Deregulation in the Airline Industry

 

By the mid-1970s in the United States, a variety of events ranging from the Viet Nam War to the Watergate Scandal had cascaded into a loss of confidence in federal government across all segments of the political spectrum (Weissberg 5). In the economic arena, high rates of inflation, economic stagnation, oil shocks, and other misfortunes had caused the federal government's management of the economy to be perceived by many citizens as a failure.

In the midst of the political and economic turmoil which characterized the United States in the 1970s, a momentum for regulatory reform was building. With respect to the airline industry, a momentum for deregulation was building in the face of resistance to such a policy initiative by most of the minor and some of the major American airline companies (Meyer and Oster 10).

The deregulation of the airline industry began to gain acceptance as a policy alternative, as policies began t

The primary issue is the policy action that should be implemented by the federal government in the 1990s to assure that the traveling public is being served by the airline industry, as opposed to the existing case in which the airline traveler is all but ignored as the individual airlines attempt to maintain their corporate existence within a chaotic environment.

The complete absence of regulation in the airline industry since the advent of the Reagan Administration is creating a situation that is rapidly moving toward a recreation of the travesty of the Aeroflot monopoly in the former Soviet Union. Should this trend continue, the American public likely will demand a return to full airline regulation.

The rationale underlying the expectations of airline deregulation held that any real loss in air service resulting from deregulation would be minimal, and that the only loss of service would be over routes without sufficient traffic to justify scheduled air service (Meyer and Oster 15). This rationale was supported by an assumption that (1) generally lower fares would result from deregulation, which would (2) draw more passengers into the market, which would (3) result in stronger and better managed air carriers in each of the three tiers of the industry.

In actual practice, deregulation appeared to be more favorable for the regional and local carriers than for the trunk carriers (Abunassar and Koford 363-378). Many commuter routes required a subsidy to support service by trunk carriers using high-capacity jet aircraft. Smaller carriers could and did operate more economically over such routes by downgrading the equipment used. Further, deregulation, which promised lower air fares, freed the regional and local carriers to raise fares, in order to make some routes profitable.

 

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