Before airline deregulation, the Civil Aeronautics Board (CAB) closely regulated the fares, routes and schedules of U.S. air-carriers. After deregulation, airlines were free to set prices, change routes and schedule flights without government oversight. The Federal Aviation Authority still tightly regulates airline safety but has no authority in matters of competition or business decisions. Air travel has changed dramatically since deregulation.
According to the U.S. Centennial of Flight Commission, the CAB was created to foster the development of an air transportation system in the U.S. The CAB regulated airlines, much like utility companies, with the goal of maintaining a vibrant airline industry rather than encouraging competition. The CAB allowed airlines to operate as oligopolies, or limited competition industries. CAB considered this necessary to provide a safe and complete air-travel network for the flying public.
Congress established the CAB in 1938 to regulate and promote the U.S. airline industry. According to the Air Transport Association, in 1975 the CAB concluded, "Airlines are naturally competitive not monopolistic." This led directly to the passage of the Airline Deregulation Act of 1978, which allowed competition in the airline industry. Cargo airlines had been deregulated one year earlier. The law provided subsidies for airlines to ease the transition to a free-market or competitive system. In 1984, the CAB formally disbanded.
Air deregulation initially caused airlines to abandon less profitable routes to focus on more popular higher profit routes, according to the U.S. Centennial of Flight Commission report "Deregulation and its Consequences." The federal government began a series of subsides to encourage airlines to continue to service smaller destinations. Another result of deregulation, according to the Flight Commission report, was a trend toward consolidation of legacy airlines, the airlines that were in business before deregulation. Legacy airlines, such as TWA and Eastern, went out of business entirely; others, such as Piedmont and PSA, merged with other carriers.
The introduction of competition that came with airline deregulation dramatically lowered the price of airline tickets. In the "Deregulation of Network Industries," Steven Morrison and Clifford Winston estimate that deregulation saves air travelers more than $20 billion annually. The Air Transportation Association notes that airfares have declined more than 50 percent since 1978, the last year of deregulation. Additionally, airline rewards programs and increased choices in routes and carriers are a direct result of deregulation.
While under CAB authority, airlines were essentially guaranteed profitability. No such guarantee exists post deregulation. James May, president of the Air Transport Association, quoted in "Seattle Post Intelligencer," said, "The formation of a federal advisory committee of government and industry stakeholders, who will seek solutions to the challenges facing U.S. aviation, in order to restore jobs and the financial health of our industry is essential."
