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he's or minimums on checking and savings accounts is it even decision get started today? It only takes up five minutes to open an account. With capital, one and there's no minimum to open and keep your account. That's banking re imagined, what's in your wallet terms, apply see capital, one dot, com, flat bank capital, one and eight member. If the icy. The Hey there, Stephen Dublin, before we get to the final episode in our series about airline travel, I want to ask for your help on another series. We are working on its about something we all experience. We don't like to do as series on failure. Failure is embarrassing. It's painful even be life threatening, but we need to talk about it because there is a lot to be learned from failure when fail

These are hidden away, as it usually are. Learning can't happen. This is where you come in. We are looking for. were fascinating stories of failure, maybe something you were involved in first hand. Maybe something you read about it just stuck with. You could be a failure in politics war. Business could be failed relationship, some other personal failure, it's a failure in sports or the arts. Failure of invention exploration, If you have something anything that could help we would love to, you're about to send an email to radio at for economics com. The subject line failure with your help. Maybe our series on failure will succeed. So thanks

I'm very excited about travelling. I have always loved planes and airports and waiting three, I am to take a cab when everyone knows is sleeping. I've the currently volunteered a drive, my friends to airports, just because being near an airport me really excited maria deployed us One of the freak anonymous radio listeners who sent in an audio diary for the series we ve been doing on airline travel she been excited about flying for a long time I, as the kid loving everything about there, travel, and even now, I'm pretty hard pressed to think of anything that I don't like about it. She does have preferences I really really try to avoid being stuck in a it all state, because I have a pretty big but

so it gets a little awkward from stuff between two people to polluters loose in san francisco, and I will be owing to the greek island. Here's to see my uncle who lives on that island. He cancer and things are going so well with his house. I will also be seeing other family. It's been about fifteen, in years since I've been back so there's a lot of catching up to do, and there's gonna be a lot of me having to answer the question of why I am almost forty and still, single I will be fine alone in general, I prefer to travel alone because I can be a pretty whimsical person. So I, like freedom to be able to do whatever I feel like doing in the moment, I try to fly as cheaply as possible because I studied

iter and social work, so I'm poor, but I did it to myself. I, basically god onyx speedier and tried to find the cheapest air fare. I got a one way ticket, which is something that I can do, because I have dual citizenship between greece and the? U s and the ticket a little over seven hundred dollars, which I think is a pretty good how good of a deal is it think about? other things you could buy with seven hundred dollars the other hand. What would it cost you to get to greece without a plane ticket now? Would you even do today on the freakonomics radio. The third no episode in our series on airline travel in part. One. We discussed the headaches. And benefits the flying part two. We heard of

the remarkable safety record of modern aviation, and today we are talking about the price of air travel, obvious things like ticket price but also environmental costs. Only solutions either you don't fly or use sustainable aviation fuel. Also, Would you rather own an airline or an airport at airport, because why? Because their monopoly and what is Maria depleted seeing on her journey, I ray airport- has to have a cinnabar. I think there's some sort of international law the. I'm happy

The test is freakonomics radio podcast that explores the hidden side of everything. With your host stephen dubner, the You ve already heard the first two episodes in the series. You know we spent some time in atlanta at the headquarters of delta airlines, which is one of the world's largest airlines. By revenue we did some safety training, we wrangled baggage. We watch the intricate choreography. That goes into getting a plain ready for take off and we spend a little time with deltas ceo at bastion gotta say a lot of great to be too thanks, it happens or founders office where a lot of the magic delta, guesses.

if you have amazing mementos, we got olympic torches in here we've got yankee stadium memorabilia. This is probably my favorite, the delta. Thank you fine, thank you to our people and our customers. What do I have you're going to have to fly a million miles ahead of you just have to know me. We can get you one. after reporting out the first two episodes in the series I had come to understand. Oh, I did not get a thank you plain to see now, but I now come to understand that a commercial airline is an extraordinarily complex business to run, and I asked at bastion to name the most difficult part. I say the most difficult art- is dealing with. Our political leaders were divided country. as you know, in your work that's where we want everyone to love us and eva. It's a real challenge at times to the building

have a gate and make certain that you're putting your people on your company first, when others want you to run in different direction and what's the relationship tween a big firm like yourselves and the federal government. Well, it's fairly extensive. They are regulator, they have a regulates, our industry on the political side, it's where it gets more challenging. For small, quite a few members on the hill, no delta. They take delta. So we all have a point of view on the brand and service, but at times they may. Different views on on issues- and here you gotta- be careful not to turn into a political actor here. Can you can Example. What kind of change they might want why things are always looking for advocacy on their their issues: by their societal issues, sustainability, environmental corporate governance and you want to stay above the phrase that I read in that you were twenty five before you boarded your first airplanes

