
How the Airlines Became Cartels - walterbell
https://www.nytimes.com/2017/04/17/opinion/how-the-airlines-became-abusive-cartels.html
======
epistasis
Markets are such an essential tool for our society, but they're also easy to
get wrong. Markets require regulation, whether it's in the form of contract
enforcement or setting standardized terms for communication in the market. Any
time there's a power differential, we need regulation.

That's why I wish we could get past this mindless anti-regulation political
trend into a "smart regulation" political trend. Whenever I see "regulations
are bad" these days it's always associated with mindless deregulation;
deregulation is a difficult thing that must be done carefully, and it has to
be adjusted later on to adjust for all the unforeseen consequences.
Regulations are not bad, it's needless regulations that are bad.

~~~
tvanantwerp
The trick here is defining "smart" versus "needless" regulations. It's not
always an obvious difference. For example: lots of excessive state-level
occupational licensing which effectively just creates cartels was passed with
sensible arguments about protecting consumers from harm and poor quality. It's
fairly easy to rationalize lots of regulations that don't work very well in
practice. So just saying "it should be smart and not mindless" isn't really a
solution to anything without a rigorous definition of what a "smart"
regulation looks like.

~~~
zeteo
Right on. The legislators who consult with lobbyists behind closed doors and
then produce thousand page bills would argue that they also make "smart"
regulation. Didn't they talk at length to the people who knew most about the
issue? Doesn't the bill address lots of cases that would never occur to the
"dumb" person?

Yes, but the bill is totally ineffective for the average person and only helps
the big players.

What we arguably need is more "stupid" (as in "keep it simple, stupid")
regulation. Constitutional Amendments are written in this style; also some
antitrust legislation [1]. Complex regulations are vulnerable to

a) hidden flaws - that tiny exception in article 57 paragraph 30 might turn
out large enough to overturn all 56 previous articles.

b) regulatory capture - lobbyists will, of course, introduce as many
exceptions as possible if the text is long enough.

c) the revolving door - if only a small group of people know the intricate
details, they will soon be hired by the affected companies at a multiple of
their previous salary.

d) compliance cost - only large companies might be able to afford the
compliance cost, which ends up concentrating the market further at the cost of
the consumer (Dodd-Frank, anyone?).

[1]
[https://en.wikipedia.org/wiki/Sherman_Antitrust_Act#Original...](https://en.wikipedia.org/wiki/Sherman_Antitrust_Act#Original_text)

~~~
entee
I agree in principle. I would also argue that there should be a bias toward
informational and clarity-enforcing regulation as opposed to specific action
regulations. I.e. regulations that say, "you must disclose this clearly and
transparently" as opposed to, "your widget must be minimum 12mm wide".

That said, regulations that are less specific in the text of the law often
yield cumbersome lawsuits and may end up with a huge volume of case law. Just
because the law is 2 pages long doesn't mean you don't need an army of lawyers
to comply with it. They'll just be parsing 2,000 page case law briefs and
judicial rulings.

Of course even specific laws generate lots of case volume, but still, short
laws aren't a panacea. Smarter laws that seek to even out knowledge in the
marketplace might be a better way to go as the economy gets more complex.

~~~
zeteo
> regulations that are less specific in the text of the law often yield
> cumbersome lawsuits and may end up with a huge volume of case law

Yes, but at least you have the chance beforehand that someone will say "this
is not specific enough and will yield cumbersome lawsuits". If it's super long
and complex then either a) there will be cumbersome lawsuits over parts of the
law that are not completely consistent or b) the big guy with the big legal
team will always win by default.

------
joelrunyon
Southwest has a fundamentally different business model involving standardized
fleet sizes & limited routing. Plus, if he's complaining about stopovers +
layovers, Southwest has these on almost every flight.

He's stating a lot of things that _would_ be nice, but the fact of the matter
is that a lot of people still fly Spirit Airlines - despite their constant low
ratings - because it's costs $50 bucks.

The real discussion should be about fare transparency as a bunch of airlines
are rolling out basic economy fares that don't include food, limit space even
further and don't accrue points, etc. Instead of making a new, nicer tier
class, they're taking away items from the basic economy fares and maintaining
the same pricing.[1][2]

The fact that none of these pieces are talking about this makes me think these
are outrage opinion articles by talking heads rather than people who regularly
fly

[1] [https://thepointsguy.com/2017/03/is-basic-economy-really-
a-d...](https://thepointsguy.com/2017/03/is-basic-economy-really-a-deal/)

[2] [https://thepointsguy.com/2017/02/united-selling-basic-
econom...](https://thepointsguy.com/2017/02/united-selling-basic-economy/)

~~~
mikeash
As usual, people don't know their own desires.

Ask people what makes them choose an airline and they'll probably tell you a
tale about reputation, service, legroom, amenities, what have you.

Now stick them in front of a computer and tell them to buy a ticket with their
own money and watch them pick the cheapest option regardless of the rest.

It's a race to the bottom because that's what people really want. When the
rubber meets the road, most people _want_ a horrible, cheap experience.

Why do airlines overbook flights? Because people would rather save $5 with a
chance of being bumped than pay a little extra.

Obviously, we'd all love direct flights with sixteen feet of legroom, a
hundred free checked bags, gourmet meals, free access to a library of every
movie and TV show ever made, and for a price of $3.50. But that's not going to
happen, because amenities cost money. When we're faced with the tradeoff, we
favor low prices.

Once I truly realized this, I became a lot less annoyed with many airline
shenanigans. Yeah, it's pretty annoying that as a tall guy I barely fit into
the seat. But it's what I paid for. If it was _that_ important to me, I could
pay extra for more space. I don't, because, like most people, I prefer
cheapness above all else.

You can get a much nicer experience if you pay for it. If you don't feel like
paying for it, then what are you complaining about?

Not particularly related, but this line from the article caught my eye:

"It makes no sense to allow airlines to charge an astronomical fare just
because a flight is nearly full, and a dirt-cheap fare for an advance
booking."

What planet is this guy from? Of course it makes sense to charge high fares
for a scarce product in high demand, and low fares for an abundant product in
low demand.

~~~
closeparen
But we aren't given the option to pay a proportionally higher fare for
proportionally higher quality. Higher fare classes aren't +20%, +30%, they're
3x, 4x, 10x.

