Anticipating disruptions to air travel over Labor Day weekend, Transportation Secretary Pete Buttigieg sent a letter to the chief executives of the 10 largest airlines censuring their recent behavior as “unacceptable”. “It’s not just numbers. It’s missed birthday parties, graduations, time with loved ones and important meetings,” he wrote in August. Buttigieg threatened to publish a chart online rating airline performance if things got worse.
The secretary should and could do much more. Nightmarish airline travel conditions have become a staple this summer. The situation has gotten so bad that 38 attorneys general from states, red states and blue states, sent a joint letter to Senate and House leaders on Wednesday explicitly calling out Buttigieg’s transportation department for failing to “respond and to provide an appropriate remedy” for frustrated air flyers. . Airlines delayed more than a million flights and canceled nearly 129,000 from January to July, more than in 2021 and exceeding pre-pandemic levels by 11%. In many cases, airlines know in advance that they will have to cancel flights at the last minute due to understaffing or scheduling complications. They sell tickets anyway, betting that many customers won’t cash in on the vouchers they receive. According to a the wall street journal survey, airlines earned $10 billion in 2021 from unredeemed vouchers.
Still, Buttigieg’s idea of cracking down on the airlines looks set to be beaten by PowerPoint. Instead, the secretary must use his powers. Section 411 of the Federal Aviation Act, for example, grants the Secretary of Transportation the authority “to investigate and decide whether any air carrier, foreign air carrier, or ticket agent has been or is engaged in an unfair or deceptive practice or unfair method of competition in air transportation or the sale of air transportation.
In 2010, Transportation Secretary Ray LaHood used that authority to impose harsh penalties on airlines that left passengers waiting on tarmacs for hours before canceling flights, a widespread problem at the time. Many in Buttigieg’s party, including Senators Elizabeth Warren and Bernie Sanders, are urging him to use that power again. New York Attorney General Letitia James even told her exactly how to do it. “Airlines that knowingly advertise and book flights that they don’t have enough staff to operate are against the law,” James told a news conference.
Buttigieg shouldn’t stop there. Most flight problems are rooted in monopoly, and as it happens, federal law also gives the Department of Transportation substantial authority over airline mergers.
After a wave of major mergers from 2010 to 2013, only four airlines now control most of the market. The Big Four can tacitly collude to keep prices high and reduce the supply of seats, which is why fare hikes this summer far outpaced inflation. Amplifying the effects of the monopoly, a small group of giant institutional investors, notably BlackRock, all hold major stakes in each of the big four airlines. A 2018 paper by economists José Azar, Martin Schmalz and Isabel Tecu showed that this concentrated ownership structure reduces the incentive for competition and increases consumption costs.
The flying public pays. According to travel advice site Hopper. Fares always go up when fuel prices go up, but now the cost of tickets is going up much faster than kerosene.
Inflation has been very, very good for airline bottom lines. American Airlines collected $13.4 billion, up 12.2% from the same period in 2019, as well as the highest quarterly revenue in its history (compared to the second quarter of 2022) . The other major airlines – United, Delta and Southwest – posted record profits.
Consolidation also means that airlines can put their customers through hell without worrying about losing market share. The loss of competition is behind the industry’s most egregious practices, such as letting passengers wait on the tarmac for up to 12 hours before canceling their flights.
Buttigieg can make great strides in solving the airline monopoly problem. In addition to using the Department of Transportation’s power to block mergers, it could, under Section 411, enact a rule prohibiting institutional investors and individual shareholders from owning more than 1% of the market in listed airlines. in stock exchange. In the Michigan Law Reviewthe antitrust lawyer Jonathan Edelman wrote that “The DOT has clear legal authority – and responsibility – under Section 411 to address common ownership among airlines by enacting a rule that limits investors’ ability to hold significant shares. of several airlines. Although not a short-term solution, diversifying the ownership structure of the airline industry could help boost competition and lower airfare prices.
The addition to the legal docket is political: Airlines are taking advantage of consumers despite the $50 billion bailout the industry received from taxpayers during the pandemic.
Yet instead of implementing such policies, Buttigieg publicly expresses sympathy for frustrated air travelers while urging industry leaders to reduce canceled flights. The secretary often seems more inclined to “collaborate” with the airlines, as he said in a Fox News interview in July, rather than act as a regulator. After meeting with airline executives ahead of the July 4 holiday, Buttigieg expressed confidence in the industry. “They’ve assured me of a number of steps they’re taking, including making sure their schedules are realistic,” he told CBS Seattle affiliate KIRO7.
To his credit, earlier this month Buttigieg took steps to strengthen consumer protections for air travellers. The Department for Transport has proposed rules requiring major airlines to offer passengers full refunds on delayed or canceled flights. The proposal also outlines misleading practices the department can combat, such as failing to inform customers about baggage fees. These rules are not proportionate to the problem to be solved. They correct bad customer experiences, but do not discourage airlines from committing malpractice.
In the 2020 Democratic primaries, “Mayor Pete” found success as the chief executive of a small town in the hover nation. He spoke about the real concerns of core voters about regional inequality, an economic force accelerated by airline deregulation. As the chief airline regulator, Buttigieg would be wise to discipline the airlines – for his own good, for the good of the country, and for passengers everywhere.