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Essay on Airline Deregulation Act Of 1976
Sixty-two years ago, the U.S. airline industry, by most definitions, was a classic public utility. The services provided by airlines were considered essential, and the necessary capital investment was high in relation to revenues. If the industry was not always a natural monopoly, then it at least appeared to be a natural oligopoly.
There was a shared belief, grounded in experience, that regulation was required to protect the pubic interest (McKenzie, 1991). That political consensus produced the prototypical New Deal regulatory structure. From 1938 through at least 1978, the Civil Aeronautics Board (CAB) provided cradle-to-grave economic regulation of the U.S. airline industry, literally. An airline could not go into business or out of business, or do anything in between, without the permission of a majority of the five presidentially appointed CAB members.
This all changed with the Airline Deregulation Act of 1978. The driving force behind deregulation was the perception that regulation by the CAB had resulted in reduced competition and higher fares. That perception was reinforced by the actions of the CAB in the first half of the 1970's, actions that included: an unofficial moratorium on the award of additional domestic routes and the certification of new airlines; approval of agreements among the trunk airlines that limited capacity in major domestic markets; a massive investigation into the domestic fare structure that produced, among other things, a mileage-based fare formula and detailed standards for everything from seating configurations to in-flight service; and continued grants of antitrust immunity to an airline cartel that fixed prices in international markets.
The United States Airline Deregulation Act of 1978 was a dramatic event in the history of economic policy. It was the first thorough dismantling of a comprehensive system of government control since the Supreme Court declared the National Recovery Act unconstitutional in 1935....
