Is air travel really a free market?

Factual Questions
1

This article speaks about how Senator Charles Schumer is wanting more regulations for airlines since Spirit Airlines is now going to start charging for carry-ons. Spirit’s CEO says air travel is a free market and consumers are free to make the choice to fly or not to fly with them.

But is air travel *really *a free market? I mean for many of the flights I’ve taken over the years, there wasn’t really a choice between airlines – it was either take a direct flight on X airline or take Y and make several layovers, often at the same or higher cost. So can air travel really be considered a free market if for many routes that aren’t major airport to major airport, there’s only one practical airline to use? Doesn’t the lack of competition for so many routes make the whole “free market” argument bogus?

Mods: Not sure if this is better suited for GD. If it is, please move!

2

It is something called a oligopoly where several companies actually act as a monopoly, if that is free market is open to interpretation. A oligopoly is similar to a cartel, such as OPEC, but government regulation prevents price manipulation by agreement between the companies, much like how government regulates a monopoly such as a utility.

3

Dear Spirit CEO,

Find me an airline where I can pay ultra reduced fares because my plane is piloted by an unlicensed pilot, not confuse me with all of that “safety” junk on the airplanes and waste my time with that “safety” video, trust that the air cargo division of the carrier won’t put dangerous oxygen canisters in the cargo hold, and save me a few cents on that “mandatory” maintenance and repair junk, and then maybe you can talk to me about a free market in air travel.

Signed,

A Dumbass Passenger who knows nothing about economics (or a mainpuative douchebag who knows very much about how a given industry isn’t free at all but just claims it is because it makes a good soundbite in support of his position)

4

Airport landing slots are, for the most part, limited. So you can’t just decide to start flying between LAX and JFK without obtaining landing slots at both airports (along with access to gates, terminals, etc). And I also don’t believe that foreign carriers are allowed to fly domestic routes in the US. So no, air travel is definitely not a free market.

5

Many is a leading word. Many people die in car crashes. The vast majority do not.

Many flights are the sole direct access to a location from a particular. The vast majority have competitive flights.

6

Is my local corner store really a free market? I mean, for many of the chocolate bars I’ve bought over the years, there wasn’t really a choice between stores – it was either use X store at the end of my street, or walk three blocks, often at the same or higher cost. So can corner stores really be considered a free market if for many purchases that aren’t major items like bread and milk, there’s onlt one practical corner shop to use? Doesn’t the lack of competition for so many groceries make the whole “free market” bogus?

7

barring some wacky zoning laws, there’s nothing that prevents another corner shop merchant from buying the neighboring business and setting up a competing shop. the “free market” isn’t analyzed from the perspective of the consumer - it’s what kind of barriers and restrictions there are to enter from the supplier’s side. the less barriers, the freer the market. there are no “free markets” anyways - they only exist in theoretical models.

not an economically compelling market to enter into =/= not a not free market

8

What are the barriers to entry into the market?

Capital (money)
Supply of landing rights (slots)
Demand for flights by customers
Regulatory requirements

Capital markets are volatile, yet there is still access to equity and debt even in the current market environment. IPO’s and bonds are being issued.

There is a limited supply of landing slots at US airports, depending upon the size of the market and number of runways at each particular airport. But given the consolidation of domestic carriers and the reduction of flights over the past several years, US airports have plenty of landing slots to contract out.

Overall market demand for flights has also been volatile. Business travel saw a dramatic decline along with leisure travel, with the recent recession. Demand is currently increasing.

The biggest barrier to the entry is the current industry structure. Profit margins are very slim and the traditional airline model (hub and spoke) combined with union salary pressure from pilots and flight attendants, make an investment in the airline industry difficult to achieve a satisfactory return for investors.

The airline industry is a highly regulated industry because of passenger safety concerns. But many companies in many industries face high degrees of regulation.

Given all of these factors I would say that it is a free market, but one that must be considered greatly before entering.

9

It’s nice the way these airlines talk about free market and costumer choice, then hide a large portion of the price in fees. Will costumers that bought tickets prior to instating these fees still have to pay them Of course. Maybe not all of them, but some of them for certain.

