Monday, April 19, 2010

Flying the Free Market Skies?

Yesterday the Boston Globe ran a very good question in the form of a headline: "Airline carry-on fee: Where's the free-market spirit?" Their question was far more insightful than they intended. The article was directed at politcians who complain about airline baggage fees and then threaten political power to change it. The Globe's thesis is that being a career politician makes one ignorant of free market principles and thus incapable of seeing that the market will determine if Spirit's baggage policy will survive. The Globe's analysis of the situation is commendable, but incomplete. The words free market and airline industry should not be in the same sentence.
Our nation's airline industry is not as the globe put it, "a fiercely competitive industry." It is a fiercely subsidized industry that has completely upset the incentive structure. When was the last time you had a good, not satisfactory, experience on an airline? Airlines can nickel and dime us all day long, lose our luggage, overbook flights, treat us like cattle, and generally mistreat us because we have no other market alternative. Additionally, when airlines get in trouble, Congress just passes an "airline package" to get the airlines out of hock. American air carriers are protected from foreign competition on domestic routes through legislation and regulation. Generally, safety is the main issue sighted as the reason for barring foreign carrriers on domestic routes. But this does not answer the question as to why it is safe to fly British Airways from Dulles International to Frankfurt, Germany but not to Frankfurt, Kentucky.  Thus consumer choice plays little role in an industry protected from competition by regulation and supported with tax payer dollars.
Several years ago I read an insightful article in the Economist about this sort of industry-government collusion. The term the Economist used was "Zombification." According to the Economist, Zombification occurs when a dying industry is propped up by subsidized dollars and allowed to slouch along ignoring the market principles. Remember this the next time you're on hold with the airlines trying to figure out why your luggage is in Topeka and you're on vacation in Washington, DC.

No comments:

Post a Comment