Defining and measuring markets

Before we move on to discussing competition on the airline markets, it is necessary to define what we mean by the notions of “market” and “market structure”. This is not as straightforward as it may initially seem. Of course, the easiest way to define an airline market is through two endpoints on a passenger's journey. We can then talk about, for instance, a London–New York market or a Paris–Rome market. We can further see which airlines fly between the two cities and call them competitors on a given market. If we find that only one airline flies between the two cities, then we could call such a route a monopoly. On the other hand, if there are five carriers providing a non-stop service (as is the case between London and New York), we can call this route competitive. Seems simple enough.

However, as we start thinking about this issue further, questions emerge. Are flights between Heathrow and JFK the same as between Gatwick and Newark? Will the airline offering five flights a day view its competitor offering five services a week on the same route as a serious competitor? What if you have a choice of both a non-stop flight and a number of one-stop journeys, involving longer total trip time – are these services “true” competitors to each other? Are flights to Dusseldorf on the same market as services to Cologne Bonn Airport? After all, a train trip between Dusseldorf airport and Cologne only takes about 40 minutes, so if you travel to the city of Cologne, you can choose to fly into either of the two airports. What about the city-pairs where travel is possible by either plane or train (such as London and Paris) – do you treat Eurostar services separately from the airlines that fly between the two cities? These are the kinds of questions the market players, analysts, and policy-makers address on a daily basis.

Had Miguel de Cervantes, while doing research for his book, been able to google the word ‘madness’, he would in all likelihood have crashed his server. Early modern Spain saw an increased preoccupation with madness in almost every sector of society; for different reasons and in different ways, jurists, theologians, artists, advisors and the royal court all found themselves debating, exploring or dealing with madness and madmen. Yet the madnesses spoken of in elite literature, festivals, legal codes and medical manuals were not always the same, just as the madness spoken of in sixteenth-century Spain does not necessarily refer to the same actions or have the same signifi cance as madness in fourteenth- century Germany or twenty-fi rst-century America. We know that Cervantes chose to call the protagonist of his masterpiece a ‘madman’, but which ‘madness’ did he mean?

A few of the many discourses of madness swirling around in early modern Spain have, in subsequent centuries, been privileged as critical frameworks from which to read the madness of Cervantes's most famous protagonist. Not surprisingly, given Don Quixote's privileged status in the literary canon, the most common reading has emphasised a literary genealogy. The critic who wishes to trace a constellation of literary madness has any number of star charts to choose from; early modern European literature features furious lovers (the epic lovers who Don Quixote explicitly imitates), melancholy lovers (in countless comedias and romances, including many of the characters in the intercalated stories of Don Quixote), buffoons or fools (the graciosos of the comedia and the court), objects of satire (the patients in Garzoni's or Beys's madhouses), and the satirical voices themselves (Erasmus's Dame Folly, Cervantes's own ‘licenciado Vidriera’).

I have argued that a ‘novel’ understanding of (or diffi culty in understanding) madness in early modern Spain leads to the development of the early modern Spanish novel (or, rather, to the development of a work whose characteristics would come to be associated with the novel). Yet the novel has, as Diana de Armas Wilson notes, ‘risen’ many times and in many places. It is worth asking, then: what, if any, is the connection between novel and madness is in these other times and places? On the one hand, a quick mental journey through the ‘great’ Western novels since Cervantes would seem to make an argument for a connection unnecessary: Moby Dick, The Scarlet Letter, Jane Eyre, Madame Bovary, Heart of Darkness, The Idiot, Mrs Dalloway, Ulysses, The Sound and the Fury, The Bell Jar, Catch 22, to name an arbitrary few. One could, of course, argue that madness is a recurrent theme in many modern literary genres: short stories, theatre, autobiography and, above all, poetry. And there are certainly plenty of novels that do not explicitly engage with madness. So what can we say about madness and the novel, or madness in literature?

