The
Airline Deregulation Act is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to
remove government controlAirline deregulation is the process of removing entry and price restrictions on airlines affecting, in particular, the carriers permitted to serve specific routes. In the United States, the term usually applies to the Airline Deregulation Act of 1978...
over fares, routes and market entry (of new airlines) from
commercial aviationCommercial aviation is the part of civil aviation that involves operating aircraft for hire...
. The Civil Aeronautics Board's powers of regulation were to be phased out, eventually allowing passengers to be exposed to market forces in the
airlineAn airline provides air transport services for passengers or freight, generally with a recognized operating certificate or license. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit.Airlines vary...
industry. The Act, however, did not remove or diminish the FAA's regulatory powers over all aspects of airline safety.
Since 1937, the federal Civil Aeronautics Board (CAB) had regulated all domestic interstate air transport routes as a
public utilityA public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...
, setting fares, routes, and schedules.
The
Airline Deregulation Act is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to
remove government controlAirline deregulation is the process of removing entry and price restrictions on airlines affecting, in particular, the carriers permitted to serve specific routes. In the United States, the term usually applies to the Airline Deregulation Act of 1978...
over fares, routes and market entry (of new airlines) from
commercial aviationCommercial aviation is the part of civil aviation that involves operating aircraft for hire...
. The Civil Aeronautics Board's powers of regulation were to be phased out, eventually allowing passengers to be exposed to market forces in the
airlineAn airline provides air transport services for passengers or freight, generally with a recognized operating certificate or license. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit.Airlines vary...
industry. The Act, however, did not remove or diminish the FAA's regulatory powers over all aspects of airline safety.
History of airline regulation and the CAB
Since 1937, the federal Civil Aeronautics Board (CAB) had regulated all domestic interstate air transport routes as a
public utilityA public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...
, setting fares, routes, and schedules. Airlines that flew only intrastate routes, however, were not regulated by the CAB. Those airlines were regulated by the governments of the states in which they operated. The CAB promoted air travel, for instance by generally attempting to hold fares down in the short-haul market, to be subsidized by higher fares in the long-haul market. The CAB also was obliged to ensure that the airlines had a reasonable
rate of returnAccounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.A key difficulty in measuring profit is in defining costs...
.
The CAB earned a reputation for bureaucratic complacency; airlines were subject to lengthy delays when applying for new routes or fare changes, which were not often approved.
World AirwaysWorld Airways, Inc. is an American non-scheduled airline headquartered at the HLH Building in Peachtree City, Georgia.- History :World Airways was founded in 1948 by Benjamin Pepper with the introduction of ex-Pan American World Airways Boeing 314 flying boats. Edward Daly, however is thought of as...
applied to begin a low-fare
New York CityNew York is the most populous city in the United States, and the center of the New York metropolitan area, which is among the most populous urban areas in the world. A leading global city, New York exerts a powerful influence over worldwide commerce, finance, culture, fashion and entertainment...
to
Los AngelesLos Ángeles is the capital of the province of Biobío, in the municipality of the same name, in Region VIII , in the center-south of Chile. It is located between the Laja and Biobío rivers. The population is 123.445 inhabitants...
route in 1967; the CAB studied the request for over six years only to dismiss it because the record was "stale."
Continental AirlinesContinental Airlines is a United States certificated air carrier. Based in Downtown Houston, Texas, it is the fourth-largest airline in the US based on revenue passenger miles. Since 1998, Continental's marketing slogan has been "Work Hard, Fly Right."Continental operates flights to destinations...
began service between Denver and San Diego after eight years only because a
United States Court of AppealsThe United States courts of appeals are the intermediate appellate courts of the United States federal court system...
ordered the CAB to approve the application.
This rigid system encountered tremendous pressure in the 1970s. The
1973 oil crisisThe 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo" in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war; it lasted until March 1974...
and
stagflationStagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a significant period of time. The portmanteau stagflation is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament in 1965...
radically changed the economic environment, as did technological advances such as the
jumbo jetA wide-body aircraft is a large airliner with two passenger aisles, also known as a twin-aisle aircraft. The typical fuselage diameter is . In the typical widebody economy cabin, passengers are seated seven to ten abreast, allowing a total capacity of 200 to 600 passengers...
. Most of the major airlines, whose profits were virtually guaranteed, favored the rigid system. But passengers forced to pay escalating fares did not, nor communities which subsidized air service at ever-dearer rates.
CongressThe United States Congress is the bicameral legislature of the federal government of the United States of America, consisting of two houses, the Senate and the House of Representatives. Both senators and representatives are chosen through direct election....
became concerned that air transport in the long run might follow the nation's
railroadsToday, most rail transport in the United States is based in freight train shipments. The U.S. rail industry has experienced repeated convulsions due to changing U.S. economic needs and the rise of automobile, bus, and air transport. Despite the difficulties, U.S. railroads carried 427 billion...
into trouble; in 1970 the Penn Central Railroad had collapsed in what was then the largest
bankruptcyBankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed or initiate a restructuring...
in history, resulting in a huge taxpayer bailout in 1976.
