250.5 provides that a passenger may be involuntarily denied a flight he or she has paid for if the airline pays compensation equal to 400% of the fare to the passenger’s final destination, up to a maximum of $1,350. This regulation is reflected in Section 25 of United’s contract of carriage. The incident on this weekend’s United flight generally* followed the process laid out that regulation: first, United called for volunteers; then, they called for volunteers and offered compensation; then, they gradually ratcheted the voluntary compensation up to 400% of the fare price; and then, finally, they exercised their right to involuntarily “bump” passengers–a right provided by the current regulation.
So the problem here is not that there’s a lack of regulation over this. The problem is twofold:
- the current regulation is stupid, and
- arguably, United did not follow the regulation.
Problem #2, unfortunately, can only be answered through litigation, and I suspect that the customer forcibly deplaned is going to be a millionaire very soon.
Problem #1, however, could be addressed through revising the current regulation. If I were given that power, I would eliminate the caps on compensation, and let the free market loose on overbooked planes. If airlines want to buy seats back from their customers, they should pay whatever the heck price customers want to charge them for their tickets, no matter how high the price is.
And hey, just about everyone has a price: I wouldn’t have missed my plane (to a cousin’s wedding) for $800, but, if the offer were $10,000 (times two, since my child was with me), I hope my cousin would forgive me for taking it. Heck, at that price, I could probably charter a private flight, still make the wedding, and have money left over! But the bid probably wouldn’t reach that high, because surely someone not going to a wedding would accept it if the airline offered $1300 or $2000 or $5000.
That’s the free market: I have a ticket I bought from you, you want it back, so I’ll sell it to you, but I set the price–not you and not the federal government. 14 CFR 250.5 should embrace this.
Now, some regulation of airlines is necessary. As common carriers benefiting from network effects and economies of scale, the airline industry is prone to natural monopoly. Without some regulation requiring minimal standards of service and non-discrimination between carriers, we’d end up with monopolies. Competition would die off, prices would rise, and customer experience would worsen. We’d end up in worse shape than we did during the Civil Aeronautics Board era. That’s why I say that 14 CFR 250.5 should be revised, not eliminated. If 14 CFR 250.5 were deleted entirely, airlines would have strong incentives to eliminate all compensation in these cases. They could (and would) simply “bump” passengers on overbooked flights, at their own whim, with impunity.
We see the same thing in the ISP market, where Obama-era net neutrality regulations (unfortunately opposed by President Trump) helped shore up the Internet’s defenses against monopoly. I explained the risks of natural monopoly and the necessity of gentle, prudent common-carrier regulation at very great length in my post on net neutrality.
However, the “re-regulation” desired by some liberals would mean a return to the Civil Aeronautics Board’s pre-1978 regulatory regime. That regime was full of price controls and government-imposed monopolies. It would do a lot of damage to the accessibility of air travel… and it would not actually fix the problem on this weekend’s United flight, which arguably happened because of government price controls, not in spite of them. CAB regulation was a very bad idea in 1978, and it remains a very bad idea today.
*I say “arguably” and “generally” because 14 CFR 250.5 says it applies to “involuntary denial of boarding” — but, in United’s case, the passenger had already boarded, so United’s actions may have been illegal; also the United flight may not have been overbooked, since the demand was for the passenger to surrender his seat to a crew member, not another paying customer. It’s not at all clear to me that this was legal.
**Somehow–and probably just by posting it I’m going to ruin it–“Fly the Unfriendly Skies” is available on the Internet Archive right now, along with another excellent episode of Bob Newhart, “Tracy Grammar School, I’ll Lick You Yet.” Catch it while you can! Bob Newhart is also available on Hulu.