There are "I only shop on price" seats and "money is no object" seats. I wish
we had more of a middle, beyond the usual +$150 for an exit row or +$100 for a
regular economy seat, but in the forward half of the plane.

~~~
ashark
Seriously, show me where I can pay an almost-reasonable (say, 10-15%) upgrade
fee for 3-4" more legroom over whatever the lowest is they can get away with
(so, what they actually use in economy ordinarily) and I'll pay it _every
single time_ I fly, and I'm not even _that_ tall. AFAIK leg room and other
space considerations aren't even presented to me when shopping for tickets,
but too little of it is my #1 complaint about flying, which is saying
something because most things about flying are complaint-worthy.

~~~
maxerickson
United calls that "Economy Plus". Not sure the price structure matches what
you say:

[https://www.united.com/CMS/en-
US/products/travelproducts/Pag...](https://www.united.com/CMS/en-
US/products/travelproducts/Pages/EconomyPlus.aspx)

Exit row seats are also often first available to members of various frequent
flyer programs and usually have a modest amount of extra legroom.

~~~
ashark
First: thanks for the link, interesting to know that there's kind-of something
out there for this.

From the FAQ on the linked page:

> Who can purchase Economy Plus seating? All customers who are not traveling
> on a Basic Economy ticket may purchase Economy Plus seating subject to
> availability. Advance complimentary access to Economy Plus is available to
> Premier® Platinum members and higher (for themselves and up to eight
> companions), and Premier Gold members (for themselves and one companion).
> Premier Silver members and one companion enjoy complimentary access to
> Economy Plus seating, when available, upon check-in.

I just... what is this even? How about just putting the legroom on ticket sale
data—including for sales on 3rd party sites—and selling different ones at
different prices? I don't want to become an expert on all this weird tricking-
you-into-spending-more-money-with-us-than-you-should-if-you're-not-super-
careful crap for every airline I might fly with, I just want to buy a ticket
and fly every now and then, and I'm willing to pay for more legroom. How would
I even begin to comparison shop for this upgrade vs. other airlines? I know
the answer is "you're not supposed to because they're trying to screw you" but
that's an awful answer.

This is precisely where regulation is useful: transparency in WTF you're
buying and standards in how it's presented _so competition can work its magic_
without consumers having to learn a bunch of otherwise-useless junk (the worst
of which is "how to navigate systems and jargon that are specific to one
vendor") in order to confidently make a simple transaction.

~~~
nostrademons
Airlines don't want you to comparison shop for amenities, because then _those_
will become a race to the bottom as well, and airlines will gradually reduce
the amount of legroom available in Economy+ until it's just barely above
regular Economy.

Anyway, basically all the major airlines except Southwest offer this. It's
Economy+ on United, Delta Comfort on Delta, Premium Economy on American, Main
Cabin Select on Virgin America, Even More on JetBlue, etc. I found this out
through looking at the front page of each of their websites. Prices range from
$40-50 (additional) per seat per leg. You can select it upon seat selection at
the airline's website (which is where an aggregator will take you, anyway):
the extra economy+ seats that are available are shown together with the price
for the update, and you just have to click on them and it will adjust your
fare accordingly.

So now you know. Incidentally, this is pretty good evidence of this
subthread's point: you expected to be told all of this by going through a 3rd-
party aggregator where you can search by cost. If you are representative of
the average American consumer (which is probably pretty likely), it's no
wonder the airlines compete on cost.

~~~
ashark
> So now you know. Incidentally, this is pretty good evidence of this
> subthread's point: you expected to be told all of this by going through a
> 3rd-party aggregator where you can search by cost. If you are representative
> of the average American consumer (which is probably pretty likely), it's no
> wonder the airlines compete on cost.

They should probably work to ensure it's possible to _accurately_ filter by
other criteria on aggregators then, if they actually care about getting people
to shop based on other features. They choose not to make any effort there,
because even small levels of obfuscation enable extraction of rents. It
weakens the ability of the market to improve quality _and_ reduce cost, the
more difficult it is to gauge quality.

If they cared the tickets would be per-seat and tell you the properties of
that seat in some machine-parseable manner, not be upgrades (that change the
seat you're in) that may or may not be available at all depending on how you
bought your ticket, whether you're part of some special program, and so on.
Ah, travel—the one context in which not-at-all-rich people are encouraged to
temporarily act like petty nobility. Almost certainly another trick to extract
more money from people. No accident it's also an industry that's managed to
make something inherently amazing and awe-inspiring resemble one of the only-
moderately-unbearable parts of hell.

At least with your Amex Platinum card and all those points you've racked up
you can be baron in the Fourth Circle for a day.

------
misterbwong
I hate the airlines too but holding up Amtrak[1] as the model isn't going to
win you any points.

The reason airlines "hate" passengers is because they basically break even on
shuttling economy passengers and look at economy passengers as more of a cost
than a profit center.

Sure they're making more money now because of all the tacked on fees, but
those are a relatively recent trend. The real profit is from business/first
passengers and from the miles/credit card game they play.

[1]
[https://www.washingtonpost.com/news/wonk/wp/2013/03/01/amtra...](https://www.washingtonpost.com/news/wonk/wp/2013/03/01/amtrak-
loses-a-ton-of-money-each-year-it-doesnt-have-to/)

~~~
djsumdog
There's a good Wendover video on airline classes:

[https://www.youtube.com/watch?v=BzB5xtGGsTc](https://www.youtube.com/watch?v=BzB5xtGGsTc)

And another great one about AmTrak in relation to flight:

[https://www.youtube.com/watch?v=fwjwePe-
HmA](https://www.youtube.com/watch?v=fwjwePe-HmA)

~~~
nitwit005
Thanks, the Wendover video was quite well done.

------
nostromo
Ah yes, the federal government will make air travel better... Just as they
have made airports themselves a delight!

I'm having a hard time taking this argument seriously. While I may not enjoy
air travel, the most abusive part of flying is the part run by the federal
government, namely the TSA and CBP. If they want to improve the air travel
experience, start there.

~~~
baursak
Who are the actual airports, as in the buildings, facilities, runways,
parking, etc., run by? Who are the actual flights run by, as in traffic
control? Who are the roads leading to the airport managed by?

~~~
nostromo
All of those functions in the US, other than air traffic control, are run by
the local government.

