Some politicians, it seems, have trouble learning the lessons of history.
An effort is underway in the U.S. Senate to create strict government price controls on airlines, a return to the era when federal bureaucrats set airfares, selected domestic routes and regulated flight schedules, which resulted in artificially higher prices, stifled competition, and a massive loss of consumer welfare.
The proposal, deceptively called the FAIR Fees Act, would put the federal government in charge of deciding whether airline fees — such as those charged for last-minute itinerary changes or extra baggage — are “reasonable.” The measure was re-introduced in May by Sens. Ed Markey (D-Mass.) and Richard Blumenthal (D-Conn.) and is now part of the U.S. Senate’s FAA reauthorization bill.
There is no shred of evidence to justify onerous rate regulation in a sector as competitive as the U.S. airline industry. History has shown again and again that government bureaucrats are incapable of setting prices better than the market — they inevitably create misallocation of resources, deadweight loss and a reduction in consumer welfare.
Ironically, the airline industry provides one of the starkest examples of government mismanagement. From before World War II to the late 1970s, federal agencies tightly regulated America’s airlines, leading to disastrous results.
The FAIR Fees Act is an effort to re-regulate the airline industry and double down on the failed, centrally planned approach that once made the skies accessible only to the wealthy.
FAIR Fees would strip flexibility away from flyers and impose a one-size-fits-all approach to airline pricing that doesn’t match the reality of market demand.
Today, travelers can opt for a more expensive ticket with the option to make last-minute cancellations or changes, but they also have the choice to select a cheaper ticket that requires an extra fee to make itinerary changes. Likewise, flyers with lots of baggage pay an additional fee, while those traveling light enjoy lower prices. This flexible system allows travelers to avoid paying for services they don’t use, benefiting everyone.
The FAIR Fees Act ignores the variety of preferences that different travelers have, and it imposes a uniform solution that undermines consumer choice.
But that’s not all. Limits to change fees would drive airlines to either offer non-refundable tickets that do not allow travelers to make changes to their reservation (depriving consumers of flexibility) or roll the cost of changes into all ticket prices, making travel more expensive for everyone. In both cases, consumers would be worse off.
Restricting or eliminating change fees would also lead to frequent last-minute changes — if you’re unsure of when or where you’ll need to fly, why not book several tickets and cancel the extras just before leaving? Airlines would face more empty seats on flights, making it more difficult for airlines to make accurate business decisions, which will sharply increase consumer fares. Besides higher prices, airlines would seek new ways to maximize revenues and control costs, which could mean abandoning routes to many small and medium-sized communities.
Despite its consumer-friendly name, the FAIR Fees Act would only reduce consumer choice and make air travel less affordable for millions of Americans. Consumers will pay more and get less.
Steve Pociask is president of the American Consumer Institute, a nonprofit educational and research organization.
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