true, that's true and your how old now of sixty five forty years ago so for someone is twenty five today and Sloan dozens, maybe hundreds of times. Can you explain the difference between acts? the airline travel now verses, then go back. Then air travel very much seen as a luxury as a was that only the rich could afford. I have a lot of routes. The pricing was controlled by the government is enough, travellers as a result were quite few and play. We're gonna way only about fifty percent full and around that time and bates seventies, early eighties, the day right we should act. Occurred in our industry, that allowed airlines to take a lot more control over pricing, which created a lot more competition. A lot more growth brought fares way down

the airline deregulation aunt was signed into law and nineteen. Seventy eight by present Jimmy carter. Until then, there was a federal agency that determine how much you would pay for applying it. I worked at the civil are not export and nineteen. Seventy eight during airline deregulation. That is seven born He's an economist at the university of California berkeley, the civil aeronautics board does made certain airlines to fly on certain routes and then they would set a price that was intended to be high enough for the airline to recover their cause after deck aids regulating prices. We were open all that up when maria deplore. This was telling us about her trip to greece, you may remember. She said she basically got on expedient to find the cheapest ticket. It turns out that's pretty typical, eighty three percent of u s heir

Others say that price is among their top priorities back when the industry was violated by the civil aeronautics board or see a b lines were not allowed to lower prices to win customer, so they had to find other ways to compete. They would compete against each other by adding more flights on the route. Since you couldn't cut the price, what you would do, they say we have the most flights and really matter to business travellers who wanted to be able to have their meeting ended early to go to the airport and quickly catch her flight home. So there competing on frequency. In other ways in service quality, by offering a piano lounges on seven, forty seven and they were gradually drive down the share of seats that were filled by adding more and more flights, and they would eventually get

the point that they weren't ernie a great rate of return on their investment. So they go back to the sea a b and they say we need higher fares and the baby would say: yeah, ok, we'll give you higher fares of truly, in the mid nineties, seventies people at the sea? A bee figured out that this was just an endless where we are raising fares and we're getting more and more empty, and this was very inefficient. That's where We had gotten too pretty he planes with very high prices. This system was k for the airlines, who were essentially guaranteed a profit by the regulators, and it was ok for trial learn who cared more about flexibility than price like business travellers, but for everyone else. It wasn't so good deregulation, change that The airlines figured out that most people would

other have a fuller flight, even if it was a little less comfortable in order to have much lower fares. The fares d get much lower. The average price today for a domestic round trip ticket is less than half, of what it used to be once you adjust for inflation, but if there's one thing we ve learned from economics. Its life is all about the tradeoffs. A cheap flight is not go to be the most comfortable few hours you have ever spent. The seat will be narrow. There may not be good food or any food, and if your flight gets delay or cancelled and you need to get on the phone with more service agent yeah. Well, let's hope you don't, but the airplane will get you to where you want to go someplace it a few decades ago, you may not have even thought about going multiply, you're one trip by a few million, a few billion and that is where we are now. Air travel has become part of our global infrastructure.

aviation is such a powerful force in our lives. Communication experiencing other cultures travel. To see family there's so much power in making aviation accessible. That is megan writer and from the university of pennsylvania. If we Add airlines that just operated a few flights. we had a system with just a few airports? We would have a completely different global economy. The reason is not an economist, she's, a transportation, our who sees herself is more of a consumer advocate. An economist, for example, might look at this from the perspective of the airlines. How can a maximum profits I am totally focused on Consumer and their mobility, how can we optimize mobility? How can we optimize excel? ability to eritrea

partition and transportation broadly so the conventional wisdom, at the moment at least seem to be the airline. Travel is chaotic and unpleasant and unpredictable, and too expensive even, but you could look at all that from a different perspective and say that airlines Well is a miracle of engineering and logistics and economics and for pennies, a mile, but much cheaper than auto travel. Even rail travel in a lot of cases, and I get from point a to point b really fast. Also, my risk of dying is much less when travelling by airplane, then by car, certainly over the equivalent distance so. If those are the two ends of the spectrum of how we see air travel, where do you land on that spectrum? Are you want me to pick a point out, It is a steam in your and my head. Those are the two areas, Where I live, I respect how incredibly expensive and complex

is just to get an aircraft off the ground. However, I think that its human nature it's in our spirit. To always on better. I think the aviation system is definitely a work. Progress and can improve significantly before deregulation. Only about half of all americans had ever been on. Play today. That number is ninety percent at bastion again from delta it's one of the top economic drivers in our country. Our country is so large is allowed families to spread out to live in different parts of the country without feeling like they ve left home for good. It brings people together. I The impact that travel has was never more obvious when it was taken away over the last couple of years by the pandemic high level of anxiety and angst,

