Happy 35th Anniversary, Airline Deregulation! | Citizens Against Government Waste

Happy 35th Anniversary, Airline Deregulation!

The WasteWatcher

As a hard-nosed researcher of low fares (in other words, I am a cheap flier), I am appreciative of the fact that, thirty five years ago today, President Jimmy Carter signed the Air Transportation Regulatory Reform Act into law, on October 24, 1978.

Prior to airline deregulation, the Civil Aeronautics Board (CAB) regulated the airline industry, dictating the fares charged and the routes served.  As the 1978 law phased out these controls, the CAB was eliminated by the end of 1984, per provisions further codified in the CAB Sunset Act .  Other responsibilities, such as air accident investigations, had already been transferred to the National Transportation Safety Board, which was created on April 1, 1967, at the same time that the U.S. Department of Transportation was established.

Airline deregulation has been credited with a number of positive results.  Perhaps most significant among these has been the so-called democratization of air travel.  By removing government-mandated price controls, air fares have declined significantly, allowing millions more passengers to avail themselves of the relative convenience of air travel.  According to “Airline Deregulation,” an entry in the Library of Economics and Freedom, CAB rules and regulations led to high prices and low load factors (the percentage of filled seats).  The article points out that, in the early 1970s, load factors were only about 50 percent.

Since deregulation, airfares have fallen more than 40 percent in real terms.  By 2003, load factors had jumped to 74 percent.  Between 1974 and 2012, the number of airline passengers transported by U.S. airlines on domestic and international flights more than tripled, from about 207 million to over 736 million.  Interestingly, prior to 1975, some 80 percent of the population had never experienced air travel, all according to an article by David Kinkade at the U.S. Chamber of Commerce.

This partial liberalization has also allowed the advent of low-cost carriers (LCCs), which are challenging the legacy carriers that were in existence prior to deregulation.  Indeed, the LCCs are gaining market share, and some of these (Southwest Airlines, for example) have inspired low-cost carriers in both Mexico and Canada, as well as in Europe, Asia, and Australia.

While the airlines’ business practices have been deregulated, other components of the industry are still controlled by the government.  These include other key factors impacting capacity, in the air (via air traffic control) and on the ground (the physical infrastructure comprised of airports, terminals, and runways).  As the demand for services has exploded, capacity remains constrained by those elements still under the government’s purview.

In any case, I am thankful that my beloved Texas-based Southwest Airlines, which recently acquired AirTran and its route structure (a merger that would have been much less likely absent deregulation), will soon start service to Bermuda.  Yes, I’ve already programmed the cheap-fare price alert!