Airline Deregulation: Boon or Bust?

This article appeared in the GAO Review, Vol. 16, Issue 2, Spring 1981. The Civil Aeronautics Board (CAB) is responsible for the economic regulation of the airline industry. CAB has scrupulously protected airlines from competition. Criticism has been aimed at the CAB route-award policy which restricted new routes and competition. CAB fare policies failed to give cost-service options to passengers. As a result, Congress passed the Airline Deregulation Act which permits a more competitive airline industry and will gradually phase out CAB. CAB has gradually lessened restraints on an airline's ability to enter and exit markets and has provided airlines with increased fare flexibility. Four aspects of the industry's operations, traffic, fares, profits, and production, have shown gains since the deregulation process began. Air fares have increased before and after deregulation but have not kept pace with airline costs and the consumer price index. Although airline fares have not kept pace with rising costs, airlines have still been making profits. Two major factors that have contributed to moderating fare increases and increasing airline profitability are improved airline productivity and favorable economic conditions. Air service is up nationwide, and the number of weekly departures and available seats has increased. Competition and single-plane service, which allows travelers to reach their destination without transferring planes, have also increased. More service is provided to small communities, but less direct service. Consumer protection may have improved with less regulation since airline tariffs limit airline responsibility and liability to the passenger's detriment. Discount fares have flourished since deregulation. Business travelers have complained about having to pay more than nonbusiness travelers in the same market. However, if it were not for discount fares, business travelers would have to pay even more for their seats or suffer service cuts. Therefore, the two-tier pricing system creates benefits to both groups. The invisable hand of free enterprise should be allowed to continue its work on the airlines. It seems to be doing a good job.