~~~
baursak
Are you suggesting that local governments should be handling border patrol and
passenger screening, or would have been doing it better?

~~~
nxc18
The amount of stuff that gets past the TSA is pretty strong evidence that yes,
local government probably could do a better job at basic security/screening.
Anyone who really wants to get away with something needs to worry about a 100
other agencies before they worry about the TSA.

Really there's very little evidence that the TSA has had any practical
success, despite huge expense. I've traveled internationally and I've seen
huge containers of cosmetics walked right through the TSA, only to be stopped
on simple inter-terminal x-ray/metal detector inspection in Zurich.

Just because we have it now doesn't mean we need to have it; TSA regulation is
clearly in the useless category.

~~~
baursak
I agree with you that TSA (since we quietly dropped CBP from the conversation)
is pretty inefficient and on the border of useless. However, you haven't
really answered WHY you think that local government would do a better job. You
just stated it without evidence.

I'm also curious how it would work practically. If I fly around the country
frequently, will I need to be aware of all the differences in screening
processes at each local destination? Will airlines need to comply with
security standards across all localities, instead of dealing with a single
agency?

~~~
nxc18
That is exactly what happened pre-TSA. And is isn't so much that local
government is better, it is that the whole thing is largely unnecessary to
begin with; security was different pre-9/11 and it probably worked about as
well as security works now.

I don't know how old/young you are, but you probably don't remember a world
without passports. They were a temporary measure in response to war; now they
are the somewhat Orwellian document without which it is illegal for you to
leave the U.S. Imagine making the argument today for rolling back mandatory
passports, in a world where few people remember life without them. Sooner than
you think, if not already, the TSA will be in that same boat.

I would assume you are old enough to have a solid memory of 9/11, but today's
younger college students have no memory other than the pre-9/11 world. I was
in first grade at the time, and traveled with family a (very) short time
after. The airport was guarded by soldiers at the time and I got to witness
their guns trained on my father when he couldn't find the key to his luggage.
It was quite tense later when my GameBoy Color set off the metal detector. Fun
times.

History is important, if only so that we can remember that what is today has
not always been. (Don't be offended if you already know all this; someone
reading this comment will be blown away by the idea of a world without
pornoscans, patdowns, and shoe removel).

Oh, and for CBP, that is explicitly ("...provide for the common defense...")
the exclusive role of the federal government. They should probably keep
screening at the border, just ideally with more of a customer service/land of
opportunity/"welcome to the USA" vibe rather than the "Muslims/brown people
GTFO" vibe.

------
adam_gyroscope
If you are interested in the history of the airline industry up through the
90s, you should read Hard Landing. It's an excellent overview of how we got to
where we are in the United States, and the meat of the book is about
deregulation.

Note that "deregulation" in the airline industry (primarily) means the
government no longer controlled which airlines flew which routes. Before
deregulation, route ownership was decided by an oligopoly that would and could
set high-margin prices on routes since the control of those routes was a)
assured by the government and b) agreed on by all the major carriers.

After deregulation, airlines competed primarily on price. While this lead to
the hub-and-spoke system and the low-fare carriers we see today, it also meant
that almost anyone could fly anywhere in the US and abroad for (relatively)
little money and a high amount of safety.

As an aside, airline reservations technology benefited immensely from
deregulation, and the carriers that controlled the reservations systems ended
up killing of the carriers that didn't (see, for example, Eastern Airlines).
If you're interested in the tech of the airline industry, I recently gave a
talk about this at Systems We Love: [https://systemswe.love/archive/san-
francisco-2016/life-of-an...](https://systemswe.love/archive/san-
francisco-2016/life-of-an-airline-flight)

------
rb808
Airlines are hardly cartels. Cartels make obscene amounts of money, airlines
currently make a little money but historically lose.

The main issue is price sensitivity. People would rather pay less and suffer
rather than pay full premium prices. As a result people largely get what
they're asking for.

~~~
josephscott
"airlines currently make a little money"

Your definition of "a little money" and mine are very different. The three
largest US airlines ( American, Delta, and Southwest ) each had net incomes
over $2 billion for 2016.

American: $2.6 B Delta: $4.3 B Southwest: $2.2 B

~~~
com2kid
American earner $2.6B on $40.18B of revenue, 6.7% profit margin.

Hardly a high margin business.

~~~
TheGRS
Thats actually much higher than I would have thought, I was under the
impression they operated on 1% or less margins. Maybe not a great margin, but
2.6 _billion_ isn't anything to sneeze at.

------
corford
The market response (at least in Europe, after liberalising the common
airspace) has been the rise and utter domination of LCC airlines. Point-to-
point flights, standardised aircraft, super low fares and great coverage. The
success of the model is now creeping in to medium/long haul routes with
Norwegian (and very recently IAG) leading the charge.

If you talk to airlines, the "cartel" they fear are the distribution
gatekeepers (GDS providers and OTAs like Priceline and Ctrip). This world is
rapidly changing too though with the arrival of NDC and airlines investing in
their own direct to channel APIs (a practice, incidentally, pioneered by
LCCs).

~~~
lhopki01
I wonder why deregulation within the EU led to such different results than the
US? The article makes a point about how there were many mergers in the US
which probably has reduced competition. However, this doesn't explain the fact
that in the EU it has been newcomers like Ryanair and Easyjet that have really
made the big changes.

~~~
corford
I don't know enough about the US market to have an informed opinion, though
there are a few differences I'm sure play a part:

1\. Lots of different languages and cultures in the EU make it easier for
startup airlines to quickly grow from their local base. So, for example, you
see WizzAir and BlueAir competing successfully with Ryanair and Easyjet in
Eastern Europe. Transavia from the Netherlands, Norwegian from Norway, Vueling
and Volotea from Spain, Germanwings/Eurowings from Germany.

2\. The population distribution in Europe lends itself ideally to the LCC
model (point-to-point networks and sector times under 5 hours). We have lots
of regional cities with sufficient populations to warrant basing a few
aircraft and opening up profitable routes. That's why Europe has the densest
regional/secondary route network in the world.

3\. The LCC explosion really started in the early 2000's (despite Easyjet
first flying in ~1995 iirc). It exploded thanks to a perfect storm of airspace
liberalisation, cheap aircraft leases 'post 9/11', widespread internet
adoption (so LCCs could cut out travel agents and GDS fees) and booming EU
economies fuelling consumer demand for flights and travel.

