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Archive for the ‘Evan’s Debates’ Category

Last week, Sean O’Neill addressed the tricky nature of measuring changes in airfares. Air fare indexes pick up or decreases in base fares over time, but they don’t pick up “nickel and diming” (the addition of lots of charges for luggage, food, over-the-phone booking) or declines in service (cranky flight attendants, less legroom).

I’m on record as being in favor of price transparency. The regulation-era model of aviation ticketing assumed a monolithic travel market, like a Soviet-style clothing factory — one size fits all. There were few limitations on the ticket, a meal and a drink onboard, and room in the hold for three suitcases. Pre-deregulation experiments like the loosening of the Florida market demonstrated that the market is diverse. Some people are flying somewhere for a year and need all the luggage they can tow; others are flying for a weekend and are fine with a carry-on. Some people get very hungry in-flight; others eat beforehand. Some people may need to make changes at the last minute; others plan their schedules around their flights. One of the reasons average airfares went down by almost 40 percent in real terms from 1980 to 2005 was exactly that the cheapest tickets offered during this time were less flexible and included fewer amenities. Unbundling ancillary services from the basic cost of travel, many airlines have made it possible for low- and middle-income people to enjoy unprecedented access to air travel. You get what you pay for.

Now, as far as incorporating levels of service into the Bureau of Labor Statistics’s Consumer Price Index goes, Sean has some links worth checking out. Another way of measuring airfares is the Bureau of Transportation Statistics’s Air Travel Price Index. (For more on methodology differences, click here and here.) The ATPI measures discount fares, frequent flier mile awards, and package deals, whereas the CPI does not. (According to the ATPI, average airfares continue to fall — by 19 percent in inflation-adjusted terms from 2000 to 2007.)

Sean neglects to mention service improvements over time, especially in routing. Deregulation freed airlines from their patchwork routes, and the carriers organized themselves around hubs, collecting feeder traffic to national and international networks. Today, almost every airport in the country is only one stop away from almost every other airport in the country and from many major markets in Europe, Asia, and Latin America. Compare that to the convoluted route maps in the Airchive.

Increased transparency in air travel pricing is nothing to mourn. Moreover, one would be hard-pressed to argue that in the past thirty years, ancillary fees have gone up enough to compete with the inflation-adjusted reduction in average fares.

Airfares: Price hikes that go underreported [This Just In]

Photo credit: Flickr user alex-s. Used through a Creative Commons license.

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From the comments on this post: there’s a vigorous debate going on about whether some form of congestion would really reduce delays, given that flight schedules (for business travelers at rush or for international flights connecting to overseas hub banks at planned times) are not easily adjusted. But there’s another point I want to bring up: the airline lobby has decried the FAA’s proposed regulation, arguing that congestion pricing “does nothing to fix the primary cause of delays – our nation’s increasingly antiquated air traffic control system.” Molly Feltner at SmarterTravel.com editorializes further: “The government is basically buying time so it can delay the daunting and hugely expensive task of implementing a new air traffic control system.”

Both responses to the regulation proposal are disingenuous. We all know that thanks to the FAA’s incompetence/underfunding/”rebenchmarking” (or whatever else you think of the FAA), the full implementation of the NextGen slate of technologies is years off. (Not that NextGen will be panacea, but it will help.) Neither the ATA for Feltner acknowledge what we’re going to do in the mean time–between now and not yet. Demand for air travel continues to increase, and we want to avoid summer delays like we saw this year. There has got to be an interim strategy. If you think congestion pricing isn’t the answer, you need to offer viable alternatives. We’re waiting.

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My exchange with Daniel Hall earlier this week made it onto The Economist‘s Free Exchange, which was in turn picked up by Megan McArdle’s Asymmetrical Information.

The Economist writer brings in the intervention dimension:

[S]o politicised an industry as air travel need not fear dislocations in any case; governments would react incredibly quickly to pull back on any part of an agreed-upon energy bill that appeared to cause significant damage to airlines or aeroplane manufacturers. This, in fact, is one of the arguments made by carbon pricing sceptics–that governments will not allow the necessary pain to be felt.

McArdle follows this with

[G]overnments will not allow anything to harm the airline industry.

What I don’t quite understand is why this is so. Why is everyone obsessed with having protected domestic airlines, and indeed, airplane manufacturing capacity? . . . Now China, too, wants its own airframe manufacturer. And everyone wants to protect their national airlines.

 

Why is flying so emotional? And so heavily, heavily protected by the heavy hand of the state?

Two things to say about this: amen, but things may be looking up.

Aviation remains one of the most nationalized industries on the planet. British author Simon Calder once wrote, (more…)

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Returning to these posts and this article, I think I need to clarify and reframe my comments. First, Daniel is right that increasing the cost of carbon-based fuels will drive innovation in more fuel-efficient technologies. It did just that: in the late ’90s, Boeing pitched a fuel-wasting concept, the Sonic Cruiser. Airlines were standoffish at first, but as the price of oil began spiking, everyone disclaimed interest and Boeing scrapped the project for its much more environmentally (and bottom line) friendly 787. But this innovation-fueling (pun not intended) only works up to a point, when the increased costs reach such a level as to drive airlines out of business and leave the aerospace firms in the lurch without enough clients to justify further R&D. So, then, the climate challenge is to find the optimal point at which carbon pricing or emissions trading incentivizes climate-friendly aerospace innovation without breaking the airlines. What that optimal point is, I, a non-economist, am not able to say.

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Update on this post is here.

Daniel Hall at Common Tragedies has responded to my request for economic analysis. I was really wondering about the effects of different types of regulation–say, a mandate for minimum fuel-efficiency standards versus an overall greenhouse gas cap or tax. He writes, “I’m skeptical there’s much room in the aircraft market for efficiency standards that are economically justifiable.” But some of his additional comments taking on my TCS Daily article will not hold for airlines. Let’s take a look at them:

Evan . . . repeats what is apparently the latest conservative meme on climate change policy: that reducing emissions through a carbon tax or a cap-and-trade system will be far more economically costly than innovating our way into emissions reductions.

Climate change is not my bailiwick, so I’m not sure what the “latest conservative meme” is, unless my being conservative and saying something makes it a meme. I’m writing strictly about aviation, not all emitting sectors, and I’m not committed to a particular policy solution. (I am interested in seeing what happens with the forthcoming inclusion of aviation in Europe’s Emission Trading Scheme; I do not think many of the the various country-level travel taxes being proposed or enacted in Europe make economic sense or are particularly “green.”) Furthermore, Aviation has some unique characteristics. Airline deregulator Alfred Kahn’s wise quote, “I really don’t know one plane from the other. To me, they are all marginal costs with wings,” does not always apply.

It’s not past inter-industry profits that drive innovation; it’s the promise of future returns that leads investors, both inside and outside an industry, to pour in investment funding to encourage innovation.

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US Airways has responded to A. L. Bardach’s article (fisked here by yours truly) on the Carol Gotbaum incident. I received the letter in an email. It is reprinted with permission after the jump.

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