The cheapest return flight from New York to Los Angeles is five times lower today than it was back in the 1970s, when airfares were regulated by the Civil Aeronautics Board.
Despite this massive decrease in fares and increase in consumer choice, some politicians are planning to re-regulate the U.S. airline industry and go back to the days when the government set prices.
The trigger for the revival of this bad idea came when JetBlue announced it will increase the fee for the first checked bag to $30, one of the highest fees for checked bags in the United States. In response, Sens. Ed Markey, D-Mass., and Richard Blumenthal, D-Conn., are pushing to re-regulate the U.S. airline industry through the so-called FAIR Fees Act.
While many passengers might be unhappy about JetBlue’s fee increase, you need to think about it in perspective. Not all passengers check bags. This change may let the company lower or keep lower its base fare, thus allowing for very price sensitive passengers to travel for even less when they make do with just a carry on bag.
On the other hand, if JetBlue merely adopts this as a strategy to increase its profit margin, it will find itself at a disadvantage against its competitors.
When Washington gets worried about airlines charging additional fees, they would do better not to blame the airlines, but the tax incentives that are set by the IRS. As airlines expert Gary Leff points out, checked bag fees are apparently not subject to the 7.5 percent excise tax Washington has imposed on airfares. This gives all airlines an incentive to shift as much of their costs as possible onto passengers who are laden with baggage.
So if Markey and Blumenthal are really worried about airline fees, they should work to scrap this excise tax.
Instead of abolishing government fees and taxes, their proposed amendment to the FAA reauthorization lets the FAA set price limits on checked bag fees and seat selection charges. It would also drastically limit how much airlines could charge for same-day ticket changes and cancellation fees. One likely result would be that airlines will stop offering flexible fares at all and raise prices across the board, because the premium that they can charge for flexible tickets would be too low to make this a viable business model.
We can clearly see that the deregulation of the airline industry allowed for low fares and the democratization of air travel. A limit on consumers to one-size-fits-all fare packages will lead to a one-size-fits-all fare schedule that will disproportionately affect price-sensitive consumers.
On most domestic routes, there is already tons of airline competition, such that if one airline starts to get too expensive, passengers will start flying with their competitors. Price and product differentiation has allowed consumers to choose among different airlines and products.
Overburdening regulation, on the other hand, has historically limited choice and competition in the airline industry. Flying can probably become even cheaper than it is right now, but that would require further deregulation and a reduction in government-imposed taxes and fees, not new price controls that will take us back to the days when flying was only possible for the affluent few.
Originally published here