The open question is whether or not Europe will see consolidation within the
LCC market but I personally don't think it will any time soon. LCC passenger
count is still growing at ~6%/year.

------
taxicabjesus
The airline industry is crippled by its debt load. They borrow money to buy a
plane, and hopefully make money flying it around to make the payments. When
the plane is finally paid off, it's ready to be replaced.

I had an anecdote about a Hawaiian Airlines' maintenance problem:
[http://www.taxiwars.org/2015/03/airplane-
maintenance.html](http://www.taxiwars.org/2015/03/airplane-maintenance.html)

~~~
hendzen
Wrong. There is actually a niche of financial engineering used to work around
this problem known as aircraft securitization. Airlines don't buy the planes
directly, they set up separate corporate entities (SPVs) that purchase the
planes with cash generated by issuing bonds. The airline then leases the plane
from the SPV and the bondholders are paid with the lease payments. The
collateral in this case is usually the plane itself, and if the bonds go bad
the bondholders are first in line for any payments from liquidating the SPV
collateral. Also, the debt stays off the books of the airline.

------
al452
Summary of this utterly incoherent article: airlines are terrible because
<insert some random claims about economic history>, and we can fix them by
<insert some randomly chosen regulations we could invent>.

------
bogomipz
I had question about the following statement:

>"With the hub-and-spoke system used to defend airlines’ pricing power, there
are fewer nonstops"

I hadn't considered the hub and spoke system as a means of defending pricing
power before. Is the idea that since there are more flights by that airline
into its hub region they can offer better fares to passengers? Is that right?
But don't passengers generally try to avoid flights with lay overs? The logic
is escaping me.

~~~
Bagger288
It's about supply and demand and fuel efficency. A small airport between
Albany and NYC won't have enough people to fill a plane capable of flying to
LAX efficiently from a fuel perspective, so they'll take a flight to NYC first
then the LAX on a bigger plane that can spend less per person per mile to get
there. Larger planes tend to be more fuel efficient (assuming all seats
filled) than smaller ones which is why hub and spoke model makes a lot of
sense. The 787 is actually abnormally fuel efficient for its size and it's
opening up many direct routes that were previously not economical since it's a
smaller plane that costs the same per mile per person as much larger planes.

~~~
bogomipz
Sure I understand about the logistical concerns and population densities but
how do these spokes allow them to "defend their pricing power"?

Is it simply that that they can charge customers in those small secondary
markets a premium on fares into the hub areas? Is that the pricing leverage?

~~~
Bagger288
They can lessen competition by not building a big hub in an airport that
that's already a hub for a competing airline. If they avoid stepping on each
others toes with hubs there are less airlines to compete on price with. If
Minneapolis is a hub for Delta, then they have a virtual monopoly for all the
smaller airports in the area that need to first fly to Minneapolis before the
final destination.

~~~
bogomipz
Right, OK so the industry collectively defends their pricing power by tacitly
accepting these rules. That makes sense.

That being said when you look at the locations of some of these hubs they are
in pretty undesirable places in terms of incurring flight delays due to
weather - Chicago? San Francisco? Minneapolis, Denver, New York?

~~~
bluGill
A hub will always be in a fairly large city: a hub city has a lot of non-stop
flights to all over. Not only does the hub capture the small cities nearby, it
also captures most of the traffic to other small cities far away from the
large city.

Chicago [same for New York] is large enough that it will be a hub: enough
people want to get from Chicago to every other city that if you don't offer
the direct flight someone else will. From there people will figure out you can
get from Chicago to anywhere they will will make it a hub despite your wishes.

The other part is historical. Minneapolis was a hub for Northwest Orient
Airlines because it started in Minneapolis and thus made that their home hub.
Delta eventually bought Northwest and got the hub with the deal. They decided
to keep Minneapolis as a hub.

I don't know what the situation is with San Francisco. I suspect historically
planes needed to stop there for fuel before crossing the ocean. That is just a
guess though.

~~~
bogomipz
Sure, hubs are a window into air travel history in the U.S. And with
consolidation comes these hubs that have a historical reason for being there.
And while I certainly understand that the New Yorks and Chicagos will always
need to be hubs I have trouble with airlines exposing travelers in New York or
Chicago to the vagaries of weather in Denver or Minneapolis. It seems these
airlines could move some of these "historical hubs" into places with more
favorable weather conditions.

I am not trying to slight Denver or Minneapolis in any why I'm just using them
as an example. It just seem that a strategic rebalancing of hub locations
might make help with delays and rescheduling. The situation now seems to be
the airline inherited the hub through consolidation and that's where it will
stay because they're too cheap to move it.

~~~
bluGill
it isn't just cheapness. Minneapolis has built a large airport. If delta
threatens to move out Minneapolis will sell those extra gates Delta is no
longer using to someone else who wants to start a hub. In the mean time where
ever Delta relocates too needs to builds a lot of gates and probably runways -
even though the city ultimately wants to be a hub I'm not sure the city is
willing to pay for all that.

~~~
bogomipz
No and I completely understand agree with you. If you look at the amount of
fees and insane amount taxes US citizen pay on airfares though it seems quite
reasonable that the Federal government might might use some of that for
improving air travel by building smarter hubs in more strategic places.

~~~
bluGill
I just remembered another consideration: The geographical center of North
America is in North Dakota. Minneapolis is the closest large airport. As such
it on average uses the least fuel to use Minneapolis as a hub.

Though why Fargo isn't a hub by this logic I don't know. Also a population
weighted geographic center is probably a better consideration than just pure
geographic.

------
diminish
>> Elsewhere in the travel industry — hotels and car rental agencies, for
example — these abuses do not exist because there is actual competition. But
airlines are simply not naturally competitive.

Is this really so?

I tend to believe that, smartphones with camera and the cam apps are having
their wonder in that they fix "abuses" of companies and institutions by bring
them to light.

Maybe hotels and car rental agencies don't have much do disguise but still can
abuse, like in poor car maintenance for car rentals, or food quality or
cleaning for hotels.

------
Brendinooo
Factual error in the piece: USAir eventually merged into American, not United.

~~~
joelrunyon
Yup.

Continental merged with United. They need to get the facts right.

2 stories on the front page now peddling outrage over United. HN is better
than this.

~~~
grzm
If you think a submission is inappropriate for HN, please flag it. Each of us
plays a role in the curation of HN.

