Earlier this week, Rep. Dave Brat (R-Va.) introduced the Free to Fly Act, which would eliminate a generations-old anticompetitive federal law governing domestic airline ownership. Originally enacted in the 1920s and strengthened during the Great Depression in the 1930s, these restrictions require any air carrier wishing to service domestic routes to be at least 75-percent owned by American citizens.
This cabotage restriction, similar to the Jones Act’s domestic freight maritime industry protectionism, is not unique to the United States. But the U.S. ownership restrictions are the most harmful, given that the United States is the world’s largest aviation market.
When Richard Branson began operating Virgin America in 2007, most never knew that the famed British entrepreneur was largely there for branding. Branson only held 25 percent of the company. The rest was controlled by a New York hedge fund. When Virgin America’s board voted to approve the merger with Alaska Airlines in 2016, Branson publicly expressed disappointment, but could do nothing due to his government-limited influence on the company.
Rep. Brat’s bill would strike the supermajority American citizen ownership requirement, replacing it with a provision that allows foreign capital to invest more heavily in U.S. air carrier capacity, but would require foreign-owned airlines operating on U.S. domestic routes to set up U.S.-based subsidiaries that would only be allowed to employ legal U.S. residents.
So, while not completely eliminating the anti-foreign, anticompetitive bias in American aviation law, Rep. Brat’s bill would allow for far more airline competition than the status quo. For that, Rep. Brat deserves praise for highlighting an obscure but harmful anti-consumer federal law. Many pundits have raised unfounded concerns about reduced competition in a more consolidated airline industry. Some have made similarly unfounded appeals to antitrust law enforcement, such as left-wing polemicist Matt Stoller. But rarely do we hear calls from these industry critics to actually eliminate the primary source of limited airline competition: existing federal “protections.”