This summer marked the unofficial end to the travel industry’s post-pandemic recovery. Airlines, in particular, carried an all-time-high number of passengers in the summer of 2023, with millions of travelers taking to the skies for the first time in several years.

With a record number of travelers comes heightened public—and political—scrutiny. Recently, there has been a spotlight on airlines’ customer service, operations, and performance, with some in Washington calling for new laws and regulations.

In May, the U.S. Department of Transportation announced plans for a new rulemaking that would require airlines to compensate passengers when the airlines are responsible for delays or cancellations. Also, Congress is considering legislation that would address a variety of airline practices that lawmakers deem objectionable. The FAIR Fees Act, introduced by Sens. Richard Blumenthal (D–CT) and Ed Markey (D–MA), would eliminate “unreasonable or disproportionate” cancellation or change fees, all but abolish checked or carry-on baggage fees and seat assignment fees, and implement a process for the government to evaluate whether other fees are “reasonable.”

While capping or abolishing the fees that many passengers love to hate might seem like a populist exercise that would be difficult to oppose, such legislation would be a pyrrhic victory for passengers. It would not save them money, and it would almost inevitably engender a more regressive fare structure.

The reality is that deregulation has allowed airlines to become fiercely competitive, driving down the cost of airfares, allowing more people to travel, and encouraging airlines to invest in new technology. Requiring airlines to provide a level of service dictated by the priorities of a few politicians would work against those achievements and result in higher fares for everyone.

Delays and cancellations / Despite the calls for more compensation for flight delays and cancellations, U.S. airlines currently have plenty of incentive to avoid those nuisances. Delays and cancellations lead to disrupted schedules for fleet and crew members, which cost airlines money and vastly complicate their logistics. Airlines want repeat customers, and delays and cancellations hurt their reputations and customer trust. Minimizing delays or cancellations is the profit-maximizing outcome for airlines.

Airlines actively try to minimize delays that are under their control. They cannot, however, prevent operational challenges like extreme weather, which was the cause of more than half of flight cancellations in 2022. Severe weather can significantly derail flights and cause a domino effect across the air transportation system. There are also situations where weather causes initial delays and subsequent flights are canceled at the behest of the Federal Aviation Administration to streamline operations at airports. For example, on July 9, 2023, the FAA issued a ground stop and employed ground delay programs for many airports on the East Coast because of “a long line of sparse to medium convective weather.”

The FAA’s own shortcomings have been a growing cause of passenger delays and is something the Transportation Department could address. Of particular concern is the slow progress toward technology modernization. For example, earlier this year a computer failure caused 11,000 flights to be delayed or canceled, the first national grounding of domestic flights in nearly two decades. Another example: the FAA’s NextGen project, which promises to greatly expand airport capacity, is a decade behind schedule. While some airport infrastructure upgrades were included in the Infrastructure Investment and Jobs Act passed by Congress two years ago, the FAA’s aging aviation infrastructure received no funding, and lawmakers refuse to consider widespread privatization of airports and air traffic control even though it has proven enormously successful in countries that have adopted such a system.

FAA staffing challenges are also affecting airport capacity. One of the most important air traffic control facilities in New York is only 54 percent staffed, and it has forced airlines to reduce their schedules to alleviate pressure on the National Airspace System. According to a Transportation Department inspector general report, the FAA has not done enough to ensure adequate controller staffing at the busiest air traffic control facilities. Some 77 percent of critical air traffic control facilities are staffed below the FAA’s 85 percent threshold, and 26 percent of total air traffic controllers are trainees.

Returning to the broader issue of penalizing airlines for delays and cancellations, it should be noted that no other passenger industry is required to provide compensation and cover passenger expenses following operational disruptions. For example, Amtrak has no requirement to compensate passengers for delays from an extreme weather event. Given that its on-time performance outside the Northeast Corridor is beyond abysmal, why does Amtrak escape scrutiny? These regulations are also not proposed for bus companies, ferry companies, and other major methods of transportation that also subject their passengers to delays and cancellations.

Junk fees? / While these bills and proposed regulations were designed to help consumers, the likely outcome will be the opposite. Low-income flyers will be one of the groups that suffer the most if any of the proposed rulemaking or legislation moves forward.

