Regulation / U.S. Domestic Policy

Airline Prices are “Fly-High” in the United States… Why Not in Europe?

I wanted to visit my significant other, who is studying abroad at the University of Limerick, in Ireland. Not to my surprise, my flight research came to a screeching halt when I saw the digits perpetuating across the computer screen, making me wonder if the amount was a phone number, or the ticket price—and I was receiving a student discount. Today, flying in the United States is an investment. On the rare circumstance that it happens, finding a cheap flight is valid reason to celebrate. But what is our concept of a ‘cheap flight’ in the U.S.?  Undoubtedly, a ‘cheap flight’ in the United States is much more expensive than a ‘cheap flight’ in Europe. This comes as no surprise to most Americans conscious of the airline industry. The question is what causes the polarization between airline rates in the United States and Europe?

After analyzing a small sample of equidistant flights in the U.S. and Europe, all of the fights in the United States were more expensive than the flights in Europe, just as I had anticipated. Another point of interest is that all flights in the United States were domestic and all European flights were international, which often has a price-increasing effect on U.S. airlines.

In the sample I created, all European flights depart from Dublin, Ireland and all U.S. flights depart from Los Angeles, California. The rationale is that both cities have a single airport and no competing interest, isolating the hub variable and ensuring consistency. As mentioned, all fights are roughly equidistant, using the straight distance between the cities. Additionally, all flights were booked round-trip on October 4, 2013 and scheduled for departure about two months in advance on December 6, 2013. The scheduled return date is a week later on December 12, 2013. The US flights were booked on www.kayak.com and the European flights were booked on its international equivalent, www.edreams.net. Below are the results of the cheapest round-trip fares that I could find in the U.S. and Europe.

TransportationGraphs-page-0Using the data from sample above, the average price of a round-trip European flight is $55.24 less than an American flight. Using the same information, a flight in Europe is on average 34 percent less than a flight in the United States.

So, what has caused the market distinction?

Is it the rising gas prices in the U.S.? No. Europe is experiencing an even steeper climb in gas prices and, according to the International Business Times, Europeans pay almost twice as much as U.S. residents—and that is just at the pumps.

Is it hidden fees or taxes? Again, no. The European ticketed prices online include all fees and taxes. In fact, nearly all European airlines still include one piece of checked luggage; a perk of the past in the United States.

Is it the regulations? Bingo. The inconsistent variable of airline policy in the United States is the regulation of domestic flights and the ban on foreign-owned airlines to operate domestically in the United States. In contrast, the EU has an open-skies policy that allows flights from all European airlines to fly within each country freely. In other words, competition is the factor that is consistently driving prices down in Europe.

The question then becomes, why has the United States, a free-market powerhouse, not embraced a similar policy to encourage competition? Some arguments suggest that the reason for even lower rates in Europe is because the prices for alternative forms of public transportation across international borders are so competitive, they drive the prices of airlines down even further. Although the United States has sufficient public transportation in our largest of cities, it is no secret that we do not have the extensive network that Europe boasts.

Concurrently, an article written by The New York Times in 2011 argues that Europe is currently going through a competitive phase in their airline industry. A competitive phase that already occurred in the United States during airline deregulation in the 1970s. In other words, the airline industry in the United States is maturing, resulting in a maturing market price.

However, according to an article written in The Globalist, the United States considered deregulating airline policy under the Bush Administration. At the time, the estimated consumer savings if the United States were to embrace an open-skies, deregulated airline policy, would be roughly $5 billion annually… And that is based on data from 2006, nearly seven years ago. If one compensates for inflation and how the prices have increased, the totals are even more significant.

All things considered, a deregulated, open-skies policy would pose a threat to American airline companies, but it would also cause American airline prices to adapt to that of European competition. As a believer of the free-market enterprise system iconic to the United States, I advocate for a said open-skies policy that will drive down prices and increase the demand for air-travel. With greater demand comes the need for more employees, creating jobs and building our economy.

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