How the US fell out of love with flying

9 min

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The apology Southwest Airlines emailed to customers following mass cancellations that stranded travellers across the US over Christmas annoyed Talesha Roberson. The way she saw it, the problems with flying extended far beyond one airline’s high-profile holiday meltdown.

Roberson, a Washington state resident who grew up in Indiana, flies back there about five times a year to visit family and friends. In September, maintenance problems delayed her Southwest flight for more than two hours. Then on December 17 — four days before a storm kicked off the chaos at Southwest — the airline cancelled her flight, again because of maintenance. Though Southwest refunded her fare and put her on another flight the next day, when she arrived in Washington her luggage was missing.

The mounting inconveniences have made her question the integrity of air travel, not just at Southwest, but across the industry. “People are losing trust,” she says. “A lot more people are going to start going on road trips.”

Consumer data backs up Roberson’s feeling: the US flying public is not happy. A Gallup poll in August found that 37 per cent of Americans held a negative view of the airline industry, compared to 27 per cent who held a favourable impression — the first time in more than a decade that critics have outnumbered fans.

US air travellers, eager to return to the skies after two years of upheaval due to Covid-19, found themselves being forced to wait for delayed flights or scramble to rearrange plans after cancellations. Of the 9mn scheduled flights in the US last year, nearly a quarter of them were delayed or cancelled. Gripes over flight disruptions, missing baggage and refunds have also surged: consumers filed more than 3,000 complaints against US carriers in October with the US Department of Transportation, nearly five times the number from the same month in 2019.

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Then, just before Christmas, came the winter storm that triggered a cascade of nearly 17,000 flight cancellations at Southwest, overwhelming the airline’s creaking software as it struggled to match crews with departing flights. But the turmoil was not limited to the private sector. Two weeks later, a computer glitch in safety software at the US Federal Aviation Administration (FAA) grounded flights across the country for two hours, causing another 10,800 cancellations and delays.

The unremitting travel misery being heaped upon passengers is leading to more existential questions. Is this period of disruption for America’s air travel industry a short-term consequence of the pandemic or the culmination of long-term under-investment and shortcomings in regulatory scrutiny?

Airlines, incongruously, are still making money. Despite widespread customer dissatisfaction, the three major companies — United Airlines, American Airlines and Delta Air Lines — reported combined fourth-quarter net profit of $2.47bn on revenues of $39bn. Though the $800mn in costs from Southwest’s debacle swung the airline to a loss, all four of the airlines forecast profits for 2023 based on high demand for air travel, coupled with tight supply of flights. Passenger yield — the revenue from each person flying one mile — was higher in 2022 than in 2019.

“The demand side is pretty good, and the supply side is pretty constrained,” says Joe Rohlena, an airline analyst with Fitch Ratings. “So that puts the industry in a pretty good position in terms of ability to generate cash.”

Despite this positive outlook, airlines say their schedules will remain limited because of a shortage of pilots and planes, with some adding that an overburdened and underfunded FAA, which operates air traffic control, is another constraint.

United’s chief executive Scott Kirby last month warned that airlines needed more crew and planes to meet demand or they were “likely to tip over to meltdown any time there are weather or air traffic control stresses”.

Looming over the horizon is the holiday weekend in late February that typically marks the beginning of the US spring break travel season. The uptick in air traffic will offer a preview of how effectively the airlines will cope with the busy summer travel season to come.

“The US [has] the largest, most complex air system in the world,” Rohlena adds. “Like it or not, when something goes wrong in one part of this system, it’s going to have relatively large effects. Without improvements that need to happen, it’s not going to run flawlessly.”

Legacy of deregulation

The roots of the current US aviation system spring from the 1978 Airline Deregulation Act. In the four decades prior, the US government was responsible for regulating the air service. Prices and routes were set by the Civil Aeronautics Board, which based fares on airline costs plus a 12 per cent profit.

Republican President Gerald Ford began the push towards deregulating the industry, a mission later championed by Democratic Senator Ted Kennedy, who argued it would lower fares and allow more people to fly.

