Airline deregulation has had a significant impact on aviation for decades. For better or for worse, the move transformed the industry. United States President Jimmy Carter signed the Airline Deregulation Act into law in October 1978. This law removed federal government control over many critical aspects of the aviation industry. Subsequently, there was a significant shift within the US market, with some effects still being felt today.

Greater 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 which would allow airlines to increase prices and unreasonably reduce services. Ultimately, the act sought to increase competition within the industry.

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.

TWA Muhammad Ali
Photo: Getty Image

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.
TWA would go into have a rich history of its own before ceasing operations at the turn of the 21st century 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.

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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.

Pan Am Cabin
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.

Pan American Aircraft
Photo: Getty Images

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.

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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 benefited 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,

Former AA chairman, Robert Crandall, admitted that there were several drawbacks. He shared the following, as reported by ABC News:

"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. 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."

Those that survived had to think big. For instance, Delta Air Lines, which was the fifth-largest airline in the US in the mid-1980s, was facing labor cost woes and was facing challenges with expansion amid heightened competition. To counter the lower fares, the Atlanta-based carrier turned to new technology, such as computer software to forecast demand and provide the best mix of full-price and bargain rates for the 86 million seats it had on offer yearly.

Looking back, deregulation had a knock-on effect on airlines maximizing modern technology to keep on top of costs. This factor became more evident as the 20th century drew to a close.

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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 Tails 1990s
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.

Europe also went through a similar notion amid the Single European Act of 1986. This was the beginning of a continuous process to open up competition across the continent. This act helped Europe's low-cost carriers become the forces that they are today.

Looking ahead

Recent shifts, such as the rise of the pandemic, may offer similar long-term consequences for the aviation industry. While the immediate impact is clear, we could be yet to see the major implications, much like how the Deregulation Act managed to take its toll on the industry several years later.

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 move and its consequences in the comment section.

Source: ABC News