------
Darthy
Ironically, it's regulations that brought us this mess. Specifically that an
airline is allowed to cap bump compensations at $1300. Without that cap, there
would have been takers and no need for violence. Really free markets would
have solved this.

~~~
joelrunyon
I don't think that's a gov't regulation. That's likely an internal United
standard.

Delta just raised their minimum to $10k-ish if you read the article...

~~~
cmdrfred
Actually it is, if someone is bumped from a flight the most they can legally
ask for (anyone is free to give anyone money if they wish) is $1400 (I
believe) or 4X the value of the ticket whatever is less. Delta offered this
maximum, and was declined by all passengers.

Then Delta called government law enforcement offers to enforce existing
regulation and remove the passenger.

Without this regulation there would have been no maximum for damages in
violation of their contract, thus the passenger could of sued for a
potentially unlimited amount. Thus Delta might of been inclined to offer more
as their losses would possibly be higher than the maximum in the regulation.
Having a maximum, and having government law enforcement enforce said maximum
certainly contributed to this issue.

Now due to the losses in stock price Delta has reevaluated it's risk/reward on
terms of bumping passengers and decided its more cost effective to offer more.
This is a perfect example of how the free market can correct these sort of
things without the government getting involved at all.

~~~
joelrunyon
1\. This was United, not Delta. The Delta mention in my comment was their
response to an industry incident

2\. No one ASKED for any money. United was trying to get people to voluntarily
bump by offering X - no one accepted (because the next flight didn't leave for
a day). United should have realized that if they _really_ wanted to get their
employees on the flight & not have an international incident, they could go a
bit higher...

3\. Here's the rule:

> If the substitute transportation is scheduled to get you to your destination
> more than two hours later (four hours internationally), or if the airline
> does not make any substitute travel arrangements for you, the compensation
> doubles (400% of your one-way fare, $1350 maximum).

All of this is out the window anyways with the Dao case since it wasn't even
an overbooked flight - one with too many ticketed passengers - but one where
they were trying to get employees to another airport (which they could have
easily booked on another airline due to internal agreements).

~~~
cmdrfred
>1\. This was United, not Delta. The Delta mention in my comment was their
response to an industry incident

My mistake.

2\. No one ASKED for any money. United was trying to get people to voluntarily
bump by offering X - no one accepted (because the next flight didn't leave for
a day). United should have realized that if they really wanted to get their
employees on the flight & not have an international incident, they could go a
bit higher...

Yes, but they don't have to offer any more. The truth is you don't get to
choose if you are bumped from a flight they can simply bump you and the most
you can sue for is the rate specified. Without a specified rate you can argue
in court that "missing the flight cost me a multi-million dollar deal" or "I
missed my grandfathers final moments" and potentially get awarded many
thousands or millions of dollars. That risk likely would have resulted in a
very different outcome. (probably the end of overbooked flights and increases
in airline fares/stricter restrictions on missing flights to compensate)

>All of this is out the window anyways with the Dao case since it wasn't even
an overbooked flight - one with too many ticketed passengers - but one where
they were trying to get employees to another airport

That's something for his lawyers to look into of course, I have a feeling the
300K a year guys they keep on retainer who likely approved this policy have a
good idea of how they can argue this was legal under current regulation. That
or the legal department at United will have some openings soon.

~~~
tiatia
"That's something for his lawyers to look into of course, I have a feeling the
300K a year guys they keep on retainer who likely approved this policy have a
good idea of how they can argue this was legal under current regulation."

They can argue. But will the judge or jury agree?

Regarding the boarding, this was posted by a lawyer and makes it look a little
bit like a clusterfuck. Could get quite pricey for United.

1\. First of all, it’s airline spin to call this an overbooking. The statutory
provision granting them the ability to deny boarding is about “OVERSELLING”,
which is specifically defined as booking more reserved confirmed seats than
there are available. This is not what happened. They did not overbook the
flight; they had a fully booked flight, and not only did everyone already have
a reserved confirmed seat, they were all sitting in them. The law allowing
them to deny boarding in the event of an oversale does not apply.

2\. Even if it did apply, the law is unambiguously clear that airlines have to
give preference to everyone with reserved confirmed seats when choosing to
involuntarily deny boarding. They have to always choose the solution that will
affect the least amount of reserved confirmed seats. This rule is
straightforward, and United makes very clear in their own contract of carriage
that employees of their own or of other carriers may be denied boarding
without compensation because they do not have reserved confirmed seats. On its
face, it’s clear that what they did was illegal– they gave preference to their
employees over people who had reserved confirmed seats, in violation of 14 CFR
250.2a.

3\. Furthermore, even if you try and twist this into a legal application of
250.2a and say that United had the right to deny him boarding in the event of
an overbooking; they did NOT have the right to kick him off the plane. Their
contract of carriage highlights there is a complete difference in rights after
you’ve boarded and sat on the plane, and Rule 21 goes over the specific
scenarios where you could get kicked off. NONE of them apply here. He did
absolutely nothing wrong and shouldn’t have been targeted. He’s going to leave
with a hefty settlement after this fiasco.

------
adolph
_The recent United Airlines bumping debacle_

Here, let me fix that lie for you: _The recent United Airlines initiated
police assault and battery on a passenger_

~~~
PhantomGremlin
No, that's not at all what happened. _What happened was that United needed to
re-accommodate a customer who was being disruptive and belligerent._

And that lie might have worked, except for a fairly recent invention called a
"smartphone". How that clown CEO still has a job is beyond my comprehension.

------
mwytock
What about Southwest, JetBlue or Virgin? Or in Europe, RyanAir and EasyJet?

