How to Cure Air Rage

US utility experience suggests practical means to enable Canadian consumers to assert themselves

By Aaron Freeman

  Bruce Hood doesn't get it.
  The federal government's air-travel complaints commissioner can't figure out why Air Canada isn't doing more to calm the growing anger of its customers, who are outraged that Canada's only airline rang in the new year by raising fares by 6 percent and cutting 3,500 workers. Air rage over widespread service glitches resulting from Air Canada's takeover of Canadian Airlines last January was already at a fevered pitch before the announcement. Now, Mr. Hood says that he can't even go to his old-timers hockey game without hearing about customer complaints.
 

Since government has decided it will not intervene for consumers, it should at least ensure consumers can protect themselves

  "They've got this whole image problem that is so prominently important to them and yet they go shoot themselves in the foot by doing what they just did," Hood said following the announcement.
  Mr. Hood is a slow learner perhaps, but we're all getting an introductory economics lesson in market failure. Whenever a monopoly is created, the normal incentives of the free market are reversed. By removing the benefits of competition, a monopoly simultaneously results in cuts to employment levels, reduced levels of research, development and innovation, and of course, fewer choices and higher prices for consumers. Perversely, it becomes more economical to reduce the quality of the goods and services that the company sells, independent of consumer demand.
  Without meaningful competition, consumers will continue to be left stranded on the tarmac. In the political arena, the dwindling handful of groups representing a consumer perspective on any matter, let alone the airline industry, are no match for the cadres of industry experts and lobbyists. And in the market, while Canadians are being nickeled and dimed, it is not worth it for any individual to spend his or her limited free time struggling with a giant corporation. But for a monopoly, nickels and dimes can add up to millions in profits, so the company is quite happy to funnel consumer dollars to a slew of lobbyists, advertising campaigns and political donations all aimed at pacifying the public and ensuring that the government protects the industry's interests.
  Given that the government has decided that it will not intervene to maintain a free and fair market, it should at least ensure that consumers are mobilized to protect themselves - a way for them to band together to advocate their interests as easily as the air monopoly can.
  In the United States, one such mechanism has effectively maintained a balance for consumers in the utility industries over the past two decades. Beginning in the early 1980s, four state governments required phone, gas, electric and water companies to send a one-page flyer periodically to residential customers in the utilities' billing envelopes. The flyer invites customers to join a "Citizen Utility Board" (or CUB) for an annual fee of about $10.
  By piggybacking on utility bills, CUB flyers are a low-cost, effective means of reaching all utility customers. Governments only provide start-up funds to print the first flyer (through a grant or loan). After that, CUBs pay for the flyer, which is not heavy enough to cause extra postage costs for the utilities. Between three and five percent of utility customers have joined each state CUB.
  CUBs have been an effective counterbalance to industry lobbyists, as their member-elected boards use the pooled resources of customers to hire experts and analysts to represent citizen interests. Illinois CUB, with 170,000 members and a $1.7 million budget, has saved consumers more than $2 billion by challenging utility rate hikes.
  Broad-based, democratically structured, well-resourced and effective citizen groups are created through the CUB approach. There are compelling reasons for using this approach for the airline industry and other concentrated industries in Canada.
  Airlines could be required by law to include a flyer with all tickets issued to customers, as well as with Airmiles statements mailed to frequent fliers. Even with a 2 percent response rate and a membership fee of $15, a group with a budget of more than $2 million would be created to serve airline customers, without requiring any funding by government or the air monopoly.
  Such a group could inform consumers about deals with other airlines, lobby on behalf of consumers on policy and regulatory matters, and help encourage competition in the industry. Indeed, the very existence of an airline consumers group, with a mandate of helping to get consumers the best price, service and safety, would encourage competitors to enter the market and serve customers well.
  If the federal government is as concerned about consumer democracy as it is about maintaining profits for Air Canada, it will help balance the marketplace and policymaking by giving customers a stronger voice, and the means for having that voice heard.

Aaron Freeman is an Ottawa-based writer. He can be reached at freeman@essential.org

Posted: February 19, 2001

[ Front Page ]