When I was growing up, the only white-collar worker on either my father’s or mother’s side of our family was my Uncle Malcolm, husband of my mom’s older sister. He worked in the New Orleans office of the Maryland Casualty Company. I never quite knew just what Uncle Malcolm did, but because each day he wore to work a coat and tie, I was aware that his job differed greatly from those held by all the other men in my family, including my pipefitter father.
Sometime in the early 1970s, when I was 12 or 13 years old, amazing news swept through my family: Uncle Malcolm was going to fly to a business meeting in Baltimore. I’d never known anyone who flew commercially, so this development struck me as stupendous. And stupendous it was.
To see Uncle Malcolm off from the airport on his exotic journey were my parents, my three siblings and me, my maternal grandparents, and my Uncle Eddie with his wife and two daughters. An entire clan gathered at the airport just to watch Uncle Malcolm board the plane. (This was long before non-passengers were prohibited from going through security.)
I remember it well. It was a nighttime flight. I stood at the airport-terminal window looking out at the nose of the big jetliner that Uncle Malcolm had just boarded, envying him for doing something that I’d never done and had no reason to think that I would ever do. Standing next to me, gazing at the plane, was my Uncle Eddie.
“I hope,” I told him without much real hope, “that one day I’ll get to fly in an airplane.”
“I bet you will one day,” Uncle Eddie replied kindly, although with how much sincerity I cannot say.
My First Flight
My dream came true early one morning in July of 1977 when two friends and I flew — each for the first time in our lives — from New Orleans to Washington, DC. We saved furiously for this vacation. I still remember that I was more excited about the prospect of actually flying in an airplane than about the time that my buddies and I were to spend in DC and, later in the trip, New York City. (Fun fact: We were in Manhattan for the 1977 blackout – a story for another day.)
Of course, we could afford only coach-class seats on our Delta Airlines 727 jet. But these seats were quite nice, and not only because we got to check our luggage for free. As soon as the plane reached cruising altitude, one of the stewardesses (as they were then called) came through with full meals for us. She draped a pristine and pressed white cloth across each of our tray tables before setting before each of us a large, delicious, three-course hot breakfast. She then offered us, without charge, mimosas. I’m still proud of — and not a little surprised by — the 19-year-old me for refraining from imbibing so early in the morning.
Even coach-class commercial aviation back then was pricey, but it was also — by today’s standards — luxurious. That luxury, alas, was testimony to the failure of government regulation of commercial aviation.
Regulating, then Deregulating, Commercial Aviation
Prior to deregulation that began in the late 1970s, interstate commercial air travel was governed by the 1938 Civil Aeronautics Act. With that legislation, the federal government restricted entry into the industry. It also established and assigned interstate routes, and regulated the fares that airlines charged passengers for seats on planes that flew those routes. This regulation was meant to ensure airline profitability and, thus, aimed to restrict competition among the airlines. On interstate routes, airlines could not compete for customers by lowering prices, which were set by the Civil Aeronautics Authority, later to become the Civil Aeronautics Board (CAB).
The airlines in the mid-20th century did indeed profit from the government’s regulatory efforts on their behalf. Nevertheless, even the government cannot prevent competition; its interventions can only divert competition into other channels that are less beneficial for consumers.
Unable to compete by lowering fares, airlines competed on the customer-service front. Compared to today, the standard coach seat during the era of regulation had more legroom. Full meals were common. As opposed to today’s use of the hub-and-spoke system, direct flights were the norm. (Although this costly feature was required by the regulators, it likely would have been commonplace even without being mandated.) And flight attendants were overwhelmingly young and attractive single women. Forced to pay high prices to fly, at least customers got something in return for the additional dollars the regulators obliged them to fork over for the privilege of flying.
Deregulation of fares allowed market experimentation to discover how better to serve airline passengers. Airfares fell dramatically, which seems necessarily to be an obvious benefit for consumers. But we know this fall in airfares to be a benefit to consumers only because it happened in a more-competitive market. Obviously, consumers would love to pay the lower fares while still having more legroom, more direct flights, and full meals with free booze in coach class served by attractive and charming flight attendants.
Competition Takes Place on Many Different Margins
These nice amenities aren’t free, however. They must be paid for. If the flying public had valued those regulation-era amenities enough to continue paying regulation-era airfares, airlines would have been happy to continue to supply those amenities at those high fares. But the public spoke with its purse: competition revealed that most air passengers prefer to pay lower prices, even if doing so means fewer amenities, than to pay higher prices in exchange for the many amenities. (The relatively few customers with different preferences choose to upgrade to seats in ‘economy plus’ or in first class.)
Flying today is much less costly, in real terms, than it was before airlines were deregulated. (And, by the way, deregulation did nothing to slow the improvement in airline safety.) As such, the commercial-aviation experience today — unlike when I was a boy and young man — is commonplace and hardly luxurious (adjusting for the reality that, nevertheless, when in an airplane you are flying through the air while seated in a chair, an experience that everyone before the twentieth century would have regarded as miraculous). Even for a working-class American family today, going to the airport simply to behold a relative boarding an airplane is as unimaginable as going to a local bus stop simply to behold that same relative boarding a bus.
Too Few Consumers Felt the Discount Spirit
It’s worth noting that competition also reveals the limits to consumers’ tolerance for sacrificing amenities for lower fares. Spirit Airlines’ business model was to eliminate as many as possible ‘free’ amenities, stripping the base ticket price down and charging separately for virtually everything else, including carry-on bags, seat selection, snacks, even water. Spirit also offered infamously little legroom.
Because ‘optimal’ market outcomes cannot be divined in the abstract — because these outcomes can only be discovered through competitive market processes in which entrepreneurs are free to experiment — it was a good idea to run this experiment. As it happens, though, too few consumers were willing to pay even low fares for that level of minimal amenities. Spirit was on the verge of bankruptcy well before the price of aviation fuel was sent soaring by the war in Iran, which is why JetBlue in 2022 offered to merge with Spirit – a move that would have enabled JetBlue to obtain Spirit’s equipment and landing slots.
In a monumental feat of economic ignorance, the Biden administration sued to block the merger on the grounds that it would reduce competition and raise fares. Spirit has now gone forever to the economic spirit world.
Bird’s Eye View
Here’s the view from 30,000 feet. When producers are allowed to compete on all margins, including price, they discover the optimal mix of prices and amenities that best satisfy their customers. When governments obstruct that competition, it gets redirected into changing the quality of goods and services such that the resulting price-quality mixes are less desirable than would be the mixes that emerge without government intervention.
After airlines were deregulated almost 50 years ago, consumers revealed that they wanted lower prices with less quality. And by more recently rejecting the bare service offered by Spirit Airlines, consumers revealed that quality can be so low that even very low prices are insufficient compensation to put up with such low quality. These results emerged from competitive market processes and deserve respect. But alas, just as airline regulation forced American air passengers to buy what they would have preferred not to buy, the government’s continuing itch to override market processes will oblige consumers in the future — whenever such interventions occur — to suffer worse economic outcomes.
