The marketplace affects where we can and cannot fly.
- If you need to travel between Lima, Peru and Atlanta, you can thank asparagus lovers. More than passenger traffic, Delta values the route because of its asparagus cargo. (While China is by far the world’s largest asparagus producer, Peru exports the most fresh asparagus.)
- Similarly, on its Cincinnati to Paris daily run, Delta carries enough jet parts to have saved this route when they eliminated other international flights from Cincinnati.
- Or, if you are in the oil business, you can easily fly between Baku, Azerbaijan and Aberdeen, Scotland because the 2 cities have a business link.
Although airlines have added 37% more routes during the past decade, they are scheduling fewer flights between smaller and mid-size cities. Specifically, regions that experienced economic distress, like Detroit, Las Vegas and Phoenix have had less air traffic. (My statistics are for the 12 months preceding March, 2011.)
As one officer at the American Association of Airport Executives said, “…in the end, the bottom line is the marketplace…If the passengers [or cargo] aren’t there, it’s really hard for the airlines to justify the service.”
Some final facts: When the US airline industry was deregulated in 1978, route decisions changed radically. Pre-1978, I was able to fly non-stop from LaGuardia in NYC to Peoria, Illinois on relatively empty Ozark Airlines planes. Airlines competed through service and schedule. The inefficiency was okay because the government let airlines charge high enough fares to cover their costs.
Not any more. Now, by deciding where we can and cannot fly, the marketplace oversees efficiency.
Sources and Resources: This WSJ article describes some of “The World’s Oddest Air Routes” while here, the NY Times provides more insight about changes in air travel. In addition, for an excellent interactive graphic, “20 Years of the U.S. Domestic Airline Market in 20 Seconds,” I suggest this website.
Posted by: adminEcon
Tags: airline deregulation, airline market, airlines, Alfred Kahn, American Association of Airport Executives, Armavia Airlines, asparagus, Azerbaijan Airlines, CAB, Civil Aeronautics Board, competition, competitive market structure, Delta Airlines, profits
Should government subsidize a railroad?
Our story starts during the 1970s when you could fly from New York to Washington, D.C. on the Eastern shuttle. Eastern left hourly (!) and guaranteed a seat to everyone who showed up for the flight. Imagine, coffee cup in hand, business people rushing to the gate at the last minute knowing they would be in Washington D.C. soon. A full plane meant that Eastern had to use its back-up, even for just one seat.
The Eastern shuttle couldn’t exist after airline deregulation in 1978. Not only had the government given Eastern a monopoly but also it ensured its profits by coordinating fare hikes and cost increases. Labor was well-paid, passengers were coddled, and interstate routes were mandated by the federal government. Frequently almost empty, the direct nonstop flight between Peoria, Illinois and LaGuardia in NYC was ideal for me to visit my husband’s family. The downside? Passengers paid a lot more and land, labor and capital were inefficiently used.
Fast forward to 2012.
Moving along the Northeast Corridor between NY and Washington, D.C., travelers look for value and speed. Before 2001, Delta and US Air were favored. Afterwards though, with minimal security delays, Amtrak’s trains became preferable. As one person said, “It’s easier. I don’t have to take my shoes off…” and travel time equalizes between the train and the plane after airport security, wait times and delays. Finally, we shouldn’t forget the bargain buses with fares ranging from $1 to $40 a ticket that are making the market even more interesting.
So yes, Amtrak is a formidable competitor in the Northeast Corridor. However, even with a $1.3 billion subsidy from government, Amtrak loses money. With the airlines and bus companies privately owned, should Amtrak get this boost from government? As an Economist blogger suggests, shouldn’t we be debating “the right balance of public- and private-sector involvement in these sorts of enterprises?”
Thanks to the NY Times for many of my facts in its article on the competition among planes, trains and buses.For anyone who want to engage in a funding Amtrak debate, this lengthy Freakonomics post is ideal for facts and ideas. And additional facts about Amtrak are here.