Greg Lindsay's Blog

December 29, 2010  |  permalink

The Father of Deregulation, RIP.

Alfred Kahn, the economist, former Civil Aeronautics Board chairman, and the father of airline deregulation, died yesterday at the age of 93. It was Kahn who sold Congress (and especially Sen. Ted Kennedy) on the idea of ending the CAB’s government monopoly on airline routes and pricing, allowing any airline to fly wherever, whenever and for whatever price it chooses. It’s hard to imagine now, but there was time when Pan Am or TWA or Eastern had to lobby for the right just to start flights between New York and Mexico City—which Eastern won after its chairman Eddie Rickenbacher supposedly sent a man to Washington with $120,000 in cash for the GOP.

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Kahn argued that what we fondly, if erroneously remember as the “golden age” of travel—of lobster thermidor and coffee-tea-or-me at 30,000 feet—was a case of massive mispricing, and that consumers would be best served by competition between the airlines. Their service was too good and too expensive, and they had little reason to innovate. Sen. Kennedy – and eventually President Jimmy Carter – listened, the latter signing the Airline Deregulation Act into law on October 24, 1978. With the exception of Prohibition, never had an industry been so upended overnight. As I wrote in Aerotropolis:

The government would no longer set fares or assign routes, and had removed all legal barriers to competition. The immediate effect was to drive down prices as new entrants forced the incumbents to match their discounts. Even today, after oil spikes, baggage fees, and hundreds of grounded planes, the cost of flying on a per-mile basis is barely half of what it had been, adjusted for inflation. Estimates of passengers’ annual savings range as high as $20 billion. The airlines’ massive losses have been our personal gain.

Deregulation made the triumph of the plane over all other means of long- distance travel inevitable. The price of air travel compared to trains and driving has declined steadily since 1960, when it cost twice as much as either. By 2000, however, air travel had thoroughly beaten both on a per-mile basis. Our travel preferences had been erased and were being rewritten: the shortest distance between any two points in America was the path to the nearest airport.

This arrangement has its pluses and minuses. The Wall Street Journal captured the latter nicely with the headline on its insta-obit: “Stuck in an Airport? Blame Alfred Kahn.” But one of the quotes included in the obit captures precisely what’s wrong with American aviation and why it can’t compare to the foreign carriers leapfrogging ours every day, whether Emirates or Jet Airways or Cathay Pacific, or why flying from Asian to American airports “is like flying from the Jetsons to the Flintstones” as Tom Friedman complains on a regular basis. Kahn explained why in his testimony to Congress in 2000:

“There are, I think, two things to be said about the fact that [a deregulated airline industry] has also been accompanied by a marked increase in discomfort and congestion: first, that it was precisely the failure of regulation to offer travelers a low-cost/lower-quality product that was its greatest failure; and, second, that this deterioration in the quality of the air travel experience is a consequence, in important measure, of the failure of government to provide the optimal infrastructure – specifically, air traffic control and airport capacity – and to price it correctly.”

In other words, we are still flying every day in a system designed for regulation, despite the fact that hasn’t been true for more than thirty years. Kahn’s point makes perfect sense when you stop to consider how many hubs in America have been opened since deregulation (the answer: one, Denver’s in 1995) and that we use GPS receivers on our iPhones to get us around while airlines make do with air traffic control technology that’s more or less unchanged from 1938.

Despite what the WSJ says, this week’s post-holiday travel nightmare isn’t Kahn’s legacy, but the result of the airlines’ attempt to circumvent it. As U.S. Airways CEO Doug Parker cheerfully explained last month to a roomful of several hundred frequent fliers, the surviving legacy carriers have adopted cartel tactics in order to survive, tacitly agreeing to keep a lid on seat capacity and matching each other’s fees. The former is the reason why thousands of travelers will be spending New Year’s Eve with their families, even if they never intended to. It’s a shame Kahn had to live long enough to see that.

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Greg Lindsay is a generalist, urbanist, futurist, and speaker. He is a non-resident senior fellow of the Arizona State University Threatcasting Lab, a non-resident senior fellow of MIT’s Future Urban Collectives Lab, and a non-resident senior fellow of the Atlantic Council’s Scowcroft Strategy Initiative. He was the founding chief communications officer of Climate Alpha and remains a senior advisor. Previously, he was an urban tech fellow at Cornell Tech’s Jacobs Institute, where he explored the implications of AI and augmented reality at urban scale.

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