- The Washington Times - Thursday, August 2, 2001

Desperate to avoid another summer of aviation gridlock, Congress is poised to exempt airlines from the antitrust laws so they can "coordinate" their flight schedules to reduce delays at congested airports. Frustrated passengers beware: Schedule-fixing can be as harmful as price-fixing. There's a better answer: use the market to make airlines pay for delays.
Because lawmakers blame delays on "overscheduling" by airlines that compete to offer more frequent flights in prime time, their solution is to let carriers cooperate to reduce service. The good news is that Congress' proposed scheduling cartel, a throwback to the days of airline regulation, likely would have little effect in today's competitive environment, because at most airports, carriers could not agree on whose flights should be cut or moved to reduce delays. The bad news is that, if a scheduling cartel were to work at some airports, travelers might look back fondly on gridlock.
At a minimum, if carriers agree to cut their operations at a congested airport, ticket prices will go up, just as surely as oil prices go up when OPEC members conspire to reduce oil production. Most passengers will be no better off, because airlines will capture much of the benefit of reduced delays in the form of higher fares.
Even more troubling is the potential for carriers to use a scheduling cartel to reduce competition itself. For example, most hub airports are dominated by a single airline American Airlines at Dallas-Fort Worth, or Northwest Airlines at Minneapolis. These hubs are key to the airlines' bottom line. If carriers had antitrust immunity to coordinate schedules, they would have a strong incentive to make anticompetitive "trades," with each carrier tacitly agreeing to curtail service in the others' dominated hubs.
Calling such behavior by the airlines predictable, the Justice Department recently cautioned Congress that the antitrust exemption approved by the House Transportation and Infrastructure Committee would result in "diminished service and higher prices for the traveling public." In a June 19 letter to the Chairman of the House Judiciary Committee, the Justice Department drew a parallel to its 1992 suit against the major airlines for using their collectively owned computer network to negotiate anticompetitive "trades" on fares. "Having condemned such coordinated fare increases, it would be ironic to permit coordinated output reductions, which can be just as harmful to consumers," Justice wrote.
The Justice Department also warned that the proposed exemption could have " 'spill-over' cartel effects," which "could effectively immunize a broad range of harmful anticompetitive conduct even beyond the legislation's intended focus." The House Judiciary Committee nevertheless approved the antitrust exemption, although Judiciary voted to give Justice a more central role in its implementation. In the Senate, an antitrust exemption similar to the one the Justice Department opposes has bipartisan support from key aviation overseers.
In addition to threatening harm to consumers and competition, Congress' proposed scheme misses the point. Airline overscheduling is just the symptom. The underlying problem is flawed government policies. Most important, airport-landing fees, set low to promote aviation, barely cover wear and tear on the runway and do not vary to reflect the delay costs that peak-period users impose on others. Moreover, landing fees are based on aircraft weight, even though it costs a busy airport little more (and sometimes less) to land a Boeing 747 than a business jet.
Predictably, given these incentives, corporate jets clog prime airports during peak periods, and airlines schedule more frequent flights on smaller planes. For example, fully 41 percent of the planes that use LaGuardia Airport during the morning peak have 77 seats or less.
Market-based policies, such as congestion pricing of runways, would address the fundamental problem — not just the symptom — by charging airport users a price that reflects the delay costs they impose on others. This is not a radical concept. Businesses use congestion pricing routinely to allocate perishable products characterized by cyclical demand e.g., "early bird" discounts at restaurants, rush-hour taxi surcharges, and peak-load utility pricing.
Granted, congestion pricing may lead to slightly higher fares for peak-period flights at some airports. But passengers who value peak service will pay for it, and those who don't will shift to off-peak flights and benefit from lower fares. Moreover, with a properly structured fee, the revenue would go to airports to be used exclusively to expand capacity. Thus, any increase in fares would go directly toward solving the underlying problem. By contrast, with a scheduling cartel, airlines would reap the rewards from the capacity shortage (what economists call "scarcity rents") and the underlying problem would persist.
To eliminate gridlock, Congress should embrace competition, not suspend it. Flight delays are the inevitable result of government policies that allocate scarce aviation infrastructure as though it were a free good. The remedy is to extend the market principles that drive the airline industry to include the pricing of choice runways. Letting competing airlines engage in schedule-fixing won't address the underlying problem. And it could make frustrated travelers a whole lot worse off.

Dorothy Robyn is a guest scholar at the Brookings Institution and was special assistant to President Clinton for economic policy.



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