Jimmy Carter's airline deregulation

[Simfan34]

Unfortunately, today's airline industry is now also run by cabal of a few airlines, who work extremely hard to keep out competition and prices are hugely inflated. Before deregulation, the government set fares and decided which airlines would have exclusive (or near-exclusive) rights over certain routes. Nowadays, the airlines simply do that on their own: they coordinate fares and avoid competing in the same markets.

At least, in the pre-deregulation days, the airlines, unable to compete on fares or routes, competed on service, which, funded by their massive profits, was excellent. These days, thanks to short-term activist shareholders, airlines are pretty much obliged to provide terrible service, lest they incur the wrath of their shareholders for insufficiently maximising value that quarter. These shareholders look at Spirit's large profit margins* and demand the airlines increase their profits. They push airlines to follow Spirit's (and it usually is Spirit, or Frontier) lead in introducing fees and surcharges, cut amenities, pack in more seats, etc, etc.

*Never mind the fact that Spirit is essentially a scam that tricks people into believing they offer the cheapest fares when, thanks to all their fees and surcharges, they almost never actually do. This is actually pretty well documented.

If I were a hedge fund manager, I'd do what Bill Ackman has been trying to do with Herbalife-- place a multibillion-dollar short position on Spirit and destroy them through a large, sustained, and public campaign to ruin their reputation. Essentially convince people that Spirit is, indeed, a rip-off. Watch their revenues tumble and stock price collapse, profit immensely. Conclude by roundly condemning their airline industry for ever following their lead, do the public and industry a favor by reducing the pressure on the airlines to match Spirit's performance, and say it was an act of public service.

[Simfan34]

Why do you think that the legacies are so invested in blocking open-skies agreements and keeping out Gulf carriers from US markets? Because, having run a race to the bottom, they'd be comically uncompetitive against Qatar, Etihad, and Emirates (the ME3). They're so invested in preventing or hindering competition, that they backed shutting down the Exim Bank, which would have made Boeing planes more expensive for foreign purchasers. Cutting off the nose to spite the face.

Of course, none of this doesn't mean that deregulation was bad-- just that an oligopoly, subjected to myopic and horrifically distorted market pressures, is worse. In Europe, things are much, much better-- there is a lot more competition, fares are much cheaper, and service still manages to often be better. I once flew from Milan to Vienna on a 30€ ticket, and they gave out two sandwiches (which were pretty good), and a beer!

The solution is to free up the market more (here's some reading for those who are interested); I fully support letting in foreign carriers-- unfair advantages be dammed (whereas I fear what the ME3's growth means for Ethiopian Airlines, which, unlike in the US, is a source of great national pride, and would support continent-level protectionism and open skies, which technically... well that's another story). Open up the skies more, and let the legacies get their comeuppance. Reducing short-term shareholder value-maximization activism would do much to help the airlines themselves, but that issue extends well beyond the airline industry.

And, as is often the case, so would smashing the unions, or at least the flight attendants' unions, which would allow airlines to get rid of all those horrible, rude, entitled flight attendants who have kept their jobs. Then again, my thoughts on the regulation of flight attendants' employment is quite, ah... liberal. In my humble--and very crude--opinion, airlines would be better served by spending less time trying to figure out ways to squeeze more seats on planes, and more time on trying to find helpful loopholes in labor laws... an awful thing to say, I admit.

[Simfan34]

What we really need to do is get rid of the open skies and stop those Gulf Carriers from flying here

...why?

Also the lack of a period in that sentence makes me really judgemental for some reason.

[Simfan34]

What we really need to do is get rid of the open skies and stop those Gulf Carriers from flying here

...why?

Also the lack of a period in that sentence makes me really judgemental for some reason.

Sorry Simfan wont happen again

lol

Anyway: Trains > Planes

Yes, but not from New York to San Francisco.

Seriously, though, if one wanted evidence to support a claim that government intervention in the transportation industry is a bad idea, you could make a pretty good case using Amtrak. What was supposed to be a profit-making enterprise has racked up a $30 billion "cumulative deficit" filled by government subsidy. I'm not necessarily opposed to government subsidy, but national railways companies-- not just high speed lines-- can and do post a profit. The various successor companies of the the privatised Japan Railways post profits. Deutsche Bahn makes a profit. Even Indian Railways apparently turns a profit, and that's with all those people hanging on the sides and top of trains who, presumably, are non-paying "passengers", or at least I hope (I have no idea how much of a subsidy the latter two received and whether that's included in their final balance sheet, but they still show it can be done).