trust that we witnessed, some of which clearly due to the disease, but I think another big part of it was to the fact that people were unable to be gather and on an international scale, considering this history is so vital one. Does it have such a thin profit margin was highly competitive We have a lot of airlines in our a tree and in our world, and we all for on marginal economics when that plane takes off the last. Chance. You have to sell that seat is ten minutes before the door closed so there's an automatic spyware that occurs. Unlike may be many goods that you can put on a shelf and wait till you get your price. We don't have that luxury. It say industry with its highly technical way of ninety thousand people, but the majority that perform responsibilities that require a significant amount of skill and training and expertise and as a result as high labour costs. The planes are very expense.

ranging from fifty to two hundred million dollars. Apiece the simple way in which we propeller places fuel jet fuel and is the most expensive type of feel In the day they energy commodity space. On the one hand, the cost structure the cap are required, as is high. However, the new environment. Changes by the hour. Put that mixed together. It in its work is people like me, engaged erica's is like a rubik's cuban euro is trying to solve for delta. Like many other airlines has nearly recovered from the pandemic drop in travel last year they recorded a pre tax income of two point: seven billion dollars on operating revenue of around forty five billion dollars, their single biggest cost is labor, and the recently gave their pilots a bit raise an across the board raise for all other employees after wages, Their second biggest cost is jet fuel and fuel costs

incredibly volatile. That's the economist Severin born steen people often quote numbers of the share. The total costs that are fuel and they're always wrong, because sometimes, be as low as ten percent of the cost of airline, and sometimes they can be as high as fifty percent in what is a bastion say out deltas fuel costs, on average fuel prices, fluctuate to say between fifteen to thirty percent of our car space delta spent eight point: five billion dollars on fuel in twenty nineteen. The year before covered last year, they spent more than eleven billion were used to hedge financially, hedge feel, trying to level out. But when you have a commodity that as well although as fuel in hedge on a longer term basis, it's very expensive we lost in, in our business a lot of money, hedging fuel, the one thing that we have done differently:

Ten years ago, we bought our own oil refinery, which is outside of philadelphia, because it's not just the cost of the crude is too close to the crack. The refining process, that, u turn crude into jet fuel, and that crack currently runs away from fifty to seventy. dollars a barrel. On top of the hundred dollars a barrel that you're saying on the crude market by owning Refinery were able to save the cost of that crack and actual just paid and eliminate the middle man, the market impact and just incur the cost of real production. So This year, the refinery probably save us eight to nine hundred we dollars as compared to airline that spain for the marketplace. I remember reading about that way back when, and I thought well, if this is successful, the other airlines will do it. It sounds like it has been successful, and yet the other american airlines have not done that. Why? Well it's complicated area Big refinery is almost as complicated as running a big airline, but you have to have

other set of skills. The second impact is that, because we're in their doing it, ensuring that supply of jet fuel stay. Hi cause. The other incentive we had was particularly new europe. Without the growth with had new york, prices were particularly high because refineries were being closed along the east coast. delta, going in and turning because it was a close refinery way turned it back. On we immediately drop the clause to Jeff feel in the new york marketplace by fifty percent cent. Wow so the other airlines are kidding a benefit from deltas environments waiting for those thankee notes, the dollar past of jet fuel, is one there is also the environmental cost of burning all that fuel. We represent three too Four percent of global emissions- that's gregg, foreign, the ceo of air, new zealand

sustainability is probably the most wicked problem that we have to solve. A wicked problem is management speak for something that seems nearly impossible to solve because of its complexity and competing interests. the good news is that big airplanes have become much more fuel efficient here is the economist, woloda, mere block catch author of a book called the economics of airlines by some ass. As each new generation of jet engines has been about twenty percent, more fuel efficient, the previous generation, one thing that has been happening: the field of aircraft manufacturing is that aircraft are becoming a lie. There thanks to the use of composite materials, as opposed to the elements more aluminium, never learned how to pronounce that correctly. Indeed, new aircraft around eighty five percent more for

efficient, then new planes from nineteen sixty six. The bad news is that there is a lot more flying today than it was in the nineteen sixties. So, as gregg foreign point airline travel adds up to three or four percent of global greenhouse gas emissions. He says it hybrid and electric Teens could come online relatively soon, at least for shorter routes. Here's what ad bastion from delta told us. We made an investment in a company called joby. Recently jovi is a veto operator. It's an electric vehicle take off and opera avert. we'll take off left and what they are, their small planes they'll set somewhere between four and six people, they'll, be very ports, indifferent, neighborhoods and and geographies around large metropolitan areas. Initial,

