Winds of Change: Domestic Air Transport Since Deregulation

TRB Special Report 230 - Winds of Change: Domestic Air Transport Since Deregulation examines the appropriate role of government in the deregulated airline industry. In

Perhaps the most significant federal policy change regarding aviation occurred in 1975 when the Civil Aeronautics Board (CAB) began giving air carriers greater freedom in discounting prices and serving new markets.1 These administrative actions were followed by the Airline Deregulation Act of 1978, which removed restrictions on market entry, pricing, and route service and began the phase-out of the CAB itself. Whereas this legislation did not affect federal safety regulations, it greatly reduced federal economic controls on air carriers. Deregulation resulted in a substantial upheaval among carriers and sharply increased competition. Passengers have generally benefited from the resulting reduced fares and increased air service throughout the country, with little or no indication of increased risk.

Deregulation was expected to lead to the emergence of new, service-oriented carriers that would compete with the existing heavily regulated, inefficient carriers. Although many new carriers have tried to enter aviation markets, few have survived. The TRB committee that produced this report reviewed developments in domestic air transport service following deregulation concluded that preexisting carriers were able to exploit inherited advantages such as the ability to exercise considerable control over the use of airports they served. This advantage became pronounced as carriers shifted from point-to-point to hub-and-spoke service, which has many operational advantages for both carriers and passengers. The ability to limit competition at major hub airports, however, greatly reduces opportunities for the entry of new carriers. Such inherited advantages were compounded by a period in which many mergers between old-line carriers, including several mergers between rivals, were permitted.