Have you ever popped open a bag of potato chips only to be disappointed by the number of crisps in your bag? It's not just you. To avoid raising prices, companies often increase their "nonfunctional slack fill" or the difference between the volume of product and its container. We talk about how food packaging affects your recipe and wallet.
Over the past few years, cities like Cincinnati and Pittsburgh lost nearly half their air service. Fewer flights and passengers mean spiking prices for travelers. And the trend is felt across the local economies, as major businesses relocate — often citing the lack of affordable travel options. We explore the impact of declining airports.
- Phillip Longman Senior Research Fellow, The New America Foundation; author of "The Empty Cradle: How Falling Birthrates Threaten World Prosperity and What to do About It."
MR. KOJO NNAMDISome people like to back handedly refer to large portions of America as flyover country. The wide expanses that separate the hustle and bustle of modern cities that line the coast and dot America's interior. But trends in the Airline industry are cutting more and more large metropolitan areas off from the rest of the country. Places like Cincinnati, Pittsburgh where by some measures, roughly half of air service has disappeared in recent years. And according to Phillip Longman, the consequences are far more significant then higher ticket prices for leisure travelers.
MR. KOJO NNAMDIHe notes that global businesses like the Chiquita company have made recent decisions to relocate out of cities like Cincinnati, largely because of the price it costs to fly in and out of them. He says that decades of deregulation in the airline industry have not only been bad business for air travelers but that they've literally had crushing impacts on once mighty big city economies all across America. Phillip Longman joins us in studio. He's a senior fellow at the New America Foundation. He co-wrote, along with Lina Khan, a recent article in the Washington Monthly about the future of the American Airline Industry. Phillip Longman, thank you for joining us.
MR. PHILLIP LONGMANPleased to be here, Kojo.
NNAMDIWe'd be happy to have you join the conversation at 800-433-8850. Have the costs or availability of direct flights to a certain city ever effected the way you do business, 800-433-8850? Phillip, when people throw around the term 'flyover country' it's not meant as a compliment, it's meant to convey that a place is so unimportant plains just cruise right over it. But you've noticed that air service to major American cities like St. Louis, Pittsburgh, Memphis is plummeting. And that vibrant cities with global economies are fast becoming part of what's known as 'flyover country.' What's going on when you look at a place like Cincinnati?
LONGMANWell, we're now in a point in the annals of the aviation industry where almost everybody is losing. Certainly the airlines themselves have losing, they have lost money in all but three of the last 10 years, accumulative $50 billion. Certainly the airline employees are losing. Many of them are losing their pensions, losing their jobs. Now, we're -- and the taxpayer has been losing all along because although we don't tend to think of it this way, the airline industry is very heavily subsidized.
LONGMANWe've had most of the major legacy carriers in the last 10 years have gone through bankruptcy. Many of them, like, Delta have put their pensions -- terminated their pensions and put all those costs on the taxpayers. Just recently we had American Airlines declare bankruptcy and at least attempt to put $10 billion of their pension costs onto the government. So there's a deeply subsidized industry, the taxpayers are losing too.
LONGMANFor a while, we were told that we should be happy with this industry because even though levels of service continue to deteriorate, even though food service disappeared, even though we had to pay for our own baggage, at least we were getting good fares. Now, we find ourselves in a place where fares are going up and service, to very key places in the United States, is shrinking to the point where it's actually affecting economic development.
NNAMDIWhich brings me back to Cincinnati, which used to be a major hub for Delta. What happened?
LONGMANWell, there was a merger.
NNAMDIA merger happened.
LONGMANAnd part of what we have to realize is we don't really live in a deregulated airline industry anymore or ever. It's that, the people who are regulating it are different then they once were. The people who decide that Cincinnati should not have adequate air service are financiers who buy and sell airlines and for their own reasons decide to make this city a hub and that city not.
NNAMDIBut it never always used to be like that. You say that up until a generation ago, the federal government looked at airline service as a public convenience and a necessity but the big changes happened in the late 1970s during the Carter administration when the board that assigned routes and set fares was scraped, the industry was deregulated. What happened and what was the philosophy guiding what happened?
