Though prices often depend on when a passenger buys their tickets, statistics show that the average domestic airfare has gone up from $319 in the highest quarter of 2009 to $355 at the start of 2011. This is not surprising as most airlines are basically bankrupt and need a profit for survival. One of the most commonly cited reasons for this is the volatile price of oil, which comprises nearly 35% of operating costs. Within two years it went from $39 a barrel to $100. Mix that with the bad economy causing fewer people to fly, and most observers could assume they knew the reason for the increases.
Though these factors undoubtedly play big roles, there are additional reasons for air travel problems. For instance, American Airlines recently filed for bankruptcy citing union contracts that cost them$800 million a year more in labor costs than their competitors. The Transport Workers Union (TWU) made their own statement after, fearing that workers would lose their contracts and that airplanes would be less safe. Though workers may be asked to take cuts, this is financially preferable to the company dying altogether. As for safety, any airline which wants to stay afloat will take adequate measures to ensure customer satisfaction, safe service and good publicity without union urging.
Regulations also affect ticket costs. Early on, the prices for commercial flights were high, but in 1978 there was a massive deregulation. According to a study by the Heritage Foundation, it removed government control over fares and lowered ticket prices by almost 40%. It also allowed for the entry of new, cheaper airlines into the market alongside the luxury carriers. Today, the Department of Transportation recently passed new regulations, requiring airlines to reimburse passengers for lost bags, give greater compensation to those bumped from flights and fine any plane which waits on the tarmac for more than three hours. These may be good ideas, but wouldn’t an airline which was seeking to be competitive already try to do these things? If an airline loses my bags I am not going to fly with them again, and they have the price of my future tickets to lose, not just the bag reimbursement. In fact, according to Joshua Mitchell of the Wall Street Journal, the regulations may make things worse, as airlines are three times more likely to cancel flights than wait out the time a little longer on the tarmac. If the fine is applied, the proceeds don’t even go to the passengers, thay go straight to the Department of Transportation.
Environmental regulations are another nightmare for both airlines and passengers. A NCPPR study shows that they contribute significantly to cancellations and delays by inhibiting construction of needed runways. Despite a 25% increase in departures since the 90s, only six new runways were added at major hub airports. A runway which should take two years to build can take ten or more, as airport authorities must obtain a number of permits under federal and state laws regarding environmental concerns. These permits are often further delayed by lawsuits from groups opposed to new construction.
Perhaps the key to enjoying cheaper flights and a more stable airplane industry is just to trust the free market. Freedom – that is what I want to find in my stocking and in my state. Happy Holidays from the Mackinac Center’s interns!