Leading economists had argued for several decades that this sort of regulation led to inefficiency and higher costs. In 1970-71 the
Council of Economic AdvisersThe Council of Economic Advisers is a group of three respected economists who advise the President of the United States on economic policy. It is a part of the Executive Office of the President of the United States, and provides much of the economic policy of the White House...
in the
Richard NixonRichard Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....
Administration, along with the Antitrust Division of the Department of Justice and other agencies, proposed legislation which would diminish
price collusionPrice fixing is an agreement between business competitors to sell the same product or service at the same price. Historically, such a group of businesses in price fixing was referred to as a combination....
and entry barriers in rail and
truck transportationThe trucking industry involves the transport and distribution of commercial and industrial goods using commercial motor vehicles . In this case, CMVs are most often trucks; usually semi trucks, box trucks, or dump trucks...
. While this initiative was in process, in the follow-on
Gerald FordGerald Rudolph Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...
Administration, the United States Senate Judiciary Committee, which had jurisdiction over the antitrust laws, a part of
competition lawCompetition law, known in the United States as antitrust law, has three main elements:*prohibiting agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels....
, began 1975 hearings on airline
deregulationDeregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
. Senator
Ted KennedyEdward Moore "Ted" Kennedy was a United States Senator from Massachusetts and a member of the Democratic Party. First elected in November 1962, he was elected nine times and served for 46 years in the U.S. Senate. At the time of his death, he was the second most senior member of the Senate, and...
took the lead in these hearings. This committee was deemed a more friendly forum than what likely would have been the more appropriate venue, the Aviation Subcommittee of the
Commerce CommitteeThe Senate Committee on Commerce, Science, and Transportation is a standing committee of the United States Senate in charge of all senate matters related to the following subjects:* Coast Guard* Coastal zone management* Communications* Highway safety...
. The
Gerald FordGerald Rudolph Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...
Administration supported the Senate Judiciary Committee initiative.
In 1977, President
Jimmy CarterJames Earl "Jimmy" Carter, Jr. served as the 39th President of the United States from 1977 to 1981 and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...
appointed
Alfred E. KahnAlfred E. Kahn is an American professor and expert in airline regulation. Commonly known as the "Father of Airline Deregulation," he chaired the Civil Aeronautics Board during the period when it ended its regulation of the airline industry, paving the way for low-cost airlines, from People Express...
, a professor of
economicsEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
at
Cornell UniversityCornell University is a private university located in Ithaca, New York, USA, that is a member of the Ivy League.Cornell counts more than 255,000 living alumni, 28 Rhodes Scholars and 41 Nobel laureates affiliated with the university as faculty or students...
, to be chair of the CAB. A concerted push for the legislation had developed, drawing on leading economists, leading 'think tanks' in Washington, a civil society coalition advocating the reform (patterned on a coalition earlier developed for the truck-and-rail-reform efforts), the head of the regulatory agency, Senate leadership, the Carter Administration, and even some in the airline industry. This coalition swiftly gained legislative results in 1978.
Dan McKinnon would be the last Chairman of the CAB and would oversee its final closure on January 1,1985.
Legislative terms
Senator
Howard CannonHoward Walter Cannon was an American politician. He served as a United States Senator from Nevada from 1959 until 1983 as a member of the Democratic Party....
of
NevadaNevada is a state located in the western region of the United States. The capital is Carson City and the largest city is Las Vegas. The state's nickname is Silver State, due to the large number of silver deposits that were discovered and mined there...
introduced on February 6, 1978. It passed and was signed by Carter, becoming on October 24, 1978.
The stated goals of the Act included
- the maintenance of safety as the highest priority in air commerce;
- placing maximum reliance on competition in providing air transportation services;
- the encouragement of air service at major urban areas through secondary or satellite airports;
- the avoidance of unreasonable industry concentration which would tend to allow one or more air carriers to unreasonably increase prices, reduce services, or exclude competition; and
- the encouragement of entry into air transportation markets by new air carriers, the encouragement of entry into additional markets by existing air carriers, and the continued strengthening of small air carriers.
The Act intended for various restrictions on airline operations to be removed over four years, with complete elimination of restrictions on domestic routes and new services by December 31, 1981, and the end of all domestic fare regulation by January 1, 1983. In practice, changes came rather more rapidly.
Among its many terms, the Act:
- gradually eliminated the CAB's authority to set fares;
- required the CAB to expedite processing of various requests;
- liberalized standards for the establishment of new airlines;
- allowed airlines to take over service on routes underutilized by competitors or on which the competitor received a local service subsidy;
- authorized international carriers to offer domestic service;
- placed the evidentiary burden on the CAB for blocking a route as inconsistent with "public convenience";
- prohibited the CAB from introducing new regulation of charter
In the context of mass tourism, charter flights have acquired the more specific meaning of a flight whose sole function is to transport holidaymakers to tourist destinations. Such charter flights are contrasted with scheduled flights, but they do in fact operate to regular, published schedules...
trips;
- terminated certain subsidies for carrying mail effective January 1, 1986 and Essential Air Service
Essential Air Service is a U.S. government program enacted to guarantee that small communities in the United States, which, prior to deregulation, were served by certificated airlines, maintained commercial service. Its aim is to maintain a minimal level of scheduled air service to these...
subsidies effective 10 years from enactment (however, as of 2009, the EAS is still in existence, serving 146 communities in the U.S.);
- terminated existing mutual aid agreements between air carriers;
- authorized the CAB to grant antitrust
United States antitrust law is the body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are designed to encourage competition in the marketplace....
immunity to carriers;
- directed the Federal Aviation Administration
The Federal Aviation Administration is an agency of the United States Department of Transportation with authority to regulate and oversee all aspects of civil aviation in the U.S...
