Opinion: Cheaper fares be damned!
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If I could pick one thing on which Congress habitually screws up, it would be the airline industry. The most recent case in point is a protectionist quartet of House lawmakers giddy over the Department of Transportation’s announcement Tuesday that the agency is dropping its efforts to soften the U.S. ban on foreign ownership of airlines.
In its own right, the foreign ownership ban is outdated, bad policy. Passed in the Great Depression era, the law caps at 25% the amount of a U.S. airline’s voting stock that can be owned by foreigners. It treats carriers as if the global economy stalled in the 1940s, and it effectively walls off U.S. airlines from investments by foreigners (in other words, money). In an era of economic globalization, where international borders are mostly just lines on a map, the ban is economic protectionism, pure and simple.
Worse, softening the foreign ownership ban was a condition of the European Union ratifying a landmark Open Skies deal. If implemented, Open Skies would have brought the propeller-era laws governing air travel between the U.S. and Europe to the 21st century, meaning more options on flights and lower fares. Guess we won’t be seeing that anytime soon with the foreign ownership ban still undead.
What was it about the DOT’s foreign ownership proposal that Congress found so objectionable? Security, apparently. From Rep. Ted Poe (R-Texas):
‘I thank [Transportation Secretary Mary Peters] for realizing that allowing the rule despite Congress’ overwhelming opposition violates the will of the people and the Congress who represents them. It is a homeland security risk that we should not take.’
A ‘homeland security risk’? All the DOT’s proposal would have allowed is non-citizens to hold executive positions in airlines that oversee purely economic decisions (think fares, routes and aircraft purchases). The proposal explicitly -- I repeat, explicitly -- walled off non-citizen managers from having any say in an airline’s security. In fact, the DOT proposal would have left the 25% foreign ownership cap completely intact; it even had the blessing of the Department of Defense.
Of course, the airline protectionists (led by Rep. Jim Oberstar, D-Minn., pictured right) don’t mention the practical benefits of what they effectively killed. In a nutshell, Open Skies would have meant cheaper fares and more options for consumers on flights between the U.S. and Europe. Currently, under a framework developed in the 1940s, European airlines can only fly to the U.S. from their home countries. Because of this, the European airline market is fraught with fragmentation and inefficiency. An example: Say the Lyon, France to Los Angeles market were suddenly in hot demand. Despite overwhelming passenger rush for tickets, only one European airline -- Air France -- could fly the route, leaving fares high and options low because of a dearth of competition.
Now that same Lyon-Los Angeles scenario under Open Skies, which would have allowed European airlines to fly anywhere from the E.U. to the U.S. Non-French airlines like British Airways and Germany’s Lufthansa would be allowed to add flights between Lyon and Los Angeles and compete with Air France for passengers. The result? Lower fares and more options for passengers. Not a bad deal.
Granted, that’s a hypothetical. Still, the current laws governing transatlantic travel lead to a few quirks. Only four airlines -- United, American, British and Virgin Atlantic -- can fly between London’s busy Heathrow Airport and certain U.S. cities; all others must use the more far-flung Gatwick. In Ireland, there’s the famous ‘Shannon Stopover.’ If Shannon were a bustling metropolis like Dublin, the policy would at least be economically justified. Instead, Shannon is a tiny city on Ireland’s west coast, but to protect the city’s airport and its jobs, Ireland mandates that half of all flights to and from the U.S. must stop and disembark passengers in Shannon. Under Open Skies, any U.S. and E.U. airline could have bid for slots at Heathrow Airport, and in Ireland airlines would fly to Shannon only if passengers -- not the government -- wanted them to.
But the anti-foreign ownership and Open Skies troupe in Congress isn’t appealing to our economic sensibilities. If they did, doubtless they’d lose (imagine running for re-election on ‘I voted to increase ticket prices on transatlantic flights!’). Instead, their arguments have a xenophobic tinge, relying on our assuming that non-citizens are somehow less trustworthy than Uncle Sam’s own kids to run an airline. Economics aside, that’s the biggest problem with Oberstar and the protectionist crowd.