Specifically, if Congress or the Transportation Department prevents the airlines from charging ancillary fees, that will inevitably push up ticket prices. Allowing fliers to pay to check a bag, obtain a preferred seat assignment, or have more flexibility in changing the date of a flight allows airlines to create competitive pricing models where people who are cost sensitive can choose the plans and options that best fit their individual needs. Treating the abolition of fees as an unabashed win for flyers completely misconstrues the reality of what would occur. If airlines cannot charge fees, they will fold the costs into higher ticket prices.

The beneficiaries of a cap on in-flight fees would be those people who tend to pay for better seats or bring a carry-on. These people are more likely to be flying on a business account, frequent flyers with status, or willing to pay for good seats. But if they can no longer purchase them outright, they will use their experience to navigate the system to get better seats, ensure they have space for their bags, and benefit from other accouterments that would be rationed instead of sold—all while the broader flying public subsidizes their preferences through higher ticket prices. Any benefits that accrue to passengers would inevitably be regressive, defeating the intent of the regulations.

Abolishing all fees would also be inefficient. Banning fees for things like carry-on bags would inevitably result in needless and costly queues. When carriers do not charge for extra carry-on bags, more people bring carry-on bags, forcing the airline to check some bags during the boarding process. The delays this exercise regularly causes are a top reason why airlines began charging for additional carry-on bags in the first place. Using prices to allocate scarce services is the central organizing principle in a market economy, and rejecting it because some people do not like it represents a step in the wrong direction.

These ancillary fees are not “junk fees,” as some have suggested. They are fees for a service that consumers choose. Besides, there are other fees that are included in ticket prices—including government-imposed taxes and fees—that rarely receive scrutiny, yet they also contribute to ticket prices.

Airline economics / The argument that airlines can afford to keep prices low with these regulations in place fails to understand the economics of aviation. In this labor- and capital-intensive, highly competitive industry, even in years of record revenue, typical profit margins consistently fall below the U.S. inter-industry average. From 2010 to 2019, pretax margins averaged 7 percent in the airline industry. That means that for every $300 in ticket revenue, an airline would keep $21 in profit. The catastrophic drop in travel driven by the pandemic grounded most commercial aircraft, forcing airlines to take on unprecedented levels of debt to survive. In the last five years, airlines have recorded $12 billion in pretax losses.

And even as fuel and labor costs have skyrocketed, airlines are still investing in technology and hiring. From the end of 2020 to May 2023, U.S. passenger airlines have added 118,000 jobs. In total, U.S. passenger and cargo airlines now employ an all-time-high 800,000 workers. The nation’s largest airlines spent $6.8 billion on information technology in 2022. Airlines want to ensure a seamless travel experience for their customers and are not incentivized to provide a poor travel experience, especially given the number of competitors in the industry.

Because of fierce airline competition, airlines have continued to offer low fares, even amidst the post-COVID travel spike. Adjusting for inflation, fares for the first half of 2023 were 10.2 percent lower than in the first half of 2019 and 2.2 percent lower than in the first half of 2022. Low prices are a strong signal that an industry is competitive, with pricing being one tool that airlines use to attract new customers and retain current ones.

Without reregulation, airlines are keeping air travel accessible and making sustainable investments in technology and the workforce to reduce delays and cancellations when the reasons behind the operational difficulties are within their control. The nearly 50 years since the government deregulated the industry have shown that the freer market has been a boon for travelers, and we should continue to allow the market and air travelers to pick and choose what’s best for their experience.

Conclusion / Competition is the bedrock of the U.S. economy, and historically competition has incentivized airlines to keep prices low and investments in their employees and technology high. Competition also helped fuel a dramatic recovery following the COVID-19 pandemic. However, the regulations and bills currently proposed against the airline industry would dampen competition, hurting consumers the most.

The Transportation Department’s proposed rules would push airlines into adopting responses that would be less efficient and cost-effective than what they would do on their own. Congressional proposals to sharply curtail most ancillary fees would fail to save fliers money while reducing the ability of low-income passengers to afford tickets.

There is no such thing as a free lunch: the more that Congress or the Transportation Department dictates how airlines run their business, the higher ticket prices will be. While these bills and regulations may sound like they would be a victory for consumers, the reality is that consumers would suffer the most from a reregulation of the airline industry.