Airports as Victims of Airline Deregulation?

Lessons legacy airlines are learning decades after Carter administration deregulation

About every five years or so, America is treated to another attack on airline deregulation, usually offering nostalgic pleas for the good old days when 40 percent of the seats were empty, fares were affordable only to the affluent, and plane trips were a rare occurrence for average Americans. The Airline Deregulation Act of 1978, enacted under the Carter Administration thanks largely to Civil Aeronautics Board (CAB) chairman Alfred Kahn and then-Sen. Ted Kennedy (D-Mass.), transformed a relatively static cartel into a dynamic, competitive industry that democratized air travel in this country and inspired a subsequent transformation of the airline sector in Europe.

The latest deregulation critique appears in the March/April issue of Washington Monthly. In “Terminal Sickness,” Phillip Longman and Lina Khan of the New America Foundation advance the thesis that the real victims of deregulation are medium and small airports and the cities they serve. They tell sad tales of the dismantling of fortress hubs at Cincinnati (Delta Air Lines), St. Louis (TWA), Memphis, Tenn (Northwest Airlines), and Pittsburgh (US Airways). With significantly fewer non-stop flights (including international flights), all four cities are now less attractive as a business headquarters location and as a convention destination.

There is no doubt truth to that claim, but the underlying premise seems to be that those airports, once having attained fortress hub status, were entitled to retain it indefinitely, regardless of what else was happening in the larger U.S. or global economy. But the fact is that hubs at those four medium-size airports were an artifact of the over-exuberant second decade of deregulation, when airlines built up far more hubs than were economically viable. The major, successful hubs are in large urbanized areas that have ample origin-and-destination (O&D) business on which to add a large amount of transfer traffic. Consider the eminently successful (and sustainable) hubs in such urbanized areas as Atlanta (population 4.5 million), Chicago (8.6 million), Dallas-Ft. Worth (5.1 million), Houston (4.9 million), Miami (5.5 million), and New York-Newark, N.J. (18.4 million). By contrast, the base generating O&D traffic at the medium-size airports is much smaller: St. Louis (population 2.2 million.), Pittsburgh (1.7 million), Cincinnati (1.6 million), and Memphis (1.1 million). Essentially, those four airports that have lost their artificial hub status are now back to a level of airline service consistent with the size of their O&D market. Their attempt to turn themselves into “wayports”-supported largely by transfer traffic-was, not surprisingly, unsuccessful.

Longman and Khan even drag in the “outrage” of state capitals like Olympia, Wash.; Dover, Del.; and Salem, Ore. losing all scheduled airline service in recent years. I testified at the Capitol in Olympia last year, and I can tell you it’s less than an hour’s drive from Seattle Tacoma International Airport (SEA-TAC), not exactly inaccessible. Salem is just 47 miles from Portland, Ore. (though Dover is kind of isolated, but then again, so is most of Delaware). I guess in Longman and Khan’s centrally planned airline world, all state capitals would have mandated airline service.

And a centrally planned airline world is apparently what they do have in mind. Though woefully short on specifics, their closing paragraphs tout the legal monopoly of the Postal Service and the provision of a single system of water and sewer works in each municipality, after which they state that “transportation in all its forms is not much different.” Competition, apparently, is the fatal flaw in today’s commercial aviation world.

As one who grew up in the pre-deregulation era, I must disagree. Sure, it was nice (as a child who didn’t have to pay the high fares) having free meals, empty seats, and room to stretch out. But the cost of that cartelized system was very high-especially in making air travel unaffordable to the majority of families. (My family and I flew on Eastern Airlines employee passes.) I’m not surprised that the legacy carriers are still, 34 years after deregulation, figuring out viable business models for competitive markets. Many startups have tried and failed, but the survivors seem to have figured out models that work. With the last of the legacy carriers now being restructured in Chapter 11 proceedings, we may finally be finishing up this painful learning process.

This excerpt is adapted from the Airport Policy and Security Newsletter.

Robert Poole is director of transportation policy at Reason Foundation.