The Airline Deregulation Act is a 1978
United States federal law
The law of the United States comprises many levels of Codification (law), codified and uncodified forms of law, of which the supreme law is the nation's Constitution of the United States, Constitution, which prescribes the foundation of the ...
that
deregulated the airline industry in the United States, removing
federal control over such areas as fares, routes, and market entry of new airlines. The act gradually phased out and disbanded the
Civil Aeronautics Board (CAB), but the regulatory powers of the
Federal Aviation Administration
The Federal Aviation Administration (FAA) is a Federal government of the United States, U.S. federal government agency within the United States Department of Transportation, U.S. Department of Transportation that regulates civil aviation in t ...
(FAA) over all aspects of
aviation safety
Aviation safety is the study and practice of managing risks in aviation. This includes preventing aviation accidents and incidents through research, educating air travel personnel, passengers and the general public, as well as the design of airc ...
were not diminished.
History
Since 1938, the federal CAB had regulated all domestic interstate
air transport routes as a
public utility
A public utility company (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and ...
, setting fares, routes, and schedules.
Airlines that flew only
intrastate routes, however, were not regulated by the CAB but were regulated by the governments of the states in which they operated. One way that the CAB promoted air travel was generally attempting to hold fares down in the short-haul market, which would be subsidized by higher fares in the long-haul market. The CAB also had to ensure that the airlines had a reasonable
rate of return
In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment over a specified time period, such as i ...
.
The CAB had earned a reputation for bureaucratic complacency; airlines were subject to lengthy delays when they applied for new routes or fare changes, and were often not approved. For example,
World Airways applied to begin a low-fare New York City–to–Los Angeles route in 1967; the CAB studied the request for over six years, only to dismiss it because the record was "stale".
Continental Airlines began service between
Denver
Denver ( ) is a List of municipalities in Colorado#Consolidated city and county, consolidated city and county, the List of capitals in the United States, capital and List of municipalities in Colorado, most populous city of the U.S. state of ...
and
San Diego
San Diego ( , ) is a city on the Pacific coast of Southern California, adjacent to the Mexico–United States border. With a population of over 1.4 million, it is the List of United States cities by population, eighth-most populous city in t ...
after eight years only because a
United States Court of Appeals ordered the CAB to approve the application.
This rigid system encountered tremendous pressure in the 1970s. The
1973 oil crisis
In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Eg ...
and
stagflation radically changed the economic environment, as did technological advances such as the
jumbo jet. Most major airlines, whose profits were virtually guaranteed, favored the rigid system, but passengers who were forced to pay escalating fares were against it and were joined by communities that subsidized air service at ever-higher rates. The
United States Congress
The United States Congress is the legislature, legislative branch of the federal government of the United States. It is a Bicameralism, bicameral legislature, including a Lower house, lower body, the United States House of Representatives, ...
became concerned that air transport, in the long run, might follow the nation's
railroads into trouble. The
Penn Central Railroad had collapsed in 1970, which was at that time the largest
bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...
in history; this resulted in a huge taxpayer-funded bailout and the creation of the government-owned corporations
Conrail and
Amtrak
The National Railroad Passenger Corporation, Trade name, doing business as Amtrak (; ), is the national Passenger train, passenger railroad company of the United States. It operates intercity rail service in 46 of the 48 contiguous United Stat ...
.
Leading economists had argued for several decades that the regulation led to inefficiency and higher costs. The
Carter administration argued that the industry and its customers would benefit from new entrants, the abolishing of price regulation, and reduced control over routes and hub cities.
In 1970 and 1971, the
Council of Economic Advisers
The Council of Economic Advisers (CEA) is a United States agency within the Executive Office of the President established in 1946, which advises the president of the United States on economic policy. The CEA provides much of the empirical resea ...
in the
Nixon administration, along with the
Antitrust Division of the
United States Department of Justice
The United States Department of Justice (DOJ), also known as the Justice Department, is a United States federal executive departments, federal executive department of the U.S. government that oversees the domestic enforcement of Law of the Unite ...
and other agencies, proposed legislation to diminish
price collusion and entry barriers in rail and
trucking
Road transport or road transportation is a type of transport using roads. Transport on roads can be roughly grouped into the transportation of goods and transportation of people. In many countries licensing requirements and safety regulations ...
transportation. While the initiative was in process in the
Ford administration, the
Senate Judiciary Committee
The United States Senate Committee on the Judiciary, informally known as the Senate Judiciary Committee, is a Standing committee (United States Congress), standing committee of 22 U.S. senators whose role is to oversee the United States Departm ...
