William J. McGee On The Failure Of Airline Deregulation Sea Change Radio podcast

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William J. McGee on The Failure of Airline Deregulation

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Proponents of the Airline Deregulation Act of 1978 often point to the relatively low prices in the industry today as proof that deregulation was a success. But this week‘s guest on Sea Change Radio, Bill McGee believes that the connection is specious at best, and that advocates are making the mistake of confusing cause and effect. McGee, a consumer advocate in the aviation sector and a senior fellow at the American Economic Liberties Project, shares his perspective about the long-term problems created by airline deregulation, explains why it often gets credited for saving the industry when it shouldn’t, and looks at how sustainability is not a big enough factor in the way that airline prices are determined.

Narrator| 00:02 – This is Sea Change Radio covering the shift to sustainability. I’m Alex Wise.

Bill McGee | 00:18 – So if you just look at a chart and say, oh, since 1978 airline safety has improved. Well, statistically, it absolutely has. But it was improving long before that. And the, and in fact, the improvements before 1978 were much greater.

Narrator | 00:34 – Proponents of the Airline Deregulation Act of 1978, often point to the relatively low prices in the industry today as proof that deregulation was a success. But this week’s guest on Sea Change Radio, bill McGee believes that the connection is specious at best, and that advocates are making the mistake of confusing cause and effect. McGee, a consumer advocate in the aviation sector and a senior fellow at the American Economic Liberties Project, shares his perspective about the long-term problems created by airline deregulation explains why it often gets credited for saving the industry when it shouldn’t, and looks at how sustainability is not a big enough factor in the way that airline prices are determined. I am joined now on Sea Change Radio by Bill McGee. He is a senior fellow at the American Economic Liberties Project. Bill, welcome to Sea Change Radio.

Bill McGee | 01:44 – Thanks very much, Alex. It’s a pleasure to be here.

Alex Wise (AW) | 01:47 – So the American Economic Liberties Project, AELP, what is its mission? Why don’t you give us a brief snapshot of the organization, if you can?

Bill McGee | 01:55 – Sure. AELP is about five years old. It’s a Washington based nonprofit think tank. And, uh, the mission is really simple. We fight monopoly power where wherever it occurs. So I have colleagues that are fighting monopoly power in financial services, healthcare, uh, Ticketmaster, when you’re getting your Taylor Swift tickets and, uh, you know, the market is too consolidated to get a better price. And of course, I handle, um, airlines and travel and airlines, which consumes overwhelmingly most of my time is an industry that is, as you know, uh, overly consolidated. It’s basically an oligopoly at this point with four major carriers controlling 80% of the market. So we fight that power, and we’re always trying to find ways to increase competition and make life better for consumers.

AW | 02:43 – So I was surprised as I dug into the history of deregulation. I always thought it was a Reagan era initiative, but it preceded Ronald Reagan. It was a Carter administration policy from 1978. Why was I confused about that? That’s not an uncommon mistake to make, is it?

