Shortly before a United Airlines flight took off, a man was pulled out of his seat, dragged on the floor through the aisle, and forced off the plane.[1] Another passenger on the flight posted a video of this fiasco and it went viral.[2] In the immediate aftermath, United became the butt of many jokes, the focus of much negative media coverage, and suffered a drop in its stock price.[3] However, these negative effects of the recorded abuse of a customer were short-lived (except for the jokes[4]). This is because United has such a dominant presence in the U.S. airline industry that the likelihood of a loss in market share is slim to none even with reputational harm. United’s dominant position is due to the airline having many popular routes and being able to afford to price its tickets competitively. Because people generally book the cheapest and most convenient flight, United is often the best choice. If consumers were to attempt to boycott United, they would most likely fail because this would involve purchasing more expensive and inconvenient flights. Although it is not impossible for a boycott to succeed, it may prove near impossible to get a significant amount of consumers to consciously purchase a plane ticket that is significantly more expensive than a United ticket.
The airline industry in this country has evolved from being completely government regulated, to nearly perfectly competitive, to its present oligopoly state.[5] Congress created the Civil Aeronautics Board (the “Board”) to regulate air routes and prices.[6] The Board also controlled how many airlines were in existence.[7] However, this regulatory system resulted in serious financial issues because it could not sustain the changing economics of the industry such as increasing demand for air travel. The succeeding economic theory to resolve the issues was to deregulate the industry. Deregulation naturally resulted in more airlines entering the market, which led to lower prices and more routes. But this era of competition could not last due to an airline’s significant variable costs such as fuel costs. This, in addition to competition, led to many airlines failing or merging. These mergers have led to four major airlines dominating the U.S. market: American Airlines, Delta Air Lines, Southwest Airlines, and United.[8]
The complexities of the airline industry largely contributed to an environment where a major airline could get significant negative press and criticism and not truly suffer any long-term effects.[9] To truly understand the resilience of a company like United, it is important to understand the basics of the airline industry. While this may be obvious, it is important to note how integral airports are to the industry. Most airports are publicly owned and operated; functioning as a central location where consumers can access any airline they want and can easily transfer.[10] Commercial airlines must purchase space at airports in order to compete and serve consumers. These spaces are commonly referred to as “slots” and can be easily understood as landing space.[11] Each airport has a finite number of slots. Thus, the mergers not only reduced the number of competing airlines, but also increased each resulting airline’s space at any given airport. Now with four major airlines, over ninety of the largest one-hundred airports are dominated by just one or two airlines.[12]
With control over airport space comes control over air routes, which results in a lack of real choice for some consumers that need to travel on a particular route. To illustrate this point, if an airline controls all of the slots at two big airports, that airline then controls all of the flights between those two airports. The two airports in this illustration are only considered big because of the high volume of traffic flowing through them everyday. The route between them is most likely very popular, and thus the airline will benefit from being the sole supplier for this route. Consumers may also benefit if this airline offers many flights; but consumers would most likely be harmed because this airline can charge anything it wants.
United arguably became “the world’s most hated airline.” But that did not matter because it was still one of the biggest U.S. airlines.[13] United’s stock value fell by almost $1 billion immediately after the fiasco.[14] However, within three months its stock recovered reaching record highs.[15] This is all attributable to United dominating so much space at certain airports. For example, United controls over 70% of the slots at Newark Airport.[16] Excessive price gouging is one of the biggest concerns stemming from statistics like this. Although there has been significant federal legal action concerning possible monopolistic behavior of the big four airlines,[17] the economic reality of the market is difficult to change. That reality is, evidently, that some airlines are too big to boycott. Aside from possible regulatory solutions such as forced slot reductions, technological advances such as the Hyperloop[18] may help resolve this antitrust issue in the near future. The Hyperloop seems to be the future of long distance travel as it provides faster and safer transportation that will surely be attractive to consumers from the air travel market.