there will be a pilot on that plane, but over time it could very well be autonomous and fly it to anywhere thirty fifty miles wherever that route is going but again those are small short haul flights. Here's red foreign and it's gonna be good, but really are only going to deal with twelve or fifteen percent of our global emissions because far and away the Two missions that we create care without long haul flying on long routes, the options are more limited Really, the only solutions they era idea, don't fly. or use sustainable aviation fuel sustainable fuels are typical made from biomass and waste sources, and they release up to eighty percent fewer emissions than traditional fuel and one of the chair. just with sustainable aviation fuel is set, demand exceeds supply and the price

since three to four times the price of fossil fuels south. It costs to feel guys up by three hundred the scene. what does it do to demand for air travel yeah. What would that to demand, and what would you do that ticket prices. We have all been accustomed for a long time now to cheap fast, fuels and for a few decades we ve been accustomed to cheap air travel coming up after the break. How exactly do airlines make their money and when airlines merge, which they do all the time is that good or bad for customers, I'm stephen governor. This is for radio. We will be right back Let's go back to the time just before covert stopped everything, including most air

travel gears, Sarah nelson flight attendant united airlines and president of the world's biggest flight attendant union. a month earlier, delta, celebrating major profits and handing out profit sharing checks, the merit The air was saying we're, never gonna lose money again United airlines has just announced a huge training facility and then a man. Later there going with hat in hand congress and hang we're not gonna make it has ninety percent of demand dropped off in congress said. Yes, here is bastion, the ceo of dealt airlines over There is of, I think, three tranches there was about eighty month period. The industry received in total. Around fifty billion dollars delta received around ten billion, it was allocated based on site of the airline to pay roles of the airlines, and all airlines participated in it. No longer

well might say. Well, I had a really tough time too, during covered financially and in other ways- and I was in getting bailed out just doesn't seem fair, Hetty answer that there were a number of reasons why the bailouts work radical, on the industry would not have been able to survive what happened during the pandemic, where large scale operations on a global basis that were by law. shut down? The international skies were close, we're not legally allowed to fly too. Many of our major markets around the world, which was a government action, is the responsible action, but it wasn't something that delta dead or any or london second lee. They are ways, however, in the u s needed to stay open, even if customers were flying, because we needed medical work person supplies to get around our large country. Air travel is, is a critical part of commerce as well as society. We could not have flown unless the government was willing to support us

but also in turn for receiving the bailout money, as has been called A- I don't think about it, I think as a subsidy for for covet. We agree to keep the airways open and and to lose lots and lots of money. Third, all that money went to our employees go to the airlines. It went to maintain our employees, so we didn't have to follow and employs which met. They were positioned when the market reopen. Could you owe me. In the spring of this year. When people decided there are going to travel. If we hadn't supported the airlines, it would have been a disaster. You'd have airlines and bankruptcy. You'd have had planes other. This is very much by the way what you see around the world international markets. We want to see what the? U S, airline is. Surely look. I go look at europe this summer and the difficulty getting staff in the long lies and lost baggage, and I'm proud of our administration were standing by

the responsible thing and by the way we have to pay back. Thirty percent of that and the government also took more than in the ownership stakes of the airlines in return for it. So the government got a good return on its investment, including the payroll taxes, and the other forms of support that are employs. Pay to the government which they would have otherwise paid? Had they been laid off a delta and the other big? U s! Airlines are public. we traded firms whose relationship with the government can be. Let's call it complicated. In many other countries there are so called flag carriers that are owned by the government. The gulf states are good example. U s! Airlines. Lake delta have complained that this puts them at an unfair disadvantage. It's hard to compete in the international market against companies whose government buys the peace means and sets ticket prices low in order to promote the country itself

Well, every airline has always complained about foreign carriers and said that their subsidized, that again, is the berkeley economies severin borenstein. The foreign carriers could certainly point So what happened during covered and huge bail out that the airline industry, god and say, wait a second year subsidizing your airlines as well david in yemen, is the founder breeze airways. In the u s before that, he found a jet blue and a jewel airlines in brazil. I asked him about the foreign subsidy complaint yeah its legitimate. You know you know it's all has to compete against american delta and we got zero money for the brazilian government and they got to billion dollars in the? U s government, so you know It's one of those facts of of life and Our two makes a lot of money international, but I'm sure they make more domestically. It's this kind of part of the big part, a soup

We ought to deal with every day. So, David from what I can tell the airline industry is just hard it's complicated. It requires a big and expensive network, you also have to engage intimately with the people using that network, unlike industries like telecom for oil and gas, so Would you say the airline industry is different from other. And what are some of the key difficulties? Yeah difficulties capital intensive its human intensive, so you have a life expense. assets, billions of dollars of assets, your son. Two pandemics, two recessions, the first thing. People do as they buy food, they get shelter, they don't think about going to florida. You know that's something. When you have leftover money, high fuel prices are you have a budget out. The sudden you have some kind of world shock or you have awarded breaks out Your costs just went up. Seventy five million for the year.

