“Flying is a miracle. . . . But flying is also miserable.” In the first page of his new book, Why Flying Is Miserable and How to Fix It, Vanderbilt law professor Ganesh Sitaraman sums up the often maddening experience of flying today. Travelers experience opaque prices, excruciating seats, and general disrespect, while the industry abandons smaller and mid-sized cities, squeezes its workers, and requires regular bailouts despite providing generous buybacks for shareholders.
Tracing the history of airline regulation – from the Post Office’s early involvement in expanding air travel to the past forty years of deregulation – Sitaraman argues that these problems aren’t “inevitable” nor “a simple story of corporate mismanagement.” Instead, flying is broken, because of “a single source: public policy.” In our conversation, which has been edited for clarity and length, we discuss the “American tradition of regulated capitalism,” some of the regulatory tools of that tradition, and how to think about the use of history in addressing contemporary problems.
Matt Buck
You argue that before this current era of deregulation, Congress regulated the airlines by taking “a page from the American tradition of regulated capitalism.” What was that tradition, and what were some of the key features that characterized that era of regulation?
Ganesh Sitaraman
The basic understanding was that some businesses are different than others. In some areas, competition works pretty well. But in others areas, competition is unlikely. This is often because of high capital costs, economies of scale, network effects, or a government-granted privilege. And frequently, in sectors in which competition is unlikely, the services provided are essential to the public. These sectors require a special kind of regulation.
In legal study, this field of regulation has gone by many different names: the law of innkeepers and common carriers, the law of public service corporations, public utilities regulation, regulated industries law. My co-authors and I, in a new textbook, call the field “Networks, Platforms, and Utilities” (NPUs) because we think that name better captures the enterprises that are covered. NPU enterprises traditionally included businesses in the transportation, energy, telecommunications, and banking sectors.
In our textbook, we describe the NPU toolkit, but I’ll highlight a few of the key rules here. Structural separations are a legal prohibition on a platform-business owning other business lines. For example, if you owned a railroad, you couldn’t own or operate businesses that trafficked goods on the railroad. This would be a conflict of interest ripe for abuse, as the railroad could favor its own goods over competitors. The aim is to have a level playing field for all users of the infrastructural service.
Nondiscrimination rules require a platform to neutrally serve all comers. Of course, there were always some exceptions to that, but the basic rule was fair treatment: just and reasonable prices for everyone, a level playing field, and no discrimination in terms of price or access.
Rate regulation was another common tool. If a business is a monopoly, even with a nondiscriminatory pricing rule it could charge uniformly high prices to everyone. Rate regulation solves that problem. It also enables another critical feature of many network businesses: affordable access across a large geography, through cross-subsidies. For many of these essential services—transportation, communications, energy—we want access all around the country. But it is more expensive to serve remote or smaller places. Those places would get limited or even no service if they had to pay the full cost of rail service, electricity, or even letter delivery. NPU law thus often required enterprises to offer service across a geographic area, and set the rates for service. Uniform pricing – such as charging the same price to send a stamped letter from New York to Boston as from New York to Anchorage – was based on cross-subsidies. The higher-volume, higher-profit places paid a little more so there was affordable access in the more expensive, lower-volume areas. This ensured access throughout the country to these services.
Ensuring access also meant entry restriction. If new entrants could compete with firms that were providing uniform prices to high- and low-cost places, they could just serve the most profitable areas and steal business from the existing firms, a practice called cream-skimming. So the law regulated entry into the sector, to prevent that from happening. These were some of the critical rules—and they worked together as a system.
Buck
How did these tools apply to the airline industry?
Sitaraman
In the 1930s, Congress recognized that air transportation had many of the features of other NPU sectors, and they designed a system to create reliable, stable airline service across the whole the country. They imposed the tools I mentioned: separations, nondiscrimination, rate regulation, and entry restriction.
The way they did that was through a federal agency called the Civil Aeronautics Board (CAB). The CAB would allocate routes to different airlines, so an airline would be given some routes that were high-volume and high-profit, and some routes that were public service routes to smaller areas with lower-volumes and lower-profit. The airlines would balance out the costs on the back end. This ensured service throughout the country at reasonable prices. During this period, the system worked pretty well. We had more people flying, prices were going down, and there were big innovations like the shift from propeller planes to jets.
Buck
There’s this really interesting feature of “equal fares for equal miles.” What is that? And why is it so important and even alien to people today?
Sitaraman
The “equal fare for equal miles” idea is pretty simple. You should pay more if you’re flying a longer distance than a shorter one. What that means is that price isn’t based on competition or volume along the route. This goes back to the access issues I mentioned before. If you determine prices based on volume on the route, low-volume places will have higher prices. Those places might even lose service altogether because of how hard it is for airlines to recover the costs of the flights.
For an airline that only cares about its own interests, maybe that’s okay. But for a country that cares about people who live and work in many communities, it’s a serious problem. When you don’t have air service to a specific area, it makes it less likely that you’re going to start a business in that area, that you have opportunity, that there’ll be tourism in that area, that people will have conferences or conventions there, that it will be easy to go to school there. There are so many things that are tied to transportation infrastructure that it is potentially devastating for places to lose or never have access to those services.
Deregulation brought an end to this approach and has been a serious problem for many cities. In some places it means lower prices because there is competition and high volumes. But in others, it means losses of service and higher prices. Seventy-four cities have lost service from at least one of the big carriers since Covid. We have some cities now that have no service whatsoever from major carriers. These aren’t tiny places—it’s Dubuque, Iowa. It’s Toledo, Ohio. Cheyenne, Wyoming has agreed to pay an airline a guaranteed revenue in order to fly there.
