Unveiling the Hidden Monopolies in the Airline Industry: Implications for ESG and Community Investment Professionals

The airline industry harbors an open secret that significantly impacts consumer fares, competition, and broader ESG goals. This revelation comes to light through an insightful episode by More Perfect Union, an organization dedicated to amplifying the struggles of the working class and holding corporate power accountable. This article delves into the intricacies of how major airlines monopolize airport infrastructure—a practice that keeps fares high and stifles competition—drawing upon the episode's findings and additional research to offer a comprehensive perspective for community investment professionals engaged in ESG and CSR initiatives.

The Transformation of the Airline Industry

The U.S. airline industry has undergone a radical transformation over the past several decades. From 1938 to 1978, the industry operated under federal regulation, akin to utilities, where fares were cost-based, and the market was stable and predictable. This period ensured that air travel was accessible and that airlines operated on a level playing field.

However, the passage of the Airline Deregulation Act in 1978 marked a significant shift. Intended to foster competition and lower prices, deregulation handed control over routes and fares to the airlines themselves. While the move was well-intentioned, it led to unforeseen consequences that have shaped the current landscape.

Market Consolidation and Dominance

In the wake of deregulation, the industry saw a wave of mergers, acquisitions, and bankruptcies. Today, only 12 scheduled passenger airlines operate in the United States, a stark decline from over 75 in the mid-1980s. This consolidation has resulted in four major airlines—American, Delta, Southwest, and United—controlling 80% of the market. Such dominance has reduced competition and innovation, limiting consumer choice and keeping fares artificially high. Studies, such as the one detailed in Platform Competition and Consumer Foresight, highlight how this consolidation negatively impacts market dynamics and consumer welfare.

The Invisible Hand of Gate Control

One of the less apparent but profoundly impactful strategies employed by major airlines to maintain market dominance is the control of airport gates. By monopolizing gate access, these airlines effectively shut out low-cost carriers, preventing them from entering new markets and offering competitive fares.

How Gate Monopolies Operate

At many airports across the country, gates are leased on a long-term basis to major airlines. These leases often come with the following implications:

• Permanent Branding: Major airlines affix their logos and signage permanently to gates, creating an environment that discourages the presence of competitors.
• Underutilization of Gates: Even when not fully utilizing their allotted gates, these airlines restrict access to prevent other carriers from using them.
• Extended Turn Times: By intentionally increasing the time an aircraft occupies a gate, they reduce the availability of that gate for potential competitors.

This practice not only limits competition but also contravenes the principles of a free and fair market. The Airport GateCompetition Act aims to address these issues by promoting fair access to airport infrastructure.

The Impact on Consumers

The monopolistic control of gates leads to:

• Higher Fares: Without competitive pressure, major airlines have little incentive to lower prices.
• Limited Choices: Consumers are often left with only the major carriers as viable options, reducing the diversity of services and routes available.
• Stifled Innovation: New entrants bringing innovative business models or services find it challenging to break into the market.

The Role and Benefits of Low-Cost Carriers

Low-cost carriers (LCCs) play a pivotal role in fostering competition within the airline industry. Their entry into a market can significantly disrupt the status quo established by major airlines.

The Competitive Advantage

Research indicates that when LCCs enter a market:

• Average Fares Drop: There is a documented decrease in average fares by about 21%, as highlighted in AnEconomic Analysis of the Low-Cost Airline Industry.
• Enhanced Service Offerings: Major airlines are compelled to improve their services to retain customers.
• Consumer Empowerment: Passengers benefit from more choices, better pricing, and tailored services that meet diverse needs.

Even passengers who do not fly with LCCs benefit from their presence due to the competitive pressure exerted on major airlines.

Barriers Faced by Low-Cost Carriers

Despite their potential to positively impact the market, LCCs often face significant hurdles:

• Limited Gate Access: Due to monopolistic practices, LCCs struggle to secure gates at major airports.
• Infrastructure Challenges: The lack of common-use facilities hampers their ability to operate efficiently.
• Financial Constraints: The high costs associated with entering monopolized airports can be prohibitive.

A Beacon of Change: Missoula's Common-Use Model

Missoula Airport in Montana serves as a compelling case study demonstrating how alternative gate management can enhance competition and benefit consumers.

Implementing Common-Use Gates

Missoula adopted a common-use system where:

• Gates Are Shared: No airline has exclusive control over any gate, allowing for flexible scheduling and operations.
• Facilities Are Accessible: Baggage handling and other essential services are managed in a way that supports all airlines equally.
• Opportunities for New Entrants: The barrier to entry for new airlines is significantly lowered.