We could, with Foucault, say that ‘madness is contemporary with the work of art, since it inaugurates the time of its truth’. Or with Shoshana Felman that literature is ‘the sole channel by which madness has been able throughout history to speak in its own name’. These theorists, however, assume a defi nition of literature or a defi nition of madness that is fairly specifi c to the Modernists and Postmodernists. Modernist authors wrote so explicitly about madness as psychological experience, and Freud and Lacan wrote so explicitly about literature and language, that it becomes diffi cult to imagine relationships between literature and madness that do not fi t their model.

Managing airport capacity

This part of the book deals with what economists call externalities, defined as benefits or costs of trade incurred by someone who does not take part in this trade. Air pollution is a familiar textbook example of this. Someone living next to a factory, someone who does not work at the said factory, nor buys the products produced there (nor benefits from it in any other way) is still affected by air/water/soil pollution that this factory generates. The cost to that person can be real and tangible, taking the form of adverse health effects, or otherwise reduced quality of life. This is a problem because in a free market the factory owner does not take this pollution into account when making its production decisions. The factory owner makes decisions based on costs, and costs to the third parties are not costs to the factory owner. However, they are costs to the society as a whole. As a result, the factory's output ends up being higher than the socially optimal level. Some sectors in the economy produce external effects that are positive: education, for example, produces better citizens, reducing crime rates.

Congestion represents another kind of negative externality. At the basic level, congestion arises when adding a car to the traffic or a flight to the airport schedule slows down everyone else using the road or the airport. This creates real and tangible costs for other users (in the form of lost time, increased fuel consumption, etc.), which is not taken into account by the user making the decision to use the facility (road or airport).

Heterodox economics has two main aspects: first, to criticize mainstream (orthodox) economics, in its various guises; and second, to develop an alternative way forward. The aim of this book is to convey, using a historical narrative, some of the weaknesses of mainstream economics and how alternative, heterodox approaches can help understand how economies work.

Underpinning this short history is an emphasis on the pluralism of heterodox economics, as it engages with a multiplicity of ideas, disciplines, methods and voices: distinct but intersecting dimensions of heterodoxy (see Figure 1). Three main things have inspired me to organize this book around these dimensions. First, there is Fred Lee. In 1999, in protest against the exclusion of heterodox ideas from mainstream economics in the UK, he organized an audacious fringe conference that took place alongside the annual conference of the Royal Economic Society in Nottingham (Lee 2002). I am proud to have been there, and also to have later served as co-ordinator of the Association for Heterodox Economics (AHE) that was created out of it. I continue to be inspired by Fred's open approach to heterodox economics, where he “refers to specific economic theories and a community of economists that are in various ways an alternative to neoclassical economics. Consequently, it is a multi-level term that refers to a group of economic theories – specifically Post Keynesian-Sraffian, Marxist radical, Institutional-evolutionary, social, feminist, Austrian, and ecological economics” (Lee 2009: 6–7).

Fred was convinced that these different schools of thought should talk to each other and gain strength from numbers.

Most of the confusion in discussing political Liberalism comes from the field of economics. Economists use the term “liberal” to indicate a belief in the efficacy of free markets and the doctrine of “laissez-faire”. It is widely assumed, therefore, that Liberalism in politics must be associated with laissez-faire ideas. The many critics of economic “neoliberalism” since the 1980s have kept that association alive: to them, modern “neoliberalism” is the only liberalism worth discussing. But this is a historically uninformed argument. Very few British political historians now present the Liberal Party at any time as a laissez-faire body. Liberalism was a political movement that had to respond to public grievances about existing conditions, including economic conditions, and these often required state action.

This is not to deny that there were rigid laissez-faire economists in the Liberal Party, some of whom were influential. In the nineteenth century, one strand of opinion urged low state spending and taxation at all costs. The behaviour of the leading elite politicians in this camp is suggestive. Lord Lansdowne in the late 1820s, Charles Wood in the 1840s, Robert Lowe in the 1860s and George Goschen in the 1880s all advocated cooperation with the Conservatives at important moments to safeguard principles of economy and laissez-faire. They did so because they disliked the alternative policy that many Liberals were advocating, which, at most of these times, was parliamentary reform. They feared that Reform would introduce uncontrollable pressures for unattractive policies, and specifically for more state intervention and spending. Their camp always lost the argument. Lowe, Goschen and Lansdowne's grandson (the fifth Marquess) were high-profile defectors from the party in 1886, in opposition to Gladstone's policy of Irish Home Rule but also to democratic politics after 1885.

