Laura: Let’s just dive in and talk about regulation. In its early decades, commercial air travel was highly regulated. Why did the government initially get involved?
Ganesh: I like to think of this story as operating in a few different eras. In the 1930s, you have really the first era of how we governed airlines and it went to about the late 1970s and the idea here was that policymakers wanted an airline system that would exist everywhere in the country. They wanted it to be stable and reliable, and so what they did is they created a federal regulatory agency called the Civil Aeronautics Board.
The board allocated specific routes between cities to particular airlines. It set the prices, and in the process, it made sure that airlines didn’t go bankrupt, that they didn’t need bailouts. In short, it treated them like a public utility. And the idea was that this was an industry that was a really critical infrastructure for transportation and commerce throughout our society. And this period was one of regulated competition.
Laura: Did any of the government regulations at that time have any stipulations about things airlines had to do in order to be safe or to check procedures around flying?
Ganesh: Yeah. This system of regulation required that air carriers be fit, willing, and able to run an airline. That meant you had to have a good business plan, you had to have enough finances, you had to know something about running a business. All of which are not specifically about safety but are really important for being able to run safely.
If you don’t have enough financing, you’re going to cut corners, and those corners might come on safety. You still had a lot of challenges with the industry in the ’40s and in the ’50s and there were plane crashes that were happening and this led to the creation of the Federal Aviation Administration in the late ’50s, and that was really a regulator that brought in a whole bunch of additional safety requirements for airlines.
Laura: In 1978, President Carter deregulates a bunch of things including the airlines. What did that process entail?
Ganesh: In the ’70s, you had a number of people who said this system is really a cartel, and what the advocates for deregulation said is pure market competition will be better. And honestly, they had a great pitch. Their pitch was, imagine you could have 200 stable airlines with cheaper prices, with no real downsides. All we need to do is let the airlines fly wherever they want, whenever they want, and charge whatever they want.
We didn’t get this dream world. What we actually got is what I think of as phase two in our regulatory history, which is a Hunger Games. The airlines were just thrown into this world where it was live or die, cutthroat competition. And so you saw airlines dropping their prices to obscenely low numbers just to push another airline out of business, only then to jack up the prices afterward. They were trying to break their unions, and new airlines were coming in with no unions, so you saw major labor-management strife. There were dozens of bankruptcies, there were dozens of mergers. It was all kinds of chaos in the 1980s.
Over time, where we ended up was settling into what I think of as really the third phase, which is a kind of monopoly capitalism that we’re in now where, you don’t really have that much choice, and a lot of the time, you get bad service at bad prices.
Alex: From your perspective, why didn’t deregulation work the way its advocates said it would?
Ganesh: So, the reason is it really gets to the fundamental economics of the industry. Businesses that do basic infrastructure, utilities, things like transportation sector, energy, telecommunications, are not normal businesses. They have tendencies to monopoly that come from being hugely expensive to get into these businesses, like you gotta lay power lines or lay down railroad tracks, you know.
They also have economies of scale. There are big networks that are often required. And in a lot of cases, we actually don’t want there to be a lot of competition. You don’t want 20 electric wires coming to your house, you actually just want one wire, but the problem then is well, now you’ve got a monopolist providing the one wire and they’re gonna abuse their power.
Alex: And they can charge whatever they want.
Ganesh: And they can charge whatever they want.
So to me, what they decided in the ’70s was this isn’t a utility. This is just like any other company. Running an airline is exactly the same as making coffee mugs or operating a convenience store. They didn’t understand how the industry’s basic economics work.
I think they made a lot of mistakes in this. Part of it was also ideological. Khan himself, one of the big advocates, said he thought it was illegitimate to care about quality of service, for example. Kind of a weird thing to say, like, his own personal preference is that we shouldn’t care about quality of service, but as a society, we might care about that.
The fact that he doesn’t care about it doesn’t mean the rest of us don’t care, and if you do care about it, you might want different public policies.
Alex: I think it’s interesting that we did deregulate the customer experience, but we didn’t actually deregulate the safety part because I feel like all of the downsides of that would have been apparent in a way that they weren’t for the economic aspect of it, right? So we kept the stringent regulations for safety this whole time.
Ganesh Sitaraman: One of the big shifts that did happen with deregulation was a kind of watering down of the requirement I mentioned earlier as an airline fit, willing, and able to fly. There were dissents during the early period of deregulation where one of the commissioners on the Civil Aeronautics Board said we’re really letting anybody who even has a conceivable business plan run an airline. We’re not actually stringently looking anymore at this.
But by and large, Alex, I think that the fact that we still have the FAA is really important for making sure we have airline safety.
Laura: One turning point with the FAA that has come up in some of these debates about safety, though, is the 1981 air traffic controllers strike, when Ronald Reagan fired 11,000 of the 13,000 air traffic controllers. Are we still seeing some of the effects of that until even fairly recently?
Ganesh: Well, one of the things that’s interesting and challenging about doing policy work in a historical context is you have to figure out when to evaluate a policy reform and how long to kind of stick with it. And for things like deregulation, I mean, this was 45 years ago now, and the traffic controller strike is 42 years ago now. And so I think there’s a real question of how much of an impact did these things have in the kind of day-to—day, as opposed to the entire system that we have. I think both stories are stories of what’s the overall structure of the system that we have, more than they are stories maybe about the kind of straight-line, linear thing that you could say, here’s exactly how the strike affected things literally yesterday. I think questions around funding, questions around hiring, and staffing, remain huge questions. I think there’s a connection in how we think about what is the value of people in the airline industry.
Laura: You also cite in the book that flight crews and pilots particularly have extremely heavy workloads, especially since the pandemic, with some flying six days a week. A recent New York Times story on some of the near misses also says that air traffic controllers are often working six days a week. Do you think these workloads are the legacy of this era of economic deregulation?
