Peters' Protectionism

Mary Peters has been on the job only three months as President Bush's transportation secretary, yet the next time you find yourself overpaying for an airplane ticket, you may want to write her a letter or give her a call. She's the one to blame for the protectionism that is stifling competition in the American airline industry. In Europe, discount carriers such as Ryanair and EasyJet make short flights for as little as $1.30. In America, prices have crept up even at newer airlines such as Southwest and Jet Blue, which lack the legacy union contracts and pension expenses of the big American carriers, most of which have had to go bankrupt to shed some of those costs.

Ms. Peters' latest move to deprive Americans of the benefits of competition is a decision announced Wednesday to deny an application by Virgin America, a company with ties to British entrepreneur Richard Branson's Virgin Atlantic airline, to start a domestic airline. The Department of Transportation was candid about its reasons for turning down the Virgin America application. "In order for an application to be granted, Virgin America would have to demonstrate that it is independent of the Virgin Group and other non-U.S. citizens, and that at least 75 percent of its voting equity is held by U.S. citizens," the Peters Protectionists said in a press release.

Defenders of Ms. Peters will argue that she is just enforcing the Federal Aviation Act, for which Congress, not the transportation secretary, is to blame. That law requires that to qualify with the FAA as an American airline and fly domestic commercial flights, a company must first show that it is actually controlled by American citizens, that the president and two-thirds of the board of directors are American citizens, and that at least 75% of the voting interest is owned or controlled by American citizens. These rules are bad for American passengers, and if Ms. Peters can't find a legal way around them, the right place for her to be is up on Capitol Hill campaigning for changes.

We are familiar with the argument that, especially after September 11, 2001, the airline industry is different from other sectors of our economy, like, say, publishing or banking, in which foreign ownership is the norm. Yet Saudi airliners already fly international flights into America. In this case, we're talking about not Saudi Arabia but Great Britain, which has been a steadfast ally of America in the war on terror. In any event, it's way too late to wall off the entire American economy for national security purposes — globalization has already gone so far that some of New York's biggest banks are foreign-owned, whether by the British, as in the case of HSBC, or the Swiss, as in the case of Credit Suisse First Boston and UBS.

DHL, the big overnight carrier, and T-Mobile, the big cellular network, are both German-owned. Many of the biggest buildings in Manhattan are owned by Japanese or Middle Easterners. At this point, the laws restricting foreign capital from entering the airline industry are an anachronism. They are kept in place by the lobbying of the domestic airlines, which, unlike the foreign carriers, have political action committees that are able to lavish campaign contributions on the relevant congressmen.

If America is to be the leader in global capitalism, it needs to lead by example. What standing will our commerce department have in protesting ridiculous French rules restricting American films or farm products if America itself won't even let Richard Branson open an airline here? We've got nothing against a reasonable national security review process for major foreign investments. But all an outright ban does is deprive American passengers of the competition and innovation that lead to lower prices and better service, two elements that, even if they aren't a priority for Secretary Peters, just might be of some interest to American airline passengers this holiday travel season.