Bill McGee | 03:03 – Not at all. Alex, I can’t tell you how many times I’ve written about deregulation. And in the comments below, people will write, thanks, Reagan. The fact is Reagan wasn’t even in office, as you pointed out in 1978, Jimmy Carter was president, a Democratic president, and both the House and the Senate were controlled by Democrats. That’s where deregulation came from. It actually was spurred by the left, not the right people. Like Ralph Nader testified in favor of it. Senator Ted Kennedy introduced the bill in the Senate. To just step back a moment, the industry was regulated from 1938 to 1978. And I think there’s a lot of confusion over that too. What does that mean? I mean, all industries are regulated in some ways, but what it was was that for 40 years from before World War II until 1978, uh, the Civil Aeronautics Board determined where US airlines could fly. How many passengers they could carry on flights, how, how many flight frequencies in a day to a given destination, and the prices, the fares. And so, uh, the thinking in the seventies from the right as well, of course, ’cause there was a lot of support among Republicans and, and, and, uh, the business community for deregulating the early industry. But the thinking from the left was that this was going to sort of, um, open up the free market and good things were gonna happen. We’re gonna see more competition, more carriers, lower fares, better service. They would be competing more. Um, if you read the actual act, you know, it’s funny how often we have discussions in this country about documents, the Constitution, for example. But in this case, the Airline Deregulation Act and people don’t read it, which is, is always kind of shocking to me. If you read the act, the very first sentence, which is a very long sentence. ’cause it’s a preamble to the act. It speaks all about the promises that were made to us in 1978. And if you read those promises, I don’t see how any reasonable person can’t conclude in 2025 that deregulation was a failure because what they promised us in 1978, we were gonna see more competition, more airlines. We have seen the opposite since then. We are now at the most consolidated, uh, in, in air travel in this country that we have been since the first tickets were sold before World War I, the first airline flight operated in 1914, we have now 11 scheduled passenger airlines in the United States. For context, we had about 75 in the mid eighties. We have four airlines at the top, American, Delta, Southwest, and United that control 80% of the market. It’s an oligopoly, especially among the big three American, Delta and United. And we have never had that much concentration of power at the top. And furthermore, we have just gone 18 years since 2007 with only two new entrant scheduled passenger airlines, Avello and Breeze. That again, is a broken promise of deregulation. We were supposed to see all these new entrants, all this competition we did for a while in the eighties through consolidation, through bankruptcies. Overwhelmingly, most of them are gone. And so now we’re left with 11. But again, those four at the top, they really, they really steer how things go.

AW | 06:12 – And there’s a lot of arguments made out there that deregulation was a good thing. You spend a lot of your time trying to par those arguments. Most notably, I’ve read a piece that you wrote, refuting Clifford Winston, who had written a piece about this as well as Matthew Iglesias, who they tend to point to the relatively low prices we still enjoy in airline travel as the reason why deregulation worked, but still emerging technology in 1978, we still were building airports and airplanes. There was no direct flight from San Francisco to London, let’s say in 1978. There this technology was still in its, um, infancy in many ways. So the idea that prices have kind of stayed the same or gone down, and as you point out, not necessarily gone down because of all the hidden fees, it’s really a case of confusing cause and effect in many ways, isn’t it?

Bill McGee | 07:13 – Yes, I think that’s accurate, and that’s, that’s the point I made in the AELP substack, uh, responding to, uh, Matthew Glace recently. And the point that my colleague Lee Hepner and I made in response to Winston, the fact is that there are proponents of deregulation, including airline lobbyists who will act as if the Wright brothers invented the airplane in 1978. What I mean by that is they show you charts and graphs. What has happened since 1978? We say, let’s go back and look before that. If you look at the history of the industry, and these are statistics that are irrefutable from, from the Department of Transportation, from the airline lobbyists themselves, from, from sources that no one questions from Boeing. You see that the major sea change have come from technology, from advancements aircraft long before deregulation, 20 years before in 1958. It’s generally accepted that that was the beginning of what is called the jet age. That’s where the first successful commercial jets, there were a few unsuccessful attempts before that, um, Boeing 7 0 7 and, and Douglas DC eight premiered in 58. They did many things at once. One, they became much safer. The safety record of fatal accidents plummeted, thankfully in 19 59, 19 60, and continued plummeting throughout the, the decade since that’s due to technology. It had nothing to do with the market. The fares, as you mentioned, started dropping them. Why? Because jet aircraft were more efficient. And they were not only safer, but they had larger, uh, passenger loads. They were able to, for the airlines perspective, the cost was lower to carry more people further distances. That then was compounded in, in a good way, a decade later, 19 69, 19 70, 71, we started seeing the first wide body aircraft. Definition of a wide body is simply two aisles instead of one. The 7 47 from Boeing, the dc 10 from McDonald Douglas, the L 10 11 from Lockheed. And again, more people going further distances, costs went down. These trend lines were in effect well before 1978. So if you just look at a chart and say, oh, since 1978, airline safety has improved, well, statistically, it absolutely has. But it was improving long before that. And the, and in fact, the improvements before 1978 were much greater.