Positive Outcomes

The results of this model are tangible:

• Increased Airline Presence: LCCs like Frontier and Sun Country have commenced operations at Missoula.
• Reduced Airfares: The community has experienced a noticeable decrease in ticket prices, making air travel more accessible.
• Economic Growth: Lower fares stimulate tourism and business travel, contributing to the local economy.

This approach aligns with the goals outlined in the Airport Gate Competition Act by promoting fair competition and reducing monopolistic control.

Policy Interventions and ESG Considerations

Addressing the monopolistic tendencies in the airline industry requires concerted efforts from policymakers, regulators, and industry stakeholders.

Legislative Efforts

The Airport Gate Competition Act proposes:

• Mandating Common-Use Gates: Ensuring at least 25% of airport gates are available for any airline to use.
• Limiting Dominance: Preventing any single airline from controlling more than 50% of the gates at an airport.

Such measures are crucial for dismantling barriers to entry and fostering a more competitive environment.

Federal Investments

The Bipartisan Infrastructure Law allocates significant funding to:

• Upgrade Airport Infrastructure: Enhancing facilities to support a greater number of airlines, particularly LCCs.
• Promote Competition: Prioritizing projects that facilitate common-use models and equitable gate access.

These investments not only improve the aviation sector but also support broader ESG objectives by promoting sustainable economic growth and social equity.

ESG Implications

From an ESG perspective, the monopolistic control of airport gates intersects with key concerns:

• Environmental: Increased competition can lead to more efficient operations and potentially reduce the environmental impact per passenger.
• Social: Fair competition ensures that air travel is more accessible to a wider population, supporting social inclusion.
• Governance: Addressing monopolistic practices aligns with ethical business conduct and good governance principles.

The Role of Community Investment Professionals

As professionals dedicated to promoting sustainable and responsible investments, you have a unique position to influence positive change in the airline industry. Here are three actions that some of us may be able to do:

1. Advocate for Fair Policies: Engage with legislators and support policies that promote competition and dismantle monopolistic practices.
2. Invest in Progressive Projects: Direct funding toward airports and infrastructure projects that adopt common-use models and support LCCs.
3. Collaborate with Stakeholders: Work alongside airlines, airport authorities, and regulatory bodies to encourage transparency and equitable resource allocation.

Potential Benefits

• Market Efficiency: A competitive market drives innovation, efficiency, and better service delivery.
• Community Development: Improved air travel options can lead to economic growth in local communities.
• Alignment with ESG Goals: Actively promoting fair competition demonstrates a commitment to ethical practices and social responsibility.

Moving Forward: Embracing Change for a Sustainable Future

The challenges posed by monopolistic gate control in the airline industry are significant but not insurmountable. By embracing models like the common-use system implemented in Missoula and supporting legislative efforts like the Airport Gate Competition Act, there is potential for transformative change.

Encouraging Signs

Recent policy interventions and federal investments signal a recognition of the problem and a commitment to addressing it. As noted in Low-Cost Carriers in The Aviation Industry: Where Next?, the future of aviation could be shaped by increased competition and innovation if structural barriers are removed.

Collective Responsibility

Achieving a more equitable and sustainable airline industry requires collaboration across sectors. Community investment professionals, ESG teams, and policymakers must work together to:

• Identify and Address Barriers: Understanding the specific practices that hinder competition is the first step toward change.
• Promote Transparency: Advocating for open and fair access to airport infrastructure is essential.
• Monitor and Evaluate: Ongoing assessment of policies and their impacts ensures that objectives are being met.

Conclusion

The monopolistic practices in the airline industry, particularly regarding gate control, have far-reaching implications for competition, consumer pricing, and ESG goals. By examining the strategies employed by major airlines and understanding their impact, we can identify opportunities for meaningful intervention.

Community investment professionals have a critical role to play in this landscape. Through advocacy, strategic investment, and collaboration, there is potential to drive significant change that benefits consumers, supports sustainable economic growth, and aligns with social responsibility objectives.

Embracing fair competition in the airline industry is not just about lowering fares; it's about fostering an environment where innovation thrives, communities prosper, and ethical practices are the norm. The journey toward this goal requires concerted effort and a commitment to challenging the status quo—a mission that aligns perfectly with the values and expertise of ESG and CSR professionals.

References

• Platform Competition and Consumer Foresight: The Case of Airlines
• Airport Gate Competition Act Overview
• An Economic Analysis of the Low-Cost Airline Industry
• Airport Gate Competition Act Legislation
• The Pros and Cons of Low-Cost Airlines
• Low-Cost Carriers in The Aviation Industry: Where Next?