Fixing the Airlines Post-Pandemic: Commercial air travel's existential crisis may force the government to make long-overdue reforms.

AuthorBarger, Matthew
PositionTRANSPORTATION

The sudden, near-complete shutdown of U.S. commercial air travel as a result of the SARSCoV-2 pandemic has created an economic disaster both for the airlines and their suppliers. The Transportation Security Administration (TSA) reports that the passenger count at airport checkpoints fell by 96% from February to April. With demand virtually nonexistent, the airline industry is approaching collective bankruptcy and it is unknown when people will be able and willing to resume taking regular flights across the country. It could be years before air passenger traffic reaches the levels attained before the public health emergency.

Perhaps internet billionaire and investor Peter Thiel was right when he quipped that the accumulated profits in the history of the airline industry are approximately zero. Despite the heady profits and robust market expansions of the past decade, the airlines just received a bailout: the CARES Act gave them $25 billion to continue paying their employees and sent the industry an additional $25 billion through a combination of low-interest loans and grants for general operations attached to stock warrants for the Treasury.

The CARES Act marks the second time in the last 20 years that the federal government interceded in the airline industry: the September 11, 2001 terrorist attacks resulted in the closure of U.S. airlines for nearly a month and a bailout totaling $15 billion. What's more, the economic collapse of 2008-2009 pushed several airlines into bankruptcy and led to further industry consolidation. This uneven economic record has prompted some people to suggest that we consider reregulating the industry or even nationalize it altogether.

Calls for nationalization seem to ignore the large and wide-ranging scope to which the federal government is already involved in air travel. Government operators dominate the supply side of the market: they run the airports, operate air traffic control (ATC), and staff security checkpoints in addition to their traditional role of providing regulation. These interventions increase inefficiency and costs, depressing the quantity of travel demanded in the United States and making it more difficult for the airlines to lure passengers and make money.

There is no disputing that before the pandemic the market for air travel was robust: passenger counts within the air travel system were breaking all-time highs month after month. The entry of low-cost airlines worldwide has made it easier and less expensive to travel today than at any other time in history.

In the aftermath of the pandemic it is worth reexamining the market for air travel and asking whether we can take steps to improve the passenger experience, make airline operating costs less onerous, and strengthen the industry's financial situation so that it can endure future economic shocks. We believe, with qualification, that these can all be accomplished. The flight experience could be gready improved with a modicum of regulatory changes that would serve to reduce flight times, relieve airport congestion, and lessen airline regulatory compliance costs. These changes would boost consumer value, improve the industry's fiscal health, and make it less susceptible to the vicissitudes of the business cycle, while reducing taxpayer costs and possibly obviating the need for future bailouts. In the next few sections, we suggest a few ways to accomplish this.

ACCELERATE THE IMPLEMENTATION OF 'NEXTGEN' AIR TRAFFIC CONTROL

In 2007 the Federal Aviation Administration began to replace its outmoded ATC systems, which rely on equipment decades out of dace and impose needless costs on the airlines. Most planes navigate by following a series of fixed ground stations that emit a beacon to guide the way, a system that can take planes on circuitous routes. The new "NextGen" system...

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