Just Plane Bad

One rule change would be a good start to improving American airliners

Photo by Bao Menglong on Unsplash

The 2022 World Airline Awards are out, and they will not come as a surprise for anyone who flies in the United States. Qatar Airways grabs the top spot for the second year in a row. Most of the top 10 are from the Middle East or East Asia, with Air France grabbing the top European spot at number 8. The results are based on a survey of an impressive 13.42 million respondents, which is larger than the population of Bolivia.

Noticeably, albeit predictably, absent in the top 10 is any carrier from the good old US of A. Want to fly the highest-ranked American carrier? That would be Delta, coming in at a mediocre 24. This is an embarrassment, particularly because the United States has more airline passenger traffic than any other country. That’s right, the US is number 1 in flying people around but can’t even crack the top 20 when it comes to customer satisfaction. This is, and I don’t use the word lightly, disgraceful.

It gets worse from there. American Airlines, the nation's largest carrier, comes in at 68. At least they are trending in the right direction, as they were ranked 76 in 2021. Most other American carriers are outside the top 40, which means they are ranked lower than the much-maligned Ryanair. If your company is doing worst than a company named the worst short-haul airline six years running, then something is not going well.

Of course, most Americans know this. It seems American carriers are having complete meltdowns on a regular basis. In December 2022 it was Southwest. In spring 2022 it was JetBlue. Everyone has a story of how an airline has treated them poorly (and incompetently). What’s to blame? Probably multiple factors. Some people blame greed. Others point, with some justification, to America’s size and climate diversity. I think the main cause of American aviation woes is lack of competition.

It's common sense that a lack of competition is generally going to be bad for consumers. Companies that compete are forced to innovate. They have to cut costs and constantly provide the better mousetrap. In a world of competitors, employees can seek the best company to work for and consumers can seek the best company to buy from. The result is that only the most efficient survive, at least if the market is relatively free and open. Competition can have its downsides, and doesn’t always work as planned, but overall, it’s the best way to run a market.

US airspace is decidedly uncompetitive. Part of this is for good reason. An airline should have stricter standards than a slaughterhouse which should have stricter standards than a souvenir shop for operating. The potential for death and destruction is higher for air travel than for the vast majority of industries. These regulations and standards alone cause significant barriers to entry that will impede competition. They do not, however, fully explain why only four companies now control 80 percent of the US market.

There are several causes of the US aviation market consolidation, from the already mentioned regulations to the repeated bailouts existing carriers have received from the government. That said, I’d like to focus on one that could be immediately changed – US airlines don’t have to compete with foreign companies on domestic routes. That is, every flight that starts and ends in the United States must be done by a plane registered in America. This is known as cabotage rights. Many countries are strict with who they grant cabotage to, with most only allowing domestic airlines to fly within a country.

Obviously, a multitude of international airlines can fly to and from the United States. You can take a British Airways flight from New York to London or a Qatar Airlines flight from Chicago to Doha. What you cannot do, however, is take an Air France flight from New York to Chicago. Because of code sharing agreements this distinction is often overlooked. One could, for example, book a flight on Lufthansa from Denver to Detroit to Frankfurt. However, only the second leg could be on a Lufthansa plane. The Denver to Detroit leg must be on an American carrier. In this example, that would be United, who is in the same airline alliance as Lufthansa.

The problem with all this is it protects American carriers from all foreign competition on domestic routes. Almost no other industry enjoys such protection. Americans are free to buy Japanese motorcycles, German cars, and even French airplanes, but they are not allowed to travel within the US on a French airline. Protectionism of this kind never leads to an efficient industry. Especially in a field that requires as much (necessary) regulatory compliance, protecting carriers from all foreign competition is going to result in a subpar domestic industry.

So what to do? The skies need to be opened. Any airline that is allowed to fly to and from the United States should be allowed to fly within the United States. Especially given the size of the US, many foreign airlines would jump at the opportunity. European carriers would fly from Europe to the East Coast to the West Coast. Asian carriers would fly from Asia to the West Coast to the East Coast. Singapore Airlines, the second-best airline according to the survey, currently flies two of the longest flights in the world, from Singapore to New York and from Singapore to Los Angeles. It would be great if they could fly from Singapore to Los Angeles and then New York. It’s easy to envision Middle Eastern airlines flying from Seattle to Boston to Dubai or something similar.

Of course the losers here would be American carriers. They would either have to a) upgrade their services to meet the competition or b) would go out of business. As well it should be. If you provide an inferior product, consumers will vote with their dollars and go elsewhere. It’s also important to note a lot of airline travel would not be affected. If you wish the route from Buffalo to Indianapolis had better options, Qantas is unlikely to fill the gap. Especially at first, only major hubs would be affected. But in time maybe Ryanair or EasyJet would begin to schedule flights on secondary routes.

Critics will point out that many foreign airlines receive subsidies from their national governments, and some are wholly-owned government entities, such as Emirates (ranked 3). Those against freeing up the skies will point out that a for-profit company can’t be expected to compete with a government-funded entity that doesn’t profit. This isn’t a bad argument for protectionism, but in the end this doesn’t mean domestic airlines should be protected from foreign competitors for several reasons.

First, there will still be plenty of routes for American carriers to operate on, simply because Emirates isn’t going to fly between San Diego and Austin, a route currently served by three domestic airlines. Second, many industries are assisted by foreign governments. For example, the largest oil company in the world, Saudi Aramco, is owned by the Saudi Government. They have the ability to subsidize the company and fund non-profitable projects until the sun burns up. Did that kill the American oil industry? Far from it – instead, American oil companies led the fracking revolution that resulted in America producing more black gold than ever before. We can argue about whether this is a good thing, but it shows that foreign subsidized competition isn’t a death knell for American companies. Third, if foreign governments want to subsidize airplane tickets for American consumers, let them. If the government of Qatar wants to keep airline tickets low for Americans, great!

And consumers would be the ultimate winners. Imagine being able to choose between United and Turkish Airlines (ranked 7) for a flight between Denver and Boston. Unless the fare is significantly more expensive, I am choosing the latter. The biggest upside would be for places like Hawaii. That Japan Airlines can’t fly from Tokyo to Honolulu to Los Angeles not only hurts Japan Airlines, it also hurts Hawaiians who are unfairly restricted on their choices. The US government even fined a Korean airliner for offering flights from Guam to the mainland US with a stopover in Seoul. How this helps anybody is beyond me.

According to The Economist, in 2017, “Airlines in North America posted a profit of $22.40 per passenger last year; in Europe the figure was $7.84.” One key difference between the two is that countries in the European Union must allow foreign EU carriers to operate. Ryanair, an Irish airline, flies from Nantes to Marseilles in France. Volotea, a Spanish airline, flies from Palermo to Venice in Italy. This is rarely said, but the United States would benefit from taking a free-market approach like our European friends.