How The Airline Deregulation Act Shook Up US Aviation

President Jimmy Carter introduced the Airline Deregulation Act in 1978. This law removed federal government control over many critical aspects of the aviation industry. Subsequently, there was a significant shift within the United States market, with some effects still being felt today.

Pan Am 747
Pan American was one of the airlines that were adversely impacted by deregulation. Photo: Getty Images

More autonomy

Before this act, the Civil Aeronautics Board (CAB) regulated domestic interstate routes. The board set most of the routes, schedules, and even fares. However, the new policy gave greater freedom to carriers and helped them have better control of their operations.

Vitally, it was now far more manageable for startups to break into the industry. The law encouraged the growth of new carriers and entry into new markets for existing ones.

Additionally, authorities wanted to decrease concentration that would allow airlines to increase prices and unreasonably reduce services. Ultimately, the act sought to increase competition within the industry.

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Opening up the market

Before the end of the 1970s, 10 major groups controlled 90% of the market. There were also eight smaller, regional firms operating the majority of the other services.

In the preceding decades, air travel was a luxury that only a privileged few could afford. Even though the introduction of the jet helped reduce ticket fees, there was still room to open the door for many more passengers. Subsequently, deregulation allowed for a genuinely free market in the commercial airline industry and gave birth to a wave of low-cost carriers in the US.

twa 3 March 1954.
Air travel was primarily reserved for wealthier groups before the 1970s. Photo: Getty Images

More members of the general public now had an opportunity to fly with cheaper flights and had an array of carriers to choose from. Less than 20% of the US population had hopped on an aircraft in 1965. By the turn of the century, half of the nation had booked at least one round-trip a year. Furthermore, there were three times more passengers in 2011 compared with the 1970s.

A new era

The increase of tickets booked across different carriers meant that the former powerhouses had their market share drop. The middle of the 20th century is often viewed as the ‘golden age’ of passenger aviation. Luxurious aircraft cabins with gourmet meals, extra attentive flight attendants, and roomy interiors were the standard.

Getty Pan Am first class
It was a unique experience to fly during this period. Photo: Getty Images

However, deregulation helped put a nail in the coffin for many of these practices. Ultimately, many of the previous dominators struggled and met their demise in the decade or two that followed.

Major airlines such as Braniff International Airways, Capitol Air, and the original Frontier Airlines all faced bankruptcy in the 1980s. Meanwhile, some carriers such as Eastern Air Lines and Pan American managed to hold out only until the beginning of the 1990s.

The shift in the market forced several of the veterans to drop their prices. Generally, the inflation-adjusted 1982 constant dollar yield for operators fell from 12.3 cents in 1978 to 7.9 cents in 1997. In order to compete, these firms had to find ways to reduce their costs. Subsequently, tensions with labor unions started to soar.

Meanwhile, newcomers such as Southwest Airlines were able to benefit from the transition. The Dallas-based carrier commenced operations in 1971 and was naturally able to expand its network following the new law.

Southwest takes off from DIA
Young airlines such as Southwest could head for greater heights. Photo: Getty Images

Shifts across the board

It wasn’t just newer names that benefited. Some existing strongholds now had more capabilities to expand as the CAB was no longer holding them down. For instance, Continental Airlines had to wait for eight years to receive permission to serve a route from San Diego to Denver. Now that there could be quicker expansions, individual operators benefitted from the change.

American Airlines flew to only 39 destinations before deregulation. Even though the Texan carrier was able to expand more efficiently in the years that followed, According to USA Today, former AA chairman, Robert Crandall, admitted that there were several drawbacks.

“The consequences [of deregulation] have been very adverse. Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time,” he said, as reported by USA Today.

“Airport congestion has become a staple of late-night comedy shows. An even higher percentage of bags are lost or misplaced. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.”

History repeats itself

Nonetheless, the state of the industry seems to have gone in a full circle. Deregulation was supposed to break down the market share between a select group of airlines. For a while, it did just that but at the expense of several carriers. Now, with less powerful players on the scene, only four airlines control 80% of the market.

American Airlines Delta
Only a handful of companies control most of the market. Photo: Getty Images

These firms have the power to set financial policies that could be at the expense of the customer. For example, increased baggage fares, amendment fees, and strict refund policies have been in place over the years.

Regardless, the competitive edge following deregulation is still prevalent in certain aspects. For instance, JetBlue saw a quick rise as a force to be reckoned with since its emergence at the beginning of the millennium. If the act had not been introduced, then the low-cost carrier may not have been able to proliferate its network.

Altogether, flying has undoubtedly become more accessible since deregulation. However, the high-quality general service that came with air travel seems to have fallen for several operations.

Moreover, even though there are cases of new opportunities for modern carriers, the market has once again become tight. Nonetheless, there is a direct correlation between the Airline Deregulation Act of 1978 and the downward spiral for many industry veterans in the years that followed.

What are your thoughts about the Airline Deregulation Act of 1978? What was the most significant impact of the law? Let us know what you think of the situation in the comment section.