The Airline Deregulation Act of 1978 was undoubtedly the single most important event in the United States airline industry since 1903. Before the deregulation, the Civil Aeronautics Board established air routes and regulated air fares. William Shughart’s article “Airline Deregulation Act of 1978” casts a bright light on the influence of the Civil Aeronautics Board on the United States airline industry. The author also explores the politics around the passing of the Airline Deregulation Act of 1978. The author asserts that the country’s airline industry was choking under the control of the Civil Aeronautics Board. Apart from regulating passenger airfares on interstate commercial flights, the board barred entry into the industry. As a result, the Civil Aeronautics Board failed to protect the flying public against excessive ticket prices, a role it was expected to play. Thus, the authors main conclusion is that the deregulation played a significant resuscitating the dying airline industry by eliminating regulatory bottlenecks.
The author makes a relatively objective effort to answer pertinent questions regarding airline regulation. The article clearly lays out some of the roles of the then airline regulator, the Civil Aeronautics Board. For instance, the author points out that the board limited the growth of the industry by not authorizing the entry of any new commercial airline. This means that competition was limited in the industry, significantly hurting the flying public. Thus, the author answers the question as to whether deregulation was something needed in the industry. Another question the author seems to answer relates to whether the Civic Aeronautics Board succeeded in protecting the flying public against excessive ticket prices. The reader learns from the article that the board’s policies did the opposite; it exploited the American public.
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There are several key issues making up the article. One of the issues is excessive ticket prices. According to the author, airline regulation hurt the flying public significantly. For instance, the airfares on regulated interstate flights were considerably higher compared to the fares charged on routes covering the same distance on flights made within the same state. Surprisingly, the author points out that flights which were not subject to federal regulatory controls were relatively cheaper compared to flights on regulated routes. This implies that regulation was counterproductive in terms of protecting the flying public against excessive ticket prices. Another important issue highlighted in the article is the reduction of airlines since the creation of the Civic Aeronautics Board in 1938. The author asserts that the board never saw it fit to authorize the entry of any new commercial airline. This limited the choices of consumers, as many airlines merged while others consolidated route networks. As a result, fewer airlines flew the American skies in the 1970s than before regulation began.
The impact of regulation on the airlines’ margins is also another important issue making up the article. Due to federal regulation, the airlines were unable to effectively compete for more passengers by reducing airfares below the minimum prescribed by the Civic Aeronautics Board. As such, federal regulation defeated its twin purpose of safeguarding the interest of consumers, as well as ensuring that airline owners earned reasonable rates of return on their investment. This is because the consumers suffered from excessive ticket prices and the airlines struggled to get customers. The airlines could only practice non-price competition, which eventually eroded their regulatory profits. Increase in operational costs for airlines is another key issue highlighted in the article. In a bid to attract more passengers, airlines began to offer sumptuous meals, hired well-known chefs to oversee in-flight meal services, and hired attractive young women as stewardesses. Such investments increased operating costs for the airlines, ultimately shrinking their margins. The most significant cost raising aspect of non-price airline competition was the incentive to offer passengers, particularly business passengers, a variety of convenient departure and arrival times between major US cities. This drove up operating costs as airlines were forced purchase more aircrafts, and hire more pilots, along with other air crew members. According to the author, the airlines called for deregulation, as they realized that the Civic Aeronautics Board could not protect their interests. Based on the above issues, the author concludes that the deregulation reduced operational costs for airlines and made flying more affordable for the public.
The author uses evidence from renowned authors to support his conclusions. For instance, the author cites the report by the Nobel laureate George Stigler that was published in the Bell Journal of Economics and Management. He also quotes famous economists like George Douglas, James Miller III, and Thomas Gale in order to support some of conclusions regarding the economics of the United States airline industry, particularly focusing on the negative economic impacts of regulation (Brown, 2014). As such, the author viewed the deregulation as a welcomed move that significantly loosened the federal government’s control of the airline industry. The airline business became a competitive industry as the airlines operated without government controls over them and their route structures ( Borenstein & Rose, 2014 ). The airlines were at liberty to select more heavily traveled and profitable routes. Additionally, new airlines sprung up, increasing competition and making air travel affordable.
A typical reader would hail deregulation as an important effort that resuscitated the U.S. airline industry after reading the article. The author is against the regulation of the airline industry. He blames most of the challenges the airlines went through between 1938 and 1978 on the Civic Aeronautics Board.
References
Borenstein, S., & Rose, N. L. (2014). How airline markets work… or do they? Regulatory reform in the airline industry. In Economic Regulation and Its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press.
Brown, J. H. (2014). Jimmy Carter, Alfred Kahn, and Airline Deregulation. The Independent Review , 19 (1), 85-99.
Shughart II, W. (October 24, 2014). Airline Deregulation Act of 1978, Independent Institute , http://blog.independent.org/2014/10/24/airline-deregulation-act-of-1978/
