November 8, 2012

No Free Rides for Delta

If you regularly follow the blog, you know that officials in Columbia, Mo., offered a revenue guarantee to American Airlines to entice the company to start flying into mid-Missouri. Delta, which has serviced the Columbia market for four years, was offered no such deal during that time. Columbia Mayor Bob McDavid announced on Tuesday that the city offered Delta a $3 million deal. This was an attempt to quell Delta’s negative response to American’s financial aid from the city.

Well guess what happened. Delta declined the offer, and announced it will exit the Columbia market in February 2013.

I said it before and I will say it again: what were Columbia decision-makers thinking?

They interfered with the market by offering American a revenue guarantee, which is essentially a subsidy. Delta officials had to step up and say “hey wait a minute — this isn’t fair if we are competing with an airline whose flights are subsidized by the government. We cannot compete with that.”

Columbia then found itself in a lose-lose situation. The city would have been out another couple million dollars if Delta accepted a deal that matched American’s, forcing taxpayers to spend even more. Or, Delta would decide to leave an unfair market and the city would lose the options they worked hard to grow at the airport, which is what happened.

What happens in two years, when the revenue guarantee for American ends? Will the city extend the deal, or just hope that the market suddenly becomes profitable? It is not prudent to subsidize a market that would not survive on its own just because someone likes the idea of it. I hope this will serve as a memorable example of the damaging consequences of government intervention in the free market.

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