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Letter to the editor

Airlines should pay steak prices for prime air time

By STEVEN PEARLSTEIN, Washington Post
Published October 9, 2007

Thirty years ago, Alfred Kahn, then-head of the Civil Aeronautics Board in the Carter administration, gave a speech to an industry conference in which he made this analogy:

Suppose everything that came out of a cow were sold at a uniform price per pound - tenderloin, sirloin, ground chuck, soup bones. What would happen? In all likelihood, demand for choice steak cuts would soar, even as overpriced hamburger and bones rotted on store shelves. And to meet this new demand for steak, huge swaths of the country would have to be converted to ranching and growing cattle feed, crowding out other uses for that land.

Kahn's message: If you misprice things, you prevent markets from matching supply and demand and wind up misallocating scarce resources. And what is true for hamburgers and land, he argued, applies to the limited space at and near airports during peak hours. To solve that problem, Kahn recommended the price paid by airlines for airport and air space in peak periods be high enough so it not only brought demand in line, but gave officials incentive to add runways or air-traffic-control capacity whenever the price being paid for peak hours beat the cost of adding capacity.

This concept of "marginal cost pricing" ought to be familiar to anyone who has taken a college course in economics. But what is so astonishing is that 30 years after Kahn laid out the case for it, a decade after it was proposed by the Clinton administration, six months after it was officially embraced by the Bush administration, and in the midst of a veritable consumer revolt over flight delays and cancellations, "congestion pricing" is no closer to reality.

Who is responsible for killing this simple and sensible solution to a problem that costs the economy an estimated $9-billion a year in wasted time and money? Is it the airlines, or private pilots, or operators of corporate jets, or airport authorities or members of Congress? They all did it.

Topping the list of culprits are the nation's airlines. In their zeal to expand service and take market share from competitors, they have deliberately overscheduled flights at peak times. Scheduling at peak times allows airlines to sell more tickets and charge higher prices. And when the flights are delayed or forced to sit on the runway, the airlines can simply send out their beleaguered employees to blame it on the weather or the anonymous folks at air traffic control.

Congestion pricing works. When it has been used on highways, it spreads out demand so more people use the roads, not fewer. It has been so successful in relieving gridlock in London that New York is about to try it.

The only reason it is not being used to solve crowding in aviation is that it threatens a system designed to protect every interest but one - the traveling public.

[Last modified October 9, 2007, 06:40:07]