Don't blame deregulation for airline problems. Blame not enough deregulation.

The New York Times, "Economic Scene" , October 05, 2000

Air travel is no fun, especially for people who do a lot of it.

Airplanes and airports are crowded, and delays are far too common. Throw in the lost luggage and crying babies, and you have a recipe for unhappy frequent fliers.

It's fashionable to blame deregulation for all this annoyance, and there is a small element of truth in that. The problem is not that deregulation has failed but that it has been a smashing success. Flying is no longer limited to an exclusive club.

Back when the federal government controlled prices and routes, air travel connected fewer different places, offered less convenient schedules and cost a lot more. On average, fares are down 27 percent from the old regulated prices, after correcting for inflation, according to calculations by two economists, Steven A. Morrison at Northeastern University in Boston and Cliford Winston of the Brookings Institution. Although some people do pay more, particularly those who want the convenience of last-minute travel, 80 percent of passengers are paying less than they would have under the old government-set prices.

At the same time, many more cities are connected by air, largely thanks to the hub-and-spoke arrangements airlines instituted after deregulation. And having to switch from one airline to another in midtrip, which was common before deregulation allowed any airline to serve any destination, is nearly unheard of.

The result of all this is that more people are flying than ever before. Since 1978, when the federal government eliminated its controls, the number of domestic passengers has more than doubled, from 254 million in 1978 to 582 million in 1999. The number of passenger miles flown has skyrocketed from 183 billion in 1978 to 480 billion last year.

Even accounting for such negatives as Saturday night stays to get low fares and longer flight times because of congestion or hub-and-spoke plane changes, Professor Morrison and Dr. Winston peg the net benefit of deregulation at more than $20 billion a year, or about $80 for every American man, woman and child -- a pretty decent tax cut that ripples through the economy as it lowers the cost of business travel as well as personal trips.

The complaint that deregulation has failed because too many lowly salesmen and vacationing families are filling up the planes is silly. That is exactly what deregulation was supposed to do.

The real question is whether a free market in air travel has to be so unpleasant. If the customers are unhappy, why doesn't the market adjust? The problem, Dr. Winston says, is that "government failure has undermined what deregulation was trying to accomplish." Deregulation freed the airlines to innovate and compete, but the airports and air traffic control system are still owned and operated by government agencies. They are essentially static institutions run through a combination of technocratic central planning and political log-rolling. The free market in airline travel still relies on socialist infrastructure.

As a result, airports and air traffic control have neither the flexibility nor the incentives to operate efficiently. Instead, they tend to ration their services by making customers wait.

Airports have to charge landing fees based on the airplanes' weight, for instance, not the demand at a particular time of day. So small planes can tie up traffic at the busiest times and pay virtually nothing for the privilege. Or consider air traffic control. Unlike private network services, like phone companies or Internet service providers, the air traffic control system cannot charge its customers directly. The Federal Aviation Administration, which operates it, has to go to Congress for new appropriations every year. (Passengers pay a ticket tax, but it isn't tied to how the money is spent.)

So when traffic goes up, the system does not automatically have the money to expand by investing in new equipment and hiring more controllers. It cannot make long-term investment plans because it doesn't have a predictable revenue stream. And like airports, the air traffic control system cannot adjust pricing to demand -- charging more at busy times of the day -- or easily try new technologies or techniques.

The result is a system on the verge of gridlock. For the first nine months of 1999, the average number of air traffic control delays of 15 minutes or more jumped to 1,091 a day from 886 in 1998 and 677 in 1997, according to the Air Transport Association, an airline trade group.

The system is clearly being taxed given current pricing, investment and technology, Dr. Winston says. If there were efficient pricing, investment and technology, it could accommodate more. But that is unlikely to happen, he believes, as long as the system is run by the government.

And things are going to become worse for the very reason that airlines and aircraft manufacturers are responding to consumer demand for more convenient travel. Until recently, traveling from midsize cities like Wichita, Kan., or Rochester usually meant taking a turboprop and changing planes in a hub somewhere. But new regional jets that carry 37 to 70 passengers are making it profitable to offer point-to-point service from many more markets.

My colleague Robert W. Poole Jr., director of transportation studies at the Reason Public Policy Institute, calls regional jets the third wave of deregulation, promising a breathtaking expansion of point-to-point service to hundreds of new pairs of cities. But, he warns, this great news for travelers also means that the number of takeoffs will double the next 15 years. And that will further strain the air traffic control system.

Beginning just this week, in fact, the Port Authority of New York and New Jersey has forbidden airlines to add any new regional flights in and out of La Guardia Airport during peak hours -- a measure aimed largely at small jets.

Such heavy-handed rationing is not the only possible solution to congestion. Along with congestion pricing, Mr. Poole, an aerospace engineer by training, points to new satellite-based navigation technologies that could expand air traffic capacity as much as 50 percent at busy airports, including La Guardia. To bring the aviation system in line with the demands of travelers, Mr. Poole advocates shifting air travel infrastructure to the private sector, beginning by privatizing the air traffic control system. He points to Canada's commercialized system, Nav Canada, as a model. A nonprofit corporation owned by its users -- the board includes representatives of airlines, the government, business-aircraft users and the air traffic controllers' union -- Nav Canada has the flexibility and financing base the United States system lacks.

Dr. Winston concurs. And, he suggests, the crisis in air traffic control may be just the push politicians need to take the next step in deregulating air travel. Privatization will not do anything about crying babies, but it could cut down on those delays.