Ok, we raise our affairs behind recapture homepage, so you can. Make a lot, and you can lose alike were above, it said, vest waiting make a million in the airline visits started, a billion at least Warren Buffett may have said that is famously sour on the airline industry it may have. I've been richard branson, who said it and he did start an airline. In any case, there is no now that running an airline is complicated and expensive. The economist seven born steam is on the way. Hand, sympathetic, airlines face incredibly vote it little demand and they have huge fixed costs. So when you put those factors together, this is going to be a very boom and bust industry. I think there is no way around that, but born students, as the Airlines relationship with the government provides a big safety net.

Airlines, are very pro markets right up to the point until the markets don't give them revenue, and then they decide they really need to be more integrated. With the government we bail. The airlines after nine eleven, we bail them out again during covered argued against these bail out because either If the airlines go bankrupt, we don't see the airline industry go away, we just see it Organize and shareholders lose all their money, which is what supposed to happen when airlines, can't pay their real or any firm campaigner bills bud. I think politically. That is what happens. Sarah nelson from the flight attendants union also remembers the nine eleven airline bail out and she didn't like, where the money went too much to the airlines themselves, not enough to employees. I had a front rose, to that end. I said this is not going to happen again and so, when congress,

talking about a covert bail out. We put together a plan, and for relief that was based on keeping the workers and their jobs. We are all Had a lot of other demands. Capping executive pay banning stock by acts and dividends. Seats on I'm boards neutrality in union, organizing, we didn't agree, all of the things in the programme, but the basics of this being a workers first part I'm keeping people in their jobs, which would then allow us to meet the demand when the man came back, so we have learned quite a bit, but what it costs to run an airline about the volatility in the complexity hearing how airlines make their money when they do here again. is advanced chicken from delta the majority over Eighty percent of our revenues come from ticket revenues and an hour

ready to sell, not just the tickets, but they upgrades to premium categories. We do have a cargo business is it does well, it's maybe percent of the total revenues of the airline was higher during the pandemic and another huge source of revenue for us. Our relationship with american express and the credit card that we work together on. We are american presses number one partner over ten percent of the worldwide billings of all americans press pro Go on that the delta co brand card. I've read that you take in hundreds of millions of dollars a year from your loyalty program skymiles. I don't understand that I would assume that's a a cost center, not a profit center, while the loyalty program is exactly what I mentioned here. So american express this year will pay us over five billion dollars for access to the sky miles at they reward their customers. On the card. I see I see.

Going back to cargo for a minute, I understand delta is a big carrier for: u s p s mail. Also, we are weak areas. a hundred million dollars a year. We have to bid the contracts, we were close it with the postal service try to make sure that our planes are reliable time, getting the not just our past years, but the male where they need to be on schedule. You make more money per pound on male cargo or on, let's say, a coach passenger. Oh it's definitely on our passengers. Ok Now we ve all read that if airlines, have their business travellers? That coach, maybe wouldn't be possible? basically premium were the first class or business whatever you want to call it essentially subsidizes the price of coach tickets. Can you break that down? For me, no question that if you think about the real state of an airplane, the premium cabins on the plane

outside amount of revenue impact as compared to the main cabin. When we think about tolerance, the news and I'm including american, express and the loyalty plans on including cargo etc. Over sixty per cent of our revenues are coming from a non main cabin component, meaning that the main cabins only carry about forty percent of the total revenue, and that number continues to date What does this heavy reliance on business travel mean for non business travellers? It means if an airline has fewer business travellers, they may to raise the price of coach tickets and, as of now, airlines are seeing fewer business travellers, domestic business people in the. U s is only around sixty seven percent of what it was before covered international. Business travel is only at fifty four percent here again the economist

seven born scene. If business travel doesn't recover what we all agree, julie, see as a smaller airline industry. With less frequent, service on many routes and potentially higher fares for the leisure travellers, because the business travellers or not, they are driving the revenue in their attempt to maximize profits. Airlines practice what is called yield management. This means they are constantly adjusted. prices defined, the real time sweet spot between supply and demand, here's a bastion from delta. It's pretty complicated the industry releases over a thousand prices a day, three times today you and put your pricing and it's an auction. You customers, a popular rout, can buy up We in europe want to make sure that your your saving seats for the latter part of an itinerary and an airline all

wants to save seats for last minute, business travellers who were willing to pay a premium price. Here is seven born scene pricing memo I got a hold of as part of an anti trust investigation, from northwest airlines basically said to its people, who operated the pricing system. You never cut prices in the last few days, even if the flight is not going to be fine because you are much more likely to end up cutting the price for a business traveller who would have paid for fair, then bringing in any new travellers at the last minute, and so they were definitely thinking about this. it off, on the one hand, lower prices will fill up the plane, On the other hand, those passengers who would have flown anyway, you want to make sure you keep a higher price for them. The anti trust destination that born steed mentioned that happens quite a bit in the airline industry usual.

