Front Burner - Why is air travel so miserable?

Episode Date: March 12, 2024

March break, one of the busiest travel times of the year, just started in Ontario. It’ll kick off across much of the country in the next few weeks. Chances are, if you’re flying out, you’re probably worried about something going wrong. It seems like everyone has a horror story about delays and cancellations, extra fees or tiny seats.Today on Front Burner, author and law professor Ganesh Sitaraman on how air travel became such a frustrating and unpleasant experience for so many, and whether there’s a solution in sight. Sitaraman is the author of Sitaraman is the author of Why Flying Is Miserable and How to Fix It.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Allie Janes, in for Jamie Poisson. So March break just started here in Ontario, and it'll kick off across much of the country in the next few weeks. This has always been one of the busiest travel times of the year. Just today, more than 140,000 people are expected to pass through Pearson Airport in Toronto. And chances are, if you're flying out, you're probably worried about

something going wrong. It seems like everyone has an absolute horror story about delays and cancellations, extra fees, tiny seats. Like it's just kind of a nightmare. So today, we're dedicating a whole episode to the perils of air travel in 2024. Why has it become such a frustrating and unpleasant experience for so many people? And maybe more importantly, is there a solution? My guest today is Ganesh Sitaraman. He's a law professor at Vanderbilt University, and he's also the author of the book By Flying is Miserable and How to Fix It. Hi Ganesh, thanks so much for being here. Thanks so much for having me.

So in your book, you make the argument that essentially most of what makes modern flying miserable stems from the deregulation of the industry, which was something that happened in the late 70s and early 80s. So for people that may not have been around at that time, can you just paint a bit of a picture of what it was like to travel by plane in the 70s? Well, first, it was a lot better. The really striking thing in doing the research for the book was seeing how different it was in the 1970s. You know, in the 70s, you had airlines that were primarily competing based on the quality of service. And so they had piano bars in the airplane. It could have only happened on American because no other airline has a piano bar.

In the airplane. This is not like in the airport, not some lounge for credit card holders. This was in the plane itself. They had, you know, steak dinners and free alcohol and coach. It was a totally different experience. This year, start your vacation before you get there.

Onboard an American Airlines luxury liner in our new coach lounge. Make some new friends. Have a little fun. The way we look at it, the quicker you're in the air, the quicker you get where you're going. Tell her here. You're going to love our Southwest spirit. And the reason why it was different was because of public policy. And, you know, in the mid, to ensure that all parts of the country had access and that it was a reliable, stable system.

So they regulated who could fly where to make sure that airlines would continue to serve smaller places and more remote places that usually don't have as much volume as the biggest cities. And as a result, they also had to regulate prices. And so that really shifted competition in the direction of service and meant that you had a system where, you know, you didn't have a large number of like deeply concentrated airports. You didn't have loss of service in smaller towns and cities. And you had great quality of service with, you know, lots of legroom.

When you get on a Southern jet. Hi, Mr. Gill, sit anywhere you like. You'll find no curtain separates the peasants from the nobility. No one takes the legroom from you and gives it to someone else. On Southern, there's only one class of service and it isn't second. And so why did that deregulation happen? Like who was pushing for it and why? Well, in the United States, it was a really interesting mix of people and coalitions. On the one side, as you might expect, were conservatives who thought big government's

bad and we should get rid of regulation. And they were really buoyed by a movement among economists usually associated with the Chicago School, a group of economists and law professors at the University of Chicago, who argued that if we just got rid of all the rules and let airlines fly wherever they want, whenever they want, and to charge whatever they want, everything would be better. You'd have cheaper prices, you'd have more people flying, and you'd have no losses of service, no problems with safety, no problems with quality, no problems for labor. Everything would be great.

And that was a pretty good pitch. And and the other side of the coalition were liberals. Ted Kennedy, who, you know, from the storied family of the Kennedys and a senator from Massachusetts, Ralph Nader and others. And their view was that the system of regulation had led government to be captured by the airlines. And there was sort of a coziness between the regulators and the regulated. And this was pretty corrupt in that if we got rid of that system, it would be better for consumers. And in the moment of the 70s, when you had the oil shocks, high inflation leading to fewer people flying,

leading to fewer people flying, you had this kind of perfect storm that enabled this sweeping and quite radical policy change just all at once. De-regulation happens in the U.S. in the late 70s. It starts happening around the world in the late 80s, including here in Canada. Air Canada, which is like the biggest airline here, used to be a crown corporation, and it was finally fully privatized by the end of the 80s. So how did that shift to deregulation and privatization broadly? How did that change the way that airlines operated? In the United States, what happened right away was partly what the deregulators predicted. Immediately, you had a bunch of new entrants coming in offering rock bottom prices and you had a lot of new competition. But then as the opponents of