LONGMANWell, this is a story that a lot of people have forgotten, if they never knew, which is airline deregulation along with the deregulation of railroads and gas pipelines and much else didn't come from the Reagan administration and from the new conservatives, it was lead by people like Ralph Nader and Jimmy Carter and other liberals of the late '70s who fell under the spell of a theory that by getting the government out of the business of setting fares and routes that there would be some kind of consumer cornucopia. It would lead to lower prices. And this, of course, was a time of high inflation. So basically, the whole democratic, liberal establishment went for this. And...
NNAMDIIt seems like the kind of things that liberals would have preferred to blame on a republican administration and yet they were the ones you argue who were responsible for this.
LONGMANWell, yes. And by now both parties are completely implicated in this sad story. Many of the early liberal deregulators had the idea that, well, at least we will protect the consumer by vigorous anti-trust action. When the Reagan administration came in and subsequent conservative administrations, that fairly well abandoned anti-trust across the board. And...
NNAMDIBut let's talk a little bit about why they felt it would work because it's my understanding that Southwest Airlines was just getting its start around this time making flights only in Texas. And that people were holding that up as an example of the kind of cheap fares that could be achieved outside of the watch of the so-called CAB or the Civil Aeronautics Board.
LONGMANRight. Southwest Airlines is still with us, got its start in 1971 operating in Texas. It, as such, was not subject to federal regulation. It seemed to offer a good deal. The company made money with lower prices. But it was, sort of, a false lesson to learn because the nature of the airline industry is like that of any other networked industry, whether it's telephones or highways or internet, right, that its value comes in its connectivity, the fact that I can pick up my phone and call anybody else who has a phone. And so it's very important that you not just provide these services to the places that have the highest profit margins.
LONGMANIf you have that kind of crimped accounting, what you wind up with is fairly much the world that we have today where if you want to fly from, say, Dulles Airport to San Francisco you can get fairly good prices because that's a major trunk line and there's all kinds of people filling up the planes. But if you happen to want to go anywhere else, and particularly anyplace in between, then you're looking at actually paying maybe, double, triple the price for going half the distance.
NNAMDIWe're talking with Phillip Longman. He is a senior fellow at the New America Foundation. He co-wrote a recent article in the Washington Monthly about the future of the American Airline industry. We're taking your calls at 800-433-8850. Have you ever lived in a major American city where you felt a lack of available air service cut you off from the rest of the country? Where was it and how did it affect your life, 800-433-8850? You can send email to email@example.com, send us a tweet @kojoshow or go to our website kojoshow.org and join the conversation there. In the long run, what would you say this push to deregulate meant for competition because we're still looking at an industry that's dominated by just a handful of players?
LONGMANWell, the first thing that happened after deregulation is that gas -- or energy prices, for reasons that were completely unrelated, plummeted. And so the way the American people experienced this is we deregulate airlines and fares went down. Right? Now, we can now go back, after the fact, and see that airline fares were actually going down faster in the 10 years before we deregulated then afterward. Adjusting for the price of energy. And that was because of the great amount of technological innovation that we had in those days, in the aviation business we had the new 737s and the DC8s. And the airline industry was, you know, becoming a mass travel phenomenon.
LONGMANAbout 2/3 of all Americans, by the mid '70s, had flown in an airplane, that had doubled in the last 10 years. So things were not really broken at all. But we did experience this period in which energy prices came down, airfares came down, we also had a whole bunch of new upstart startup airlines, almost every single one of which is out of business today. But there was this brief shining period, right, in the mid '80s when you could fly just about anywhere for a pretty good price.
NNAMDIWell, going back or going forward to the present, what mechanisms do we have in place now to make sure that people in places like Cincinnati have access to air service, relatively comparable to what you might find in a city like Charlotte which is a hub to one of the big airlines?
LONGMANWe have no mechanisms. We have, basically, seeded the decision over which cities get what airline service to financiers who have their own particular agendas, who merge one company with another and therefore don't need this hub or think they don't need it. And so we are picking winners and losers as a society but we're not doing it in any kind of deliberative way and we're not really letting the market do it either because it's the machinations of various financiers buying and selling, combining, merging companies that is ultimately affecting this.
