It’s been 20 years since airlines were deregulated. Since then we’ve lost Pan Am, Braniff, and now TWA. I heard on the radio today that we’ve lost “three of the Big Five airlines”.
What exactly was deregulation of the airlines?
There used to an entity called the Civil Aeronautics Board (CAB) that controlled the airlines. It set the price on any given route and determined which airlines were allowed to fly that route. The fares were usually set as a given mark-up on the actual cost, a policy which doesn’t encourage much cost-cutting. It was very difficult for a new airline to get access to a route, so the number of airlines was very low (your Big “Five”.)
Deregulation, in the form of the Airline Deregulation Act of 1978, mainly got rid of the CAB and allowed the prices and routes to be set by market factors. This worked quite well – adjusted for inflation, airline tickets now are about a third less than they were before deregulation.
Before 1978, the Civil Aeronautics Board regulated airline routes and fares while the FAA regulated (as it still does) safety issues. In those days, airlines could not add or delete routes or raise or lower fares without approval from the CAB. It was virtually impossible to start a new airline to compete with those already in existence.
Deregulation took place gradually over the period 1978-83. Adjusted for inflation, fares are down significantly (37% according to one source). Ridership has increased dramatically.
A lot of people are convinced that deregulation has led to more accidents. There are a lot of variable to take into account. You might expect a higher accident rate because there are so many more flights now (crowded skies, crowded airports). But in fact the accident rate was declining before deregulation, and has continued to decline since (the rate varies widely from year to year of course). It’s important to remember that the FAA is still regulating safety issues.
The total number of travel deaths has probably decreased because of deregulation. The lower air fares has led people to fly more and drive less than they otherwise would. Since flying is much safer than driving, the number of travel deaths is lower. (according to The Impact of Airline Deregulation on Highway Safety by Richard McKenzie and John Warner).
A good article on the subject is here:
http://www2.trincoll.edu/~bsayles/micro.html
I should have said the death rate (per million passenger miles) is probably lower now. I don’t know about the actual number of deaths, considering that the amount of travel has increased so much.
No question that a lot more people fly now than did in 1980, due to a lot more seats being available at a lot lower price, but with a chaotic fare structure. The effect on service levels is just as noticeable. Accident/fatality rates are muc better too, but more attributable to better technology than market forces, IMHO.
Hmm, Johnny, you got me started on thinking of US airlines that were around in 1980 but have died or been bought since … TWA, Braniff, and Pan Am you’ve mentioned (although the PA name has been on several startups since). There’s also Eastern, Southern, North Central, Western, Pacific Southwest (that’s the entire compass), Ozark, Piedmont, National, Hughes AirWest … got any others?
Two points I’d like to make:
-
Deregulation is not synonymous with lower fares.
For most Americans, deregulation meant increased opportunities to travel by air at lower cost because the CAB set MINIMUM fares for interstate carriers. When the CAB was abolished, airlines became free to charge lower fares. In California, however, the fares of airlines operating strictly within the state were regulated by the California Public Utilities Commission (PUC), which set MAXIMUM fares and California had the cheapest unsubsidized air fares in the world. Pacific Southwest Airlines (PSA) was still charging less than $20 for the 500 mile flight from San Diego to San Francisco at least as late as 1966. At the same time the minimum available fare for a similar distance on the east cost (regulated by the CAB) was two or three times that. Deregulation by the California PUC occurred sooner than deregulation by the CAB; when PSA started flying interstate they came under the CAB’s jurisdiction and the California PUC lost their authority to regulate them. Fares in California went up. -
There is no free lunch.
Deregulation did not save money or increase efficiency. What deregulation did was make it possible for the airlines to sell what amounts to discount service at discount prices. Before deregulation, everybody flew in circumstances that were similar to what you would expect in business class today. Lines at ticket counters were rare, seats were comfortable, planes often flew half empty, and everybody was offered food at meal times on longer flights. Air fares are not really lower today if you consider the level of service you get (compare today’s first and business class fares with first and economy class fares before deregulation). The AVERAGE fare paid is lower because so many people choose to fly the equivalent of third class. (I’m not knocking it; being a tightwad, I’m a big fan of deregulation.)
Californians shared the increased opportunities for low cost intrastate travel that followed the abolition of the CAB but they did not save on intrastate trips.