Airlines are safe, but this does not come cheap

Statistically, commercial passenger aviation is the safest mode of transport. You probably have heard or read this statement before. The data from the United States gives the number of fatalities per billion passenger miles in commercial passenger aviation as 0.038, which is about 240 times lower than the same measure for trips by personal car. Note, however, that general aviation (essentially, civilian non-commercial flights) is several times less safe than private car travel: in fact, the number of fatalities per billion passenger miles in general aviation is at least 1,000 times that for commercial passenger aviation.

Aviation safety has been improving over time. The number of commercial civil aviation fatalities per year currently stands at less than half of what we saw in the 1980s – a remarkable achievement considering the substantial growth in air travel over the same period. Moreover, all of the top ten years with the fewest numbers of commercial aviation fatalities (in absolute terms and per total passengers flown) have occurred in the twenty-first century. The 1970s was the worst time for flying in this respect – six of the top-ten deadliest years in aviation history are from that decade.

Safety performance, however, is not evenly spread either around the world or across airlines. According to IATA, accident rates are much lower in Europe, North America, China and North Asia than in Africa, the Middle East, South America, Russia and post-Soviet Central Asian states.

Leasing versus buying

I mentioned previously that some of the biggest aircraft owners are aircraft leasing companies rather than the airlines. Of all the aircraft currently in commercial service, about half are leased, and the other half owned by the operators. Researchers and industry experts suggest that we are on track towards a 60/40 split between leased and owned aircraft in the longer term.

The aircraft leasing industry first developed in the 1970s, and grew rapidly throughout the 1980s and 1990s. Two trends helped the industry grow at such fast speed. First, the large-scale liberalization of the airline industry meant new airlines were eager to enter the market, and they needed aircraft. Second, the financial services industry was becoming more sophisticated and willing to fund the aircraft purchases. While lending money to a start-up airline to buy a new plane might be considered too risky, leasing companies started appearing as intermediaries between the manufacturers, the operators, and the financiers.

One key difference between the lessors and the airlines is in how they manage risk. Lessors are much better at diversifying their risk due to nature of their business. The aircraft owned by a leasing company will operate around the world, while many airlines serve limited geographic areas. If a lessee in one part of the world fails, the lessor can redeploy that aircraft to an airline from a different country or even continent.

The Liberal Party lost its dominant place in British politics during the First World War and has suffered from two interlinked problems ever since. First, it has been a squeezed third party in a first-past-the-post electoral system, in which elections have been a competition for office between the Conservative and Labour parties. Second, national political debate came to focus on central government policies towards the economy, especially Labour's interventionist economic plans, which Conservatives painted as “socialism”. In a debate on that issue, Liberals were at a strong disadvantage (as the other parties intended), since their arguments were not as simplistic and memorable as those of their competitors. Liberals did not want to reduce politics to an ideological battleground between capital and labour and between free enterprise and state intervention. As a result, they seemed irrelevant to the big economic debates that the media regarded as central to politics. This further cemented their third-party status, which in turn led them to call for proportional representation (PR). Liberals argued that PR was needed to prevent the economy being damaged by a succession of single-party governments alternating between two clashing and simplistic economic philosophies.

In the early 1960s, the Liberal Party began to revive. The idea of a free-thinking centre party liberated from the narrow approaches of its two opponents began to resonate with voters looking for a different politics. From the late 1970s, this revival gathered pace, as the party, and its successor the Liberal Democrats (Lib Dems), benefited from the perception that both main parties were too extremist, together with class dealignment in voting patterns. But since the 1990s, Conservative and Labour governments have taken a broadly social market approach to economic management, so Lib Dems have no longer had a distinctively centrist stance on economics.

