United's Lousy Service is a Reason for More Competition, Not Regulation

COMMENTARY Government Regulation

United's Lousy Service is a Reason for More Competition, Not Regulation

Jun 11th, 2017 5 min read
COMMENTARY BY
Michael Sargent

Policy Analyst, Transportation and Infrastructure

Michael Sargent is a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
The long-term solution to lousy customer service is competition that will empower consumers to find better service elsewhere. iStock

Key Takeaways

Frequent flyers have become accustomed to being prodded, gawked at, delayed, forced off planes, and generally hassled on their travels.

United’s problem is that it chose another anti-consumer option for dealing with its shortage of seats.

Allowing airports to employ cash incentives and new business models would further enhance their ability to attract new carriers and support novel routes.

While the American aviation system is a modern marvel — moving over 925 million people every year — travelers have been willing to subject themselves to uncomfortable conditions in order to get from A to B as quickly and cheaply as possible. Frequent flyers have become accustomed to being proddedgawked atdelayedforced off planes, and generally hassled on their travels.

Still, the latest United Airlines imbroglio — in which police officers dragged a paying customer off a flight while fellow travelers (and their children) watched aghast — was exceptional in its harshness. The involuntary deboarding of passengers is relatively rare, and examples of force are even harder to come by.

Yet inevitably, some will seize upon the incident to call for greater regulation of the airlines (a practice that has experienced a bit of a resurgence in Congress recently). Already there are demands for lawmakers to ban overbooking — the common practice of selling more tickets than seats on the assumption that some people won’t show up. That “solution,” however, would be no boon to consumers. Overbooking helps keep fares down by allowing airlines to ensure they are flying fuller planes.

United’s problem is that it chose another anti-consumer option for dealing with its shortage of seats. A superior free-market solution was readily available. It would have been far cheaper for the airline to offer volunteers a larger incentive to re-book than to pay the millions it will likely now have to shell out for a PR blitz to counter the social media frenzy, a falling share price, and lost business as some customers seek service from other airlines.

However, because of a federal law that caps the restitution airlines are required to pay to those who are bumped involuntarily at $1,350, United may have decided that an involuntary removal was the cheaper way to go.

United employed this approach to its own, and its customers’, detriment. Fortunately, fliers still have the option to choose from competitors that are able to employ a wide variety of business models, such as Southwest, which doesn’t assign seats, or JetBlue, which does not employ overbooking, based on their preferences. The answer is not to further micromanage these business models; the way to better help consumers would be to roll back barriers that limit greater competition and hamper travelers with poor service.

Since airline deregulation in the late 1970s, competition has driven carriers to respond to what the market has been demanding: cheap flights. This is what those who complain about smaller seats, lack of free drinks, and large-scale adoption of auxiliary fees miss. These business practices allow airlines to offer the lowest possible fares—the foremost concern for the largest number of travelers. The mid-twentieth century, champagne-laden “golden age” of air travel existed only for those who could afford it — a much smaller segment of the population than those who fly today. The real cost of flying did not decrease by nearly 25 percent over the last 20 years out of the kindness of airline executives, but out of greater demand for affordable flights.

But while consumers do have a choice between carriers’ business models, competition is lacking in certain areas and can be improved to provide consumers with more choices and improved service.

Let’s start at the beginning of the journey: the demeaning and woefully ineffective passenger screenings done by Transportation Security Administration (TSA). The whole system should be overhauled. Airports should be empowered to handle their own security by contracting with firms that can provide better service. In the meantime, TSA should expandits trusted traveler programs and private screening pilots.

Similarly, airport funding is currently designed so that airports serve the airlines, not the passengers using their facilities. This is because federal law prohibits airports from charging fliers directly (with the exception of the heavily regulated Passenger Facility Charge, capped at $4.50 per passenger). Instead, they must rely on the airlines for revenues.

This funding regime has led to anti-competitive behavior by airlines. They can require airports to reserve gates for them alone, squelching out competition. By one estimate, this barrier to new entrants at airports cost passengers $5.4 billion in higher fares annually. Allowing airports to run like businesses with greater authority to raise and spend their own revenues (including reversing the current flow of fliers’ ticket tax dollars to airports they never use) would help airports provide fliers with much better service and access to more flights.

Allowing airports to employ cash incentives and new business models would further enhance their ability to attract new carriers and support novel routes.

Further inhibiting competition among airlines is a protectionist federal law that prohibits foreign-owned airlines from flying between two U.S. cities. Allowing more service by foreign carriers — or at least lowering the requirement that U.S. airlines must be 75 percent owned by U.S. citizens to operate domestically — would undoubtedly provide consumers with greater choice.

But one just needs to see the uproar when a tiny foreign carrier, Norwegian Air, began to offer low-cost flights to Europe to know that rolling back protectionism — which serves entrenched airlines and their employees instead of fliers — in the aviation industry will be a heavy lift. Nonetheless, consumers deserve more options and should demand changes to the arbitrary barriers to entry in US airspace.

Lastly and most relevant to the United incident, removing the federal backstop on compensation airlines are required to pay passengers who are involuntarily bumped would give them a much greater incentive to entice volunteers in situations of overbooking, rather than falling back on the arbitrary limit set by law.

It’s possible that none of these policy fixes would have prevented the unfortunate treatment of the United customer, but they are superior alternatives to re-regulating the airline industry. The long-term solution to lousy customer service is competition that will empower consumers to find better service elsewhere.

This piece originally appeared in The Hill on 4/11/17