AW | 09:40 – And the price drops were as well. You, you mark in that piece, you said like from 72 to 78, you see this pretty steep price drop, right?

Bill McGee | 09:48 – Airfares in the United States were falling more quickly prior to 1978 than after 1978. Now, as far as you know, this, this argument that we hear all the time, and, and you’re correct to bring it up because you hear it constantly. This is the standard line for airline lobbyists when adjusted for inflation, average fares have stayed steady. Well, the fact is, there’s a couple things with that, with that, uh, sentence. One of the key problems there is the word average. I mean, we should talk, I think, a little bit about pricing in the regulated era, because this is the part that a lot of people don’t understand. Look, it’s been 47 years. So what we need to understand is that there’s a lot of criticism of the civil analytics board. Some of it, uh, may be justified to a lesser extent, but overall, what they did was they aggregated costs and the fares were based on the cost of operating a flight. Now, just let that sink in a moment, Alex, imagine that for 47 years, cost and fare have never been alarmed. And this is why I had an economist at the University of Chicago tell me, when I was writing my book Attention All Passengers, about 12 years ago, I asked about, you know, pricing. And I said, is there anything more complex on the open market for consumers than buying an airfare? It’s so complicated as a whole cottage industry of folks telling you when to buy, where to buy, how to buy Tuesday morning at 4:00 AM all this stuff.

AW | 11:12 – Stay over a Saturday night.

Bill McGee | 11:14 – Yeah, and look, I’m a part of it too. I’m in no way disparaging them. They’re serving a purpose. I, you know, I’ve, I’ve worked for Consumer Reports for 22 years. I had a column for USA today for 14 years. I was always, you know, offering tips on how to, how to game the system. But it’s kind of crazy that we have to game the system. You know, my colleagues at Consumer Reports who worked in other areas, they would say, well, here’s the best price for, you know, a given car. Well, here’s the best price for a, uh, stereo or for a refrigerator. But they’d say to me, what’s a, what’s a good fare? And I would just laugh, are you kidding me? What time of day? You know, five minutes from now, it could be different. I could be sitting in seat 14 A, you could be in 14 B, and a stranger could be in 14 C, and all three of us paid a differential of maybe $200 up or down, right?

AW | 11:57 – And then in 1985, those tickets would be one thing. But today, if you actually wanna be sitting next to your friend in 14 A and you were in 14 B, you might have to pay a sizable premium for that, right?

