What would happen if feds cap airline change fees?

Once upon a time you bought a plane ticket from point A to point B and it included a seat assignment (unless you were on Southwest), luggage (checked or on-board), and maybe even a snack or meal.  Now everything has been unbundled, with separate charges for seats, luggage, priority boarding and so much more.

Congress is considering an intervention by capping the amount airlines can charge for changing a flight reservation.  Currently American, Delta and United all charge $200 to change a reservation for a domestic flight.  According to WSJ, US airlines collected $2.9b in change fees last year.

What would happen if Congress put an upper limit of, say, $150 on change fees?  Standard economic analysis would interpret this as a price ceiling that would have unintended side-effects.  Airlines have already warned that they would raise fares and other fees in response, along with making fewer tickets changeable.  They also point out that customers who want more flexibility can pay for it when they buy their ticket by paying a higher fare.

But here's another thought.  The US domestic airline market is now very far from the competitive ideal of economics textbooks.  Price ceilings imposed on monopolists lead to lower prices AND increased output as long as the price provides a competitive rate of return.

My take: passengers and airlines have both benefitted from airline deregulation in the late 1970s.  Fares are much lower, more planes are flying and those planes are full.  What would really help customers is more competition.  What if we let foreign airlines provide domestic service?

Free gas in Caracas

Gas in Venezuela costs less than six cents per gallon.  This has helped maintain political support for the ruling party, but as a recent WSJ piece points out, has been ruinous for the economy.  Every gallon of gas sold is a missed opportunity for government revenue; Venezuela's budget deficit represents 12% of GDP.  Consuming gasoline at home rather than exporting it means that the country has shortages of goods such as milk and flour.  Another example of the extortions resulting from price controls. 

Price controls in Iran

Today's NYT has a front page article on Iran's debate about phasing out subsidies for gasoline. Despite being an exporter of crude petroleum, Iran has to import a large share of its gasoline because of insufficient expertise and capacity. Three immediate reactions: (1) Iran must realize that sanctions are on the way and that they need to start making adjustments now; (2) the subsidies are being withdrawn and replaced by a new scheme that tends to favor supporters of Iran's theocracy and penalize the mullahs' political opponents; and (3) most shockingly it shows that NYT news reporters understand basic economics:

There is widespread agreement that selling everyday goods at far below market prices, which costs the Iranian government an estimated $100 billion a year, makes little economic sense. It encourages over-consumption of gasoline and other products, discourages domestic production and makes Iran more dependent on imports, economists say. The subsidies are also regressive, because the rich pay the same artificially low prices as the poor and consume far more. And they encourage smuggling.

Maybe we will see the same understanding the next time NYT runs an article on the minimum wage or subsidies for "next-generation" fuels. Maybe not.