AIRLINE DEREGULATION ACT

AIRLINE DEREGULATION ACT (1978). For forty years, the domestic commercial airline industry was extensively regulated by the Civil Aeronautics Board (CAB). Among other things, the CAB governed which airlines could serve which routes, determined which airlines were certified to enter the market, and restricted mergers among airline companies. In addition, the CAB set the fare structure for the industry: it established rates that tended to subsidize low-cost fares on shorter flights by imposing above-cost fares on longer flights.

Believing that such strict regulation made the industry inefficient and inhibited its growth, Congress in 1978 adopted the Airline Deregulation Act. Championed by Congressional Democrats and signed into law by President Jimmy Carter, the Act represented a fundamental shift away from regulation and toward an air transportation system that relied on competitive market forces to determine the quality, variety, and price of air services. Congress, in the words of the statute, determined that "maximum reliance on competitive market forces" would best further "efficiency, innovation, and low prices" as well as "variety[and] quality… of air transportation services." The Act phased out the regulatory power of the CAB, eliminating the agency in 1984. The Act did not, however, change the government's role in overseeing and regulating air safety through the Federal Aviation Administration.

Deregulation had a number of effects. In most markets, fares per passenger mile fell. The key factor contributing to the lower fares was the increased competition brought about by the entry of low-fare airlines into popular markets. In some markets, however, where there was less competition, fares rose above where they had been under the rate structure established by the CAB. Owing to the generally lower prices, air travel increased. In 1978, approximately 250 million passengers traveled by air. About 600 million people traveled by air in 1997.

Another of the more lasting changes was the greater use of airline "hubs,"—major airports where many of an airline's flights originate or terminate—by airline companies. The hub system emphasizes greater frequency of service by smaller aircraft and reduces the number of cities directly connected by any single carrier. This system virtually eliminates the need for wide-body aircraft in domestic air travel. Another effect of deregulation was the transfer of shorter routes from major carriers to smaller, regional airline companies. In the twenty years following the passage of the Act, regional and commuter passenger traffic grew at almost twice the rate of larger air carriers.

AIRLINE DEREGULATION ACT

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