Airline Deregulation


Most people, though presumably not most people who read this blog, aren’t interested in politics. They’re not interested in politics because they find political concerns to be remote from their lives. To me, though, it’s interesting to really understand how false that is, and how policy shifts about even very dull issues actually tend to have far-reaching consequences.

Consider airline deregulation. This was a complicated and multifaceted process, but the basic thrust of it was to increase the quantity of competition between airlines and to make it easier to compete on the basis of price. The result has, as intended, been a steep structural decline in the cost of air travel. But that, in turn, has had an interesting side consequence. Previously, airlines barred from competing on the basis of price engaged in fairly vigorous competition on the basis of service quality. So while products generally get better over time, the quality of air travel has deteriorated rapidly as a low-cost, low-quality equilibrium has proven to be consistently more profitable. It seems that that tradeoff has been good for tourists and people traveling to visit family because, evidently, that’s what consumers would prefer. But it’s been a disaster for business travelers since cheaper flights are worthless if you’re not paying for them, and crappy service is crappy.

Michelle Higgins’ New York Times article on the declining fortunes of the flight attendant ought to be understood as another consequence of this shift. In a world where firms are barred from competing based on price, they’ll compete based on quality. And firms competing based on quality need to be fairly generous to their employees — high-quality service requires a first-rate workforce which requires attractive compensation and working conditions. But as shift to price competition and everything looks different — priority number one is to cut costs as low as possible, and you don’t really care if that leads to high turnover or you not being able to hire the best people.