(FAA) to develop safety standards for commuter airlines;
- authorized intrastate carriers to enter into through service and joint fare agreements with interstate air carriers;
- required air carriers, in hiring employees, to give preference to terminated or furloughed employees of another carrier for 10 years after enactment;
- gradually transferred remaining regulatory authority to the U.S. Department of Transportation
The United States Department of Transportation is a federal Cabinet department of the United States government concerned with transportation. It was established by an act of Congress on October 15, 1966 and began operation on April 1, 1967...
(DOT), and dissolved the CAB itself.
Safety inspections and air traffic control remained in the hands of the FAA, and the act also required the
Secretary of TransportationThe United States Secretary of Transportation is the head of the United States Department of Transportation. The Secretary is a member of the President's Cabinet...
to report to Congress concerning
air safetyAir safety is a term encompassing the theory, investigation and categorization of flight failures, and the prevention of such failures through regulation, education and training. It can also be applied in the context of campaigns that inform the public as to the safety of air travel.-United...
and any implications deregulation would have in that matter.
Effects
A 1996
Government Accountability OfficeThe Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government....
report found that the average fare per passenger mile was about 9% lower in 1994 than in 1979. Between 1976 and 1990 the paid fare had declined approximately 30% in
inflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
-adjusted terms. Passenger loads have risen, partly because airlines can now transfer larger aircraft to longer, busier routes and replace them with smaller ones on shorter, lower-traffic routes.
However, these benefits of deregulation have not been distributed evenly throughout the national air transportation network. Costs have fallen more dramatically on heavily trafficked, longer-distance routes than on shorter, lighter ones.
Exposure to competition led to heavy losses and conflicts with
labor unionA trade union is an organization of workers who have banded together to achieve common goals in key areas, such as working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labor contracts with employers...
s for a number of carriers. Between 1978 and mid-2001, nine major carriers (including
EasternEastern Air Lines was a major United States airline that existed from 1926 to 1991. Before its dissolution it was headquartered at Miami International Airport in unincorporated Miami-Dade County, Florida.-History:...
, Midway,
BraniffBraniff International Airways was an American airline that existed from 1928 until 1982. It operated in the midwestern and southwestern U.S., South America, Panama, and in its later years, to Asia and Europe...
,
Pan AmPan American World Airways, commonly known as Pan Am, was the "flagship" international airline of the United States from the 1930s until its collapse on December 4, 1991...
,
ContinentalContinental Airlines is a United States certificated air carrier. Based in Downtown Houston, Texas, it is the fourth-largest airline in the US based on revenue passenger miles. Since 1998, Continental's marketing slogan has been "Work Hard, Fly Right."Continental operates flights to destinations...
,
America West AirlinesAmerica West Airlines was one of the United States's ten major airlines. The airline was based in Phoenix, Arizona, and is now a part of US Airways Group....
, and
TWAFor the Jordanian cargo airline, see Transworld Aviation.Trans World Airlines renamed TWA Airlines LLC in 2001 was a major United States-based airline with hubs in St. Louis, New York , with focus cities in Kansas City, Missouri; San Juan, Puerto Rico; and Los Angeles, California. The airline...
) and more than 100 smaller airlines went bankrupt or were liquidated—including most of the dozens of new airlines founded in deregulation's aftermath.
For the most part, smaller markets did not suffer the erosion of service predicted by some opponents of deregulation. However, until the advent of
low-cost carrierA low-cost carrier or low-cost airline is an airline that offers generally low fares in exchange for eliminating many traditional passenger services...
s, point-to-point air transport declined in favor of a more pronounced
hub-and-spoke systemThe hub-and-spoke distribution paradigm is a system of connections arranged like a chariot wheel, in which all traffic moves along spokes connected to the hub at the center...
. The larger hubs were served with larger aircraft, the spokes with smaller. While more efficient for serving smaller markets, this system has enabled some airlines to drive out competition from their "fortress hubs." The growth of low-cost carriers such as
Southwest AirlinesSouthwest Airlines Co. is an American low-cost airline. Southwest is the largest airline in the world by number of passengers carried per year . Southwest, the 6th largest U.S. airline by revenue, maintains the third-largest passenger fleet of aircraft among all of the world's commercial airlines....
and
Pacific Southwest Airlines
has brought more point-to-point service back into the United States air transport system, and contributed to the development of a wider range of aircraft types that are better adaptable to markets of varying sizes.