AIRPORT CONGESTION: A Case of Market Failure by Murray N. Rothbard
4 min readSep 16, 2019
Privatization vs.
Government Ownership
Airport Congestion—
A Case of Market Failure?
Murray N. Rothbard
The press touted it as yet another chapter in the unending
success story of “government-business cooperation.” The
traditional tale is that a glaring problem arises, caused by the
unchecked and selfish actions of capitalist greed. And that
then a wise and far-sighted government agency, seeing deeply
and having only the public interest at heart, steps in and cor-
rects the failure, its sage regulations gently but firmly bending
private actions to the common good.
The latest chapter began in the summer of 1984 when it
came to light that the public was suffering under a 73% in-
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crease in the number of delayed flights compared to the pre-
vious year. To the Federal Aviation Agency (FAA) and other
agencies of government, the villain of the piece was clear. Its
own imposed quotas on the number of flights at the nation’s
airports had been lifted at the beginning of the year, and, in
response to this deregulation, the short-sighted airlines, each
pursuing its own profits, over-scheduled their flights in the
highly remunerative peak hours of the day. The congestion
and delays occurred at these hours, largely at the biggest and
most used airports. The FAA soon made it clear that it was
prepared to impose detailed, minute-by-minute maximum
limits on takeoffs and landings at each airport, and threat-
ened to do so if the airlines themselves did not come up with
an acceptable plan. Under this bludgeoning, the airlines
came up with a “voluntary” plan that was duly approved at
the end of October, a plan that imposed maximum quotas of
flights at the peak hours. Government-business cooperation
had supposedly triumphed once more.
The real saga, however, is considerably less cheering.
From the beginning of the airline industry until 1978, the
Civil Aeronautics Board (CAB) imposed a coerced carteliza-
tion on the industry, parcelling out routes to favored airlines,
thus severely limiting competition, and keeping fares far over
the free-market price. Largely due to the efforts of CAB
chairman and economist Alfred E. Kahn, the Airline Dereg-
ulation Act was passed in 1978, deregulating routes, flights,
and prices, and abolishing the CAB at the end of 1984.
What has really happened is that the FAA, previously
limited to safety regulation and the nationalization of air traffic
control services, has since then moved in to take up the torch
of cartelization lost by the CAB. When President Reagan
fired the air-controllers during the PATCO strike in 1981, a
little-heralded consequence was that the FAA stepped in to
impose coerced maxima of flights at the various airports, all
in the name of rationing scarce air-control services. An end
PRIVATIZATION VS. GOVERNMENT OWNERSHIP
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of the air-controller crisis led the FAA to remove the controls
in early 1984, but now here they are, more than back again,
as a result of the congestion.
Furthermore, the quotas are now in force at the six top
airports. Leading the parade in calling for the controls was
Eastern Airlines, whose services using Kennedy and LaGuardia
airports have, in recent years, been outcompeted by scrappy
new People’s Express, whose operations have vaulted
Newark Airport from a virtual ghost airport to one of the top
six (along with LaGuardia, Kennedy, Denver, Atlanta, and
O’Hare at Chicago). In imposing the “voluntary” quotas, it
does not seem accidental that the peak hour flights at
Newark Airport were drastically reduced (from 100 to 68),
while the LaGuardia and Kennedy peak hour flights were ac-
tually increased.
But, in any case, was the peak hour congestion a case of
market failure? Whenever economists see a shortage, they are
trained to look immediately for the maximum price control
below the free-market. And sure enough, this is what has
happened. We must realize that all commercial airports in
this country are government-owned and operated— all by
local governments except Dulles and National, owned by the
federal government. And governments are not interested, as
is private enterprise, in rational pricing, that is, in a pricing
that achieves the greatest profits. Other political con-
siderations invariably take over. And so every airport charges
fees for its “slots” (landing and takeoff spots on its runways)
far below the market-clearing price that would be achieved
under private ownership. Hence congestion occurs at valua-
ble peak hours, with private corporate jets taking up space
from which they would obviously be out-competed by the
large commercial airliners. The only genuine solution to air-
port congestion is to impose market-clearing pricing, with far
higher slot fees at peak than at non-peak hours. And this
would accomplish the task while encouraging rather than
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crippling competition by the compulsory rating of underpriced
slots imposed by the FAA. But such rational pricing will only
be achieved when airports are privatized— taken out of the
inefficient and political control of government.
There is also another important area to be privatized. Air
control services are a compulsory monopoly of the federal
government, under the aegis of the FAA. Even though the
FAA promised to be back to pre-strike air control capacity
by 1983, it still employs 19% fewer air controllers than before
the strike, all trying to handle 6% greater traffic.
Once again, the genuine solution is to privatize air-traffic
control. There is no real reason why pilots, aircraft compan-
ies, and all other aspects of the airline industry can be private,
but that somehow air control must always remain a national-
ized service. Upon the privatization of air control, it will be
possible to send the FAA to join the CAB in the forgotten
scrap heap of history.