deregulation predicted, you had the big airlines fight back and they pushed out all the small carriers. There were dozens of bankruptcies and mergers, and you just had reconsolidation and reconcentration into a very small number of airlines, but now without any regulation. And so it's kind of the period of the early years really saw this shift in unleashing the airlines into a world where they're just going to do what's best for their profits. And if that meant, as it did in the 80s, pushing back on workers and making them cut their wages or benefits, if that meant dropping service from cities that are smaller, if that meant reducing the quality of service, these days, if that meant reducing the quality of service.

You know, these days, if that means shrinking the seats so you can have an extra row and make a little bit more money that way, if it means adding extra fees, you know, all of those things are part of the system we have now because of that shift. Right. So you were just touching on some of the things that a lot of people would say make modern flying pretty miserable. And so why don't we get into some of those examples in a little more detail? I mean, just to give like one personal example, I mean, I'll spare you the details because, you know, bad travel stories are kind of like dreams. We've all had them. No one wants to hear them. stories are kind of like dreams. We've all had them. No one wants to hear them. But I mean, I was on my way to Mexico a few months ago and I had to travel through Denver, which is like a

shockingly enormous airport, which I didn't expect. And I mean, it's a it's a big hub. It was an absolute nightmare to get through. And like everyone has stories like this. So just explain to me why this happens. Like, tell me about the hub and spoke model. Yeah, this was one of the biggest transformations of the 1980s. You know, in the regulated period from the 30s to the 70s, the regulators made sure that no one airline would be dominant at any single airport and that no airline would be dominant overall in the country. Right. So they were trying to create a kind of Goldilocks of competition. You didn't want too much competition or else all the airlines would go bankrupt.

And you didn't want too little competition or else they would be monopolies. Well, what happened after deregulation is that the airlines realized, as people predicted, that it's much more efficient to concentrate all your operations in a single place. There's just less cost because you're not having as many workers and staff and people in so many different airports. And so if you move from nonstop point-to-point service to a kind of hub and spokes model where everybody is flying to Denver or to Atlanta or to Dallas, it's a lot more efficient for the airlines, even if it's worse for all of us. And if you concentrate all of your operations or a lot of the operations, and these airlines now have 70% of a single airport, not 30 like in regulation, if you have a lot of your flights

going through one airport and there's a storm, high weather problems, winds, anything like that, you'll end up having to cancel or delay flights all over the country because they're all tied to that one node in your network. Right. Well, yeah, I mean, I think you talk about in the book, like you could be in L.A. and the weather's great, but all the flights are, you know, backed up and messed up in L.A. because there's bad weather in Chicago or something. Yeah, exactly. And that's just not a great way to run a system if you want it to be reliable. And, you know, one other downside to the system is as these hubs have gotten bigger, I mean, you mentioned how big Denver is. Yeah.

But as they've gotten bigger and bigger, one thing that we've also seen is that airlines are closing down midsize hubs. So instead of having five or six hubs, you might only have three hubs. But one of the things we also know is that basic infrastructure, including transportation infrastructure, is really important to economic growth and development. And so if you're thinking about what it means to be Cincinnati or St. Louis, you know, cities that used to have major airline hubs and then lost them, you know, what does that do for not just the people who are in the airline industry, but, you know, companies don't want to be in places that don't have air service. Why would you start a major global corporation in a place that

didn't have an airport or that had an airport, but you had to always connect through somewhere else in order to get anywhere? You just wouldn't do that. And that means there's a lot of follow on business and consumption that are lost with this massive concentration. And so I think part of our problems with geographic inequality are also partly a story about concentration on these kind of basic infrastructure issues. And airlines are a great example of that. I'm going to go. Powering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Another of the big issues with flying

that I think everyone will agree with is like we haven't even talked really about about costs yet. And, you know, for the consumer and like the complexities of choice, like, you know, I'm no longer just paying for my ticket. I have to pay for my seat. I have to pay to check a bag. I sometimes even have to pay to carry on a bag. I have to choose between economy plus and economy flex. Like, I don't even know what the difference between those things are. Like, what is the airlines play here? Why are they doing this? Well, I think there's a couple of things going on. And let me start by stepping back for a second with the bigger issue that most people talk about with deregulation, which is people will say, well, prices went down after deregulation