Bill McGee | 12:10 – So, so basically, you know what they did, the civil economic sport, the government, they would say to an airline, you know, an airline would put in a petition and say, well, we wanna start flying from Chicago to Portland, Oregon. We don’t, we don’t fly that route. And they would look at the market to try and study, you know, how much origin and destination traffic there was, et cetera. And then they would say to the airline, okay, you can do that four times a day with an aircraft that carries, you know, 150 people and tell us the cost. So the airline would go back all costs, and they’d come back and say, well, this is what we think, you know, this is what the cost is not what we think, but this is what the cost is. And then the CAB would say, okay, that’s the fair plus a profit for you. So it was virtually you. You never wanna say something’s absolute, but it was virtually impossible to go bankrupt in those years. We didn’t have airline bankruptcies for 40 years. We had some mergers, very few that the government approved very carefully, but we didn’t have the volatility that we’ve had for 47 years now with this industry, with mergers, with consolidations, with acquisitions, with bankruptcies, with people being stranded at the airport because the airplane, the airline just filed for chapter seven. So there’s that. Now since then, I mean, let’s talk about pricing. It, it is based on whatever the market will bear on that flight at that hour. I mean, and so you wonder why people are confused. And that is why I think there’s a lot of anger. I I encounter it all the time. I get, I get letters all the time from people and emails and texts saying, I feel like I got ripped off. Because you’re sitting there in that seat and you’re thinking, the person next, next to you paid a hundred dollars less. And what did they do that I didn’t do? Right? The global distribution systems that, that, that have all the airline inventory they accept somewhere in the neighborhood of 7 billion, that’s billion with a B – billion faresworldwide every week. So it is impossible to monitor all this. It’s all done, you know, agro with algorithms, you know, online computers. It used to be people that were, you know, setting fares. It’s, it’s impossible now. And they will fluctuate based on how many, if you just bought two seats on a given flight, they may say, okay, well the other seats just went up a little bit. Or if maybe nobody’s bought a seat today, it went down and, you know, seat by seat. And so when they talk about average fair, staying steady, what we have seen is tremendous inequality nationwide. I have the benefit of living in the greater New York area. So I’ve got a bunch of airports, virtually every airline in the country, you know, I, I’m, I’m lucky in that way. And unfortunately, a lot of media are based in places like New York or Los Angeles or Washington. So they don’t see this. I’m not criticizing people, it’s just, you know, you know what, you see much of the country when you talk about average fares, and they’ll always use that word average. If you look at it as a seesaw, it’s never been broader. In other words, the disparity between the lowest fares and the highest fares is, is incredible. And this is what it boils down to. I’ll make it very simple. If you live in a place that is only served on that route by American and or Delta and or United, any combination of the big three, one or two or three of them, you are paying the highest fares in the country. If you live in a place where you’re lucky enough on that route to have low-fare airlines, spirit frontier allegiance of low breeze, you are paying the lowest fares in the country. That is not Bill McGee’s opinion. That’s not ALEPs opinion. Every three months, the Department of Transportation puts out something called the Quarterly Airfare Report, and it’s all right there in black and white. And that’s what we’re talking about. And then on top of it, as you accurately pointed out, we have all these fees. So you cannot compare an airline Ticket in Economy class in 2025 to 2005. First of all, the product itself has been degraded. What do I mean by that? The seats are tighter. Um, the, you know, the amenities that you would’ve gotten a hot meal, a snack, whatever it was, that’s, that’s out the window now. And then there are the fees, fees for everything, even check, even, uh, carry-on bags in some cases. Now, every airline in the United States, now, the Southwest has joined in recently. Uh, every airline United States charges you for your first two check bags. So you can’t compare a fair from 20 years ago or 40 years ago to a fair. Now you can adjust for inflation all you want, but you’re not including everything that people are paying.

AW | 17:18 – This is Alex Wise on Sea Change Radio, and I’m speaking to Bill McGee from the American Economic Liberties Project. So Bill, we were talking about the pricing models and the algorithms that go into it and all the vagaries of it. And you have to be pretty savvy to get the best prices if you’re a consumer out there from a sustainability standpoint, however, it seems archaic in terms of its model. It’s built on trying to make sure that all the planes are full based on filling seats. But as a consumer, then you can see that you would get a cheaper flight, let’s say, going from Chicago to New York through Atlanta or Miami, because that’s where the, the market is pulling the consumer. And so the Air Airline is willing to give you a price break if you’re willing to spend, you know, 20 hours on this two hour flight. From a sustainability standpoint, that seems crazy because of the amount of fuel that it caused for that one person to fly from Chicago to Miami to New York versus the other way. I know we’re pretty deeply rooted in this system, as you said, we’ve been doing this for a long time. Is there a better way?

Bill McGee | 18:26 – Right. No, it’s, it’s an excellent question. And, and there are, there are several things that you brought up just in the one single question there that we should, we should, uh, dive into. First of all, last year in, uh, January of 2024, uh, American Economic Liberties Project put out a paper called How to Fix Flying. And we offered some solutions for this very issue. And, um, we put out this paper, and I think it’s really the first serious detailed proposal to look at regulating the industry. Again, in years, we didn’t say like, let’s go back identical to 1978 and do the system then, but let’s modify it. And we understand that since then, the major airlines have built these hubs and spokes that you’re talking about, these big hub airports in Chicago and Atlanta and Dallas, et cetera. But what we are saying is, there are haves and have nots in this country. And you know, again, if you’re lucky enough to live in Chicago or New York or Washington, then yeah, you have options and you have Lofa Airlines and you have hubs and that what do hubs mean? They mean a lot of flight frequencies and a lot of nonstop flights. And if you have a corporate headquarters somewhere and you lose a hub, as happened in big cities, we’re not talking about remote places. Pittsburgh, Cincinnati, Cleveland, St. Louis, they all have major league baseball teams. They don’t have hubs. What happens is corporations pick up and move away. ’cause they’re not about to send their sales staff out four flights a day when they could do two hubs mean nonstop, you know, destinations and more flight frequencies. Well, much of the country doesn’t have low-fare service, doesn’t have hubs, they have fewer flight frequencies. And basically they’re beholden, you know, to getting on a plane, going to a hub somewhere, and then getting where they want to go, maybe in one stop, maybe in two, depending on where they’re going. And so we were saying, let’s look at it. And we’re not saying dismantle their hubs, but the airlines would have like a, a draft pick, uh, like, like, uh, college football teams have. And they would pick from the, in order from the smaller destinations and they would be required to serve them.

