40 Years After Deregulation, Challenges Remain in the Airline Industry

Pan Am was a casualty of airline deregulation in the U.S.

By Paul Riegler on 24 October 2018
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The Airline Deregulation Act turned 40 on Wednesday. The act led to lower fares, the collapse of established airlines, the creation of new ones, and significant changes in airline routes and in-flight service.

The act removed federal government control over airline fares, routes, and the entry of new airlines into the market. It introduced the concept of a free market in the commercial airline industry and, in turn, led to a series of mergers reducing the number of large airlines as well as a large increase in the number of flights, and an increase in the number of people who fly. It also led to a significant decrease in airline fares.

The result was the elimination of the Civil Aeronautics Board, which had regulated all domestic interstate air transport in the United States as a public utility. The agency was responsible for setting fares as well as approving new routes and schedules.

It also changed what was once a luxury, to be able to afford an airline ticket, into something so affordable that 90% of Americans say that they have flown at least once.

The elimination of the CAB was spearheaded by Alfred E. Kahn, a professor of economics at Cornell University. He pushed for reform in air travel along with leading economists of the day and the result was legislation in 1978 that, over a period of four years, would remove restrictions on domestic routes and new services as well as on domestic fare regulation.

President Jimmy Carter signed the Airline Deregulation Act into law on October 24, 1978.

Change came about much more quickly than had been anticipated or called for in the legislation.

Between 1978 and 2001, eight major airlines, including Eastern, Midway, Braniff, Pan Am, Continental, Northwest, and TWA as well as some 100 smaller airlines, either filed for bankruptcy or were liquidated as a result of the losses these airlines faced after competition was introduced into the marketplace. This included most of the new airlines that had been formed in the newly deregulated era.

Today, the airline industry is celebrating the act’s 40th anniversary.

“Forty years ago, this landmark legislation ushered in a new era of consumer choice, affordable fares and customer value for millions of Americans,,” said Nicholas Calio, CEO of Airlines for America, the trade association representing most major U.S. airlines, noting that “competition in the industry is driving airfares down to historic lows.”

(Photo: Accura Media Group)

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