, which had jurisdiction over
antitrust law
Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
, began hearings on airline
deregulation in 1975. Senator
Edward "Ted" Kennedy took the lead in the hearings.
The committee was deemed a friendlier forum than what likely would have been the more appropriate venue, the
Aviation Subcommittee of the
Commerce Committee. The Ford administration supported the Judiciary Committee initiative.
In 1977, President
Jimmy Carter
James Earl Carter Jr. (October 1, 1924December 29, 2024) was an American politician and humanitarian who served as the 39th president of the United States from 1977 to 1981. A member of the Democratic Party (United States), Democratic Party ...
appointed
Alfred E. Kahn, a professor of
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
at
Cornell University
Cornell University is a Private university, private Ivy League research university based in Ithaca, New York, United States. The university was co-founded by American philanthropist Ezra Cornell and historian and educator Andrew Dickson W ...
, to be chair of the CAB. A concerted push for the legislation had developed from leading economists, leading
think-tanks in Washington, a civil society coalition advocating the reform (patterned on a coalition earlier developed for the truck-and-rail-reform efforts), the head of the regulatory agency, Senate leadership, the Carter administration, and even some in the airline industry. The coalition swiftly gained legislative results in 1978.
Dan McKinnon would be the last chairman of the CAB and would oversee its final closure on January 1, 1985.
Legislative terms
Senator
Howard Cannon of
Nevada
Nevada ( ; ) is a landlocked state in the Western United States. It borders Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. Nevada is the seventh-most extensive, th ...
introduced S. 2493 on February 6, 1978. The bill was passed and was signed by Carter on October 24, 1978.
The stated goals of the Act included the following:
* the maintenance of safety as the highest priority in air commerce;
* placing maximum reliance on competition in providing air transportation services;
* the encouragement of air service at major urban areas through secondary (
nonprimary) or satellite airports;
* the avoidance of unreasonable industry concentration which would tend to allow one or more air carriers to unreasonably increase prices, reduce services, or exclude competition; and
* the encouragement of entry into air transportation markets by new air carriers, the encouragement of entry into additional markets by existing air carriers, and the continued strengthening of small air carriers.
The Act intended for various restrictions on airline operations to be removed over four years, with complete elimination of restrictions on domestic routes and new services by December 31, 1981, and the end of all domestic fare regulation by January 1, 1983. In practice, changes came rather more rapidly than that.
Among its many terms, the act did the following:
* the CAB's authority to set fares was gradually eliminated;
* the CAB was required to expedite processing of various requests;
* standards were liberalized for the establishment of new airlines;
* airlines were allowed to take over service on routes underutilized by competitors or on which the competitor received a local service subsidy;
* American-owned international carriers were allowed to offer domestic service;
* the evidentiary burden was placed on the CAB to block a route as inconsistent with "public convenience";
* the CAB was prohibited from introducing new regulation of
charter
A charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified. It is implicit that the granter retains superiority (or sovereignty), and that the ...
trips;
* certain subsidies for carrying mail were terminated effective January 1, 1986, and
Essential Air Service subsidies effective 10 years from enactment (however, , the EAS is still in existence, serving 160 communities in the US);
* existing mutual aid agreements were terminated between air carriers;
* the CAB was allowed to grant
antitrust
Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...
immunity to carriers;
* the FAA was directed to develop safety standards for
commuter airlines;
*
intrastate carriers were allowed to enter into through service and joint fare agreements with interstate air carriers;
* air carriers, in hiring employees, were required to give preference to terminated or furloughed employees of another carrier for 10 years after enactment; and
* remaining regulatory authority were transferred to the
United States Department of Transportation
The United States Department of Transportation (USDOT or DOT) is one of the executive departments of the U.S. federal government. It is headed by the secretary of transportation, who reports directly to the president of the United States a ...
