There are many sad stories to tell about the U.S. economy, but here's some good news for everybody, from radical capitalists
to consumer advocates: The incredible falling price of flying
Frank Sinatra's "Come Fly With Me" was the best-selling album in the United States for five weeks in 1958, but the irony of its popularity (or, perhaps, the source of its aspirational appeal) is that practically none of us could take up the offer to "glide, starry-eyed" on an aircraft with anybody in those days. More than 80 percent of the country had never once been on an airplane. There was a simple reason. Flying was absurdly expensive.
And there was simple reason why flying was absurdly expensive. That was the law.
There are many sad stories to tell about the U.S. economy in the last 30 years, but here's a happy story for everybody (except the airlines), from radical capitalists to the most liberal consumer advocates. Getting government out of the business of regulating the skies has led to a remarkable collapse in airline prices.
Airfares have fallen by about 50 percent since 1978 ...
... and, even after you include the recent uptick in fees, the per-mile cost of flying has also been chopped in half.
A happy story for consumers isn't necessarily a happy story for the airline industry, which bled an astounding $51 billion between 2001 and
2011 and lost money in every other year since 1981.
So, why have the last three decades been so good for flyers? And why don't we appreciate it?
THE DEMOCRATIZATION OF THE AIR
If you want a two-word answer to why airfares have dropped so much since the 1970s, it's this: Deregulation worked.
Before 1978, the airlines played by Washington's rules. The government determined whether a new airline could fly to a certain city, charge a certain price, or even exist in the first place. With limited competition, airlines were guaranteed a profit, and they lavished flyers with expensive services paid with expensive airfares. The silver and cloth came at a predictable price: The vast majority of Americans couldn't afford to fly, at all.
With prices skyrocketing during the energy crisis of the 1970s, an all-star team of senators and economists decided that Washington should get out of the business of coddling the airlines. Let's hear from a young former aide to Sen. Ted Kennedy named Stephen Breyer (oh, yeah, that Stephen Breyer) reviewing the free market case for letting airlines fly solo:
In California and Texas, where fares were unregulated, they were much lower. The San Francisco-Los Angeles fare was about half that on the comparable, regulated Boston-Washington route. And an intra-Texas airline boasted that the farmers who used to drive across the state could fly for even less money -- and it would carry any chicken coops for free.
Three decades later, the lesson from Texas -- if you deregulate the skies, ticket prices will fall -- has been applied across the country. The democratization of the air is obvious enough from the frenetic bustle of every major U.S. airport. But the stats are mind-blowing, as well.
-- The number of air passengers tripled between the 1970s and 2011.
-- In 1974, it was illegal for an airline to charge less than $1,442 in inflation-adjusted dollars for a flight between New York City and Los Angeles. On Kayak, just now, I found one for $278.
Why did deregulation create such dramatically falling prices? "Flying is neither a life necessity like tuition, milk, or medicine, nor is it addictive, like alcohol or drugs," said John Heimlich, vice president and chief economist at Airlines for America. "When you have intense competition for a product that is price sensitive, you have falling prices."
MACHINE vs. MACHINE: THE PRICE WARS
In the showdown between airlines and flyers, both sides wield a formidable weapon. Airlines use computers to move prices. We use computers to find the lowest price. It's like a multi-billion-dollar game of cat and mouse played out between competing machines -- with William Shatner caught the middle.
When the doors of an airplane close, each empty seat is lost money. So the price of a ticket should fall as we approach takeoff, right? Wrong. As you know, airfares rise in the final hours. This is because last-minute flyers tend to be desperate people (they'll pay anything) or businesspeople expensing to their companies (they'll pay anything). So airlines have to design a system that fulfills the following goals: Sell as many seats as possible, sell them a profit, but also leave some empty for desperate travelers.
That explains why the life-cycle of an airfare resembles a roller coaster. A seat is a seat is a seat, you might say. But a ticket sold three months out isn't worth the same to the buyer as a ticket sold the same day. So you can pay $200 to fly to Chicago and sit next to somebody who paid $600.