The problem with Amtrak is that, on most of its routes, it is utterly uncompetitive, in every measure-- price, time, and (relative) quality. It is often more expensive than flying, despite being several times slower. And I mean slow. Their on-time percentage is some absurdly low figure-- on average, outside of the NE Corridor, around 30-40% of trains are on time, and on the cross-country routes that can fall to 20%. Okay, these figures aren't quite as absurd as I imagined they'd be, but keep in mind that the target on-time percentage is supposed to be 90%.

[Simfan34]

It is the long-distance routes that drag the whole thing down. According to this Brookings report, it's worse than I even expected-- routes shorter than 400 miles carried 83% of Amtrak passengers and actually produced an operating surplus of $47 million, while routes over 400 miles, which, we can infer, carried 17% of Amtrak passengers, produced an operating loss of $614 million-- thirteen times larger than the profit generated by 83% of passengers! I could use those numbers to produce all kinds of absurd figures, but the point is that the long-distance routes completely destroy Amtrak's balance sheets, dragging the whole company down.

While the scale of the losses may be surprising, the fact that long-distance routes are financial catastrophe should not. Travelling long-distance by train is simply a nonsensical for the average traveller. No normal person is going to pay $1,200 to spend 72 hours either traveling on or waiting for (and that's if they're on time), just to get from NYC to LA, when business class on a non-stop flight between those cities costs $700. I could keep on doing this, but I think you get my point. The only kind of people who would travel cross-country by train, simply to get from one point to another, are those with a severe fear of flying, and perhaps people on the no-fly list. These people are so few in number that they need not factor into policy; no one, more or less, uses these trains as a way of getting from one side of the country to the other.

That leaves two groups of people who do travel on these trains, for other reasons. The first are tourists hoping to see the country by rail, essentially on a cruise. The other are people travelling between two points along the route, rather than from origin to destination, which, if we take the California Zephyr as typical, accounts for 85% of long distance Amtrak passengers. Taking a train from Chicago to SF may not make much sense as a means of transportation, but from, say SLC to Grand Junction, CO, might.... unfortunately, Google suggests otherwise: flying takes 1 hour, driving 4 1/2 hours, and Amtrak... 7 1/4 hours. Amtrak is much cheaper than the train ($49 to $267), but the savings are not likely to be considered proportional to the added time.

[Simfan34]

Either way, Amtrak tells us, if we got rid of all long distance trains, 23 states and 243 towns would have no rail service whatsoever. We'd also make AMTRAK profitable. Ironically, the biggest advocates for these services are usually from conservative Plains and Western states who oppose "big government waste"... unless they are the beneficiaries (but that to be expected of any politician). My solution is simple: eliminate long distance trains, and use the money saved to instead subsidise European-style regional rail systems (as opposed to American-style regional rail, i.e, suburban commuter rail) run by the states. State networks would likely be able to provide more flexible and higher frequency service than passing Amtrak trains, and, using diesel multiple units (like this snazzy Australian train), would also probably more energy- and cost- efficient, too. Considering the low price of natural gas right now, it may be also worth looking at bringing back a modernized version of the gas-turbine powered Turboliner. Perhaps, Snowguy will chew me out for this, just as he did a few years back when I proposed ending long distance services in the IRC, but I’m willing to run that risk.

Also helpful, for pretty much every train, would be to repeal (well, revise, really) the FRA regulations, which, in short, state that any passenger train that shares track with freight (which is almost all of them) must be built for "crashworthiness", which means that all trains must be much heavier, slower, energy inefficient, and expensive than they would be otherwise. A good example is the new Cities Sprinter locomotive, built by Siemens for Northeast Regional. The base model, the Siemens EuroSprinter, weighs 88 metric tons, produces 6,700 hp, and has a top speed of 140mph. The Cities Sprinter weighs 98 metric tons, produces 8,600hp, and has a top speed of 125mph, and costs anywhere from $1.5 to $2.0 million more than other variants of the EuroSprinter.

That's quite unfortunate, but the most embarrassing thing is that, for many of these routes, the trip actually takes longer than it did pre-Amtrak. The legendary 20th Century Limited was a sleeper train that ran between NYC and Chicago; in 1915, the trip took 18 hours, and when it switched to diesel after the war, it took slightly over 15 hours. The Amtrak train that travels the same route, the Lake Shore Limited, makes the journey in something usually between 21-24 hours; it is scheduled to take around 20 but is only on time 17% of the time. Think about that for a moment. Train travel between NYC and Chicago, in the year 2015, takes anywhere between three to six hours longer than it did one hundred years ago. We have moved forward a hundred years, and the train has gone six hours in the opposite direction!