You can’t genuinely have a free market where the actual cost is not apparent.

10

I don’t think this is accurate.

For example, here at Minneapolis-St. Paul airport, 75-80% of the flights are on Northwest (now merged with Delta, so probably even a higher percentage). While there are competitive flights on other airlines, about 4 out of 5 are NWA/Delta. That’s not much of a free market. (And don’t say it’s because NWA/Delta is ‘better’ – there are years of horror stories that led to people here referring to them as “Northworst Airlines”.)

Many of the competitive flights are often at inconvenient times, or take off from inconvenient gates. In shorter supply than even landing/takeoff time slots are terminal gates for planes to load & unload. And the Airport Commission has adopted a method of allocating them that ensures that NWA/Delta will get the majority of open gates, thus continuing to shut out competition.

I think that with the hub-and-spokes pattern used by most airlines now, many cities are like us – very dominated by a single carrier. And that does not make for a ‘free’ market.

11

This statement is untrue. Slot-controlled airports are the exception in the US. For example, LAX is not slot-controlled.

12

A lot of monopolies (or oligolopolies) don’t have to mean limited choices in your own life if you play it right. I avoid Cable and Satellite TV prices with my rabbit ears, the high price of style by not having any, and I avoid cellphone plans with my pay-as-you-go semaphore set…

AND… I avoid the crappy experience that I’ve had on ALL airlines by taking trains and cars whenever possible. Staying home and watching TV* is preferable to breathing airplane air.

**and remember, I’ve only got a couple of channels.
But I’ve got legroom and both armrests and clean air at home.

And complimentary orange juice, though the flight attendants at my house get a little surly sometimes…*

13

Airlines set their own prices therefore it is a free market.

14

It’s a free market in the sense that competition is permitted; the government does not monopolies the way they do for public utilities. And customers are free to choose an airline, or alternative transportation.

However, what I see as a problem with Spirit (and similar nickel-and-dime fees) is that the pricing policy may not be evident to a consumer until they are ticketed and standing at the counter, or even boarding the flight.

I believe most airlines will let you wear any costume you want :wink:

15

(Really? LAX is not at capacity most of the working day? Or do you mean they ration slots via some other method?)

It’s a free market with many caveats;
first, the barriers to entry are quite high as montioned above - so competition is limited there.
second, the difficulty and cost to add a route or increase capacity are high, even once the carrier is established.
third, the market is extremely volatile, so opportuities for real profits are risky.

Most airline markets are oligolpoly, or usually “follow the leader”. Cutting prices is a zero-sum game; if you undercut your competitor, they match, you both lose; it’s easier to match the leader or undercut just a little; or try to compete on lower-cost amenities. Occasionally an upstart will try to compete, forcing the established companies to match ofr a while creating a temporary bargain for consumers.

Spirit is playing a shell game. Many consumers now shop online and are very price-sensitive. They expect to attract consumers with a lower price, then hit them with an extra fee, too late, when they board. That will work for a few months until they catch on, then the new campaign will be “plus one free carry-on!” and it will look like a bargain.

They are also playing fast and loose with the rules. The rules say you must advertise the actual price, so they can’t hide things like “fuel surcharge” in extra fees. Since you don’t *have *to have a carry-on (or luggage), technically this is an optional charge, and doesn’t appear in that all-so-important expedia/travelocity price number.

…Which may eventually cause the government to make the rule “the price an average consumer would pay”, i.e. someone with one carry-on and one checked luggage. Until then, they’ve got a false price advantage with online shoppers.

Does it really cost the airlines anytihng for carry-ons? No, if they enforce the size and weight rules so there’s enough space. Charge for checked luggage, and people push the limits of carry-on to save money. Charge for carry-ons, and people will find coats with super-big pockets. Charge for clothed passengers, and nudist resorts will do a booming business.

16

Air travel is most certainly not a free market. Airlines have anti trust exemptions. I don’t think I need to go into much more detail.