THINK YOU’RE PAYING LESS FOR AIRLINE TICKETS TODAY THAN YOU WERE IN 1975 or 1980?
THINK AGAIN. THE AIRLINES SAY "YES" BUT REALITY SAYS “NO!”
I have posted this rather long piece about our airline industry. If you’re not into an analysis of “neo-liberal” economics, as it is mis-guidingly called, you will be bored. To me, however, given that the airline industry was the target of Reagan first of many de-regulation efforts back in the early 1980’s, I find that after three decades the condition of the airline industry has become the poster child for all that’s wrong with our current economic situation and why, for example, Bernie Sanders has taken a certain segment of the American population by storm. What’s happened with our airline industry is problematic and a mirror image of virtually every segment of American industry. So bear with me.
Back in 1980, here’s a list of major airlines that were operating in the United States:
There were, of course, smaller airlines that were in existence back then, but these were our major air carriers.
Today we have:
All of these carriers I've listed today have more than 800 daily departures. Back in 1980 we had twice as many major airlines as we have today in 2016. Why, one might be curious enough to ask, when Ronald Reagan famously and pointedly de-regulated the airline industry in the U.S.A. as a major component of the privatization meme (“the private sector can do it better”) which became a major component of his Presidency, is this the case? During the 80’s and 90’s the country was infected with “privatization fever” and it’s an illness that is still with us today. But today, even with de-regulation that is supposed to spur competition, we have fewer major airlines than when the entire airline industry was meticulously regulated by the Federal Government. So what gives? What the fuck is up with this?
Well, despite conservative propaganda and political sloganeering to the contrary, sometime (I would say “most often” but I don’t have data to back this up) the private sector actually doesn’t do it better at least if you are a consumer or customer. (Comcast? AT&T? Bank of America?) And today, in 2016, it pretty much goes without saying that, sure, when we are talking about corporate profits or CEO compensation the private sector scores magnificently on the profitable self-interest scale of measurement. But what can you say about the fact that prior to the de-regulation of the airline industry we actually had, in reality, or let’s say in the real world that we sane folks inhabit, there were more major air carriers operating in the United States than there are today?
So what happened? Why has this presumably non-Free Market Capitalist outcome come about? Well, when you actually research what happens in the unfettered, softly regulated, free market capitalistic reality that right wingers are convinced is the pathway to nirvana, a curious result – and very anti-theoretical capitalism – that seems to contradict or gives lie to one of the basic tenets of theoretical capitalism – i.e. that less regulation, fewer impediments to allowing corporations to do as they will, letting the market determine outcomes – that we wind up with fewer actors in a given market segment than under closely regulated scenarios. The airline industry demonstrates how theoretical capitalism simply does not ring true in the real world. You know, the world in which we have to pay $150 or $200 bucks to change an airline ticket we’ve bought online when we have a mild stroke or we suffer a terrorist attack.
While it is not one of the basic fundamental tenets of free market capitalism, consolidation, vertical integration and the constriction of market competitors, is actually a very real world outcome of free market economics in the real world, if not in the world of free market theory.
There are, of course, other airlines in existence today just as there were in 1980 –Spirit Airlines, Hawaii Airlines, the regional feeders, but they have less than 800 departures daily.
Here’s the deal. The 1978 Airline Deregulation Act partially shifted control over air travel from the political to the market sphere. The Civil Aeronautics Board (CAB), which had previously controlled entry, exit, and the pricing of airline services, as well as inter-carrier agreements, mergers, and consumer issues, was phased out under the CAB Sunset Act and expired officially on December 31, 1984. The economic liberalization of air travel was part of a series of “deregulation” moves based on the growing realization that a politically controlled economy served no continuing public interest we were told.
Reagan was implementing one of the cornerstones of conservative economic policy: free market, competition and removing government from the market equation, that, we were promised, would result in more competition, cheaper prices and the proliferation of private businesses vying for customers. This was the promise. This was the Golden Cup of Free Market Capitalism that we were all encouraged to drink.
Today, the American Airlines Association, the airlines lobby organization and the latest iteration of the Air Transportation Association, wants you to believe that you are paying less for your airline ticket today. You see this claim everywhere. The reality, however, tells a very different story.
By most measures the airline industry's trade group wants you to believe airfares are plunging. A government data dump last month claimed fares may be 15 percent lower than 20 years ago. The truth, of course, is the exact opposite. The real price of flying has risen sharply since the dawn of deregulation and far outpaces the inflation rate of the last 40 years.
Of course, we would expect nothing less than obfuscation from Airlines for America, which though a name change from Air Transport Association would fool flyers into thinking that the lobbying group is anything but a front for the interest of the nation's carriers. And, remember, Airlines for America is behind the Transparent Airfares Act, which every objective observer agrees would make prices more opaque and hide the real cost of flying from travelers.
The government's data come from the reliable Bureau of Transportation Statistics (BTS), but suffer from outdated methodology that ignores the airline industry's relentless drive to strip products and services from the published airfare. In fact, a deeper dive into the BTS report claiming fares are lower than in 1995 reveals that it covers just 70 percent of the revenue airlines now derive from passengers. And a separate BTS study released on Monday says that airlines last year collected more than $6 billion in checked-luggage charges and ticket-change fees, which represents roughly half of the industry's 2013 operating profit.
