The Airline Deregulation Act of 1978

Today's air travel has many advantages compared with before commercial aviation deregulation. More Americans fly to expanded destinations at relatively affordable ticket prices than ever before. But this wasn't always the case. One of the main contributors to air travel financial accessibility was a federal law called the Airline Deregulation Act of 1978.

Still, most consumers don't consider air travel cheap and efficient. Aspects of air travel can be arduous — from arriving at the airport at least two hours before takeoff to getting through security.

This article discusses how airline deregulation influenced the commercial air services we use today. Learn more about:

• Air travel before deregulation
• Deregulation arguments and pros and cons
• How deregulation affects your consumer rights
• And more

For more information on your consumer rights when traveling, see FindLaw's Rights to Travel: Consumer Protections and Rules section.

The Era of Regulated Air Travel

Airlines make most business decisions about fares, routes, pricing, and customer service. This is generally good for consumers because it encourages a competitive market. For example, suppose all airlines charge around $400 for a one-way trip to Boston, but one airline starts charging $350. This puts pressure on other airlines to reduce fares to compete.

You can see this in action when airlines offer features and services like:

• Lower fares
• Comfortable seating options, like extra legroom
• No baggage fees
• Flexible booking policies
• Frequent flyer programs

This wasn't always the case in the airline industry. From the 1930s on, the Civil Aeronautics Board (CAB) regulated U.S. airlines. The CAB heavily regulated aspects of the airline industry we now think of as business practices, including:

• Setting the price of air travel at levels guaranteeing profitability for existing airlines
• Approving new routes between cities
• Requiring new airlines to complete a complex approval process that often prevented them from operating

Congress and most experts believed this arrangement benefited airlines at the public's expense. Before deregulation, only 20% of Americans traveled by plane. A one-way flight between New York and Los Angeles then cost the equivalent of around $775 today.

The Airline Deregulation Act of 1978

The issues above prompted Congress to take action. In 1978, it passed the Airline Deregulation Act. The law aimed to improve the airline industry by opening it up to competitive market forces. The act banned several practices, including:

• Government-set airfare prices
• Preapproval for new routes
• Entry barriers that prevented new airlines from operating and offering new options

Deregulation also cleared the way for airlines to make better use of secondary hub airports in large metropolitan areas. Examples include:

• Chicago Midway International Airport (MDW), secondary to O'Hare International Airport (ORD) in Chicago
• Baltimore/Washington International Thurgood Marshall Airport (BWI), secondary to Washington Dulles International Airport (IAD) and Ronald Reagan Washington National Airport (DCA) in Washington, D.C.
• John Wayne Airport (SNA), secondary to Los Angeles International Airport (LAX) in Los Angeles

These features are now staples of modern air transportation services.

The Airline Deregulation Act also stripped the Civil Aeronautics Board of its powers and disbanded the agency. Some regulation of air travel remained in place, though. The Federal Aviation Administration (FAA) continues to regulate aviation safety and administer the nation's air traffic control system. The FAA is a division of the U.S. Department of Transportation (DOT).

The federal act also preempted many state laws regulating the airline industry. This includes state-based consumer protection claims for airline passengers. While the law and airlines made many small changes, the act focused on making the airline industry more like a business.

Was the Airline Deregulation Act a Response to the 1970s Energy Crisis?

No, the Airline Deregulation Act of 1978 was not a direct response to the 1970s energy crisis. But the period's economic conditions did contribute to the decision to consider and implement deregulation.

Economic pressures of the '70s included:

• High inflation
• Stagnant economic growth
• Rising unemployment rates

Oil embargoes and rising fuel prices significantly increased operating expenses for airlines. This lead to financial strain on the airline service industry. Further, advocates viewed deregulation as a means to promote competition and make air travel more efficient — helping airlines better manage increasing fuel costs.

The political climate of the '70s favored less economic regulation in several industries, including transportation. Many believed deregulation would encourage airline innovation and benefit consumers.

Pros and Cons of Airline Deregulation

Most view airline deregulation as a success. The following changes are examples of how deregulation shaped the air travel industry today:

• Airlines compete to attract customers
• Fares are competitive
• Airlines fly more routes between more cities than they did before deregulation

Because airfare costs significantly less than pre-deregulation, more Americans can afford to travel via air. Air travel has continued to grow and innovate; many cite deregulation as the driving reason for this trend.

Deregulation also placed a greater emphasis on consumer rights. Some of these advancements include:

• Compensation for lost baggage
• Guidelines on reimbursement for flight delays and cancelations
• Rules for overbooking flights
• Required disclosures on pricing and surcharges

Still, some commentators question the benefits of deregulation. The boom in air travel coincided with a period of low fuel prices and overall economic growth.

Deregulation undoubtedly brought pain to the airlines as well. The end of federal government-mandated minimum fares made existing airlines less profitable. Due to slimmer profit margins, airlines now offer fewer amenities and frills.

Further, investors can be wary of investing in airlines. Bankruptcies and mergers are more common as U.S. carriers can struggle to remain profitable.

Newer, low-cost carriers also changed the air travel business, including:

• Spirit Airlines
• Frontier Airlines
• Southwest Airlines

Other airlines (like Delta) expanded their destinations to compete with more prominent air carriers.

Luxury, high-priced service has given way to a more budget-conscious present. Most believe deregulation made air transportation more accessible for the average American.

Get Legal Help with an Airline Issue

The Airline Deregulation Act of 1978 improved air travel affordability and efficiency. But there are still issues with commercial aviation, and problems can arise. Most consumers can resolve airline disputes on their own. But, there are situations where you may want to consider legal help.

Sustaining an injury on an airline or suspecting deceptive practices or discrimination are issues an experienced attorney can help with. Contact a local consumer protection attorney to learn how they can help protect your interests. An attorney can review your situation and the law and tell you your legal options and next steps.