LONGMANAnd, you know, I want to emphasize too that it -- airline management, which never wanted this deregulation to begin with, airline unions that never wanted it, they are all suffering from this. Every sector involved here, now, is suffering. And it seems, to me, the least we could do is to go back to a system that by and large worked in which we, at least as a society, decided what should be the relative amount of airfare and service to these different major cities.
NNAMDIGoing to get to that in a second. But first, the telephones. Here is Elizabeth in Silver Spring, Md. Elizabeth, you're on the air. Go ahead, please.
ELIZABETHHi, I wanted to talk a little about the way assets were stripped out of many of the heritage airline. The one I know best is Northwest Orient, as it used to be, went from Minneapolis - St. Paul, you could fly direct almost anywhere in the world. In the late '80s and early '90s, kind of pirate capitalists, I guess I'd call them, started stripping assets out to the point where now the wages being paid to pilots and flight attendants and other people have really declined in real purchasing power. But also Northwest Airlines is no more. If those same CEOs had to earn their deferred compensation the way that people who earn wages do which is to wait until they retire to get it, we might see a somewhat different attitude. The loyalty to the company is non-existent and the taxpayer and the worker bear the whole burden, and I wonder if you'd like to comment on that.
NNAMDIYeah, Phillip Long, because I wanted to ask you if the airlines and the airline executives are losing and the passengers are losing and the unions are losing, then who's winning?
LONGMANA few financiers who fly around in private jets. I can't think of anyone who's winning. Arguably, you know, members of the creative class that fly back and forth from New York to San Francisco, coming up with concepts and derivatives have cheaper airfare than they otherwise would, but virtually everybody else is suffering.
NNAMDIIndeed, David in Arlington asks, "In your piece you didn't seem to address two big factors, heightened security measures, and the increased use of private jets. Why?"
LONGMANWell, the security measures which, you know, you could have a whole other show on that aspect of the indignities of flying, but, you know, it's more or less unrelated, right? I mean, it's something we do because of fears of terrorism.
NNAMDIThe increased use of private jets?
LONGMANThe private jets, well, you know, this is symptomatic of the breakdown of aviation as a mass market, right? That rich people, really rich people, now have options as they have in many other realms of the economy where when things become dysfunctional, they just privatize their own transportation.
NNAMDIGot to take a short break. When we come back, if you have called stay on the line, we will get to your call. The number is 800-433-8850, or you can go to our website kojoshow.org and join the conversation there. What kinds of prices are you willing to pay for the convenience of flying nonstop? At what point do prices get too expensive that you're willing change planes? 800-433-8850. I'm Kojo Nnamdi.
NNAMDIWe're talking with Phillip Longman. He is a senior fellow at the New American Foundation. He co-wrote, along with Lina Kahn, a recent article in the Washington Monthly about the future of the American airline industry. Phillip Longman, a lot of us might be tempted to look at this purely through the lens of what it means for us when we try to book flights to those places for Thanksgiving or for a wedding, but the situation looks very different for the businesses operating in cities where air service has become a nightmare. Let's look at the Chiquita company as an example. What happened with that company in Cincinnati?
LONGMANWell, Chiquita is one of many Fortune 500 companies are headquartered in Cincinnati which is a major place. That's the headquarters of Proctor & Gamble for example. But they are an international business. They deal bananas, right?
LONGMANAnd so they've got to be flying to South America and Europe and all the places, and they moved to Cincinnati because in the early parts of the '90s, Cincinnati was a hub and it had great air services, and there were other reasons do to business in Cincinnati, and so they did. But following some mergers that -- or a merger that led to Cincinnati no longer being a hub city, and also becoming by monopolized by service to a, you know, only one carrier went there anymore, and so it had the highest airfares of any place in the country, it simple became impossible to do business there.
LONGMANSo even though their CEO was a part owner of the Cincinnati Reds and a big Cincinnati man, who had, you know, his family raised there, even though he pretty much loathed NASCAR and everything about Charlotte (laugh) , they moved to Charlotte because of the airport, and that's an example of how these -- our transportation policy affects the pattern of economic development and it's no different than it was with the railroads in the 19th century.
