12 August 2015

Come fly with me… but not across the US


I can fly from London to Croatia for £24.99.

If that seems absurdly cheap for a journey of 945 miles (as the crow flies), then you would be right. But a small budget airline called Wizz Air (based in Hungary) is happy to take me to Split, with a small carry-on bag, for that price.

The airfare search engine Skyscanner has an interesting feature. If you’re a laid-back traveller who isn’t too concerned about where you want to go, you can search flights from your home city to ‘Everywhere’, and Skyscanner will show you all the possible destinations, listed in order of price. It is using this feature that I have discovered that Wizz Air will also take me to Romania (1297 miles, £31), Latvia (1041 miles, £38), and Macedonia (1235 miles, £39), while Irish airline Ryanair boasts cheap fares to Poland (898 miles, £18), Slovakia (888 miles, £29), and Lithuania (1026, £37). Meanwhile if you’d like to go Greece, Norwegian Air carries flights to Santorini (1630 miles, £41).

So short- to medium-haul flights around Europe are very cheap. This is a good thing, for low-budget travellers, and for the tourism industry in hundreds of places which would have been almost unreachable for holiday-goers twenty years ago. But beyond this piece of good news, in the sleepy month of August when thousands of Britons are off on their summer holidays, what’s the broader economic point to all this?

I didn’t think there was one, until I tried to book flights from Denver in Colorado to Santa Barbara in California earlier this summer. At 888 miles, it is exactly the same distance as London to Slovakia, leading me to expect a similar airfare – around £30. The result (again, found using Skyscanner), was quite alarming for my budget: £251 for a direct flight. With stopovers, this could be reduced to around £100, but only if I were prepared to spend hours in transit.

At this point, I decided to give US airlines the benefit of the doubt. Santa Barbara is a small municipal airport, after all, with direct flights to only a handful of cities. How much would it cost to go to a busier hub on the West coast, like San Francisco (946 miles), or Seattle (1091 miles), both of which are far more accessible than Split in Croatia? The answer was over £60. The infamous Spirit Airlines offered to fly me to Los Angeles (830 miles – and the fifth biggest airport in the world) for £32, but when I factored in the extra charges for bringing a carry-on bag (£16), selecting a seat so I could sit next to my partner (£8) and even buying my ticket in advance (£11), it actually cost more than United and American Airlines.

So why are flights within the US twice as expensive per mile as flights within Europe? Is the service twice as good? From personal experience, absolutely not. (In fact, Spirit Airlines is notoriously considered the worst airline in the world, and was fined $375,000 in 2009 for violating consumer regulations with “unfair and deceptive practices”.)

Going back to my Skyscanner research, I noticed something interesting. The cheapest flight from London to Greece was with a Norwegian airline – to Croatia, it was with a Hungarian company. Ryanair is Irish, but would take me all over Europe. In contrast, the only flights across the US were with – you’ve guessed it – US airlines.

Understanding this crucial difference takes us into the murky world of international treaties and trade agreements, but essentially it all comes down to one key concept: cabotage. Cabotage refers to “the haulage of goods between two points in the same country by a vehicle registered in another country”, and is illegal in the US. If you’ve ever wondered why airlines from Asia or the Arab Emirates don’t undercut US companies with discounted flights from New York to LA, it’s because they can’t.

But the European Union, for all its flaws, is a Common Market. That means no tariffs or trade barriers between member states, which is convenient for airlines and travellers alike. A country cannot discriminate against a foreign EU or EFTA airline, so all airlines based in European Economic Area can fly anywhere they like in Europe. Not only are they free to fly between countries without passing through their own nation – they can even fly within countries. For example, if you want to fly from Milan in the North of Italy to Naples in the South, the cheapest option might be Britain’s own EasyJet. The result is intense competition between airlines, and while companies like Air France have struggled, consumers have benefited from the price war.

In the US, the opposite has happened. In the last decade, airlines have merged, leading to a small handful of companies dominated by the Big Five: American Airlines, Delta, Southwest, United, and JetBlue. The result has been exactly what you would expect: high fares, poor service, and even allegations of price-fixing.

Meanwhile the airline lobbyists scream every time competition is even hinted at, and recently demanded the US Department of Transport change the open skies agreement to restrict Persian Gulf airlines from competing on US international routes. They have also fought to keep cabotage out of TTIP negotiations, claiming air travel should be exempt for “reasons from public safety to national security”.  As always, this backlash is framed as being for the consumer’s benefit, when anyone who has travelled Emirates or Virgin will know that US airlines could learn a lot from their foreign rivals. We should see the protests of the US aviation industry for what they are: an attempt to protect their own profits by restricting competition, instead of improving their product and business model.

Matthew Yglesias from Vox asked in 2013 “Should aviation policy aim to provide a steady stream of profits and incomes to airlines and their staff, or affordable, convenient air transportation for travelers?”  At the moment, it’s the former, and that’s why it costs a New Yorker flying to Washington DC double what I’d pay to fly four times further to Croatia.

Rachel Cunliffe is Deputy Editor of CapX.