There are few things more American than Gershwin piping through the speakers as you taxi down the runway. Yet for the second time in two months, United Airlines was forced to ground all flights last week because of a computer glitch. Whether it is shrinking legroom, rising fares or cancelled flights, the home of aviation is now synonymous with bad service. Gulf carriers are wiping the floor with their US competitors. Asian airlines are in a different league. While US skies remain closed to others, that gap will only widen. Global aviation’s centre of gravity is shifting eastward with Washington’s passive collusion.
The continued decline of US airlines is no mystery. Wherever competition is restricted, the US economy does badly — and vice versa. With four big carriers carving out 80 per cent of domestic travel between them, service is substandard. The same applies to the US cable internet industry, which is dominated by a clutch of behemoths. US internet quality is as sluggish relative to Singapore, for example, as the experience of boarding a flight at John F Kennedy airport versus Changi. In the Skytrax global airline rankings voted for by customers, Delta Air Lines is America’s highest at 45. The leagues are dominated by Asia, the Middle East and one or two from Europe. Much the same applies to global airport rankings.
The obvious remedy is to open up the US skies to foreign carriers. Yet the biggest US airlines — United, American Airlines and Delta — are pushing in the opposite direction. They want the US Department of Justice to revoke the rights to fly to US destinations of the three big Gulf carriers (Emirates, Qatar and Etihad) on the grounds that they have benefited from $42bn worth of government subsidies in the past decade. They call this “fair skies”, as opposed to the open variety.
That is certainly one way of looking at it. The US pilots and flight attendants unions back their complaint. Some of their case is well founded. Etihad, the Abu Dhabi-based carrier, was set up just a decade ago yet it is already one of the busiest in the world. Without the state’s largesse it is hard to imagine that happening.
Yet whenever an industry reaches for the word “fair”, alarm bells should go off. Here is a better way of thinking about it. US airlines have benefited from the huge advantage of the Chapter 11 bankruptcy law. Starting with United in 2002, most of the big US carriers have gone bankrupt at some stage. US law has enabled them to restructure debts, slough off legacy pension costs and survive to fly another day. The industry-wide crisis has also prompted consolidation. The market has shrunk to just three big legacy airlines plus Southwest. A fifth, Virgin America, is nibbling at the edges.
Nor are they strangers to direct government subsidy. At today’s prices, US airlines have benefited from $155bn of government help in the past half century, according to a US government report. After years of lossmaking, the airlines are back to profitability. US airlines have made almost $25bn since 2013 after losing a cumulative $33bn in the previous decade. Yet consumers have never been less happy. In a separate case, the DoJ last week said it was investigating collusion between the big three US carriers in which they allegedly agree to keep prices high on each other’s primary routes. In the industry they call this “discipline”. Consumers call it gouging. What will it take to make US flying a pleasant experience again?
The only solution is open skies. The objection is that the US would be unilaterally disarming. By opening America’s skies to foreign carriers without reciprocal rights, it would be tantamount to bankrupting US airlines all over again. The best foreign carriers are so much better than their US counterparts — and, in most cases, so much more profitable — that they would steal all their business. Yet the same would probably happen even if the open skies were mutual. It is hard to imagine United, or Delta, displacing Cathay Pacific, or Emirates, in their backyards. Both reality and trade theory suggest the consumer would be better off if the US opened its skies unilaterally.
So, too, does psychology. The real gulf between Asia and the US is that the former compete on quality while US airlines compete on price. But they do so only by hoodwinking the consumer. To every dollar you spend on a flight is added a large chunk of change in hidden costs. The price of a ticket does not include food, checked baggage, punctuality or WiFi. If your plane happens to have seat screens, the chances are they are not working. If they are, you must swipe your credit card. Even after you have paid for your food, its quality is a human rights violation (and this is coming from a Brit). Meanwhile, the average US domestic “pitch” — the industry measure of a seat’s size — has shrunk from an average of 33 inches a decade ago, to just 31 today. This is at a time when the average waist size has grown. The US consumer expects less than their Asian or European cousins — and receives less. Only the bracing shock of competition can alter this.
Is that likely to happen? The chances are slim. The clout of the big carriers in Washington outweighs the woes of millions of frustrated flyers. The same is true in other restricted sectors. Until the US consumer finds its voice again, the gulf with the best of the world will continue to widen.
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