The Airline Deregulation Act
( ) is a United States federal law
into law on October 24, 1978. The main purpose of the act was to
remove government control
fares, routes and market entry (of new airlines) from commercial aviation
. The Civil Aeronautics Board's
regulation were to be phased out, eventually allowing passengers to
be exposed to market forces in the airline
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 utility
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 return
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 Airways applied to begin a low-fare
City to Los
Angeles route in 1967; the CAB studied the request for over
six years only to dismiss it because the record was "stale."
Continental Airlines began service
between Denver and San Diego after eight years only because a United States Court of
Appeals ordered the CAB to approve the
This rigid system encountered tremendous pressure in the 1970s. The
1973 oil crisis
radically changed the economic
environment, as did technological advances such as the jumbo jet
. 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.
that air transport in the long run might follow the nation's
trouble; in 1970 the Penn Central Railroad
had collapsed in what was then the largest bankruptcy
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
in the Richard Nixon
Administration, along with the Antitrust Division of the Department
of Justice and other agencies, proposed legislation which would
diminish price collusion
barriers in rail and truck transportation
While this initiative was in process, in the follow-on Gerald Ford
Administration, the United States Senate
, which had jurisdiction over the antitrust
laws, a part of competition law
began 1975 hearings on airline deregulation
. Senator Ted Kennedy
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
. The Gerald Ford
Administration supported the Senate Judiciary Committee
In 1977, President Jimmy Carter
appointed Alfred E. Kahn, a professor of economics at Cornell University, 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.
Howard Cannon of Nevada 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
- placing maximum reliance on competition in providing air
- 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
- liberalized standards for the establishment of new
- allowed airlines to take over service on routes underutilized
by competitors or on which the competitor received a local service
- authorized international carriers to offer domestic
- 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 trips;
- terminated certain subsidies for carrying mail effective
January 1, 1986 and Essential Air
Service 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
- authorized the CAB to grant antitrust
immunity to carriers;
- directed the Federal
Aviation Administration (FAA) to develop safety standards for
- 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
Transportation (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
to report to Congress concerning air safety
and any implications deregulation
would have in that matter.
A 1996 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
-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
for a number of carriers.
Between 1978 and mid-2001, nine major carriers (including Eastern
, Pan Am
, America West Airlines
, and TWA
) 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 carriers
point-to-point air transport declined in favor of a more pronounced
. 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 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.
- Barnum, John W. " What Prompted Airline Deregulation 20 Years Ago?,"
Presentation to the Aeronautical Law Committee of the Business Law
Section of the International Bar Association,
September 15, 1998.
- Derthick and Quirk, The Politics of Deregulation,
Brookings Institution, 1985.
- Kahn, Alfred E. " Airline deregulation" in Concise
Encyclopedia of Economics.
- Robyn, Dorothy, Braking the Special Interests,
University of Chicago Press, 1987
- Rose, Seely and Barrett, The Best Transportation System in
the World, University of Ohio Press, 2006, a part of an
Historical Series on Business Enterprise, edited by Blackford and