Airlines themselves were among the most vocal opponents, saying the shift would destabilise the industry. Lobby material published by Delta Air Lines in the 1970s, argued deregulation would “result in concentrating the airline industry in the hands of only a few carriers, of causing service deterioration at smaller cities and in smaller markets, and of jeopardising the financing of airport developments”.

When President Jimmy Carter signed the bill in 1978, it allowed airlines to fly any route they wanted, charging any price the market would bear. Dozens of new airlines formed, paying their crews lower wages than the established players. Labour unrest gripped the industry, and fares plummeted as airlines battled for market share. Many adopted the hub-and-spoke model, using major airports as a central hub for connecting flights, allowing airlines to maximise efficiency but eliminate many nonstop routes.

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The new world order toppled titans Pan American World Airways and Trans World Airlines (TWA), which filed for bankruptcy in the 1990s. United Airlines filed in 2002, in the aftermath of the 9/11 terrorist attacks, and Delta Air Lines followed three years later.

It has been reported that, years later, Kennedy cornered Phil Bakes, the man who persuaded him to champion deregulation, at a Democratic Party event and chastised him for misleading him about its effects.

The bankruptcies led the airlines to fixate on cost-cutting and to avoid investing in their operations, including expensive but necessary IT infrastructure, says Sara Nelson, president of the Association of Flight Attendants-CWA, representing 50,000 flight attendants. In the next decade, airlines rewarded shareholders with stock buybacks instead of improving their services, resulting in the zero-slack system infuriating customers today.

As airlines sought to increase revenue, they downsized seats and introduced fees for services previously included in the airfare. Planes have grown increasingly crowded, with the load factor inching upward from 72 per cent in 2002 to 83 per cent last year.

The FAA, too, has struggled to invest in infrastructure and operations. The agency now has fewer employees to manage airspace that has grown more crowded from both commercial flights and the proliferation of drones. It also has suffered from precarious Congressional funding. Only once since 1982 has it received funding for a five-year period, making long-term planning difficult.

Instead, the agency has been plagued by continuing resolutions on Capitol Hill that force it to plan how air traffic control will operate if federal employees are forced to stop working due to a government shutdown. The trend accelerated when a wave of candidates from the Tea Party, a one-time anti-government faction within the Republican Party, were elected to Congress in 2010. Temporary reauthorisation had been extended 23 times from 2007 until Congress voted in favour of the the FAA Modernization and Reform Act of 2012.

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“The constant, persistent attack on government programmes and the very running of the government,” Nelson says, has been damaging not only to the FAA but the airline industry it regulates.

The concerns raised by opponents of deregulation came to pass: the airline industry has increasingly consolidated. Between 2008 and 2013 there were a series of megamergers in which United, Delta and American Airlines each swallowed a similarly sized competitor. The four major US carriers and their affiliate regional airlines now control 80 per cent of the routes in the United States, says William McGee, senior fellow for aviation at the American Economic Liberties Project, an anti-monopoly think-tank. Unlike the glut of new competitors that flooded the market in the 1980s, only two new airlines have launched in the past 16 years.

Average airfares adjusted for inflation have fallen since 1978, but the benefits are spread unequally among customers. Heavily trafficked routes or those where low-cost carriers operate do offer lower fares, while prices have risen on routes to smaller cities. Passengers also typically face extra costs, such as bringing luggage — a move that has paid off for carriers. US airlines derived less than three-quarters of their operating revenue from fares in the first nine months of 2022, compared to 89 per cent three decades ago.

Still, when compared to the rise in other aspects of the cost of living, such as rent, airfare arguably offers customers value for money. Less than half the US population had flown commercially 50 years ago, says industry trade group Airlines for America, “because airfares were prohibitive for all but affluent Americans”. Today, more than 90 per cent have boarded a plane.

Matt Barton, an economist at consultancy Flightpath Economics, calls it “an open question” as to whether air travel’s democratisation would have happened without deregulation. “Whoever heard of having a bicoastal lifestyle, a bicoastal relationship in 1980?” he says. “That didn’t exist. Today that doesn’t seem that out of reach.”

‘Too big to care’

Americans’ appetite for air travel vanished within weeks of the coronavirus outbreak. In April 2020, the number of US travellers plunged more than 90 per cent from a year earlier. The chief executives of the major carriers went to Capitol Hill seeking a bailout package, arguing that the airlines were critical to the functioning of the US economy.