Ganesh: I think the proximate cause of the workloads is Covid and in a lot of places. When you had Covid, as everyone remembers, there’s a massive drop immediately in the amount of people flying. So demand for passengers goes way down. Nobody wants to fly anymore. Demand for airlines goes way down. When you have that drop in demand, the natural inclination of the airlines is, well, we need to roll back our service and fire people and let people go and get people to retire and all this. So, Congress stepped in, passes the Cares Act, which is an extremely important piece of legislation, and it created this payroll support program, to help prevent all of the people who work in this industry from getting furloughed or laid off.
But in that period, the airlines, I would say, skirted the spirit of the law by having a lot of voluntary retirements and that kind of thing. So you ended up still in a period where we had a number of shortages. I think that’s been a big problem. That is part of the story of why there were so many cancellations and delays and other things in recent years. But ultimately, I think this does tie back to deregulation because the system we have is one where there’s boom years where the airlines are making money, hand over fist, the CEOs are doing great. They’re saying, we don’t think we’ll ever lose money again! That’s what they said before the pandemic.
And then you have the big bust, and taxpayers have to come in and provide support to save the industry, to save everyone’s jobs. This isn’t the first time something like this happened. After 9/11, we had a big shock. We had a whole bailout program in that time period. So, deregulation unleashed this boom-and-bust cycle.
You didn’t have that in the regulated system because the point of the regulated system was we want stable, reliable service. That’s what I think we should want as a country because they’re a basic service that’s a utility for everyone.
Laura: What would you suggest to change the airline industry and kind of fix this system?
Ganesh: In the book, I talk about three principles, and I think the first principle is no more flyover country. Seventy-four cities have had a big airline pull out since Covid alone. Toledo, Ohio, a pretty big city, how many of the big airlines serve them right now?
Alex: I don’t know. How many?
Ganesh: Zero! None. They lost all service from big airlines.
Dubuque, Iowa, zero. And who wants to start a Fortune 500 company in a city that doesn’t have an airport?
Alex: Or who wants to even host a conference?
Ganesh: And what about tourism? Nobody wants to be a tourist in a place where they can’t get there very easily.
We’re a big country with lots of talented people everywhere, and they should be connected to the rest of the economy, to commerce, to everything. So that’s number one. Number two: no bailouts, no bankruptcies. We need to design a system that allows the airlines to do okay, and they should do okay but to also be prepared for when there’s crises, downturns. And that’s not just the really big ones, like Covid, like 9/11. It’s also the regular things, like they should be more prepared for weather events. We know they’re coming and we should be ready for that and design a system that works with that.
Then third is fair and transparent pricing. As consumers, we are constantly now trying to deal with, “Well, if I get this ticket, do I also have to pay to pick my seat and for the extra bag, and am I gonna have to pay to get a refund,” or whatever.
Alex: And the advertised fare might have nothing to do with what you end up paying.
Ganesh: And it might be different on Tuesday or Wednesday, and it might be different at 2 in the morning or 2 in the afternoon, and why should we have a system like that?
Alex: I think it’s really interesting because we were talking about safety too, and I think the sort of legacy deregulation on safety. One of the interesting things that our last guest brought up is when you have more of these mega hubs, they’re busier right and these places are at capacity. You can’t add more flights to them, which leads to more of these close calls. So it’s spreading more air traffic around to these other places, like you say, would in addition to benefiting those places, I imagine have a benefit to safety as well.
Ganesh: Yeah, and it’s not just that and it’s not just the economic growth questions we talked about earlier. It’s also delays and cancellations because, if you have high winds in Dallas and there’s hundreds of flights on American going through Dallas, and they’re shut down for a few hours that cascades throughout the entire network because so much of their traffic goes through there. So, when you have this kind of concentration in these big fortress hubs, it’s actually worse for resilience in the system as a whole.
The other thing that we see with concentration is related to competition: more concentration, less competition, less competition, higher prices. So Detroit, for example, in the period of regulation in 1977, the biggest airline in Detroit, Delta, had 21 percent of the airport. Delta now has more than 70 percent in Detroit. That’s a huge change.
Laura: It sounds like some of these changes would both help alleviate the congestion in the system and help with some of the safety issues that have been coming up and that have come to light since March. But also they could make flying less awful just in general for the average person who’s on a safe flight, but is like, “Oh no, I didn’t book my backpack, my carry on, when I got my ticket, so now I have to pay like the gate price to bring my backpack on.”
Ganesh: Exactly, yeah. I think if you get the big structures right, it actually has a way of shaping incentives that actually solve a lot of other problems that maybe you didn’t think you were solving. One of the things that I think is a challenge is we spent a lot of years now trying to play Whac-A-Mole on airline policy, right? We need a passenger’s bill of rights and then one amendment in the bill of rights will be this little thing. But then next year something happens and we’re like, oh, well, I guess we should add that one to the list. We can’t play a Whac-A-Mole game because there will always be new problems that are emerging. We should try to get the basic structures right, and if we do that, then we hopefully won’t have to play Whac-A-Mole afterward.
Alex: Ganesh, thank you so much for talking to us today.
Ganesh Sitaraman: Thank you so much.
Laura: Ganesh Sitaraman’s latest book, Why Flying is Miserable And How to Fix It, published by Columbia Global Reports, is out November 14 and is available to pre-order now.
Alex: The Politics of Everything is co-produced by Talkhouse.
Laura: Emily Cooke is our executive producer.
Alex: Lorraine Cademartori produced this episode.
Laura: Myron Kaplan is our audio editor.
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Laura: Thanks for listening.