AW | 20:22 – Look at the history of the Japanese rail system in, in the late 19th century. It was an entrepreneurial market based economy where department stores built the lines. It was a lost leader to bring customers to their department stores. So if you went to Tokyo, like I did living there in the early nineties, you’d have six or seven different rail lines all interconnected in a vast spaghetti map, which was very hard for any sane person to navigate, irrespective of the ticketing. But then there was separate tickets. Oh, you needed to go on the kako line, you needed to get a different ticket from the Marucci line or the, the, the JR or wherever. But since then there’s been regulation, I guess this is a long way of saying this was an entrepreneurial loss leader transportation project, which took most of the 20th century for Japan to realize that that was not a tenable situation. You shouldn’t have people having to buy seven different tickets to get across the Tokyo metropolitan area. So now we see like a, a unified ticketing system that takes regulation. You mentioned the history of the airline industry. It was a profitable business or, or it was glamorous, you know, Howard Hughes, all these people were trying to make money on it. Trump Airways right there. Everybody had a piece of this thing. But then when we realized that it really is a public good and that is a, it’s a utility, then we could maybe go back and, and look at how we regulate it just like we would a utility.

Bill McGee | 21:56 – We are having deja vu as a nation right now. None of us were alive then. But if you look at the late 19th century, what went on with railroads at that time is exactly what’s happening with airlines right now. So you had these competing railroads, uh, you know, Pennsylvania line and, and b and o line and, and, uh, you know, central line, all these lines that went out and put a lot of money into infrastructure, but also with, with, um, public funds in many cases. And then when they saw where they made the most money, they started cutting service. Now what does that remind us of? That’s exactly what’s happened in the last 47 years with airlines, right? Let’s look at what President Eisen, I don’t think anybody would say President Eisenhower was, uh, you know, a a left wing socialist. But let’s look at what he did in the 1950s for multiple reasons. It was due to the Cold War. It was due to the economy, it was due to a lot of reasons. He built the interstate highway system, right? And that’s sort of what you were just talking about with Japan, because in, in those days, prior to the fifties, you would take a state road and then you switched to another road, and maybe it was a two lane, it became a one lane, and then it had traffic, you know, and he said, no, we need to be able to move, you know, trucks to, it wasn’t just about people move goods and services and everything else across the country, and that’s what the interstates did. But what he didn’t do, now imagine if private sector, imagine if airline executives were in charge of the interstates, right? They’d say, Hmm, we need an interstate between New York and Washington. ’cause that’s a big center, but we don’t need it so much, you know, between Kansas and Nebraska or Idaho and Montana, right? And no, it’s, it’s, it’s a network, right? And we, we, I don’t know anybody that would criticize the interstate highway system is saying that it’s not, it hasn’t been a, a, a net good for the country. We don’t have an efficient and, uh, ubiquitous rail system in this country, right? If you look at Amtrak, if you take out the Northeast and a couple of other corridors in Florida and California, other places, there’s not much to it.

AW | 23:50 – It costs a lot more to take a, a train across the country than it does to flying a lot more.

