Airline deregulation comes home to roost


In more than 25 years of writing about the airline industry, one of the most prescient forecasts we ever heard was also one of the first, made in the early 1980s at a Washington seminar for reporters trying to learn about the business. The speaker was L. Welch Pogue, a Washington lawyer who for many years was chairman of the Civil Aeronautics Board. That’s the federal agency that ruled on airline routes and fares until Congress and the Carter administration began deregulating them in 1978.

Pogue asserted matter-of-factly that unfettered competition would lead eventually to an airline oligopoly, or a handful of very large companies controlling the market. One of the reporters had the courage to admit he (and probably the rest of us) had never heard the word. Over the years, we have learned all too well what it means.

Three decades into deregulation, many observers believe an oligopoly is already in control and about to grow in market power. Delta is buying Northwest. US Airways and United are discussing a merger. If American and Continental remain independent, what were in the 1970s almost two dozen major airlines (and known today as the Big Six legacy carriers) could be the Really Big Four.

Pogue and others didn’t predict as definitively the success of a handful of new entrants, which deregulators hoped would provide new competition. For many Philadelphia travelers, it has worked out that way, with the region’s large population attracting service by discount airlines.

Southwest was just a few years old in 1978, flying a Texas intrastate route system. Southwest has grown steadily to occupy a ranking that still surprises many people: It carries more passengers than any other U.S. airline (American still has the most revenue).

Almost 200 other new-entrant airlines have come and gone. But AirTran, Alaska, JetBlue, Midwest, Spirit and a few others, along with Southwest, have grown enough to have more than a third of the customers. These not-so-little guys provide competition to the majority of U.S. residents because they serve most metro areas.

The problem when you have an airline oligopoly, however, is that we are left with little or no competition to many smaller cities and on the nonstop hub-to-hub routes of the largest carriers. That has created the vast disparity in fares that seems to make no sense. When the old CAB set fares, they were based primarily on distance. Now they are based entirely on who’s competing against whom.

Take flights between US Airways hubs in Philadelphia and Charlotte. A ticket for a trip out on a Monday and back the next day, bought more than two weeks in advance, can range from $175 to $700, according to an Orbitz search.

The lower price is for using four flights, two in each direction, on Northwest through Detroit that take five to six hours. The $700 fare is for buying a ticket from United for nonstop flights operated by US Airways under their code-sharing alliance. If you buy the same ticket from US Airways, the price is $374.

(Why there’s such a disparity between these “partners’ ” fares is something we’ll have to explain in a future column – if we can figure it out.)

The price range for this hypothetical trip is even more mind-boggling for a ticket bought last week, departing this morning and returning tomorrow night. AirTran will take you to Charlotte by way of its Atlanta hub for just over $200. Nonstop flights on US Airways, bought from either US Airways or United, would cost $1,761. Of course, that does include Orbitz’s $5 service fee.

The nonstop fare is not a misprint – more than $1,700 for a 900-mile round-trip. Airline executives are fond of saying that flights, adjusted for inflation, cost half as much today as they did before deregulation. But that’s an average that means nothing to someone who needs to travel on short notice on hub-to-hub routes of the Big Six airlines or to many smaller cities.

Everyone without access to a private jet should fervently hope that in a post-merger world, having four mega-airlines will not make such fare differences even more dramatic.