NNAMDIGonna get to that in a second, but you know it's not just the relocation of companies, cities like Memphis are losing convention and conference business to other cities because of airlines hassles.
LONGMANWell, yeah, that's right. I mean, I just had to bury my grandmother last week in Kalamazoo, Michigan.
LONGMANThank you. Kalamazoo, for those who don't know is about a little less than half way between Chicago and Detroit. Once a thriving manufacturing city, still headquarters -- or the site of University of Western Michigan, Kalamazoo College, many college students there. About a two-and-a-half hour train ride from Chicago. I remember going to Kalamazoo in the '60s where they had a thriving airport service, you -- people routinely went to Chicago, downtown Chicago to do business to go shopping in the department stores.
LONGMANNow when I tried to fly last week from D.C. to Kalamazoo, there really weren't any connections that even were possible. The best I could do on three-days notice was to fly from Washington to Detroit for a thousand dollars, right? And then rent a car and drive three-and-a-half hours to Kalamazoo. Well, you know, you can't do business in a place like Kalamazoo if you're cut off like that, and that story is just replicated all over America now.
LONGMANWhen the deregulation first happened, a lot of smaller cities lost their service, and people said, oh, well, too bad, so sad, you know. We had three state capitals in the '80s you could no longer fly to except on a private jet, but they were little places like Salem, right, and Trenton, new Jersey. But now we're looking at, you know, major cities, places -- Pittsburgh, you know, was the site of the G20 two years ago. Pittsburgh's done everything everybody says has to be done to thrive in the global economy.
LONGMANThey've become a center of green technology, right? They've got their universities all into nanotech and the city has reinvented itself, and yet its airport is empty. Not because Pittsburgh doesn't deserve and offer, you know, tremendous amounts of travel, it's just the machinations of various airline mergers.
NNAMDIWhat do airlines consider when they evaluate which cities they might want to use as hub airports? Is there a standard there?
LONGMANYou know, at the level of the firm, there's some logic in getting us to send time cooling our heels in the airports as opposed to offering direct flights, right? The hub system isn't totally insane, but those cities that are hubs today you couldn't give any rational explanation for except, you know, various accidents of history, and of, you know, who bought what airport when, right? Why is Charlotte a big hub? I mean, what's so special about Charlotte as opposed to Pittsburgh?
NNAMDIWell, has anyone ever tried to quantify the affect that an airline hub has on the city that hosts it?
LONGMANOh, it's positive, you know. Although, what can happen, you know, is the hub becomes monopolized. This is what eventually happens in this deregulatory world, right? Is it at first, you know, oh, we're so happy it's our city, we became a hub, and then the two airlines that serve it merge, and now you're paying monopolistic prices even to go to the hub.
NNAMDIIn another era, railroads were the life blood that connected cities to the national economy, but you write that strong federal action was necessary with railroads to maintain an equitable and efficient network. What lessons do you think we should be taking out of our experience with railroads?
LONGMANWell, one of the things that this country learned, and it wasn't socialists who said this, it was regular salt-of-the-earth Americans realized at some point in the mid 19th century that who won and who lost in American society was almost totally determined by where the railroad went, what the railroad charged, and that in turn was determined by what financier bought what railroad, and so as early as 1887 we created the Interstate Commerce Commission to regulate fairs and tariffs on railroads, recognizing that if we didn't, whole cities would rise and fall on whether or not they had adequate or monopolistic railroad service.
NNAMDIWell, should we look at our transportation infrastructure and our aviation infrastructure as utilities like we do with power or the phone service?
LONGMANThey are by their nature public utilities and natural monopolies, and, you know, this is very easy to see in other areas, you know. The founding fathers wrote the post office into the Constitution because they recognized that if we had a postal service that made it cost eight times more to send a letter to one city than to another, that we were not gonna get very far as a nation, right, and we have similarly had to strike balances in telecommunications, in water works, things that are natural monopolies.