That’s not how it was before. And it doesn’t need to be that way going forward.
Buck
Peter Coy in his writeup of your book said that he still thinks of airline deregulation as an overall success, leading to lower prices in particular. In contrast, you argue that along a bunch of metrics – competition and concentration, labor, prices, quality of service, geographic access, and financial stability – deregulation has failed. Why do you think conventional wisdom has been blind to these failures, and how do you go about evaluating an industrial policy as complicated and widespread as airline deregulation against the grain of the conventional wisdom asserted by a wide range of economists and policymakers?
Sitaraman
The conventional wisdom is that airline deregulation was successful, and in part that’s because the people who are supportive of deregulation wanted to tell that story—and in part that’s because it supports a certain way of economic thinking. What you always hear is that prices went down after deregulation. What you don’t hear is that prices were going down before deregulation, too, or that even the proponents of deregulation admitted a decade later that some prices had gone up while others went down.
More broadly, when evaluating a policy, it is critical to consider multiple factors and values because policymaking is rarely about maximizing a single value. As a society, we care about more than just efficiency for airlines. We care about resilience, safety, national security, the consumer experience, geographic access, and of course, prices. So there’s a lot of things that we need to evaluate. And looking across many different metrics, I think it’s clear that airline deregulation was not successful. On many metrics, air transportation has gotten worse, not better.
This is an important point for people interested in LPE. Recognizing the multiple policy goals and values we have and evaluating policies based on all of them is important. It can also be quite persuasive. If lack of geographic access is a drawback, then it’s a drawback that has to be taken into account. It cannot simply be waved away as irrelevant or illegitimate. At a minimum, there has to be a discussion of why the underlying value matters.
Buck
One of the key points you make in telling the story of how airline deregulation happened is the role that liberal political actors played, in particular, Sen. Ted Kennedy, his then-aide Stephen Breyer, and then also the consumer advocate Ralph Nader. How does airline deregulation complicate the story about the Chicago School and the Law and Economics movement and its place in today’s age of outsize corporate power? What does it mean that liberals were also involved in this program as well?
Sitaraman
Liberals were a critical part of the deregulatory story. Yes, there were the Chicago School types who were interested in deregulation, and pushing a more market-focused approach to public policy. But as you note, liberals also argued that government agencies were captured by industry in these sectors. Ralph Nader, Ted Kennedy, and others thought that deregulation could help consumers by dismantling a captured, cartel-like system.
But they were wrong in important ways. There was a logic and purpose to the regulated system, one that considered features of how the industry actually works. What we’ve seen playing out in recent years—from worse quality of service to concentration—is confirmation that they were wrong in their analysis of the industry.
Buck
Much of your project is characteristic of other LPE scholars–such as Joseph Fishkin and Willy Forbath or the New Brandeis movement in antitrust–to try to recover neglected, democratic modes of structuring economic life. For Forbath and Fishkin, there’s a project of recovering the “anti-oligarchy” Constitution, which you yourself have written about in The Middle-Class Constitution, and for the New Brandeis folks, there’s an attempt to revive the republican motivations behind antitrust laws. How do you think about the place of history and past projects in crafting proposals that you think should happen today?
Sitaraman
We don’t have a lot of empirical or experimental evidence about what works when it comes to the really big shifts in public policy. Beyond looking at our history, one can look at other countries around the world. But there are a lot of differences between the United States and other countries. Think about comparing airlines in the UK with the US. The UK is a much, much smaller country. You could drive across England in a day. It is very hard to do that in the United States. So the way we think about geographically expansive networks is just going to be different than happens in a lot of other countries. Our traditions, our histories, our legal systems are different as well.
Looking at our own history shows what is possible in our own country, under our own legal system, in our own conditions. History can help us identify legal tools people used in the past that we may have forgotten, or haven’t thought about seriously. The other big value of studying the history of Network, Platforms and Utilities Law is that we can learn about what worked and didn’t, when different approaches worked and didn’t, and how tools worked and didn’t. All of that can inform regulatory and policy design today.
Buck
In the second-to-last chapter of the book you layout a menu of solutions for policymakers to think about, which you’ve since written about in more detail in a white paper with William McGee of the American Economic Liberties Project. Those options are nationalization, regulated monopoly, a public option, and regulated competition. How do you think people and policymakers should evaluate and weigh these options?
Sitaraman
Part of my hope in the book is to expand our policy imaginations. I don’t think we’re going to nationalize the airlines anytime soon. I don’t think we’re going to have a public option. I don’t think we’re going to have a single national monopoly airline regulated as a public utility. But the point of mentioning those proposals in the book is to force us to confront the issue of scale and network size head on. What would it mean to take those principles to their fullest conclusion? What would that look like? What will the tradeoffs be, and what are the downsides? We should evaluate that and think about that so we can illuminate the broader features of the sector and tradeoffs in policy design.
What’s much more likely is the last option that I mention in the book: a system of regulated competition that is similar to what we have now, but tries to address the most acute problems. We now have less competition than during the regulated period. We have geographic access issues. We have boom-and-bust cycles leading to bailouts. We have a worsening passenger experience.
We can address all of those things, and we can do so by learning from the past. I think we need to be more imaginative and start putting forward fresh solutions. Too many people think we just have to live with the system as it is. But that’s just wrong. We don’t have to live with the system as it is. Flying doesn’t have to be so miserable. The reason it is miserable is because of policy choices we made in the past, and the reason and way we can make it less miserable is by making different policy choices now.
That is a doable thing. We just have to do it.