Bill McGee | 23:55 -We as a country, we hitched our wagon to the, to the internal combusted engine a hundred years ago. And we used fuel for both cars and trucks on the highways and for airplanes in the sky. And now we’re paying the consequences. Um, you know, I, as an airline advocate, I’m always trying to make airlines, you know, uh, advocate for safety, advocate for competition, advocate for passenger rights. But then people say to me, well, I don’t wanna fly. I’d rather take rail. Well, I’m with you. We should, I mean, you know, we’re trying to, we’re trying to have a big enough discussion just fixing the airlines, but we have never, as a nation had an overriding, you know, uh, big picture discussion about, well, what’s the best mode of transportation? Right? Why? Because, well, we have, like, let’s be blunt about it. We have this powerful air, uh, oil lobby in this country, and their, you know, their influence in Washington can be seen in, in every vote that has to do with things like this. Uh, Amtrak is constantly getting beaten up in Congress. There are people in Congress that elect, they don’t wanna fund it, that that’s how much they hate the idea that there’s gonna be competition for, you know, for, for cars and for uh, airplanes. And so, you know, as a nation, we have to address those big picture things before we can fix some of the smaller things. But it’s a, it’s a, that’s a tough hill to climb.

AW | 25:13 – You were talking about the pricing and the incongruity that exists in terms of this deregulated market. While in the same breath, we have all of these bailouts every 10 years or so, it seems people also are not aware of the vast amounts of money that go into supporting these private, rural airports, which you had mentioned, I think 550 commercial airports. I forget what the percentage of the aviation budget is, but it’s much higher than I expected. It was like really off the charts. And it goes to mostly private jets and corporate jets, and they’re the ones who are really sponging off of the federal government subsidies.

Bill McGee | 26:02 – Right? Right. You know, the standard answer to someone who wants to quote Ann Rand and, and have government get out out of everything, it’s like, well, did you ride, did you drive on an interstate in the last week? And, and chances are, you probably did. The, the fact is that, you know, that applies in aviation infrastructure as well. So if you are a one percenter or close to a one percenter or a 10 percenter, and you’re lucky enough to have a private plane, first of all, there’s no question that it has a higher carbon footprint, right? Because, you know, even, yes, we understand it’s a smaller plane, and the fuel burn is not the same as commercial plane, just the same as if you get in a car as opposed to getting in a bus. Buses are actually quite efficient. They may not seem like it with all that smoke coming out the back, but, uh, it actually, the carbon footprint is much smaller than having 20 cars go. One bus is better. Well, it’s the same here. So all those five planes, they’re using infrastructure, the faas air traffic control network, the, you know, the, the, all the infrastructure at the airports, all the navigation equipment at those airports that is paid for by taxpayers, you know, by all of us through the federal government. So to me, it’s very fair. We have said at a LP that, um, those fees should be equivalent to what, you know, what airline passengers pay to fly on airlines. In other words, you know, they should be paying more to use those facilities because very few people are benefiting from it, as you say. But the question is, you know, what is the proportion of the benefit here? Right? And I think that, you know, that’s something we should examine. There hasn’t been enough research done on that, and it’s, it’s a good, it’s a good issue to raise to say like, is it fair that a private jet is using facilities and the cost, the overhead cost for the, for the taxpayer is considerable to keep that airport open? Are they paying their fair share? And, and that’s something that, you know, Congress could look at or the government accountability office could look at.

AW | 27:52 – Bill McGee is a senior fellow at the American Economic Liberties Project, A ELP bill, thanks so much for being my guest on Sea Change Radio.

Bill McGee | 28:01 – Alex, it’s a real pleasure. Thanks for having me on.

Narrator | 28:17 – You’ve been listening to See Change Radio. Our intro music is by Sanford Lewis. And our outro music is by Alex Wise, additional music by Fred Wesley and Paul Pena. Check out our [email protected]. That’s SEA change radio.com to stream or download the show or subscribe to our podcast, visit our archives there to hear from Bill McKibben, Van Jones, Paul Hawken, and many others, and tune in to Sea Change Radio next week as we continue making connections for sustainability for Sea Change Radio. I’m Alex Wise.

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