Aviation: Why Monopoly enables Airlines like United to mess up Passengers
Chris Sagers teaches antitrust law and other topics at Cleveland State University. He testified before the House of Representatives against the merger of American Airlines and U.S. Airways in 2013.
Video of airport security officers roughing up a passenger on a United Airlines flight may have been the news of the week, in terms of commentary and outrage. But in the larger scheme, it will likely not matter much, thanks to the oligopolistic structure of the airline industry.
And to some extent, we have only ourselves to blame.
After news of the incident on Sunday broke, United’s stock took a drop Tuesday of about 5 percent, representing a shareholder loss of more than $600 million. Vindictive hashtags and consumer schadenfreude followed. But then — in what might surprise some — the stock turned around even before the day was over, and by the opening bell the next day had gained back almost all of its value. The airline seems unlikely to suffer any lasting loss over the incident.
The reason is the same for why any of our country’s other oligopolistic powerhouses can treat their fellow Americans with such crass indifference: Shareholders don’t really care about consumer opinion or even a company’s larger public image. They care about profits. If there is no competitor to whom consumers can turn, who really cares what they think?
The 2013 merger of American Airlines and U.S. Airways — the biggest and last in a series of dramatic consolidations that federal regulators did little to stop — left the United States with only four major airlines. The overwhelming weight of empirical evidence shows that wherever fewer carriers compete in individual airline routes, fares go up. No factor can fully explain it except market power.
Don’t listen to the airlines or their apologists when they point to the fact that average fares have not gone up — or, indeed, that average fares have sometimes grown even more slowly than inflation. As they deploy that nominal truth, it is all but a literal lie, because average fares are irrelevant. What matters is the price you actually pay when you buy a ticket, and that price goes up whenever a given airline controls more of the traffic on a route you fly. That pricing power has proven to be very durable and difficult for other airlines to undercut.
This is presumably why the major airlines have each had essentially the same remarkable stock performance as United, a performance that seems to immunize United from any real fallout over this recent scandal. Each airline has seen its stock prices — along with its profits — rise significantly from relative low points a decade ago, holding high plateaus since the American-U.S. Airways merger. Market power is very profitable, even if you rough up a passenger without cause.
It probably won’t even matter if the United passenger sues — even if he succeeds wildly. Early predictions from experts suggest that he has strong legal claims and that he could enjoy recovery of $1 million or more. But last year, United earned $2.3 billion on revenue of $36 billion. In other words, physically assaulting a man and leaving him with a concussion, a broken nose and missing teeth — though it seems he did nothing except express anger toward an indifferent oligopolist — will probably just be a blip.
Of course, industry concentration itself did not cause this physical violence, and competition and antitrust enforcement alone will not keep companies from doing bad things. The point is that these physical injuries are emblematic of the larger, bloodless harm inflicted by oligopolistic power.
Since U.S. network airlines began their present run to massive dominance, they have confiscated billions of dollars from consumers, which they could not have done in competitive markets. That injury manifests not only in bloodless dollars. Those prices are sometimes gouged by hundreds — or even thousands — of dollars when travel is needed to see distant family or go to funerals or attend to urgent crises.
To some extent, this blame is shared by us all. Imagine that the federal authorities had enforced antitrust laws against airlines during the past 30 years and that the larger public had given them the support they needed to do so. That would not in itself have given any corporation a soul or tamed any executive’s avarice. But it would have made it a lot harder for United to shrug off what it did this week.