It seems there is at least some competition, United is just not a very good
airline.

~~~
nextstep
New airlines can usually undercut older airlines because they don't have the
same liabilities (pensions, debts from bad business practice over the years,
etc.) and so they are usually great for a few years but then they evolve into
the same shitty carriers that they compete with. In JetBlue's case, they were
initially given a large tax break by NYC/JFK. When that subsidy expired they
immediately started to charge for bags, reduce perks like better snacks, etc.

[http://money.cnn.com/2015/06/30/pf/jetblue-checked-bag-
fee/](http://money.cnn.com/2015/06/30/pf/jetblue-checked-bag-fee/)

~~~
SilasX
That's a problem with the regulations regarding pension funding, not a general
new-company advantage. It should never have been possible for a company to
give a pension as compensation that _in any way_ that coupled the pension to
their future viability.

~~~
tyingq
I don't think any regulations forced airlines to make poor pension decisions.
Airlines and unions managed to do that themselves, for the most part.

------
uiri
_Few passengers are literal no-shows._

Some airline booking ploys result in passengers being literal no shows. This
occurs when a round trip fare is cheaper than a one way fare (so the passenger
is a no show for the return trip), or a trip from A to C with a layover in B
is cheaper than a trip from A to B (so the passenger is a no show for the B to
C flight).

I've done the latter, where my internship is at A, my family is at B and I go
to University at C. I book a trip C-A at the start of the summer and then a
return trip A-C with a layover in B after my internship ends but some time
before the next semester starts.

------
acalderaro
After reading, the author makes some valid points, and also some not so valid
points.

one of the particularly valid points is that airlines shouldn't be allowed to
overbook. By offsetting this with no-refund policies, it seems like a win-win
negotiation. It may not be "free market," but it makes logistical sense as it
takes resources to re-route passengers and deal with the negative PR from
booting passengers.

One of the not-so-valid points is the author's statement that "It makes no
sense to allow airlines to charge an astronomical fare just because a flight
is nearly full, and a dirt-cheap fare for an advance booking." The fundamental
idea of supply and demand is that when supply is high and demand is low (when
a flight is immediately listed), prices are lower than they would be when
supply is low and demand is high (last minute interest in a semi-full flight).
While most economic models have varying degrees of subjectivity, this is not
one of them.

Ideologies are brilliant for discussion, but in practice, they fail to capture
every possible variable and account for the impact when arriving at an
outcome. Some amount of procedure (i.e. regulation) improves operations and
efficacy. By the same token, too much regulation stifles operations.

Transportation is less of "creative" business, and more of a "procedural"
business. As such, it can benefit from regulated procedures. The key is not to
hide behind a wall of ignorance and ideology, but instead try to find the
procedures that optimize the output for consumers and businesses.

~~~
Johnny555
_one of the particularly valid points is that airlines shouldn 't be allowed
to overbook. By offsetting this with no-refund policies, it seems like a win-
win negotiation_

Nearly every industry overbooks (airlines, hotels, even restaurants) and it
saves consumers money in the long run. The problem is that when it happens,
the airline shouldn't be allowed to involuntarily deny boarding to anyone,
they should be required to offer a high enough reward that someone takes it
voluntarily.

------
bluetwo
16 years since a domestic carrier has had a major loss of life in the US.

Some might say that proves regulation is no longer necessary, but I would
argue that it shows that it works.

~~~
jcdavis
> 16 years since a domestic carrier has had a major loss of life in the US.

Only if you exclude regionals, which doesn't make sense.

------
mschuster91
Well, at least unlike other cartels, there _is_ a significant amount of
regulation - the FAA has very strict rules to keep airlines from cutting
corners (e.g. maintenance requirements, certifications of airworthiness but
also pilot licensing).

Other industries with less regulations tend to kill people due to cutting
corners (e.g. the Takata airbag scandal, Ford acceleration issues).

------
davidf18
From the article:

> "There is a middle ground between an abusive cartel and a ruinous free-for-
> all in the skies. It’s known as regulated competition."

The author has an agenda. There are two problems: 1\. Is the airline
consolidation permitted by the Obama administration going from 6 airlines to 4
with the consolidation of US Air into American and Continental into United. It
is baffling why the Obama administration allowed this which only meant higher
costs for consumers. 2\. Airline gates and takeoff/landing times lots are a
scarce resource at major airports, limiting competition and adding costs to
flights. Speeding up the implementation of the GPS guided flight control
systems and in the longer term building more runways will help release the
scarcity for increased competition.

Many airports (e.g.. Chicago's O'Hare) was built years ago with no surrounding
houses and people built and decided to live near the airport. Then they
complain about airplane noise. They knew what they were getting into. There
needs to be federal regulations that override local control prohibiting runway
construction which harms to national economy.

Fixing problems like this is to understand the economics and where the market
inefficiencies or market failures occur and addressing them so that we again
have efficient markets. Air travel is a commodity and should be low cost
except for these market failures, market inefficiencies.

In summary:

1\. Break up American and United to restore the status quo prior to the
consolidation.

2\. Speedup investment in the ongoing conversion to GPS controlled air traffic
control. Financial allocation from Congress which could be paid for by taxes
on airplane tickets.

3\. Federal legislation overriding local laws which create a shortage of
runways in key high traffic airports.

~~~
nostrademons
My understanding is that Continental, United, USAirways, American, Northwest,
and Delta (the latter two also having merged) would've all ceased to operate
had they _not_ been allowed to merge. As of 2005 United, USAirways, Northwest,
and Delta were all bankrupt; at that moment in time, 4 out of the top 6 U.S.
carriers were operating in Chapter 11 bankruptcy. American entered bankruptcy
in 2011, and Continental was reportedly in financial difficulties at the time.
Had they _not_ merged and instead entered Chapter 7, we might have gone down
to 2-3 active airlines.

And we're already seeing renewed competition in domestic air travel: JetBlue
and Alaska are coming up _fast_ and threatening established carriers. JetBlue
is my wife's favorite airline to fly on; she's gotten pretty good service on
some very low fares.