Tied to an airline merger such as the murder, as between delta northwest, twin united and continental, tween american- and u s heir These were major carriers. There, were merging each arguing. Well, we need to be big in order to compete with the other big airlines and asked summer, jet blue announced plans to buy the ultra low cost carriers spirit. This would create the fifth largest: u S, carrier behind delta, american, united and southwest Executives from jet, blue and spirit, say, the merger would help them compete with the bigger airlines and would therefore be good for consumers. The justice department disagrees. And recently sued to block the merger jet blue and spear, or both big in florida on some routes there, a combined

blue and spirit would control more than seventy percent of the flights, so what's the best way to think about airline merger generally. It depends on where you're sitting here is megan writers and transportation. Scholar at pen, whose focused on making short sumer can get where they want to go here. So I think about the impact of a merger. have to airlines putting together their aircraft, their pilots, their crew, all of their resources Of course, this optimization is going to result in reducing operations in areas where they both surf, they're gonna cut flights and airfares could go up in that market But now they have some idle aircraft and idle pilots and they might be able to open up service in new location. Sir, add frequency to a place they ve always wanted to add frequency to one possible downside to mergers is that

we have fewer airlines to hold each other accountable for good service You always see on social media people say: oh, I'm never flying this. Line again. That rings kind of her. low, when you only have four five airlines to decide between I'm sitting here in philadelphia american as my hub airline. If they provide me with bad service today, I'm probably still gonna could take it on them. When I need to go to a one day meeting- and I wanna nonstop flight baron back so would you prefer to see early or at least nationally organised refunded airlines system. In the. U s, I think we were there and the result was a very high fair. Very inaccessible to most people, air transportation system, new posts, regulation use us, so many more people be able to fly, but at same time. I would like

to see more protection of our consumers. I'd like to see or protection of competition and ferris economists love to talk about the economies of scale the benefits and cost savings you get with a bigger aberration. But even economists acknowledge that too much consolidation in a given industry can hurt consumers, and lately it's hard to find an industry that hasn't undergone big time. celebration. On this show alone, we ve talked about consolidation in the pet care industry. Dialysis industry and more I asked delta ceo at best. to imagine. He was speaking at a Senate committee hearing about airline consolidation, and I want to hear argument in favour, I think consolidation

has been a great success for consumers as well as the employees of the airline prior to our acquisition of northwest there. roughly ten big airlines in the united states, you'll all of pretty good sized our ability as an industry to invest in the quality the service, the reliability of the product, the premiums, the international scope, that minds need to do in order to to be sustainable, was non existent. We were jumping from bankruptcy to bankruptcy and and so If low prices are your principle focus from a consumer standpoint, you can provide low prices high quality of service and reliability, those or income I did what you did scale to be able to drive that, so you look a delta northwest back then, in two thousand, nine today were more than twice the size

of what that entity was combined just ten years earlier. If you were looking to just profit maximize to act as a pure economic, Would you rather own an airline or an airport and airport, because why, because their monopoly or not no one's were now we might be updating the existing ones, so they they control access to a market. The vest, georgie them are publicly owned, meaning there owned by the municipalities. Could be a city, it could be a state, there could be a regional operator, and here we treat them as you would a landlord, were we rent space from them we invest in them like we have reached. lay in new york and l action. A few other locations weed I don't own the place, but we have a a long, long lease that goes out to probably at least fifty years and

so we treated as if we ended our airports really suffered from lack of investment, not just by the airports but the airline themselves, and we've set out on a path over the last decade to improve the ground experience for our customers. Another way you can do that is invest in the infrastructure locally. The reason they're so expensive is that airports by and large you have to rebuild them on the a piece of land that your operating we can close him for six months and and so that makes it a very difficult form of real state. Development, but when we get it right, and that was one of the silver linings of the pandemic, us we were able to close, friends of the airports and accelerate their development. You look at eight, a beautiful thing which has stolen, The guardia bashir and I hear from customers. And sometimes I think they landed at the wrong city. They think they landed some big international airport right now. It's actually the board it. Even if you have never,