Lawmakers agreed, and the US Cares Act, combined with a series of extensions, eventually awarded the airlines $63bn. The act prohibited airlines from laying off workers, but they did encourage early retirements and extended leave.

Demand for air travel began to return in 2021, but with it came operational havoc and cuts to flight routes. The three largest carriers have pulled out of dozens of cities since the start of the pandemic and 14 of them, such as Dubuque in Iowa, have lost all scheduled air service.

At the same time, air fares have continued to rise, compounding the anger of fed-up travellers. The average US domestic airfare in the third quarter of 2022 cost $384 — 4 per cent lower than the same period in 2019, adjusted for inflation, but nearly 13 per cent higher than the third quarter of 2021. Airlines for America attributed the increase to rising fuel prices and higher costs for labour, maintenance and landing fees.

Consolidation is “the original sin here”, says McGee, of the American Economic Liberties Project. The four largest US carriers are not only too big to fail, he adds, “they’ve reach a threshold where they’re too big to care”.

Travellers wait in line for assistance with lost luggage at an airport in Texas in December
The Department of Transportation has launched an investigation after about 2mn travellers were affected by Southwest’s flight cancellations over Christmas © Brandon Bell/Getty Images

McGee points the blame at the US Department of Transportation for failing to regulate the aviation industry under both Democratic and Republican administrations. The Airline Deregulation Act includes the so-called federal pre-emption provision making the DoT the industry’s sole regulator, meaning neither passengers nor government officials can sue airlines for violating consumer protection laws. This makes US transportation secretary Pete Buttigieg, McGee notes, “the only sheriff” in town.

Even the Colorado Attorney General Phil Weiser had to turn to the DoT in 2020 to investigate Frontier Airlines for not paying refunds for cancelled trips after he realised he could not act independently. The department, which has the power to fine the airlines, eventually forced Frontier to refund $222mn to customers, but the $2.2mn fine levied is a relatively small amount, only 7 per cent of the airline’s third quarter net income.

The department is now investigating Southwest over its wave of cancellations to establish whether the airline engaged in “unfair and deceptive practice” by selling flights it did not have the capacity to operate, which Southwest disputes. About 2mn travellers were affected, and if the DoT finds Southwest guilty, it has the power to fine the airline per passenger.

Buttigieg, who is widely believed to have presidential ambitions, is under some pressure to act tough. He also is facing criticism from Republicans over the outage at the FAA. Observers believe that conditions are finally right to introduce tighter regulation.

Later this year, Congress will vote on another FAA reauthorisation bill, which has become an omnibus bill to legislate on matters affecting aviation. McGee says he hopes to include language overturning pre-emption.

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The right of passengers to sue carriers was also included in legislation reintroduced this week by Democratic Senators Richard Blumenthal and Edward Markey. Their twin bills would force airlines to compensate passengers for cancellations, delays and involuntary bumping from flights.

The legislation has failed before and is yet to garner Republican backers. But the senators believe consumer frustration and the likelihood of future disruptions could make a difference this time. “It’s going to continue to build,” says Markey. “The FAA reauthorisation is the moment we’re going to have the showdown, and I think we’re going to be able to find a lot of Republicans . . . that will be willing to partner with us.”

When Robert Isom, American Airlines’ chief executive, was asked last week whether he was concerned that unreliability of air travel would lead to stricter regulation, he declined to say, simply noting the airline would “work with government authorities” on customer care. “Our primary focus is making sure that we run the best airline we possibly can,” he says. “That’s the way that, ultimately, we address customers’ needs and ensure our customers are being treated fairly.”

McGee wonders whether airlines may be underestimating the strength of feeling against them. He notes that in all the years his consumer advocacy group has worked with Republican representatives and senators, it had until recently never received an unsolicited phone call from that side of the political spectrum.

“I received two within three days last week,” he says. “Guess what? They fly too. These things transcend politics . . . The only thing that is going to save this fractured country of ours is the airlines, because we all hate the airlines and the way they treat us.”

Data visualisation by Chris Campbell

Source: Financial Times

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