and it made it possible for more people to fly. And it's true. Prices went down after deregulation and it made it possible for more people to fly. And it's true. Prices went down after deregulation and more people have been flying. It is also true that prices were going down before deregulation and more people were flying. And when you look at the graphs of prices going down, when you look at the graph of the number of people flying, of prices going down, when you look at the graph of the number of people flying, they're going at about the same rate before and after. There wasn't some big disjuncture at the time of deregulation. And we can't predict what would have happened had we done it a different way and not deregulated, not privatized. But deregulation might not have been the thing that was creating the drop in prices over time. been the thing that was creating the, the, the prices

over time. The other thing that happened is you have a real reshaping of prices, you know, under the regulated system, but the 1970s, their, their approach was equal fares for equal miles. And what that basically means is if you're traveling 500 miles, whether that's from one big city to another big city, or from a big city to a small city, you're going to pay the same amount. If you're traveling 2,000 miles, you're going to pay more because it's a lot longer flight. And so the price was tied to how far you were flying, not to how popular the city was that you're going to or how full your flight is. And again,

that goes back to that utility or infrastructure kind of mindset that what we want is a reliable service that works for everyone, not just that works for the people who live in the biggest cities that have the most volume and the most traffic. After deregulation, the airlines can charge whatever they want. And so you see prices go down in places where there's a lot of competition, but prices go up when there's no competition. What some studies have shown is that if you live in a city with a big hub or you're going to a city with a big hub, you pay higher prices. And the reason why is because there's only one game in town in that hub. You're in Denver, you're in Dallas, you're in Atlanta. One airport has 70% or more in some cases of those airports.

And what that means is that you can't really fly on other airlines there. You're going to fly on Delta to Atlanta or from Atlanta because anywhere else you'd have to connect. And so when you look at that, you actually have higher prices in some of those places. You know, if you're in a rural or small city, you might only have one airline that serves you. Let's hope because some of these places have zero airlines now that serve them. And over time, where we've gotten is to squeeze consumers even more with a lot of these, as you mentioned, like junk fees, additional pricing. Nobody has ever said, I've never met a single person who said to me, I loved paying extra to check my bag. Love it.

Love it. I had the best experience. I had to pay for picking my seat. It was amazing. No one has ever said that. No one will ever say that. Yeah. There's also kind of the surge pricing issue.

Like I was thinking about an example of I used to live in Miami and in 2017 there was a hurricane coming. It was supposed to be like it was predicted to be a category five hurricane. And so people had like a very short amount of time to get out and when we were looking at flights like for example we were trying to fly miami to new york which normally would be like maybe 150 bucks or something 200 and the flights were well over a thousand dollars to get out when it's, you know, it could be a life or death issue. People need to leave the city and flights to so many cities trying to get out. It was like that. It was like massively inflated, sometimes up to 600% when it's, you know, not really a choice.

Like you have to get out. Yeah, this is a real, a real challenge. You know, you'll hear people say things like, well, it's just supply and demand. And that's good. But that's not actually how markets work in this context, right? In the example that you gave, it's not just supply and demand. It's also that there is a external natural force that no one has control over that is creating the crisis. And the other thing that people will often say is, well, you know, it's just business people who are paying more

because they're the ones buying last minute flights. And so they're gonna pay a higher price for that. And that's okay. Anybody else is booking early. Well, if you have a death in the family, if you have a emergency, someone who has a major health condition or issue and you need to get somewhere,

well, you're paying yourself and you're paying those higher prices. And one of the things that technology has enabled, and I think that we'll start seeing increasingly in the future is, you know, when are we going to get to the moment where instead we just have personalized pricing? And, you know, when you and I look up a flight between the same two places on the same day, the same flight, we actually get different prices and we get different prices because we're different people and they know how much we're willing to pay or how much we like to fly that route or whatever. That's not a great way to run a system. And I think we should be concerned about that. And I think we should try to be moving in the

opposite direction of a more fair, transparent, uniform pricing system that is not tied to personal characteristics is not tied to dynamics but is actually predictable for people and easy for people Something that you argue and that you've been pointing out in a bunch of different ways throughout this conversation is that we should really think about air travel, especially in North America, as a piece of basic, essential infrastructure. Kind of like electricity or the internet. Like this isn't just about people's vacations, which really makes solving the problems that we've been talking about, you know, actually really important. So given that, I want to talk more about the solutions you're proposing. So let's start with bailouts. I mean, we've seen big bailout packages for airlines, both in Canada and in the U.S. since the pandemic. And you have this idea of no bailouts, no bankruptcies. So tell me about that. What do you mean by that?

