A coalition of taxpayer and consumer groups is urging the U.S. Senate to reject a proposal to reimpose federal price control regulations on air travel that have long been proven to hurt consumers and drive up costs for taxpayers.
The so-called “FAIR Fees Act,” which is currently part of the Senate’s Federal Aviation Administration (FAA) reauthorization bill, would give government officials in the Department of Transportation the power to decide whether airline fees for ticket changes, cancellations, extra baggage, seat selection, and other services are “reasonable.”
In a letter to legislative leaders, the American Consumer Institute, National Taxpayers Union and nine other groups wrote that the bill “endangers the affordability, flexibility and choice that air travelers have come to appreciate over the years.”
Stripping airlines of the autonomy to set their own fees will make consumers worse off. The current pricing model in the airline industry — where travelers can add extra perks to their base fare for additional fees — allows budget-conscious flyers to opt-out of services they don’t want to pay. In response to government regulation, airlines may begin bundling services, making airfares more expensive for everyone.
Part of the reason some airlines serve small communities is because their fee-based pricing model helps to boost consumer demand. If this model is undermined by price controls, carriers will be less likely to serve these small communities, potentially forcing the federal government to provide costly subsidies on the taxpayers’ dime.
The United States has been down this road before. For decades prior to 1978, Washington tightly regulated air travel, route selection, prices, and flight schedules. As a result, prices soared, and air travel became a luxury of the wealthy. In 1974, for example, it was illegal for an airline to charge less than $1,442 (in 2011 dollars) for a flight between New York City and Los Angeles.
Finally, in 1978 Congress deregulated the airlines and allowed free market forces and competition to work. The result, as the coalition letter points out, was dramatic: “Since 1980, shortly after passage of the Airline Deregulation Act in 1978, the average inflation-adjusted airfare (including fees) has fallen by 40 percent – a direct result of increased competition in the airline industry, which was allowed greater freedom to experiment with pricing structures, route arrangements, and combinations of services.”
Flights from New York City to Los Angeles can now be found for less than $300.
Despite these advances, commercial air travel is still regulated by 20 different government agencies. Instead of enacting new rules like the FAIR Fees Act, lawmakers should be seeking ways to reduce the regulatory burden airlines and their customers still face.
The 2017 Tax Cuts and Jobs Act (TCJA) is already injecting new competitive forces into the airline industry, which currently faces an average 21 percent tax rates on airline tickets, by lowering tax rates on new entrants and improving expensing rules for equipment purchases.
Now is not the time to take a step backward.
The FAIR Fees Act would erase many of the benefits air travelers have enjoyed over the last four decades and would send a dangerous signal to the rest of the transportation industry that Washington could undermine pro-market, pro-consumer reforms.