It currently costs $352.50 for an ordinary round-trip coach ticket between Washington and Boston, a distance of 406 air miles. But if you want to go to London, 3,267 miles away, it costs as little as $298.
Airline deregulation was supposed to stimulate competition and drive down prices. For a few years, the idea seemed to work. Upstart airlines such as People Express, with far lower costs than those of established carriers, began fare wars. The planes sometimes resembled cattle cars, but the public benefitted.But then the airline industry followed a familiar pattern. A period of vicious price-cutting reduced profits and drove many of the upstarts into mergers or out of business. The survivors then jacked up prices again. In effect, a government-sponsored cartel gave way to a private-market cartel.
In economic theory that isn't supposed to happen, because whenever a company gouges customers, new competitors are supposed to be attracted by the excessive profits and drive prices back down. But the theory didn't work well in the case of the airlines.
Why not? For one thing, starting an airline is not quite as easy as opening a corner candy store; it requires airports. But just about the same time the government deregulated the airlines, it virtually stopped building new airports.
Busy airports such as Washington National or Boston Logan are overfull, and prospective competitors aren't guaranteed gate positions. Scarcity always invites higher prices.
At the other extreme, many less traveled routes have space for new competitors but don't lend themselves to stiff price competition either, because there aren't enough customers.
On many sparsely traveled routes, airlines tacitly divided markets, leaving near-monopolies free to raise prices. Air fares between small cities are now exorbitant, yet competitors don't materialize.
The airlines also got extremely shrewd about structuring fares to separate must-fly business travelers from optional cut-rate flyers.
Before deregulation, economists waxed indignant that it cost far less to take an unregulated, in-state flight between San Francisco and L.A. than the far shorter, regulated interstate fare between New York and Boston.
Deregulation, they concluded, would cut fares. But in practice, deregulation has only worsened the crazy-quilt pattern of fares and the selective price-gouging of captive customers.
For deregulation to work, competition has to work, too. But Carter's deregulators were succeeded by Reagan's, who had a far more radical philosophy about the marketplace, and surprisingly little sympathy for the anti-trust laws.
As a result, Reagan's anti-trust officials permitted established airlines to manipulate fares and drive the upstarts out of business. They tolerated "shared monopolies" and "price leadership," in which one airline jacks up fares and the others follow.
They allowed airlines to use reservation systems and control of "hub" terminals to disadvantage competitors. They let a single airline dominate a sparsely traveled route and hike fares. As good ideologues, they concluded that this couldn't be happening, because the free market wouldn't let it.
The solution is not reregulation of the airlines, but enforcement of the anti-trust laws. "There is a world of difference," he says, "between deregulation and absolute laissez-faire."
Paradoxically, it requires a preventive dose of government supervision for deregulation to work as advertised.