On October 24th, 1978, President Jimmy Carter signed the Airline Deregulation Act to permit airlines in the United States to regulate their flight offerings and fares, without the government’s intervention.
The Act also allowed new airlines to enter the aviation market and practice diverse business models. While many established carriers opposed the Act, others used it to disrupt the inflated and non-competitive aviation market.
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Background
Post World War II, commercial air travel in the United States began to rise. While small airlines launched new intrastate routes, larger airlines focused on more-popular interstate routes. The federal Civil Aviation Board (CAB) regulated all interstate flight routes, schedules, and fares.
The CAB ensured enough revenue was brought to the airlines while promoting air travel to the public. The CAB would reduce airfares to promote domestic travel while significantly raising international fares to compensate for it.
Rigid processes
New entrants to the aviation market had to go through a lengthy and rigorous regulatory process, at the end of which the approval would often fall out. With CAB’s rigid and inefficient processes, it would take months to approve a schedule or fare change request. The process to appeal a regulatory decision was as challenging and lengthy as any other process within the federal jurisdiction.
With the advent of the Boeing 747 in the commercial passenger market in 1970, major airlines aspired to open new domestic and international routes. Around the same time, the oil crises forced passengers to pay escalating fares. While CAB ensured reasonable (mostly guaranteed) revenues for the airlines, the consumers mostly suffered due to skyrocketing prices and a lack of competition in the market.
Airline Deregulation Act
Due to the inefficiency of processes regulated by CAB, combined with ever-increasing consumer costs, reform was needed to benefit both the consumer and the aviation industry. After months of deliberations under President Carter’s administration, the bill was finally introduced in the Senate in February 1978. The Airline Deregulation Act took effect after President Carter’s signature on October 24th of the same year.
The Act allowed federal authorities to gradually lift existing regulatory restrictions over a period of four years. It is noticeable that with safety being the highest priority in aviation, the aspects of aviation safety were kept intact under the regulation of the Federal Aviation Administration (FAA).
Mixed effects
As a result of the Deregulation Act, existing regulations from the CAB and state governments were gradually eliminated. New airlines entered the market with improved business models that offered new routes at competitive fares. Deregulation also enabled existing airlines to increase profitability through efficient routing.
With the Boeing 747 gaining popularity in the commercial market, major airlines adopted the hub-and-spoke model using large airports as central connecting points. Airlines expanded their operations to increase passenger loads while keeping the fares competitive.
Consumers benefited from lower fares along with the availability of multiple route options. In 1996, the Government Accountability Office reported that the passenger numbers had more than doubled, with the average fare declining by nearly 30% in inflation-adjusted terms.
Due to the increased competition, many small and large carriers incurred heavy losses. By the mid-1990s, while some low-cost carriers, such as Southwest Airlines, were flourishing, numerous major airlines, including Pan Am, Eastern Airlines, and Braniff Airlines, had gone bankrupt.
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Source: simpleflying.com
