The U.S. passenger air service industry has been deregulated for 45 years. As consolidation, business models, and technology have shaped and reshaped the industry over time, the competitive dynamics in passenger service markets have deepened. A number of realities are drawing new attention to competition in passenger service markets.
First, disruption in markets that are upstream of passenger service, such as safety problems with the Boeing 737 Max aircraft, affects the stability and reliability of the air transportation system. Second, it is critical that consumers have access to multiple distribution channels to facilitate transparent airfare price comparisons that spur competition. Third, while antitrust enforcement in airlines has historically focused primarily on keeping airfares low by enforcing harmful mergers, newer priorities should focus also on promoting consumer access and choice.
This article focuses on the last of these issues, for a simple reason. The U.S. is home to both a geographically and economically diverse population. Airline mergers between 2005-2015 “de-hubbed” major cities in the Midwest that were part of the U.S. legacy carriers’ hub-and- spoke networks. De-hubbing has had reduced access for consumers, despite smaller carriers stepping into the void, in limited cases, to restore service.
The de-hubbing of key U.S. airports elevates the importance of a U.S. system that supports multiple passenger airline business models — full service legacy carriers, regional carriers, and ultra low-cost carriers (“ULCCs”) — and both hub-and-spoke and point-to-point networks. These models provide vital choice to a broad range of flying consumers, including those that do not live near major airports, in cities without a choice of airports, and with limited budgets for air travel.
Framing policy that supports consumer access to, and a choice of convenient and competitively priced airfares, will require significantly better or different coordination between the U.S. Department of Justice (“DOJ”) and U.S. Department of Transportation (“DOT”).4 This means holding the line on further consolidation and concentration in domestic passenger service markets. But competition policy in airlines also requires a focus on lowering barriers to entry for smaller, ULCC, and regional carriers. Moreover, policymakers should widen their lens to consider how DOT’s liberal policy of granting antitrust immunity (“ATI”) for some international alliance routes can adversely affect consumers that are “behind” and “beyond” major U.S. gateway hubs. Finally, recent events elevate the urgency around improving inter-agency coordination between DOJ and DOT so that disparate enforcement actions and policies do not undermine competition.
