Hub, spoke and shaft

When Congress deregulated the airline industry in 1978, it was known from the start that the promised benefits of competition would come at a price. The airlines could only deliver lower fares, better service and more choice if travelers, particularly those not flying to or from major airports, accepted changes in travel patterns.

The changes in travel patterns, though not always accepted willingly, have occurred. The hub-and-spoke system, in which flights from smaller, regional airports collect at a few major airports, has fully replaced the old point-to-point system. With the airlines no longer compelled to serve small markets, it was the only way for small markets to stay connected. Plus, it gave travelers from Maine the opportunity to visit such places as Newark, Pittsburgh and Cincinnati.

The degree to which the other side of the deregulation deal has been kept – the fares, service and choice part – varies widely. Overall, it’s good, and cheap and convenient, to be a hub. Spokes can only admire the benefits of competition from afar.

Another element of the deregulation deal often forgotten is that it was supposed to come with increased scrutiny by both the U.S. Department of Transportation and the Department of Justice to ensure that airlines did not engage in unfair practices to drive out competition. A recent report by the General Accounting Office described in detail the extent to which that has not occurred. Rather than engage in head-to-head competition at hubs, the major airlines have divvied them up and used their clout with airport management to keep upstart carriers from horning in. The tactics used range from grabbing the choice take-off and landing times to denying would-be competitors access to gates, ticket counters and luggage-handling areas.

It was in that context that Rep. John Baldacci announced his opposition last week to the merger of United Airlines and US Airways, the nation’s largest and sixth-largest carriers. The merger, proposed last May and now working its way through Department of Justice approval, would create a giant that would dominate the U.S. market, controlling, according to the GAO, 27 percent of domestic flights. Rep. Baldacci, though not calling for re-regulation, correctly points out that the airlines have yet to keep up their end of a 23-year-old agreement.

It was just two years ago that Congress got serious about a Passengers Bill of Rights to address widespread public anger about everything from unfathomable price differentials to unreliable schedules to the increasing propensity of luggage to get lost. The industry forestalled action then by pledging to adopt voluntary improvements. Now, with the public as angry as ever, the industry wants another chance to improve voluntarily.

Rep. Baldacci, a member of the aviation subcommittee of the House Transportation and Infrastructure Committee, is sponsoring a bill that would place a one-year moratorium on airline mergers. The merger-free period would give Congress time for additional hearings to fully assess the industry’s spotty record of voluntary improvements. Just as importantly, it would give the Bush administration’s new teams at Transportation and Justice the opportunity to fully digest the impact of a merger that would dramatically transform the skies. Perhaps most importantly, it would serve to remind the airline industry that the public accepted hub-and-spoke back in 1978, but it never expected the shaft.