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It Used To Be Illegal For An Airline To Cancel Routes The Way United Just Took

Date: November 10, 2021

By Andy Kiersz , Nick Lichtenberg , and Taylor Rains, Business Insider

  • United Airlines canceled routes to 11 small US cities this week.
  • Airlines unilaterally canceling routes was illegal until the 1978 Airline Deregulation Act.
  • That law marked a turning point in US economic regulation, and some commentators and politicians think it's time for the pendulum to swing back.

 

If you live in Pierre, South Dakota, your airline options just got cut in half. Same with a bunch of other small cities around the country, as United Airlines cut its service indefinitely to 11 cities, citing "changes in the long-term sustainability" of the routes.

Airlines weren't always free to unilaterally cancel service like this. In fact, it used to be illegal. From the 1930s until the 1980s, a federal agency called the Civil Aeronautics Board controlled what routes airlines could fly. If it were still around today, United would have had to apply to the CAB for permission to cancel these 11 routes.

What changed all of this was the 1978 Airline Deregulation Act, which allowed airlines to lower costs by cutting out the bureaucratic middleman and prioritizing more profitable routes. 

The deregulation law came amid the stagflation of the late '70s, when both unemployment and inflation were running extremely high. According to historian Rick Perlstein's "Reaganland," President Jimmy Carter tied this deregulation to the inflation crisis, telling reporters that he "asked Congress to pass his airline deregulation bill to lower the cost of plane tickets."

The 40-odd years since have seen the rise of the "superstar city," as New York and San Francisco pulled away from cities like Pierre and Kalamazoo, Michigan, another route that United just abandoned. 

The (slight) revival of industrial policy

Some experts and economists are starting to connect the dots between deregulation and regional inequality and calling for a return to "industrial policy," where the government regulates some services like utilities and airlines. These include the urbanist Richard Florida, who argued that airline deregulation was linked to regional inequality for Bloomberg CityLab in 2019, and author Matt Stoller, who wrote an influential essay in The Atlantic about industrial policy in 2016.

Even inside the White House, the man who's steering President Joe Biden's economic agenda, National Economic Council Director Brian Deese, is one of them. He told The New York Times in February that "straight-out industrial policy" provided some of the "biggest opportunities" for reviving American manufacturing and tackling the climate crisis. 

There are remnants of a 1970s-style industrial policy around today. The Essential Air Service program was created to ensure that small cities wouldn't be left without commercial air service by linking them to the national air network. The Department of Transportation subsidizes airlines to operate flights to small communities, including approximately 60 in Alaska and 115 in the lower 48. Pierre and Watertown in South Dakota, which United dropped, are part of the EAS program.

Henry Harteveldt, president and travel industry analyst of Atmosphere Research Group, told Insider that carriers still aren't required to serve unsustainable markets.

"As hard as it is for the people that live in these small towns to lose airline service, it is an unfortunate reality that airlines are not just going to serve a city out of civic responsibility," Harteveldt said. "However, if market conditions improve, if communities are able to go to an airline to offer financial incentives, or if some of these communities are able to apply for and be granted EAS status, it is possible that some of the service that was lost may be reinstated."

But in the meantime, cities with restricted airline access are seeing fewer corporations headquartered there, hurting the local economy. 

In the superstar cities well served by airlines, on the other hand, housing costs will skyrocket because they will have a disproportionate number of jobs compared to outlying areas. That's exactly what has happened to America since the Great Recession, leading to a severe housing shortage in 2020.

An industrial policy would have a large antitrust component, with the government actively making decisions about which firms achieve the importance of a utility and need to be reined in, like, say, Facebook or Google.

Until industrial policy comes back, though, your city could be next.

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