been to look wordy airport in new york city. You ve probably heard about It- may be back in twenty fourteen, When then, vice president Joe Biden said this, if I took him livelier took it all aboard airport in new york, you must think I'm must be in some third world country, one, not joking. Coming up after break. We visit the new local area and we hear people say things that you never would have heard them say about the older cornea. I think it's the best thing, I'm stephen Dublin. This is free climates, radio and we are about to begin our fight well dissent on this airline series. Talk to you in a minute the in two thousand and fourteen when Joe Biden, trashed laguardia airport as third world,

that got the attention of new york's. Then governor Andrew cuomo. He fast tracked the development of a new terminal terminal be at the guardia airport, which is owned by an agency called the port authority of new york. and new jersey. This agency has a reputation for being. How do I say this bad law of people who live in new york and new jersey, think of the port authority as the worst kind of slum lord. The new terminal be at the guardia had a chance to change it reputation at the same time, delta air I was putting four billion dollars into renovating bear terminal at the guardia terminal sea, which is also owned by the port authority. We stopped by the guardia not long ago, to check out the new terminal b sort of england- are integrated operations centre, so these are some of them doors that, when you're passenger and airport wonder what's buying

wonder what my tour guide wasn't: affable, canadian named frank, screamin and the executive officer with Laguna gateway partners, the guardia gateway partners, is the private firm that redeveloped and now operates terminal, b is aware below, but different then bring an entire airport because we're running an isolated terminal. So in our case we could rents from our airline partners and we generate rents through our commercial concessionaires. We pay. Rent port authority and that's really the the basics of it, the guardia gateway part This is a consortium of for firms led by vantage airport group. They are vancouver, developer and airport, operator that's owned by a subsidiary of a new york, private equity, firm, called corsair capital. You got all that welcome to the world of public private airport partnerships and how common are

Such partnerships and where, let's ask the authors of a research paper called all clear for take off evidence from airports on the effects of infrastructure, privatisation, I'm so we know how I'm an associate professor of finance at and why you stern, ok, here's one thing that just puzzles me: I look at the diagram in your paper of private ownership of airports. The whole global map is just dotted with dots, dot, dot, dot, dot, dot, taking all these privately owned airports Get to the? U s and lake almost empty. Why? Why are we different, so you're right about twenty percent of airports are privatized, but that goes up to thirty six percent. If we exclude the? U s and China, now china

might expect, but we were initially surprised that the? U s, which we might typically think of as a bastion of free market capitalism, has no privatized airports. So the reason is that the? U S has strong incentives from the federal government for airports to remain publicly owned and operated that don't exist in most other countries. So if I didn't know any better, I might think when you say the federal government has strong incentives. I would say: oh that's, because our federal government cares about us and our by lee harm they wanted to I've safely not crashed and therefore they want to control the airport from the top to the bottom inordinate habit. a safe experiences that the real

Are there other reasons? Well in practice, the reasons that you at airports are not privatized is first, that they can raise tax exempt revenue bonds where investors in bonds issued by private companies have to pay tax on the interests they are, so that makes it really hard for private debt to compete and second, the airport can receive big federal airport improvement programme grants. If they commit not to making a profit from airport operations. If you listen between the lines to what he was saying, you might find yours, thinking. Oh that's why american airports are often crowded, slow and unpleasant their owned by people. in entities they don't have much incentive to make them better. That's the trend let the guardia is trying to shift from. Screamin, did bring us behind some closed doors. He showed us their high tech baggage, sorting system. He showed up

operations centre in in a back office. He showed The poster mounted on the wall so. This is our. We just had a little bit of fun with this, so this is kind of before and after these are actual tweets and headlines, and all that sort of stuff read that one for me remember when, at Joe Biden called at laguardia airport a third world country, while it's still Amanda your times, article F, every seventh, twenty fourteen said some see violence, description of the guardia as third world as too so that was off before I applaud your of the strong negative results, but the sentiments changed substantially so of the more shocking developments of my lifetime, the new terminal- be it the guardia, is really damp. And do you think that even the deep and sceptics would be one hour. I think some of them have been whose doing a tour with an airline and gentlemen came up to me and said you work here, as we said, yes, because I wasn't sure what he was going to say

this is, I gotta tell ya I deliver anymore, but I'm from new york. Originally this places on how you guys did it, but it's unbelievable I have to tell you: two weeks ago I landed the guardia and I walked into terminal be from the jet bridge. That, again, is the end you economist, sabrina howl. I swear I thought to myself: oh no. gone to boston by midday and I stood there forever moments totally disoriented by the change demanded the ceilings are leaking. Where am I exactly where's the prisoners that ec her? So we saw a pretty successful outcome where the guardia transition from being sort of an infrastructure, health cape to a really big