[Simfan34]

Even Acela, our so-called “high speed train” is not actually a high-speed train. It averages just over 100km/h, which was being matched 80 years ago by the Milwaukee-Chicago service, while its top speed, limited to a very short stretch of track in CT and RI, is 240km/h. (You must forgive me, I’ve become used to talking about HSR in terms of kilometers) Between NYC and DC, the Acela takes 2 ½ hours—which is exactly the time the Metroliner took in 1969. Our “high speed rail” is no more advanced than what we had 45, even 80 years ago! In comparison, most modern HSR systems, average speeds are around 200km/h, and top speeds are anywhere between 300km/h and 380km/h. In China, before the 2011 train crash, you even had high-speed services with average speeds above 300km/h. Amtrak also plans to have trains on the Northeast Corridor with top speeds of 350km/h… by 2050. In other words, they have every intention to remain 40 years behind the rest of the world.

Amtrak should focus on building a network of high-speed trunk lines, which will not be cheap, but it will be the best way forward for rail transit. Suburban sprawl will make this more challenging than in other countries with more compact built-up areas; acquiring the right-of-way needed for turning radii wide enough to sustain the highest speeds will, in the NE Corridor, require barreling through towns and spending billions in compensation, but, one day, I hope, we will have the visionary leadership willing to make that effort. Perhaps, if we're unable to do that, we will have to elevate the tracks above existing highway right-of-way.

 Now, I do not have much faith in the federal government, and I realize this is a fantasy, but I have more faith in the federal government than I do California’s government, and I fear California, being California, will ruin their chance to build HSR, so this New Amtrak would be advised to take over their program.

Ideally these lines will be future-proofed and designed for top speeds of, say 500km/h or above, even 600km/h (although this would require gargantuan turning radii, to the tune 30k+ ft). In the interim, the government should identify potential high-speed rail corridors (which it already has), try to acquire undeveloped land along those corridors now, or otherwise place some kind of easement on properties along the corridors prohibiting future or additional development. The high speed trains, or even electrification, can wait, but the sooner each corridor is acquired, the sooner under- and overpasses are built to ensure future grade separation, and the sooner tracks are laid, the better—and the much, much cheaper. When possible, new tracks can parallel existing routes, but the ultimate aim should be to build a fully-electrified, completely-grade separated, passenger-only, ultra-high-speed intercity network. These will be the trunk lines of the national HSR network, the 21st century’s own version of the Interstate Highway System. Commuter, and “new regional” rail would all feed into the national network, just like how US Highways and State highways feed into the interstate.

Amtrak could then be split into two companies—one owning the railroad network and one operating passenger trains, as has been done in Europe (to mixed results). The operating company could potentially, if desired, then be privatized, and private rail operators would compete on rails just as bus companies compete on highways, although given the physical constraints of the tracks themselves, I’m not sure how much competition you can have. Either way, the system we'd have would be glorious. One (hostile) source (I think it was the CATO Institute) estimated that a national HSR network would cost $1 trillion. I think, spread over 20-25 years, $40-50 billion a year is a reasonable investment to make. Hopefully GE or some other firm will, during this time, snap up a passenger train manufacturer so we won't have to award all contracts for rolling stock to foreign companies.

Thus ends my hijacking of a thread about planes to talk about trains.

[Simfan34]

Professor, tell us how to be competitive against a company that is getting BILLIONS of dollars worth of subsidies from their government.

Well, they can start by being less terrible. Other airlines have been doing it, they've not only been able to compete, they're thriving. Turkish Airlines has grown rapidly right in the ME3's backyard.

Plucky little Ethiopian Airlines, pride of the nation, has been growing by leaps and bounds, all while remaining profitable-- posting a $100 million profit last year. The key to Ethiopian Airlines' success is that despite being fully state owned, it is free from government interference and professionally run.  This was a privilege respected even under the communist regime, and, as a result, unlike its African peers, has survived and thrived. Also unlike the government, otherwise mostly hostile to private enterprise, the airline is on track (exceeding, actually) to meet its ambitious targets of 22 million passengers, $10 billion turnover, and 150 planes by 2025. Kenyan lost $250 million in FY 2014, South African $300 million, and Egyptair $350 million. Sadly, African governments have not implemented the open-skies agreement ratified in 2007, so outside airlines are moving in, capitalizing on these losses, rather than other African airlines.

