35 Years of Deregulation of the Airlines
The Airline Deregulation Act of 1978 has had a tremendous impact on the airline industry over the past 35 years. Beyond the airline industry it has had a tremendous impact on countless other industries as well, most notably the tourism industry. Before deregulation flying was mostly for the elite or business travelers who could afford the exorbitant fares that existed. The relationship between the airlines and the CAB had created an excessively inflated system that made the airlines a lot of money, but also kept flying out of reach for most people.
The transportation industry was the first major industry to deregulate starting in the early 1970s, followed eventually by the telecommunications industry, energy industry, and most recently the financial industry. All of these actions had similar goals at their heart: increased competition leading to a reduction in prices. The success of each of these industries as it relates to deregulation can be debated all day, but as it relates to the airlines, it is hard to ignore the benefits that have come from deregulation.
Taking a look at the chart on the right shows just how successful deregulation has been. Granted, you could probably make a chart that is equally convincing regarding the areas that may be seen as failures. You can even attribute some of those numbers to the natural growth of any industry, but much of that growth would not have come without deregulation.
In an article written for Businessweek, former Supreme Court Justice Stephen Breyer discussed some of the impacts of airline deregulation. Perhaps the most telling statistic he presented was this, “In 1974 the cheapest round-trip New York-Los Angeles flight (in inflation-adjusted dollars) that regulators would allow: $1,442. Today one can fly that same route for $268.”
There can be no more clear indication that airline deregulation has been successful than reading numbers like that. While it is true that ticket prices have risen recently, most of that can be blamed on two things: rising fuel prices, and the creation of TSA. One of those you can’t do much about, but the other one is, surprise surprise, more government regulation. I realize security and fare regulation are not the same thing, but it is no surprise that when the government steps in costs are bound to increase. Just look at the Affordable Care Act.
The aviation industry is as volatile as they come, and we will continue to see prices fluctuate just like any other industry. Continued energy issues along with the retirement of the baby boomers will likely have impacts that we cannot anticipate, not to mention security concerns and the introduction of more UAVs to the national airspace system. One thing is for sure though, love it or hate it airline deregulation has lowered ticket prices and made air travel a reality for a lot more people.
Oh David … you had me right up to the affordable care act line.
Having lived through a post=deregulation airline — Midway 1 — start up and failure, most people think I’d hated deregulation.
You’re right. It opened plenty of doors just like our airline. If you believe the market rules, then you have to agree that Midway and PanAm and Braniff and other going out the door is simply the natural progression of things.
At least I think that way.
But do you really claim that the biggest problem we have in the airline industry is too much government regulation?
Look at why the airlines are making money — finally. They realized they needed to begin running their airlines like a business and that if you don’t charge more than the cost of the service, you go broke.
I’m not a TSA fan either, but to blame them for the airline’s problems is just nuts I think. If that were true, then how did the airlines all begin making money the past two years if the feds are holding them back?
I’m not letting you go on the affordable care act though.
No doubt the roll out has been a mess. No doubt healthcare is going to change and cost some of us more than they planned.
Kind of like the airlines though. Hospitals have been picking up the tab for the uninsured for decades and passing the bill on to us in the form of higher premiums.
Easy enough for the Republicans to say AHCA will bankrupt the country when they offered no solution of their own. At least the Dems are trying to fix the problem no one else wanted to acknowledge.
And didn’t the basis for the AHCA come from a Republican in the first place?
Rob
Rob-
In all fairness it is far too early to know what impact the ACA will have on healthcare costs so that comment was probably more a result of my personal feelings/frustrations than anything.
I completely agree with what you said about the market ruling. It is unfortunate for any company to go out of business and for people to lose their jobs, but that is one part of keeping an industry efficient and effective.
I don’t blame TSA for the struggles the airlines have had as much as I think it slowed the recovery, and in many cases is just another example of an expensive, inefficient government program. Much of the struggle in the relatively recent past was a combination of a lot of things happening at the same time. Rising fuel prices, increased security costs after September 11, low cost carriers rapid rise, and the aging group of pilots and their retirements.
In the big picture I think a lot of it has to do with the cyclical nature of business. There was a pretty substantial decline for a while, and now we are on more of an upswing that hopefully will continue to go up. It is interesting how we are slowing going back to there being a relatively small group of airlines controlling the market. Obviously, we are not back to the CAA days, but it gives me the feeling that the airline industry is strongest when it is dominated by a handful of majors with other smaller airlines that fill the gaps.
I think the next major issue has more to do with airport funding. Where it will come from, and how it will be utilized.
Thanks for the comment Rob.