the fall terminal with much more capacity and much more amenities, the art and fountains and so forth of the new laguardia are terrific and, I think, speaks to the degree that airports play this role as civic spaces public spaces, and I think reflect this really complex contracting that the port thirty dead with this investor group and not an example of a new public private partnership. For u S, airports at the port of pretty is pioneering. That's leveraging private capital in particular, the amount of debt that private equity sponsors can arrange in order to finance what are now very costly projects, and what is your research suggests will be the longer term effects of this kind of public private redevelopment. What do you mean? did we will see, especially in terms of customer costs and level of service, in this case the guardia we ve seen so far is a really successful capital expenditure redevelopment. Whether private equity is

well suited for ongoing operation of the terminal and in particular, being responsible for negotiating with the airlines negotiating retail leases in a way that benefits consumers, was to be seen in the u s, but what we find internationally suggests that it can be pretty successful. What we find is a consistent picture in which info Structural funds, that is to say, p? Ownership improves airport performance across a range of measures like increasing overall passenger traffic, the number of flights freight traffic, the number of root served by the airports, increasing passengers per flight. That's an important efficiency measure and we also show that private equity owned airports and to win more quality awards and reduce flight cancellations, which probably is the biggest nuisance from the perspective of us travellers. If I ask you

What do good airports do well and what do bad airports do poorly? What would you say? Good airports serve more passengers and more flights and more routes. They have higher quality amenities in the terminal and offer a better passenger experience. I think a bad airport has excess capacity. City that it's not using well, so we see airports with gates that there using with space that they're not using. They don't aggressively, try to get better stores, better restaurants that will draw passengers and revenues, and they don't invest in improvements being Events at the gourd use new terminal be are dramatic, frank, screamin walks us through the concourse. We check out the restrooms, the shops and

strong. It is all brand new and shiny, of course, which helps will see how it looks in a few years, but still it is nothing like the old. The There is a lot of natural light. Ceilings are high and they're not leaking There is some water coming from the ceiling, but it is a legitimate water feature com full whimsical, something you expect to see. A vegas hotel on disney property is apparently the first of its kind in an airport anywhere in the world, and it is that the guardia you must think I'm must be. Some third world country, the water feature comes alive, every fifteen minutes and all the passengers we spoke with, a similar response, a loving variant

I should like to see the world their music transferred transport to yield to the magic place. I think it's fantastic just makes you happy makes you feel happy just makes you happy those are not words you used to hearing. We talk about airline travel or airports, especially in less you're talking with Maria deplete us, member her. She was on her way to visit her family in greece, things, always go wrong. You might have a flight that gets delayed. There might be a mixed up with your luggage. You might end up sitting next to someone wearing too much cologne, but I think, as a concept, air travel is just in I a bunch of strangers floating in the sky together in a giant metal container hers, seven hundred dollar ticket on klm royal dutch airlines brought her first from

and cisco, to Amsterdam, where she made this recording? I think that there is this, unity that happens in airports where doesn't matter where you're from doesn't matter? If you don't you in the same language, where all doing this incredible thing of air travel and we our from all over the world, but just at this moment in the same place, time there's, not a lot of things that have that way bringing together from Amsterdam. She flew on to athens and then to the small greek island where her ailing uncle lives. You don't. To understand greek, to understand what happens next, if you're lucky, it's happened to you yes, it does

So this is the very start at each still there thanks for travelling with us these past few episodes. We know you have many pod guests to choose from, and we appreciate your choosing hours coming up next I'm on the show. Why Are there so many bad bosses until then take care of yourself, and if you can What else do I a mega taxi there? Now? I know

We cannot treat it was produced by stitches in rainbow radio. You can find our entire archive on any pod cast app or at freak anomalies, dot com, where we also publish transcripts and shone out. This series was produced expertly. I would say by ryan Kelly and mixed by gregg weapon. We had recording help the guardia from jason, pina and in atlanta from Evan profound special thanks, listeners who sent in their travel diaries two million bates for helping organise them. Our staff also includes zack kinsky, morgan levy, catherine monkey, lena common, rebecca the Douglas Julie, camphor Ellen osborne, jasmine, cleaner Jeremy, Johnston, dairy a clinic immaterial near bout. It and Elsa Hernandez the executive, tee of the frequent I'm sorry your network is milk, Ruth Gabriel wroth and me stephen governor, our theme song, is MR fortune by the hitchhiker's, all the other music is composed by luis gara, as always thanks, philistine

I don't want see just the successful stuff. Can you give me at least some drug smugglers or I dunno? If we can, I dunno if we can promise that one that one might be a bit tough, the freak radio network, the head inside of everything the stitcher.