Airline Deregulation: 40 years of success

essay paper iconThe history of aviation started long before the invention of the first aircraft by the Wright brothers. However, the turning point for the Americans, as well as the rest of the world, happened when the intricate invention was used as a medium for carrying people from one city to another. A newly established means of transport allowed people to enjoy a new way of traveling by air, as opposed to the hackneyed journeys on the ground. Many people decided to engage in a new branch of business establishing companies, building airports, providing services, and making profit. In order to provide a fair competition, decent service, and safety, the government chose to put its hand on the airline industry. For several decades, the government attempted to regulate the relations between the airline companies. However, it took its course towards the deregulation of the industry, which resulted in the Airline Deregulation Act of 1978.

The American society has been exposed to flying from one city to another for almost a century. After the invention of aircrafts, the first airplanes were employed to carry mail by army personnel. However, the Air Mail Act of 1925 made an attempt to shift the responsibilities promoting the mail carrying by common people. Consequently, some aircraft owners aspired to make a profit from carrying cargo and passengers. Although this aspiration gave life to civil aviation, the aircraft owners failed to cover their costs with the money that they earned. Despite this fact, the aviation in the United States was developing at a rapid pace. The Air Commerce Act of 1926 was passed to regulate the newly established practice of transporting people. The focus of the Act was the air safety measures, regulations as to the employment of the aircrafts and the crew (Hall, Sheik, & Schwartz, 2008, p. 3). Since then, the government played a major role in the regulation of the airline industry. Between 1938 and 1978, the Civil Aeronautics Board became the prime authority to regulate the rapidly growing field. The fundamental principles of the Board were to protect people, maintain order in the field of commercial aviation, and ensure fair competition (Robson, 1998, p.17). However, the role of the Board became overwhelmingly disturbing while the structure itself started to resort to bureaucratic ideals. While attempting to exercise its main principles, the Civil Aeronautics Board neglected the market forces that influenced the competition and airfare and took into account the internal regulatory politics. Moreover, the suggestions from the airline companies as to the improvements of their services were considered for several years before the announcement of the decision (Robson, 2008, p. 18). Therefore, the Air Deregulation Act of 1978 was passed to give the airline companies more freedom in choosing the regulations they see fit to the business, increase the competition, and decrease the airfare.

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The fares and costs of flights were among the primary concerns since the foundation of the Civil Aeronautics Board in 1938. The Board regarded the profitability of the airline company as a major aspect that influenced the rate of airfares as opposed to the relationship between the costs and fares in particular markets. In the beginning, the fares were set at the rates of train fares. However, the introduction of new technologies made the operation of aircrafts easier and cheaper, leading to a greater disparity between the costs and fares. Such a disparity encouraged the carriers to engage in non-price competition, offering people roomier seats or additional flights. Despite such actions, the load factors still declined (United States. Civil Aeronautics Board, 1984, p.17). The Air Deregulation Act of 1978 granted the carriers with the flexibility in their fare policies. Having the opportunity to determine the airfare, the airline companies engage in high competition, reducing their ticket prices to the level that is affordable to the customers. The high competition encourages the companies to improve their services and efficiency as well as introduce new incentives for the clients.

The other major obstacle posed by the Civil Aeronautics Board was the introduction of new routes. Since its foundation, the Board was responsible for determining the routes for the airline companies. If they wanted to introduce a new route or a city-pair, the carriers would have to receive the approval from the Board, which might have taken several years. Apart from the long-term and expensive hearing, the authority would require the carrier to present the proof that the route was needed by public convenience and necessity. Therefore, the introduction of the Air Deregulation Act of 1978 granted the airline companies with flexibility and opportunity to determine the routes they would use, the frequency of the flights and the city-pairs. Consequently, after the Act was passed, many companies quitted their appointed routes while others were entering them. The same happened with a number of city-pairs. The liberalization of the field contributed to the restructuring of the domestic air transportation industry (United States. Civil Aeronautics Board, 1984, pp. 27-28).

Under deregulation, the carriers were able to improve their services and introduce new routes, thus engaging small and midsized communities in the domestic flights that promoted the growth in air traveling. As it was mentioned before, the Board was responsible for appointing or approving new routes for the carriers, thus neglecting to develop the flight grid that would connect the cities with the smaller communities. The reason for such an attitude was the unprofitability of such routes before deregulation. After 1978, the number of flights to the smaller communities within the country increased by more than 50 percent (Robson, 1998, p.19). The availability of the small aircrafts in small and midsized communities, as well as the flexibility of the carriers in determining their routes, fares and discounts induced the higher number of people who are willing and can afford to travel by air. 275 million people used the aircrafts in 1978 while in 1997, the number of passengers reached 600 million, and the figure was expected to rise further (Robson, 1998, p. 18).

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The Air Deregulation Act of 1978 also induced the keener competition among the carriers and the creation of new workplaces for Americans. During the government regulation of the civil aviation, the airline companies were secured from the tough competition with the regulations imposed by the Board. However, when the Act was passed the carriers gained relative independence in operating their assets. Some of them succeeded to survive by means of introduction of the incentives for the customers or by merging with other carriers; others failed to avoid bankruptcy. A number of new airline companies were given the opportunity to launch their businesses. Therefore, the survivors were able to increase their route numbers and the market share since 1978. Moreover, the deregulation made it possible to decrease the concentration in the market share. In 1998, the five largest carriers had 68 percent of the share in the market, which is a little bit less than they used to have during the regulation period. Furthermore, the competition influenced the need for new workplaces and employees. The number of Americans who were employed in the airline business in 1998 increased by 50 percent since 1978 and constituted 530,000 people (Robson, 1998, p.19).

Therefore, the bureaucratic and inconsistent actions of the Civil Aeronautics Board took their toll on the flow of the assets, grid of the flights, and opportunities for the Americans to travel by air. However, the Air Deregulation Act of 1978 introduced the airline companies with a liberal approach and more flexibility in determining what was fit for them and their customers. Consequently, the upsurge in the competition which was deliberately suppressed by the Board contributed to the affordable airfares, growth in air travels through new routes, and the creation of new jobs.

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