There is also growth in India, with new joint ventures. There is Vistara, the Tata-Singapore JV. Garuda Indonesia is also growing rapidly. There's still growth in China, but that's pretty insulated from the M3. But it's clear that by providing what customers want, and having a strategic vision for the next decade and beyond, rather than kowtowing to the demands of activists shareholders whose vision extends only to the next few quarters-- a year, if you're lucky-- you can compete.

I guess the only question to ask you at this point Simfan is, why do you hate America?

I don't hate America. I just have no love for our airlines. As my lavishing praise on Ethiopian Airlines shows, I am more than capable of taking nationalistic pride and being emotionally invested in an airline's success; but, whereas my mother's country has such an airline, the United States does not (and Ghana doesn't have an airline at all).

I also do not hate America, which is why I support Americans keeping more money in their pockets, getting better inflight service, and Boeing not losing business, and people not losing, jobs, because the legacies wish to make life more inconvenient for foreign competitors. Keep in mind the CEO of United lost his job last month and is now under investigation for awarding favors to the President of the Port Authority-- namely, running a flight between Newark and the President's hometown in the Carolinas's just for him! American exemplars they are not!

I am not saying this is a lie but it in no way gives a complete picture of the European airline industry... nor any airline industry.  At various times (post 911, post financial collapse) there has been major turmoil in the global airline industry and there have been deals to be had all over the planet.  Also for low cost airlines in Europe they give away a few seats at rock bottom prices as a marketing technique.  The average seat on a European airline does not go for €30.

And plenty of low cost airlines in Europe don't even give you a bag of peanuts or water without charging you.  The idea that there are airlines all over Europe handing out sandwiches and beers along with a free airline tickets for €30 is ludicrous.

Anyone that says there is not a severe race to the bottom being attempted in Europe is delusional.  Here is some insight from the CEO of Europe's second largest airline...

Some of the most grotesque ideas about air travel have come out of Europe... and Ryanair in particular.  Ryanair copied Southwest and "improved" upon the formula.  Now their garbage is being exported to airlines all over the world.  Ryanair was nickel and diming people for checked bags long before Delta and United got into that odious game.  Ryanair even weighs your cabin bag.  If it is over 22lbs they make you check it and add a fee.  If they deem your carry on bag to be too big even if it meets the weight limit they make you check it and charge you €50.  Don't trust a random person on the internet.  They post their rules on their website.

Sorry to go off guys but I've flown in Europe and there is a very good reason they still have a fairly robust train system.

I agree that it does not give the whole picture. It was just an individual snapshot. I'm actually not sure if there was beer-- I didn't have any, but I feel like there was something more impressive than just sandwiches, not just a soda. Or maybe I was just impressed by the soda. It was a short flight.

I will stick by the price, however. This was in 2011, when the Euro was 1:1.5 with the dollar. So 30€ would have been worth $45. Now, I can look up fares on this route on Google, and the same airline I flew-- Niki, is selling round-trip tickets for $107. I do not think the difference between $90 and $109 is so great, although now I think about I feel like the ticket was definitely less than $90; perhaps there was some promotion. Funnily enough, my quoted figure still comes out looking plausible, at least to me.

Now, I am aware of Ryanair, and how its CEO is prone to making outrageous statements on new ways to make life more miserable for passengers. But it is not like everyone is following his lead. I can report that others have confirmed to me that flying on Turkish, Lufthansa, Swiss, and Icelandic remain civilized experiences, more so than back home. I think many of the LCC's in Europe are less like Spirit and more like Southwest or even JetBlue-- lower cost structure, and lower fares, but not necessarily, well, horrible.

As for the trains... as my multi-installment soliloquy shows, I know a fair bit about them and am quite the fan, When I went to Italy, we actually flew in and out of Zurich, we travelled by train between Zurich and Milan both when arriving and when leaving. From Milan we travelled by train to Verona and Florence. I had wanted to take the train to Vienna, but in this instance... flying was just cheaper. So we flew. Multimodal competition! Also, just to add a bit randomly, the Spanish, when their economic situation has resolved itself, will be very glad they built as large an HSR network as they and when they did. I'm not even sure how they built it so cheaply compared to other European countries, even China... it was built during the boom so it's not like prices were cheap.

[Simfan34]

I'm very tired, but I'm awake enough to know that I really don't get what you're saying. The existence of Ryanair doesn't negate the fact the European aviation enjoys a freer market. I wasn't blaming Kenya for anything. I was just comparing it, SAA, and Egyptair, to Ethiopian to demonstrate how strong the headwinds-- in part, yes, due to the ME3-- have been, and how Ethiopian has managed to compete. I gave other examples. If you want to look at government interference, SAA is the better example-- until recently, they were forced by their shareholder (ie, the government) to fly money-losing prestige flights to Beijing. That is an example of government interference. Why do you think most African flag carriers have gone out of business? But this is all tangential.

