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"Should we worry about cities abandoned by airlines?"

Wednesday, April 25, 2012

Should we worry about cities abandoned by airlines? 
By Brad Plumerat
The Washington (DC) Post

A thriving airport can make or break a city. Which is why many business
leaders in Memphis got nervous when, in March 2011, Delta Air Lines
announced that it would cut 25 percent of its service in and out of Memphis
International Airport. 

The airport had once served as a major hub for Northwest Airlines. But a few
years after Delta acquired Northwest, the Memphis airport hub was pared back
as a cost-saving measure. Tom Jones, a columnist for Memphis magazine, has
been chronicling the damage to the city ever since. It can now cost Memphis
residents $750 to fly to Cincinnati or $900 to Austin. Businesses are
relocating or avoiding Memphis because they can't afford the flights. The
city's annual Folk Alliance music festival is shifting to Kansas City in
2014 to avoid airport hassles. 

"It's ironic that in a city where FedEx invented the modern-day model for
global commerce, our citizens are being priced out of the world economy,"
Jones said.

Jones was speaking at a New America Foundation panel discussion titled "Is
It Time to Re-Regulate America's Broken Airline System?" The debate revolved
around a recent article in the Washington Monthly by Philip Longman and Lina
Khan, who argued that more and more regions are finding themselves isolated
as airlines merge, consolidate, and prune their less-profitable hubs and
routes. Older industrial cities like Cincinnati, Pittsburgh, Memphis, St.
Louis and Minneapolis, they note, "are increasingly cut off from each other
and from the global economy." And it's not clear what, if anything, can be
done about it.

One big question, said Josh Marks of the American Aviation Institute, is
whether there's truly a market failure here. If there really is plenty of
demand in Cincinnati and Memphis for more flights, and if Delta won't
provide those flights, then why can't a low-cost carrier like Southwest
Airlines swoop in and offer service? "I think what you'll see is a filling
in of the gaps over time," Marks said. "I'm not convinced there needs to be
a government intervention to solve Cincinnati's problems."

On the other hand, Marks and his co-panelists pointed out that the aviation
industry isn't always a truly competitive market, either. After the 1996
crash in the Everglades of ValuJet Flight 592, government regulators
tightened safety rules even further, which made it significantly harder for
new airlines to start up and compete with the giants (since the crash, there
have been just a few new U.S. entrants, including JetBlue, Virgin America,
and Allegiant).

What's more, Longman argued, there are two unique facets of air travel that
have lead to declining service for many cities. First, most of the fuel
burned by a plane is used during take-off, which means that short flights
are always less profitable than long ones - especially in this current era
of pricey oil. Second, thanks to economies of scale, bigger airports cost
less to operate per passenger. In order to maintain a truly nationwide
network, air carriers have long used profitable routes to subsidize
less-lucrative ones. But in recent years, the merging airlines have been
increasingly loath to do that.

For those reasons, Longman and Khan are calling for re-regulation of the
airline industry in their article. They'd like to go back to something like
the arrangement that prevailed between the 1930s and 1970s, when the Civil
Aeronautics Board helped determine routes and set fares, with a focus on
building a comprehensive air-travel network for the entire country.

At the panel, Longman acknowledged that this arrangement was often quite
messy - with lawyers hashing out endlessly trivial questions about tour
operators and fees. "But we did it," he said. "And that was the era that the
United States emerged as a great industrial power." What's more, he added,
it's not clear that airline deregulation in 1978 under the Carter
administration actually ushered in an era of low fares. Yes, air fares are
now cheaper than they were before deregulation. But there's the
counterfactual to consider: Longman cites a 2007 study in the Journal of the
Transportation Research Forum which found that airfares fell at a slower
rate after deregulation than before.

Still, even Longman conceded that transportation regulators got "out of
control" by the 1970s. "Like all human institutions, they're prone to
corruption and decay." But that's not just a minor concern. Indeed, it seems
like a major drawback for any effort to reinstate price controls on a major

So are there alternatives? One possibility is that the U.S. government could
just subsidize air routes to mid-sized cities that find themselves with
suboptimal service, such as Pittsburgh and Memphis. Congress already does
this for small, out-of-the-way towns through its Essential Air Service
program. But even Longman argued that the cost to extend this program to
cities like Memphis and Pittsburgh could be exorbitant. 

Another option is to say that air subsidies are a terrible idea and that
these cities will simply need to find alternatives to flying. Perhaps
building a modern passenger-rail network between cities like Pittsburgh and
Cincinnati would be cheaper and easier than propping up air travel,
especially for unprofitable short flights.

These cities could also come up with other solutions of their own, without
government help. In the case of Cincinnati, said Josh Marks, air traffic to
Chicago has actually halved in the past eight years. "What happened to
everyone else?" he asked. "They're going by Megabus, by bus services that
offer nonstop connections. It's too simplistic to treat aviation policy in
isolation." Indeed, some economists, like Edward Glaeser, have warned that
government subsidies tailored toward specific cities - especially older,
dwindling cities - can stifle this sort of innovation.

So perhaps the market will work something out. But that's not a given. For
now, Longman said, heartland cities such as Memphis, Pittsburgh and
Cincinnati are taking a hit - not because they're no longer competitive
cities, but because of choices made by a handful of airlines. "We have a
problem here now," Longman said, "that can't be ignored."

 Correction: I overlooked Allegiant as another recent entrant into the
airline market.

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