(DOT) and the CAB itself was dissolved in 1984.
Safety inspections and air traffic control remained in the hands of the FAA, and the act also required the
Secretary of Transportation to report to Congress about air safety and any implications that deregulation would have in that matter.
The ADA (along with the
Montreal Convention with regard to international flights) also has the effect of
preempting state law with regard to claims against airlines for delays, discrimination, consumer protection violations and other allegations of passenger mistreatment.
Effects
A 1996
Government Accountability Office
The United States Government Accountability Office (GAO) is an independent, nonpartisan government agency within the legislative branch that provides auditing, evaluative, and investigative services for the United States Congress. It is the s ...
report found that the average fare per passenger mile was about nine percent lower in 1994 than in 1979. Between 1976 and 1990 the paid fare had declined approximately thirty percent in
inflation
In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
-adjusted terms. Passenger loads have risen, partly because airlines can now transfer larger aircraft to longer, busier routes and replace them with smaller ones on shorter, lower-traffic routes.
However, these trends have not been distributed evenly throughout the national air transportation network. Costs have fallen more dramatically on higher-traffic, longer-distance routes than on shorter ones.
Exposure to competition led to heavy losses and conflicts with
labor union
A trade union (British English) or labor union (American English), often simply referred to as a union, is an organization of workers whose purpose is to maintain or improve the conditions of their employment, such as attaining better wages ...
s for a number of carriers. Between 1978 and mid-2001, eight major carriers (including
Eastern,
Midway,
Braniff
Braniff Airways, Inc., operated as Braniff International Airways from 1948 until 1965, and then Braniff International from 1965 until the cessation of air operations, was an American airline that operated from 1928 until 1982 and continues to ...
,
Pan Am,
Continental,
Northwest Airlines
Northwest Airlines (often abbreviated as NWA) was a major airline in the United States that operated from 1926 until it Delta Air Lines–Northwest Airlines merger, merged with Delta Air Lines in 2010. The merger made Delta the largest airline ...
, and
TWA) and more than 100 smaller airlines went bankrupt or were liquidated, including most of the dozens of new airlines founded in deregulation's aftermath.
For the most part, smaller markets did not suffer the erosion of service that had been predicted by some opponents of deregulation. However, until the advent of
low-cost carriers, point-to-point air transport declined in favor of a more pronounced
hub-and-spoke system. A traveler starting from a non-hub airport (a spoke) would fly into the hub, then reach the final destination by flying from the hub to another airport, the spoke. While more efficient for serving smaller markets, this system has enabled some airlines to drive out competition from their "fortress hubs." The growth of low-cost carriers such as
Southwest Airlines has brought more point-to-point service back into the United States air transport system, and contributed to the development of a wider range of aircraft types that are better adaptable to markets of varying sizes.
In 2011,
Supreme Court
In most legal jurisdictions, a supreme court, also known as a court of last resort, apex court, high (or final) court of appeal, and court of final appeal, is the highest court within the hierarchy of courts. Broadly speaking, the decisions of ...
Justice member
Stephen Breyer, who was a special counsel to the U.S. Senate
Committee on the Judiciary in the 1970s and worked with Senator Kennedy on the bill, wrote:
See also
*
Wright Amendment, a US federal law to protect one Texas airport (Dallas/Fort Worth International Airport) from competition only months after the Airline Deregulation Act was signed into law.
References
Further reading
* Barnum, John W.
What Prompted Airline Deregulation 20 Years Ago? What Were the Objectives of That Deregulation and How Were They Achieved?, Presentation to the Aeronautical Law Committee of the Business Law Section of the
International Bar Association, September 15, 1998.
*
*
*
{{Authority control
1978 in American law
United States federal transportation legislation
Aviation in the United States
Economics of regulation
1978 in aviation
Aviation law
Economic liberalization