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Should we worry about cities abandoned by airlines?

at 02:04 PM ET, 04/24/2012

A thriving airport can make or break a city. Which is why many business leaders in Memphis got nervous when, in March 2011, Delta Air Lines announced that it would cut 25 percent of its service in and out of Memphis International Airport.


Time to re-regulate? (Mark Garfinkel/AP)
The airport had once served as a major hub for Northwest Airlines. But a few years after Delta acquired Northwest, the Memphis airport hub was pared back as a cost-saving measure. Tom Jones, a columnist for Memphis magazine, has been chronicling the damage to the city ever since. It can now cost Memphis residents $750 to fly to Cincinnati or $900 to Austin. Businesses are relocating or avoiding Memphis because they can’t afford the flights. The city’s annual Folk Alliance music festival is shifting to Kansas City in 2014 to avoid airport hassles.

“It’s ironic that in a city where FedEx invented the modern-day model for global commerce, our citizens are being priced out of the world economy,” Jones said.

Jones was speaking at a New America Foundation panel discussion titled “Is It Time to Re-Regulate America’s Broken Airline System?” The debate revolved around a recent article in the Washington Monthly by Philip Longman and Lina Khan, who argued that more and more regions are finding themselves isolated as airlines merge, consolidate, and prune their less-profitable hubs and routes. Older industrial cities like Cincinnati, Pittsburgh, Memphis, St. Louis and Minneapolis, they note, “are increasingly cut off from each other and from the global economy.” And it’s not clear what, if anything, can be done about it.

One big question, said Josh Marks of the American Aviation Institute, is whether there’s truly a market failure here. If there really is plenty of demand in Cincinnati and Memphis for more flights, and if Delta won’t provide those flights, then why can’t a low-cost carrier like Southwest Airlines swoop in and offer service? “I think what you’ll see is a filling in of the gaps over time,” Marks said. “I’m not convinced there needs to be a government intervention to solve Cincinnati’s problems.”

On the other hand, Marks and his co-panelists pointed out that the aviation industry isn’t always a truly competitive market, either. After the 1996 crash in the Everglades of ValuJet Flight 592, government regulators tightened safety rules even further, which made it significantly harder for new airlines to start up and compete with the giants (since the crash, there have been just a few new U.S. entrants, including JetBlue, Virgin America, and Allegiant).

What’s more, Longman argued, there are two unique facets of air travel that have lead to declining service for many cities. First, most of the fuel burned by a plane is used during take-off, which means that short flights are always less profitable than long ones — especially in this current era of pricey oil. Second, thanks to economies of scale, bigger airports cost less to operate per passenger. In order to maintain a truly nationwide network, air carriers have long used profitable routes to subsidize less-lucrative ones. But in recent years, the merging airlines have been increasingly loath to do that.

For those reasons, Longman and Khan are calling for re-regulation of the airline industry in their article. They’d like to go back to something like the arrangement that prevailed between the 1930s and 1970s, when the Civil Aeronautics Board helped determine routes and set fares, with a focus on building a comprehensive air-travel network for the entire country.

At the panel, Longman acknowledged that this arrangement was often quite messy — with lawyers hashing out endlessly trivial questions about tour operators and fees. “But we did it,” he said. “And that was the era that the United States emerged as a great industrial power.” What’s more, he added, it’s not clear that airline deregulation in 1978 under the Carter administration actually ushered in an era of low fares. Yes, air fares are now cheaper than they were before deregulation. But there’s the counterfactual to consider: Longman cites a 2007 study in the Journal of the Transportation Research Forum which found that airfares fell at a slower rate after deregulation than before.

Still, even Longman conceded that transportation regulators got “out of control” by the 1970s. “Like all human institutions, they’re prone to corruption and decay.” But that’s not just a minor concern. Indeed, it seems like a major drawback for any effort to reinstate price controls on a major industry.

So are there alternatives? One possibility is that the U.S. government could just subsidize air routes to mid-sized cities that find themselves with suboptimal service, such as Pittsburgh and Memphis. Congress already does this for small, out-of-the-way towns through its Essential Air Service program. But even Longman argued that the cost to extend this program to cities like Memphis and Pittsburgh could be exorbitant.

Another option is to say that air subsidies are a terrible idea and that these cities will simply need to find alternatives to flying. Perhaps building a modern passenger-rail network between cities like Pittsburgh and Cincinnati would be cheaper and easier than propping up air travel, especially for unprofitable short flights.

These cities could also come up with other solutions of their own, without government help. In the case of Cincinnati, said Josh Marks, air traffic to Chicago has actually halved in the past eight years. “What happened to everyone else?” he asked. “They’re going by Megabus, by bus services that offer nonstop connections. It’s too simplistic to treat aviation policy in isolation.” Indeed, some economists, like Edward Glaeser, have warned that government subsidies tailored toward specific cities — especially older, dwindling cities — can stifle this sort of innovation.

So perhaps the market will work something out. But that’s not a given. For now, Longman said, heartland cities such as Memphis, Pittsburgh and Cincinnati are taking a hit — not because they’re no longer competitive cities, but because of choices made by a handful of airlines. “We have a problem here now,” Longman said, “that can’t be ignored.”

Correction: I overlooked Allegiant as another recent entrant into the airline market.

 
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