I don't really see this as a market failure. People expect capitalism to give
them great products at low prices all the time; it doesn't work like that.
Capitalism just means that when things get too out-of-whack, the market
adjusts and fixes it. Airlines were crazily unprofitable in 2008-2010; the
market reaction was consolidation & mergers, such that airlines are now crazy
profitable and give shitty service. The market reaction to _that_ is that new
competitors are springing up, saying "I can do better", and people are flying
on them. Vote with your dollars and in another 5-10 years United will be
bankrupt again.

~~~
davidf18
The legacy carriers had to go bankrupt because their original business models
and labor costs were based on regulation and would not work once regulation
was removed. Regulation created a huge market failure, a market inefficiency
while deregulation made the market more efficient. The wages/benefits of labor
were negotiated by unions that made the labor costs non-competitive with
airlines that launched after deregulation. There may have been issues of
operational inefficiency as well that was supported by the extra profits above
an efficient market under regulation.

Capitalists generally do not want market efficiency when it comes to providing
a product or service but for customers that is the best deal. Firms fight
commoditization of their product or service and tried to create "moats" that
protect their business from competition.

Looking for good investments is often a case of looking for businesses that
can't easily be commoditized.

Columbia Profs. Bruce Greenwald and (also Nobelist) George Stiglitz sometimes
co-teach a course. Greenwald talks about making moats and Stiglitz talks about
commoditizing to make products/services more accessible to people with lower
incomes.

------
jeffbax
I would seem prudent for an article complaining about deregulation and market
solutions to mention the fact that:

> "Foreign companies and individuals—think Richard Branson and Virgin Atlantic
> Airways—are forbidden by U.S. law from owning more than 25% of a domestic
> airline. That’s why Virgin America could be sold last year to Alaska
> Airlines over the express wishes of Virgin’s famous founder: He just didn’t
> have enough votes."

[http://www.latimes.com/opinion/op-ed/la-oe-welch-united-
comp...](http://www.latimes.com/opinion/op-ed/la-oe-welch-united-
competition-20170413-story.html)

So while it may have become a cartel, like the drug cartels, policy really
matters. I find it disingenuous to complain about a "naturally non-competitive
market" like the NYT does, and not acknowledge the un-natural acts of policy
keeping it such.

------
rayiner
> For air travel is far from a free market.

The article starts with this premise, but fails to offer a shred of support
for the idea.

> When the airlines were deregulated in 1978, economists led by Alfred Kahn,
> then chairman of the Civil Aeronautics Board, argued that airlines and
> airline tickets were really like any other free-market product. He called
> them “marginal costs with wings.” Nearly 40 years of deregulation have
> disproved that premise.

Airline deregulation has been a massive success. Inflation-adjusted ticket
prices have fallen by 50% since 1978:
[https://www.theatlantic.com/business/archive/2013/02/how-
air...](https://www.theatlantic.com/business/archive/2013/02/how-airline-
ticket-prices-fell-50-in-30-years-and-why-nobody-noticed/273506).

Moreover, airline deregulation had an unexpected side-effect. It led to the
creation of modern parcel carriers like FedEx, who could not have existed
within the old regulated system:
[https://www.mercatus.org/publication/unleashing-
innovation-d...](https://www.mercatus.org/publication/unleashing-innovation-
deregulation-air-cargo-transportation).

> And one seat is pretty much like another — as economists say, there is
> little product differentiation — so in a competitive free-for-all, everyone
> goes broke.

That's kind of the whole point of competitive markets--to drive prices for
undifferentiated goods toward the marginal cost of production.

> By 1988, 85 percent of airline markets had only two airlines competing, and
> they closely monitored each other’s fares, so that true price competition
> was rare.

Using markets without weighting by population makes no sense. There are tons
of airports in the U.S., most in places that don't have very many people. In
the markets with the most passengers, there are 4-5 of what the GAO terms
"effective competitors":
[http://www.gao.gov/assets/670/664060.pdf](http://www.gao.gov/assets/670/664060.pdf).

> An industry that is not naturally competitive went from being a regulated
> cartel, to a brief period of ruinous competition, and then to an unregulated
> cartel — with predictable effects on the quality of service. This restored
> profitability, but at awful costs both to customer convenience and to
> economic efficiency as well.

The article argues that the airline industry is a cartel, and suggests that
happened by 1988 (see above). But the airline industry lost $51 billion
between 2000-2011, and recorded net losses every year before that since 1981.

> With the hub-and-spoke system used to defend airlines’ pricing power, there
> are fewer nonstops. Passengers waste time and often miss connections, while
> airlines waste fuel.

This is handwaving. If the hub-and-spoke system wasn't a net efficiency win,
nothing would stop one of the numerous low-cost airlines from coming in and
using a different system.

> But in an industry that is not naturally competitive, tweaking market
> incentives will not fix what’s broken. For starters, planes should not be
> permitted to fly so full. That leaves no room for contingencies.

Another hand-waving assertion.

> There should also be rules on how many passengers an airline can cram into a
> plane, and what extras it can charge for. And there should be limits on
> price gouging. It makes no sense to allow airlines to charge an astronomical
> fare just because a flight is nearly full, and a dirt-cheap fare for an
> advance booking.

More handwaving assertions. These things aren't "price gouging" in need of
regulation any more than its "price gouging" for Apple to charge $100 more for
a 32 to 64GB upgrade that costs it $10-15.

> Would rules like these destroy the airlines’ business model? Ask Amtrak,
> which hauls three times the passengers between New York and Washington as
> all airlines combined, and doesn’t punish you for canceling a ticket.

I used to ride the Northeast regional every workday for almost two years. Even
on that segment, the only profitable part of Amtrak's entire system, Amtrak is
using cars that were all built between 1973 and 1982 (which themselves were a
slight retooling of a 1960s design). Despite Amtrak not paying for its own
CapEx, its infrastructure is near collapse, with key infrastructure like the
Baltimore & Potomac tunnel operating far past the point of obsolescence.

~~~
crzwdjk
The limits on "price gouging" that Amtrak is subject to thanks to
Congressional micromanagement have not necessarily been a benefit. Trains run
empty during the middle of the week, yet prices are still rather high compared
to buses. But they can't lower mid-week prices, because then they'd also have
to lower peak prices, which would just mean those holiday weekend trains
selling out even faster and bringing in less revenue.

------
antisthenes
Airlines market is much closer to a monopolistic competition than a
cartel/oligopoly structure.

Not that I would trust a random journo to know the economics, but this is the
NYT. This is why journalism is dying - instead of checking up the science and
basic definitions behind the article (by shooting a quick email to Krugman,
perhaps), it's just an article that gets views by piling on the hate bandwagon
against United and dragging the rest of the airlines with it.

The headline is wrong.

If you want a typical cartel/oligopolistic market - look at the telecoms.

------
wu-ikkyu
>cartel: an association of manufacturers or suppliers with the purpose of
maintaining prices at a high level and restricting competition.

With the above definition, couldn't any industry/company bailed out by the
government (i.e. United Airlines, AIG, Citigroup) be considered a cartel due
to the fact that they are not allowed to be overtaken by competitive market
forces?

~~~
hkmurakami
Price fixing is a defining element.

~~~
wu-ikkyu
At what point does setting your own prices become price fixing?

------
thedogeye
How can we say US airlines are a free market when it's illegal for a non-US
owned airline to operate domestically between US cities?