How airlines manage their fleet

The average age of a passenger car in the United States is about the same as the average age of a commercial aircraft employed by the US airlines – about 11 years. On UK roads, the average age of a car is almost eight years old, while for a British Airways aircraft it is over 13 years. It is very common for aircraft to fly in commercial passenger service for 20–25, and sometimes even up to 30 years. And the end of commercial passenger service does not necessarily mean the end of the life for an airplane – many are converted into freighters and/or continue flying in less developed countries.

Aircraft are the most important and valuable assets an airline has (some argue that take-off and landing slots at some congested airports could sometimes be even more valuable, but this would represent an exception rather than the rule). As aircraft are a durable asset, they can be purchased at either primary (directly from the manufacturer) or secondary markets. Alongside the airlines, many of the commercial aircraft are owned by leasing companies, who then, as the name suggests, lease planes to airlines in return for a monthly payment. The largest such company, called AerCap, owns around 1,700 aircraft and works with over 200 customers. By comparison, United Airlines, one of the world's largest airlines, currently has 1,006 mainline aircraft in its fleet.

Clearly, airlines put a lot of effort into fleet planning. The first decision an airline has to make is on fleet composition – how many aircraft types to have, and how many planes of each type should be in the fleet. This decision is driven by the types of markets the airline serves or plans to serve versus the characteristics of different aircraft available.

In 2025, the global airline industry is expected to achieve an important milestone. According to IATA (the airline industry group), airlines’ total revenue worldwide is expected to top $1 trillion for the first time ever. Adjusted for inflation, the industry's 2025 revenue is expected to be about the same as in 2019. In the last full year before the Covid-19 pandemic the airlines had collected about $841 billion in revenue. Adjusted for inflation, this would correspond to slightly over $1 trillion in current prices. This means the airline industry will account for about 0.8 per cent of global gross domestic product (GDP). By annual revenue, the airline industry is similar in size to the global advertising industry; and is slightly larger than the worldwide beer industry. Growth in the airlines’ revenues over time has mirrored the growth in passenger numbers. The revenue growth was achieved despite another industry trend.

One of the longer-term trends in the airline industry has been towards cheaper airfares. As we can see from Figure 3.1, between 1999 and 2024 inflation adjusted average airfares in the US market have fallen by an astounding 60 per cent. However, we have to be cautious in interpreting this change. Airlines have unbundled their fares over the last 25 years. Notably, charges for add-on services such as carry-on and checked baggage charges, charges for seat selection, etc. are not included in average airfare calculations. Thus, the decrease in an average passenger's cost of air travel has decreased by a smaller magnitude than the precipitous drop in average airfares indicates.

Ciriaco Morón Arroyo, writing on the development of the novel after Cervantes, remarks that ‘with psychologism truth was lost. There was again one protagonist, or at most two. The people were lost; those thirty harvesters who gave life to Juan Palomeque's inn; the local judge, the damsel, the pícaro, the charitable young girl.’ I would argue that Cervantes gives us both pueblo and, rather than psychologism, an unprecedented insight into psychology. In the previous chapter I examined the role of madness in the actions of the pueblo; in this one, I turn to how Cervantes uses madness in his development of the recurring characters, and the way the priest, barber, housekeeper and niece connect pueblo and psicología.

The subjects of Chapter 3 are meeting Don Quixote for the fi rst time. Both because they have only partial knowledge of his past and little stake in his future, their response to him is fundamentally different from that of his friends and family. María Sacristán argues that the degree of familiarity between mad and sane was the key factor in determining the nature of the interaction. She divides the madman's interactions into three types: with friends and family, with offi cials and institutions, and with those figures (familiares, local priests, alcaldes, tenientes et al.) who often mediated between the fi rst two groups, their identifi cation with one or the other generally depending on their intimacy with the purported loco. Sacristán goes on to show the surprisingly small role that the second group – the agents of Church and State – had in the lives of most locos.