U.S. Airlines Face A Critical Legislative And Regulatory Test In 2019

Forty years ago, President Carter signed the Airline Deregulation Act (ADA), landmark legislation that has transformed air travel from an expensive, exclusive means of transportation to an affordable option for more Americans. Over the past 40 years, average roundtrip U.S. domestic airfares have decreased by more than 40%, from $629 to $340 (including fees, based on inflation-adjusted dollar amounts).  However, frustration overcrowded cabins and ancillary service fees has led to calls for congressional action.

Americans under the age of 50 may not be aware of how tightly the federal government controlled the industry before 1978.  Prior to deregulation, the Civil Aeronautics Board (CAB), the federal agency with economic regulatory authority over airlines, decided how many (and which) airlines were licensed to fly any given route (e.g., New York to Dallas) and how much those airlines could charge passengers on that route.  The CAB even had authority to prohibit airlines from terminating service on a given route.  The ADA abolished the CAB and liberated the airlines to make their own, market-driven decisions about which routes to enter and exit and how much to charge.  (The ADA focused on economic regulation; it did not alter the FAA’s broad authority to regulate airline safety.)

The ADA did not strip away all federal economic regulation of airlines: rather, the legislation transferred a residual measure of authority to the U.S. Department of Transportation (DOT), including the authority to prohibit airlines from engaging in “unfair or deceptive practices” and “unfair methods of competition.”  In doing so, however, Congress cautioned DOT to place “maximum reliance on competitive market forces and on actual and potential competition” as the best way to achieve “efficiency, innovation, and low prices” and “variety and quality of air transportation services.”

Airline deregulation has been an outstanding, but arguably underappreciated, success.  It has transformed air travel from an expensive means of transportation that was not accessible to many Americans into an affordable option for the traveling public.  Fares are lower and airlines are offering more service options to more destinations.  The highly competitive deregulated marketplace witnessed the demise of leading U.S. airlines of the regulated era (e.g., TWA, Pan Am, and Braniff), while others, such as Northwest Airlines, Continental Airlines, and US Airways, were retired by merger. Deregulation, however, also enabled the success of new entrant airlines, such as JetBlue Airways.

Read more of this Forbes Magazine article by David Heffernan by clicking here.