Why Oligopolies are Evil: The United Airlines Beatdown

United Airlines is in the news again, and as any reasonable person would predict, it’s not because of their extensive humanitarian efforts. For those who haven’t already heard the whole story or don’t want to slog through the New York Times article (or just don’t want to give them the clicks), here is the sequence of events in a nutshell:

  • UA overbooks a flight. Standard practice, usually no problem because passengers don’t show up.
  • The flight ends up being completely full. At this point, all passengers have already boarded.
  • Some low-level UA employees decide they belong on the plane, and some passengers who have already boarded will need to get off.
  • They offer a $400 pittance for people to give up their seats. No takers.
  • They offer an $800 voucher (negotiating lesson: always reject the first offer). Still no takers. Apparently – and this may surprise you – people traveling on business or who booked their vacations months in advance, spent 2+ hours at the airport and followed all of United’s draconian rules, are not too keen on giving up their professional and social lives in order to help some needy guitar exterminators.
  • They then announce that they will randomly boot 4 passengers off the plane.
  • The first 3 comply. The 4th, an Asian man, says he is a doctor who needs to get back to his patients and refuses to leave.
  • United staff decide that it is not worth the trouble and leave the man to enjoy a peaceful flight.
  • Hahahaha, of course they don’t do that. Instead, the doctor is dragged literally kicking and screaming out of his seat, and his face is smashed and bloodied on an armrest on the way out.
  • United makes a public statement indicating that they give zero fucks because the man was being “uncooperative” with their attempt to kick him off the flight for no reason at all.
  • United’s CEO, who just a few weeks earlier had been named Communicator of the Year, weighed in with another non-apology for “re-accommodating” the man whom they beat up.

This was all quite hilarious to watch play out, or infuriating if you’re wired that way. But here is the really depressing part:

UnitedStock

This is the kind of PR disaster that should, in a just world, sink a company, or at least give them a good spanking in the stock market. What actually happened was: crickets, because every single trader out there worth his salt knows that all US air travel is owned by just 4 companies. You basically can’t lose with these guys, and any sudden dip is just an opportunity to increase your holdings. Unlike Starbucks, you can’t really hurt United’s brand, because their brand is already worthless; expectations of shareholder returns are based on sheer necessity, not brand perception.

It was, of course, not always like this. You may remember when there were 10 airline companies. But I was curious to see just how deep the rabbit hole goes, so I looked this up. It turns out that there have been dozens of smaller to medium-sized airline companies since air travel became popular:

hs_airlines_snapshot_large

It’s astounding. Delta alone seems to have congealed from over 15 distinct airlines at various times.

Oligopolies are to monopolies what oligarchies are to monarchies. Having more than one player on the field doesn’t mean they’re on different teams, and certainly doesn’t mean they’re playing to win. Oligopolies stifle innovation, and while some kooks blame “deregulation” for what happened to the airline industry, the truth is that air travel is massively regulated, including for example pages upon pages dedicated to how non-pilots need to be certified. If detailed requirements for carry-on tubas are “deregulation”, you don’t want to know what the “regulated” version looks like.

It’s interesting how the people fretting about cost disease always seem to leave out air travel; airfares haven’t actually gone up that much relative to inflation since the golden age, but the quality of service fell off a cliff, hidden costs such as baggage fees are everywhere, and if the market was working properly then average airfare costs should have gone way down. How did an industry that provides an essential service for so many people manage to stagnate so badly and kill off any flickers of genuine innovation or entrepreneurship? (And no, shoving a smudge-covered TV screen with a credit card slot into the back of each seat is not “innovation” in an era when most passengers already have video-capable personal electronics.)

Theories on the sector’s slow decline no doubt abound, as they do with health care, college, and so on. From a macroeconomic point of view, however, it looks like just another casualty of neoliberal corporatism. For example, the airline industry received a massive bailout in 2001 – around the same time that the final wave of consolidation began and new players stopped appearing. But that’s small potatoes compared to the $155 billion in subsidies that carriers received prior to the bailout. Just as TARP gutted the small banks and credit unions by giving the Wall Street cartel an unfair advantage, the massive airline subsidies very likely gave airlines like United, Pan-Am and TWA unfair advantages over the smaller upstarts, which they then used to crush and subsequently buy out those upstarts. Those that they couldn’t buy, they regulated (via the feds) into oblivion. I am speculating, of course, but industry transparency is so pathetically low that I don’t think we can ever know for certain.

Correlation is not causation, but it’s hard not to notice the clear historical correlation between regulation, subsidies, and monopolization. Now let’s all sit back and enjoy the quality services of United Airlines, United Health, Comcast, Viacom, and Verizon.

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