[1] See Daniel Victor & Matt Stevens, United Airlines Passenger Is Dragged From an Overbooked Flight, N.Y. Times (Apr. 10, 2017), https://www.nytimes.com/2017 /04/10/business/united-flight-passenger-dragged.html.
[2] Id.
[3] See Davia Temin, How United Became The World’s Most Hated Airline In One Day, Forbes (Apr. 11, 2017, 8:09 AM), https://www.forbes.com/sites/daviatemin /2017/04/11/how-united-became-the-worlds-most-hated-airline-in-one-day/#15c2fa6a61f2.
[4] Craig Semon, At Hanover Theatre, Jay Leno Makes Patriots A Target, Telegram (Oct. 13, 2017, 9:46 AM), http://www.telegram.com/entertainmentlife/ 20171013/at-hanover-theatre-jay-leno-makes-patriots-target.
[5] See generally Gerald N. Cook, A Review of History, Structure, and Competition in the U.S. Airline Industry, 7 J. Aviation/Aerospace Edu. & Research 33 (1996).
[6] See id. at 33 – 34.
[7] Id.
[8] See David Koenig & Scott Mayerowitz, U.S. Airports Increasingly Dominated By 1 or 2 Carriers, USA Today (July 15, 2015, 7:27 AM), https://www.usatoday.com /story/todayinthesky/2015/07/15/us-airports-increasingly-dominated-by-1-or-2-carriers/30152927/.
[9] See Richard Saintvilus, United Continental Holdings Inc (UAL) Stock Won’t Land Anytime Soon, Investor Place, (June 8, 2017, 6:00 PM) (explaining how United bounced back financially from the bad press), https://investorplace.com /2017/06/united-continental-holdings-inc-ual-stock-wont-land-soon/#.WeEqYBPyuRt.
[10] America’s Airports, Did You Know, http://airportsforthefuture.org/did-you-know/ (last visited Oct. 13, 2017).
[11] See Susan Stellin, Seeking A Place At Airports, N.Y. Times, (Jan. 25, 2010), http://www.nytimes.com/2010/01/26/business/26slots.html.
[12] See David Koenig & Scott Mayerowitz, U.S. Airports Increasingly Dominated By 1 or 2 Carriers, USA Today (July 15, 2015, 7:27 AM), https://www.usatoday.com /story/todayinthesky/2015/07/15/us-airports-increasingly-dominated-by-1-or-2-carriers/30152927/.
[13] See Davia Temin, How United Became The World’s Most Hated Airline In One Day, Forbes (Apr. 11, 2017, 8:09 AM), https://www.forbes.com/sites/daviatemin /2017/04/11/how-united-became-the-worlds-most-hated-airline-in-one-day/#15c2fa6a61f2.
[14] See Saintvilus, supra note 8.
[15] See id.; Hugo Martin, United Airlines’ passenger-dragging incident hasn’t hurt the bottom line, L.A. Times (May 8, 2017, 3:40 PM), http://www.latimes.com /business/la-fi-united-finances-20170508-story.html.
[16] Jad Mouawad, F.A.A. Loosens United Airlines’ Grip on Newark Air Travel (Apr. 6, 2016), https://www.nytimes.com/2016/04/07/business/faa-loosens-united-airlines-grip-on-newark-air-travel.html.
[17] Dept. of Justice, Justice Department Files Antitrust Lawsuit to Block United’s Monopolization of Takeoff and Landing Slots at Newark Airport, (Nov. 10, 2015), https://www.justice.gov/opa/pr/justice-department-files-antitrust-lawsuit-block-uniteds-monopolization-takeoff-and-landing.
[18] Danielle Muoio, Everything we know about Elon Musk’s ambitious Hyperloop plan, Business Insider (Aug. 17, 2017, 9:51 AM), http://www.businessinsider.com /elon-musk-hyperloop-plan-boring-company-2017-8.
