Allowing Foreign Airlines in U.S. Markets

April 15, 2014

The United States would benefit from allowing foreign airlines to complete in the American market, says Kenneth Button, a professor in the School of Public Policy at George Mason University.

Currently, foreign air carriers are prohibited from carrying passengers -- as well as cargo and mail -- within the United States. To operate in the domestic market, a carrier must be an "American citizen."

  • In the late 1970s, the United States deregulated the airline industry, to great effect.
  • Fares dropped, fliers saw more choices, services and route options, and the number of air travelers rose -- from 250 million in 1978 to 815 million in 2012; 736 million of these fliers were domestic travelers.
  • A 1983 study by the American Air Transport Association determined that air fares in the deregulated environment were 67 percent lower than they would have been under the old regime.
  • Jobs were also created, and within just two years of deregulation, the airline industry grew by 30,000 workers.

Even so, fares today fluctuate considerably -- both from month to month and year to year, creating uncertainty for travelers.

  • Much of this is caused by fuel prices, as aviation fuel generally comprises 35 percent of costs.
  • Smaller markets have lost routes, as rising fuel prices have made some short flights unprofitable.
  • Between 2007 and 2012, the largest 29 U.S. airports lost 8.8 percent of their scheduled flights.
  • Medium-sized airports lost 26 percent, and small airports 21.3 percent.

The United States would benefit from allowing foreign airlines to offer services within the country, bringing more competition into the marketplace. Many European carriers have lower costs than U.S. airlines and could fill the gaps in domestic transportation.

There is opposition to opening up the skies, however, from a number of corners. Indeed, both airlines and unions are powerful lobbying groups. Airlines and airport authorities are happy with the market as it is now, and labor groups fear that their bargaining power would be reduced by the introduction of other carriers. Some simply say that opening up the market to foreign carriers would have little effect, contending that the cost would be so prohibitive that carriers would not enter the market. But if that is the case, why the opposition?

Source: Kenneth Button, "Really Opening Up the American Skies," Cato Institute, Spring 2014.

 

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