In the U.S., for example, in the COVID context, you know, four years ago, the airlines were going to face a massive drop in demand of people flying. And so the taxpayer came in and gave them $50 billion of public support. The biggest airlines of the country have reached a deal to take billions in aid from the federal government. They had raised concerns about some of the requirements for the airlines and the $2.2 trillion coronavirus stimulus program, including demands that at least some of the assistance be paid back. That happened also after September 11th.

There was a big bailout. The fact that that happens, that there's these boom years where there's a lot of profits and then these bust years where there's bailouts or public support programs is proof that this is an essential service. We're not going to let them fail. public support programs is proof that this is an essential service. We're not going to let them fail. So, you know, I think one of the really important things that we could do as a policy matter, and just to make the broad point, you know, all of these things that are frustrating, irritating, problematic, you know, that we've talked about with the airline industry,

with the passenger experience, they're all things that we could fix. We just don't have to live this way. And so to me, one easy way to do that is to just decide that we actually don't want an airline industry that's constantly going bankrupt or that needs bailouts. And, you know, one very easy way to do that, to really make progress there, wouldn't solve it totally, but would make a lot of progress, is to require that all the airlines have crisis management plans that explain what are they going to do when there's a six-month or one-year hit to demand and no one wants to fly? How are they going to deal with the fact that at some future point, demand will perk back up and they need to have the kinds of crews and staffing and airplanes and everything ready to meet that demand when it comes roaring back. And, you know, maybe for some airlines, that'll mean they create a rainy day

fund. You know, that's another thing you could even just mandate that they create a rainy day fund. You know, you could require that they think about what's going to happen to their employees and to workers. You know, you noted dropping services to smaller places. You're also calling for an end to fly over country, which is certainly a big thing here in Canada, too. What do you mean by an end to fly over country? And what do you think that should look like? airlines just since COVID. Cheyenne, Wyoming, the capital of that state, actually guarantees the revenue of an airline to give them a flight a day. I don't think we should have a system like that. Again, there's a lot of privileges that the public gives these airlines in order to be able to fly, and they should have some public obligations too. The airlines are making money hand over fist now, and they're doing it over and over again in their good years. So they could do this.

It's just that they don't want to, of course. And unless we require that obligation, they won't. And so what about ticket prices? Like, what would you like to see change there and how? One easy one is the full cost has to be included. You can't show people parts of things. And there's a basic requirement for each class of service. Know what you're going to get on every airline. I also think we need to have a more uniform system of pricing that makes it less possible for airlines to do things like

personalizing pricing or surge pricing or dynamic pricing, where, you know, the person sitting next to you paid half as much as you did for your flight, even though you're both going to the same place and sitting next to each other. I think there are ways to do that and that we should move to a system that's a little bit fairer on the pricing side, too. So, I mean, just finally, you know, all the solutions you've been talking about, I think, are things that many people who take planes would love to see. So why do you think this hasn't happened? Well, I think there's a couple of reasons. The first one is that really for the last 40 years, we've been in this kind of ideological climate on both sides, the right and the left, where the paradigm has just been

all regulations are bad. There's really nothing we can do about this. And we just need to let the market do whatever it wants and the airlines should do whatever they want. And that system has been a failure and no one's ever tried to address that. I think in part because we've just been enthralled by this kind of weird ideology of don't care about bad things that are happening because the market says they're okay. And I think that's changing now. You know, we see it in a lot of different places. People really care about antitrust now in a way that was shockingly different from 10 years ago. People are worried about big tech companies. They're worried about, in other areas, bigness and concentration leading to higher prices

and the kind of re-inflation that we've seen in recent years. I think now there's a lot more understanding that this isn't working in a way that people just weren't ready for for a number of decades. And to me, what feels optimistic is that all of these things that are frustrating people face in big cities and small towns and rural areas and the suburbs, You know, liberals don't like them. Republicans don't like it either. And that to me means I think there's a real opportunity for a coalition to get together that could actually try to make some of these changes and improve the system. And it'll just require standing up to the airlines and thinking a little bit differently

and feeling more empowered that we actually do have the power to change things if we want to, we don't have to live with the system that we have. Ganesh, thank you so much. This is really interesting. Thank you. All right, that's all for today. I'm Allie Janes. Jamie will be back with you tomorrow. Thanks for listening to FrontBurner. For more CBC Podcasts, go to cbc.ca slash podcasts.