LONGMANThere is no right answer that applies in all circumstances and all places, but the one thing we do know, and you don't need theory anymore to prove this, we've had this gigantic natural experiment. Airline deregulation as we have experienced over the last generation, has not worked for anybody.
NNAMDIOnto the telephones. Here is Fred in Falls Church, Va. Fred, you are on the air, go ahead, please.
FREDThank you. Last week I believe was -- Charlie Rose had on two guests, one who was the former president of American Airlines. I forget his name. And they were talking on -- and I guess this was because of congestion, but that what they should have is high-speed rail between Boston and New York and New York and Washington, and not allow flights between those two I guess sort of free up the skies for longer flights, and you can have flights then just between Boston and New York and New York and Washington, and I was wondering what your guest's...
LONGMANI'm glad you brought that up, because it's a very important point. One of the things that was wrong about the old regulatory regime that we had before the '80s, was that nobody looked at transportation policy holistically globally, right? So we had civil aeronautics out there just trying to promote aviation generically, and in many city pairs, it does not make sense to offer airline service. Essentially it makes no sense to fly from Washington to Philadelphia, right?
LONGMANIt cost so much money just in energy just to get the airplane in the air, that it's necessarily gonna be a very costly thing, never mind all the hassles of getting back and from the airport. So high-speed rail makes sense in a lot of applications, and we ought to solve some of these problems with our deteriorating aviation industry by going intermodal, by taking advantage of other modes where they make more sense.
NNAMDICharlie Rose had spoken Bob Crandall, the former CEO at American Airlines. Fred, thank you for your call. Onto Ellen in Alexandria, Virginia. Ellen, you're on the air. Go ahead, please.
ELLENThank you, Kojo. And we've sort of moved on from this a little bit, but going back to the idea of the impact on cities, granted this was back in the '90s when Cleveland, Ohio was the headquarters of BP America, and for a short time offered some direct flights to London, but when we lost those and BP merged with I believe it was Amoco, instead of staying in Cleveland where Standard Oil before it had been, you know, had a hundred year history or something like that, they moved to Amoco's home city which was Chicago.
ELLENI don't think I need to tell your listeners what, you know, a city like Cleveland experiences when it loses first of all its major charitable donor, one of its major employers, one of its, you know, just primary corporate citizens, plus just before that, we had built the Rock and Roll Hall of Fame and, you know, tourism was the strategy. I say we because I used to live there. So I also just wanted to add that we as taxpayers also pay for the FAA and airports and all sorts of things besides just the pensions for the airline employees. So those are my comments. Thanks.
NNAMDIThank you very much for your call, Ellen. Where to then from here, Phillip Longman? If the government were to reevaluate the way it regulates the airline industry, where would it start?
LONGMANWell, we don't want to just go back to the old system, and the old system worked fairly well, but I think we could do better. But essentially what we had in the old system was a civil aeronautics board that airlines, if they wanted to raise fares or enter new markets would have to make their case, and that board would look at the wider public interest, and it necessarily had to do a lot of balancing, right? If you have too much competition in the airline industry, nobody can -- no airline can make money, and in the long term they can't afford to replace their planes and we have basically, you know, what happened to the American passenger railroad, right. But we do need a system I think that makes these public choices.
NNAMDIAnd I'm afraid that's all the time we have. Phillip Longman is a senior fellow at the New American Foundation. He co-wrote, along with Lina Kahn a recent article in the Washington Monthly about the future of the American Airline Industry. Phillip Longman, thank you so much for joining us.
NNAMDII'm Kojo Nnamdi. "The Kojo Nnamdi Show" is produced by Brendan Sweeney, Michael Martinez, Ingalisa Schrobsdorff and Tayla Burney with help from Kathy Goldgeier and Elizabeth Weinstein. The managing producer is Diane Vogel. The engineers are Andrew Chadwick, Timmy Olmstead, and Kellan Quigley. A.C. Valdez is on the phones. Podcasts of all shows, audio archives, CDs and free transcripts are available at our website kojoshow.org. To share questions or comments with us, email firstname.lastname@example.org, join us on Facebook, or send a tweet @kojoshow. Thank you all for listening. I'm Kojo Nnamdi.
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