I'm not sure what point you're trying to make about Ryanair. You describe how their nickeling and diming is unparalleled, but I don't get what that's supposed to mean other than that other European airlines have not followed its lead, which is different from what's happened in the US with Spirit. The fact that it is exceptional proves my point. You brought Ryanair into this-- but it's not a monopolist. I'm not sure how you came to the conclusion that anything I said was trying to have "Ryanair vs Kenya Airways".

But to respond to your first point, I'm not ultra-nationalist enough to defend my "right" to be nickled and dimed by an airline, and receive a cramped seat and apathetic service in return. I'm... no kind of leftist, but my "love of country" is not going to make me applaud oligopolistic business practices. And what about the American traveller? The American Boeing employee? Do they not deserve respect, comfort, and employment? Or do the airlines come first, and the customer always wrong?

What are you saying?

I must say, this has been the most interesting thread I've read in months. High quality posts all around. I wish I had something more to contribute, but transportation policy (outside of trucking deregulation) is something I know little about.

I had the same thought while reading this. Fascinating thread.


Simfan, I imagine your regional rail proposal would require interstate compacts, much like how Virginia, D.C., and Maryland jointly manage traffic on the beltway. Would your proposal preserve federal control over the passenger service (Amtrak) while shifting track ownership to the regional authority? Or would subsidies flow directly to private passenger service companies? Or is the proposal  for the regional authority to own both and set fares accordingly, like with urban mass transit? I had never considered encouraging train corridors governed by interstate compacts until now. Thanks for the insight.

Amtrak does not own most of the trackage it operates on, and virtually none of the long-distance routes. Those are owned by freight companies, and Amtrak simply operates services on them. The envisioned high-speed intercity trunk network would be on all new, fully Amtrak owned right-of-way. The regional rail operators, which would be entirely new and separate groups owned by the states,  would operate on the freight-owned trackage formerly covered by Amtrak, and some might even expand to other lines, which they wouldn't own, either, however.

Eventually the regional rail systems, which would be owned by the state governments, would supplement and feed into the intercity network, but in the short term they'd operate unconnected to each other, for the most part.

The immediate effect would be that the overall (looking at all operators, state, federal, local) amount of rail services go down. Amtrak would shrink, and now be operating a collection of unconnected high-traffic, short to medium distance services As the states launch their operators, you'd see the amount of overall services pick up. You could probably travel by train between LA and Chicago again along the old Amtrak route, but that would now involve multiple transfers between different operators' services.

Finally, when the intercity network is completed, you will have a net increase in service. You could travel from city to city by intercity train, run by this "new Amtrak", and upon arrival, transfer not only to commuter networks but regional networks, which have hopefully expanded their services. You could now travel by high-speed rail between Chicago and LA, but that would not be what the network was designed for. Your itinerary would be something like Chicago-St. Louis-OKC-Albuquerque-Phoenix-LA.

So, in the short run you're more or less divvying up Amtrak's services amongst the states. In the long run, you'd build a system where you have local and state services girded by an entirely new Amtrak network, all co-existing.

Where demand existed for inter-state regional rail service, I'm sure the states could work something out. In the NYC area we already have something like this, where NJ Transit runs trains out of NY Penn Station, into Bergen County (with a transfer), and into New York, occasionally going as far as Port Jervis on the NY-PA border. Or you could have a joint venture between state operators, something like Thalys, which is a Franco-Belgian-German joint venture that operates trains between the three countries.

Regional rail of this sort is usually not profitable, but is considered a public service for those living in places with no alternative mass transit. It can be, but usually isn't. The Feds would give the subsidy to the operators, which, again, would be owned by the states. The model is something like what we have in NJ already. Obviously, nothing's stopping private operators from opening up and signing agreements with freight lines to run passenger service on their tracks, but that is not something I consider particularly likely.

However, as a footnote, the private sector would likely have a niche for the tourist rail travel market. A company like Belmond could operate a luxury rail cruise between Chicago and LA, which would account for the long-distance Amtrak tourist. It would probably grow the market, as the quality of service, and the general tourist appeal, would attract more people.

[Simfan34]

...what? No need to get so riled up. Relax, don't fly Ryanair, and enjoy Ethiad's First Apartment:

https://youtu.be/F_ZnqlbqQRI

[Simfan34]

Bring it back!