The "fare" you pay today isn't an accurate reflection of your true cost of flying. The airline industry doesn't even care about fares when making financial judgments. Airline executives rely instead on PRASM--passenger revenue per available seat--a statistical measure that more completely represents the total amount you now pay to fly.
In fact, comparing today's stripped down "fare" to the all-inclusive "fare" of years past is a fool's errand. Airlines have hived upwards of a dozen items from the basic fare and now charge separately for them. Everything from a comfortable coach seat to an in-flight meal has been "unbundled" and is now sold a la carte. This paradigm shift has lately brought the airlines record profit, but it also masks the genuine cost of flying in 2014 and makes it nearly impossible to do apples-to-apples comparisons.
To level the playing field and give business travelers a fair look at today's flight costs versus historic prices, I've put together a pair of charts. They adjust for inflation and show what you pay today for the same airline product a business traveler purchased in 1975.
I chose a popular route, Los Angeles to Chicago's O'Hare Airport, because, then and now, it is a high-traffic market popular with both leisure and business fliers. Then and now, United and American Airlines dominate at O'Hare and have substantial flight operations at LAX. And the Los Angeles-Chicago market remains extremely competitive because Southwest Airlines flies nonstop between Los Angeles and its hub at Chicago's Midway Airport.
Back in 1975, things were simple. All fares were refundable and bundled with a plethora of services. According to a contemporary edition of the OAG North American Edition, the cheapest unrestricted one-way flight on American Airlines cost $138 including taxes. Adjusted for inflation, that's the equivalent of $600 today. One perk included with today's prices that didn't exist in 1975 is frequent flier credit, so I added $28 to cover the value of the 1,745 American AAdvantage miles you'd earn today. Total cost of a 1975 unrestricted one-way fare in today's dollars: $628.
But now come the extras. Want to book your ticket via American's call center, as you would have in 1975? That's a $25 charge. Want the kind of boarding privileges you'd get back in 1975? That's another $25.
Back in 1975, American Airlines flew between Los Angeles and Chicago with widebody DC-10s and seats were wider with more legroom. To approximate the same comfort on the Boeing 737's that American flies today, you must pay $68 to book a seat in the Main Cabin Extra premium-economy section.
An inflight meal was included in 1975's fare, but that'll cost you $10 today.
Then there's luggage. In 1975, your $138 fare included two checked bags that could each weigh 70 pounds. Today, checked bags are an a la carte affair. The first is $25 and the second is $35. But those bags can't weigh more than 50 pounds. Want to check 1975's load? You'll also pay an excess-bag fee of $100 each.
Add it all up and you come to $896.
Simply put, you'll pay $896 today to approximate the full value you received in 1975 for an unrestricted coach flight between Los Angeles and Chicago. That's 30 percent more than the inflation-adjusted 1975 fare of $628.
But let's fly on the cheap and see what happens. As you can see by chart two, the lowest fare in the Los Angeles-Chicago market on American in 1975 was $97 one-way based on a round-trip purchase. Add in the premium for frequent flier miles you receive today and adjust for nearly 40 years of inflation and you're talking about the 2014 equivalent of $450.
What'll you pay today? Buy the same services unbundled from American that you received in 1975 and it's $867. Buy a partially bundled fare product that American calls Choice Plus and you'll pay $622. But subtract $14, the value of a mileage bonus you receive when you purchase a Choice Plus fare, and it's $608. That's still a 26 percent premium above the inflation-adjusted 1975 fare of $450.
But there's an important caveat: 1975 fares, even the cheapest ones, were fully refundable. Today's cheapest fares aren't. Your only alternative is to spend another $50 or so to purchase trip-cancellation insurance from a third party--and even that doesn't guarantee a full refund.
If you really want to finagle the numbers and get 2014's cheapest LAX-O'Hare price down, you can make your reservations online and save the $25 telephone-reservation fee. Keep your baggage to the new normal of 50 pounds and you can save the $200 excess-bag fee. On that bundled fare of $608, that brings you close to the 1975 inflation-adjusted price, but only assuming you ignore the nonrefundable nature of today's comparable tickets.
Bottom line: As usual, never believe an airline or its deceptively named trade group when they claim they offer a bargain you haven't seen in 40 years. They're lying. And the government is still casting about for ways to make 1975's apples compare to 2014's oranges.
P.S.: And don’t for a moment think that the airline industry is any different from our cable television providers, our banks, our insurance companies or camping overnight in a National Park. Every single facet of our lives has been monetized and “fee-sprayed” meaning that today we pay much more for the very same goods and services that we paid in 1975 or 1980. So if you wonder why it is that Bernie Sanders has captured the angst and anger among the more liberal segments of American society, the reason is that more and more people have come to the conclusion that they (we) are being screwed. They may not know exactly why or how this has happened to them (in 1980 California’s excellent public university system was supported by tax dollars at a rate of over 33% while today it is around 12%) and students, as a result, are burdened for the rest of their adult lives paying off student loans. The student loan industry was also privatized back during our privatization fever days giving banks the upper hand- and profits – rather then the government when it comes to higher education. Obama was partially successful in rolling back this situation, but not fully.
All of us have basically been bamboozled into believing the fiction that unfettered, Free Market Capitalism leads to more competition, more innovation, and more goods and services at cheaper prices. The current state of our consolidated airline industry and the real price we pay today for an airline ticket, is the reality.