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**APRIL 11, 2022**
Kuttner on TAP
Stratospheric Airfares
****
Rising ticket prices are another facet of inflation that has nothing to
do with overheated general demand, and everything to do with industry
price-gouging.
Making summer travel plans? Have you noticed that airfares have headed
skyward? Average domestic airfare is up a staggering 40 percent
since the beginning of 2022. According to Hopper Research, fares on
flights to L.A. are up 66 percent, 77 percent to Orlando, 64 percent to
Las Vegas, 55 percent to Miami, and 53 percent to Denver.
For the most part, this is not the result of rising fuel costs. A Delta
exec told a recent investors' conference
that about 10 percent of higher ticket prices is the result of more
expensive fuel. At that same conference, JetBlue CEO Robin Hayes boasted
of "incredible revenue momentum," adding that "we're still dealing
with pent-up demand."
The airlines, with ever more concentrated market power and ever fewer
competitive routes, are raising fares-because they can. These are the
same airlines that took $50 billion
of taxpayer relief early in the pandemic.
With post-pandemic travel demand rising, the airlines are not adding
flights or seats as fast as demand is increasing. Seat capacity is still
around 8 percent below its pre-pandemic peak. Rather, they are flying as
full as they can, and jacking up prices.
Speaking at the same investor conference, United Airlines Chief
Commercial Officer Andrew Nocella bragged that United deliberately held
back seats for summer travel in anticipation of a rebound so it could
charge more for tickets when bookings resumed, post-omicron. And it's
working, he added.
Rising airfares are another aspect of inflation that has nothing to do
with supposedly overheated general demand-and everything to do with
pricing power. Demand for air travel is up because the pandemic is
winding down, not because consumers have scads of extra money to spend.
Raising interest rates or cutting public spending to engineer a
recession, Ã la Larry Summers, would do nothing to restrain this kind
of price-gouging.
Today, four airlines-American, Southwest, Delta, and United-control
80 percent
of the domestic market. As Sen. Elizabeth Warren and colleagues pointed
out in a recent letter
to antitrust authorities and Transportation Secretary Pete Buttigieg,
the mergers of Delta/Northwest in 2008, United/Continental in 2010, and
American/US Airways in 2013 only increased monopoly pricing power.
Warren was warning against the proposed takeover of low-fare Spirit
Airlines by Frontier. Now, JetBlue has swooped in with a better
offer-that would further reduce competition. JetBlue is already
attempting to create a code-sharing "Northeast Alliance" with American,
at hubs in New York City and Boston, which the Justice Department has
challenged
in court.
Biden's newly invigorated antitrust officials should not only block
this latest proposed merger. They should launch a broad investigation of
monopoly routes and price-gouging in the airline industry as a whole. If
redoubled antitrust enforcement cannot restrain these pricing abuses,
then it's time for airline re-regulation.
(Thanks to Isabelle Gius for research assistance on this item. I will be
returning to the case for airline re-regulation in a more extended
piece.)
****
~ ROBERT KUTTNER
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