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A unified theory of airline behavior

Feb 25, 2016

WASHINGTON, DC – The Business Travel Coalition (BTC) today called on the US Senate, if it decides to put forward its own Federal Aviation Administration (FAA) reauthorization bill, to reject airlines’ arguments that increasing the Passenger Facility Charge (PFC) would harm demand for travel. As with Kevin Spacey’s character Frank Underwood, in Netflix’s House of Cards, there is always more than meets the eye when it comes to interpreting airlines’ intentions in Washington debates. Airlines argue that increasing the PFC by $4.00 will meaningfully dampen demand for travel. However, when airlines state “passengers should not be further burdened” that is when one really needs to pay attention.

Indeed, airlines cannot in reality be concerned with a $4.00 increase to the PFC and its impact on demand. If they were this sensitive to such a small increase - the first PFC cap increase since 2000 – then they would have endeavored, for example, to aggressively stimulate demand in 2011 when the federal ticket tax lapsed. Instead, they raised base fares and pocketed a $28.5 million dollar windfall per day. Likewise, take the blizzard of new and increasing ancillary fees, ranging up to $200.00 – demand remains at record levels.

While oil prices have declined 70 percent since June of 2014, fuel surcharges remain along with a continuing appetite for fare hikes. The Los Angeles Times this week reported, “Despite slumping fuel costs that are boosting profits for airlines, the nation's largest carriers are increasing their fares $10 per round trip, the third increase of the year…The latest hike, combined with prior increases in January and February, combined to raise airfares $22 for round-trip flights.” There is often little correlation between airlines’ rhetoric and their behavior.

In fact, the PFC debate has everything to do with airlines wanting control over everything – the FAA air traffic control operation, the passenger, the corporate travel department, the travel agent, the distribution system, the U.S. DOT, their regulator, Congressional delegations from hub airport states, relevant Congressional committees, the press, foreign Open Skies partners and airports.

Now that they have secured their antitrust-immunized global alliances and domestic consolidation they especially want to control capacity and competition. This power-play behavior over PFC funding is all about airlines seeking control over domestic and foreign competition, i.e. investments in airports that can add capacity and attract new domestic and foreign airlines, which in turn increases competition and consumer choice and lowers airfares.

Airlines need to understand that they are just one stakeholder among many in this debate. The U.S. has a national-policy goal of increasing foreign tourists from some 75 million annually today to 100 million by 2021. In reaching that goal, millions of good jobs will have been created, but we will need to compete with other countries for tourists and, as such, we will need modern, efficient and customer-oriented airports. If airlines control the PFC level, as sure as the sun rises in the East, they will do for the airport experience what they have done for the cabin experience.

Congress should use the PFC debate as a prism through which to understand that the U.S. airline industry is in its endgame phase where some airline participants seek to 1) control price transparency by withholding ancillary fee information, or changing terms like fuel surcharge to “carrier imposed charge” to sidestep DOT oversight, 2) control its regulator, the U.S. DOT, by undermining its consumer-protection authority and 3) control competitive entry and capacity by blocking foreign carriers and sabotaging the PFC increase. Even Frank Underwood would wince at this aggressive airline behavior.

A unified theory of airline behavior

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