Airline Deregulation Act Overview
It’s true. Most of us don’t associate “air travel” with the words “cheap” and “efficient.” Everything from arriving at the airport two hours before takeoff to making our way through security and enduring the flight to our destination can be an ordeal. Yet, modern air travel has many positives.
More Americans fly to more and more destinations at relatively affordable prices than ever before. We may take this for granted today, but it wasn’t always so. One of the chief contributors to making air travel open to everyone was a federal law called the Airline Deregulation Act of 1978.
The Era of Regulated Air Travel
Most business decisions about fares, routes, pricing, and customer service are made by the airlines themselves. Generally speaking, this is good for consumers. If all airlines charge around $300 for a one-way trip to Boston but one airline starts charging $250, then there will be pressure on all the other airlines to reduce their fare to compete with the $250 price. This is an example of how a competitive market works to aid consumers. You can see this process in action for yourself whenever airlines advertise lower fares, additional legroom, or no fee check-in baggage. The theory of the marketplace is that customers are better off when businesses compete for them.
This wasn’t always the case in the airline industry. From the 1930s onward, airlines were heavily regulated by an agency called the Civil Aeronautics Board (CAB). The CAB was responsible for regulating aspects of the airline industry that we now think of as business decisions. It set the price of air travel at levels guaranteeing profitability for existing airlines, had to approve new routes between cities, and required prospective airlines to run a regulatory gauntlet that often stamped them out entirely.
Congress and most experts came to believe that this set up benefited airlines at the expense of the public. Before deregulation, only 20% of Americans traveled by plane and a one-way flight between New York and Los Angeles cost the equivalent of $1,442 today.
The Airline Deregulation Act
All of these problems prompted Congress to take action. In 1978, it passed the Airline Deregulation Act. The law’s aim was to improve the airline industry by opening it up to the competitive forces of the marketplace. Gone were government-set airfare prices, preapproval for new routes, and entry barriers that prevented new airlines from offering customers new options. Deregulation also cleared the way for airlines to make better use of secondary airports in large metropolitan areas. These features are now staples of modern air travel.
The Airline Deregulation Act also stripped the Civil Aeronautics Board of its powers and eventually disbanded the agency. Some regulation of air travel remained in place though. The Federal Aviation Administration (FAA) continues to regulate air safety and administer the nation’s air traffic control system. The federal act also preempted many state laws regulating the airline industry, including state-based consumer protection claims for passengers. While there were many small changes made, the focus of the act was to make the airline industry more like a business.
Legacy of Airline Deregulation
Most people view airline deregulation as a success. Airlines compete to attract customers. Fares are competitive. More airlines fly more routes between more cities than they did before. Today approximately 50% of Americans fly each year and a one-way flight between New York and Los Angeles can be found for less than $200. Air travel has boomed in the last thirty-five years and deregulation is often cited as the major reason for this trend.
That’s not to say everything is perfect of course. It’s worth noting that 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 government-mandated minimum fares made existing airlines less profitable.
Investors tend to be wary of investing in airlines and bankruptcies and mergers have become common as carriers continually struggle to remain profitable. Newer, low cost carriers such as Southwest and Jet Blue also changed the air travel business. Luxurious, high priced service has given way to a more budget-conscious present. The commonly accepted wisdom, however, is that deregulation opened the skies up to the average American.
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