------
acchow
I find it so frustrating that there is only 1 airline flying the SFO-YYZ
route. Virgin canceled theirs in 2011 I guess because they couldn't make any
money. But looking at AC fares, it's clear a single carrier is making too much
money on this monopoly.

How do we get free markets to work in a system like this? 50 passenger self-
flying planes?

------
bootybuttcheeks
I stopped reading when they compared Amtrack to airlines, the author needs to
find another profession.

~~~
usaphp
Can you explain what's wrong with that?

~~~
cmdrfred
Amtrack is essentially the US postal service of passenger rail.

"Founded in 1971 to take over most of the remaining U.S. passenger rail
services, it is partially government funded yet operated and managed as a for-
profit corporation."

[https://en.wikipedia.org/wiki/Amtrak](https://en.wikipedia.org/wiki/Amtrak)

------
chx
What this article is missing is the power of pilot unions.
[http://philip.greenspun.com/flying/unions-and-
airlines](http://philip.greenspun.com/flying/unions-and-airlines)

------
scurvy
The article is factually wrong in a few places. USAir did not merge with
United.

The NYT has slipped so far.

~~~
jonknee
It's an opinion piece by someone who doesn't work at the NYT, but if you write
them I'm sure they'll include a correction. That tidbit also had no bearing on
the argument.

~~~
milquetoastaf
It's on the front page of their website.

The NYT is a rag now.

~~~
jonknee
There is something incorrect in an opinion piece. It should be corrected, but
is not a scandal.

------
whatitis
That's how it is. Get off the plane. Resistance will be met with force.

------
fulafel
Most air travel is unethical in the current global warming situation, and it's
growing at an alarming pace. Governments should try to reverse the trend ASAP.

------
1_2__3
I eagerly await a comment section full of armchair economists and recent
college grads explaining how the free market will fix all of this and how the
problem is things just need to be more fre-er and market-er. How it's just
that it's not a TRUE free market, and if it was all of this would sort itself
out.

The problem is we have decades of real world experience and data to draw from
and it does not make the free market position compelling. In fact if we take
ideology out of the equation it's pretty obvious most of the recommendations
in the article are absolutely reasonable (unless you think the invisible hand
solves all).

------
MS_Buys_Upvotes
I love watching the evolution of HN sometimes.

Outrage of the Week (TM) story, nothing to do with hacking or technology - 62
points in under an hour. Mind bending.

Let the circle jerk begin.

~~~
jonknee
On the other hand it's a huge legacy industry that everyone hates and agrees
there should be a better way. It sounds like taxis or hotels to me and those
are quite on topic discussions at HN.

------
clarkmoody
> For air travel is far from a free market.

Indeed.

> And one seat is pretty much like another — as economists say, there is
> little product differentiation — so in a competitive free-for-all, everyone
> goes broke.

False. Perfect competition leads to _zero profits_ , which is not the same a
"broke."

> For starters, planes should not be permitted to fly so full.

> Also, we need rules limiting penalties for changing flights.

> The Federal Trade Commission or the Justice Department’s Antitrust Division
> should take a close look, and if rules like these don’t do the trick, the
> biggest carriers should be broken up.

> There is a middle ground between an abusive cartel and a ruinous free-for-
> all in the skies. It’s known as regulated competition.

Author notes the lack of a free market in air travel, prescribes a bunch of
additional regulations, then hints that a free market would be "ruinous."

As far as I know, we've never tried free markets in air travel.

~~~
logfromblammo
It's not even zero profits. It's zero _economic_ profits, meaning that your
_accounting_ profit can be positive, without considering the opportunity cost
of not investing in other businesses. You make money, just not more money than
skipping the hard work part and investing everything you have in a robot-
managed index fund.

In theory, commoditized industries are ruled by entry and exit of firms, based
on how the capital costs and economies of scale affect marginal cost of
production.

When the political process creates friction for the entry and exit of those
firms, you get problems in the commodity markets. You have to allow big
companies to fail, and have smaller firms take their place then merge-and-
acquire or otherwise destroy each other until the magic optimal size for that
industry is reached.

I'd probably have all airports auction off 5-year leases for 20% of their
terminal gates every year, and base the number of takeoff and landing slots an
airline can use per day on the number of gates it currently leases.

~~~
clarkmoody
> I'd probably have all airports auction off 5-year leases for 20% of their
> terminal gates every year, and base the number of takeoff and landing slots
> an airline can use per day on the number of gates it currently leases.

Is this a policy proposal or an airport management idea?

------
pinaceae
As with a lot of other things, the US is simply a child.

A child slowly learning what it is to be a country, a government, a society.

You can see it in many areas, especially in ones other, more mature countries
and regions, hold as vital to the public good.

Health Care. Transportation. Communication. Environment. etc.

Just look at how the EU governs passenger rights. None of the utter SHIT that
is ok in the US would fly.

Same with data privacy - look at the upcoming GDPR law and compare to what
ISPs can do in the US. And look at the stick they attached to it - a fine of
4% of total, global revenue. Boy I hope Facebook and Google have their
checkbooks ready.

The citizen comes first, never a corporation.

You can't skip a couple hundred or even a thousand years of development
though. A society needs to learn its lessons, takes ages. That the US is
fueled by immigrants from less developed nations does not make it easier,
those lessons need to be re-learned all the time. Societal memory does not
exist as it does in say, Germany.

~~~
epistasis
I think it's important to realize that unlike the analogy of maturation from
child to adult, which is typically viewed as a one-way process, a better
analogy may be a pendulum that swings both ways.

Let's recall that the article is saying that 40 years ago the situation was
different.

~~~
pinaceae
Absolutely - but the lack of societal memory and cohesion wiped out all the
progress.

Ultimately there is a lack of a unified societal contract, ironic in a country
so focused on its constitution. What is the purpose of government, rules and
society?

A lot of the issues in the US stem from this lack of common ground. And I
believe, at the root is poor education and a sense of me vs. the newly
arrived. A constant struggle to keep your spoils and not wanting to share with
new people who haven't contributed yet.

The US is not a coherent country and society (yet). Still confused as to its
purpose.

And yes, Trump is a great symptom of this.

The UK has this personality crisis right now, the empire is gone and a lot of
newcomers have shaken up society. Brexit is a similar outcome. It needs to
find its core, but as a conglomerate it is hard. Common traditions should help
- but when the Queen dies, it will shake them up even more.

