Sure the flights where at times a bit nicer in the regulated environment. Impose price controls and the airlines can't compete on price, so they compete on other things, those other things where sometimes nicer, but most people couldn't afford to fly.
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[Kahn:] The benefit of deregulation has been the direct savings to consumers. Airline consumers have saved over $20 billion per year, which has brought air travel within reach of people of modest means....
reason.com
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20th Anniversary of Airline Deregulation:Cause For Celebration, NotRe-regulation
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The Need for Deregulation The airline industry's darkest days did not come until turbojet-driven planes entered commercial use in the late 1950s and early 1960s. As jets were integrated into the market, the industry experienced dramatic growth. In the mid-1950s, airlines carried roughly 40 million passengers. By the mid-1960s, they were carrying roughly 100 million passengers; and by the mid-1970s, over 200 million Americans had traveled by air.
This steady increase in air travel began placing serious strains on the ability of federal regulators to cope with the increasingly complex nature of air travel. Simultaneously, "beginning in 1969, changes in basic economic conditions and in aircraft technology triggered a sudden decline in the industry's performance," 12 notes Richard H. K. Vietor, professor of Environmental Management at the Harvard School of Business Administration and author of Contrived Competition: Regulation and Deregulation in America. The onset of high inflation, low economic growth, falling productivity, rising labor costs, and higher fuel costs devastated the airlines, and "regulators, in their initial efforts to cope with these problems, only made matters worse." 13
The CAB encouraged the formation of cartels, disallowed new route requests, and restricted airline capacity. Decades of inefficient regulation began to take its toll on air carriers. The increasing inflexibility of federal regulation made it virtually impossible for carriers to respond to these problems. Flights were less full, industry profits were dropping, and consumer prices were higher.
By the mid-1970s, the CAB began to recognize its inherent inability to deal with the increasingly complex airline industry and the macroeconomic problems that were plaguing it. Remarkably, the CAB defied traditional regulatory practice and asked Congress to take away much of its rulemaking authority so that the airlines could operate freely in the marketplace, industry competition could be increased, and consumer prices thereby could be lowered.
Two CAB chairmen, John Robson (from 1975 to 1977) and Alfred E. Kahn (the late 1970s), embarked on a bold plan with two goals: radical reform of airline regulation and eventual abolition of almost all rules and the CAB itself. The CAB received support from congressional Democrats, led by Senator Edward Kennedy (D-MA), who sponsored legislation to liberalize the airline market in order to improve efficiency, encourage growth, and (most important) reduce prices. The Airline Deregulation Act of 1978 was passed by Congress and signed into law by President Jimmy Carter on October 24, 1978. In effect, this Act and the subsequent Civil Aeronautics Board Sunset Act of 1984 provided for the complete deregulation of the nation's airline market through the decontrol of prices, freedom of entry into and exit from the marketplace, complete freedom for mergers and alliances, elimination of service standards and requirements, and an end to route authorization.
Since 1978, the federal government's only important regulatory role in the airline market has been to establish and enforce safety standards through the Federal Aviation Administration. However, it is worth noting that the Airline Deregulation Act did not address two important facets of the airline industry in which government remains an important force: the air traffic control system and the ownership and maintenance of airports. A variety of government entities and officials remain in control of these important components of aviation infrastructure, and problems have arisen regarding both the technological obsolescence of the air traffic control system and the mismanagement of the nation's airports. This has created additional safety concerns regarding traffic congestion and has led to such serious problems as runway congestion, "slot" or gate allocation and availability, and occasional delays for travelers.
HOW AIRLINE DEREGULATION HAS HELPED CONSUMERS Despite its shortcomings, airline deregulation has been overwhelmingly beneficial for consumers. Typically, economists examining deregulation to see how successful it has been within the airline industry base their analysis on three variables: price, safety, and service quality. On each count, airline deregulation has been a stunning success.
Prices Have Fallen Consumers probably are most interested in the potential benefits deregulation can provide in terms of real price reductions. Airline deregulation has not disappointed them.
Prices have declined steadily since deregulation. The best measure of trends in airline prices is the "yield" (revenue generated per passenger mile) that airlines receive. The inflation-adjusted 1982 constant dollar yield for airlines has fallen from 12.27 cents in 1978 to 7.92 cents in 1997. This means that airline ticket prices are almost 40 percent lower today than they were in 1978 when the airlines were deregulated. Chart 2 illustrates the price decrease.
These reported declines are bolstered by the recent work of economists Jerry Ellig, senior research fellow at the Center for Market Processes at George Mason University, and Robert Crandall, senior fellow in the Economic Studies Program at the Brookings Institution. In their 1997 study Economic Deregulation and Customer Choice: Lessons for the Electric Industry, 14 Ellig and Crandall found that real price reductions of roughly 13 percent occurred as early as two years after deregulation, that reductions of almost 30 percent were evident ten years after deregulation, and that the annual value of consumer benefits generated by deregulation equals $19.4 billion in 1993 dollars.
Prices have fallen at all airports
Airline deregulation might be considered a failure if fares at small and medium-sized airports had not declined as they did at large airports, but small and medium-sized airports have not been denied the benefits of lower prices and better service. An April 1996 General Accounting Office study found that "The average fare per passenger mile, adjusted for inflation, has fallen since deregulation about as much at airports serving small and medium-sized communities as it has at airports serving large communities." 15 Furthermore, "The average fare per passenger mile was about 9 percent lower in 1994 than in 1979 at small-community airports, 11 percent lower at medium-sized airports, and 8 percent lower at large-community airports." 16
Air Travel Is Safer Consumers obviously would not be happy if prices fell this much and safety also was reduced in the process. But the opposite has been true: Safety has improved as prices have fallen.
Airline safety has improved since deregulation.Between 1939 and 1978, fatal airplane accidents averaged six per year. After deregulation, from 1978 to 1997, the average was only 3.5 fatal accidents per year. The safety record of America's airways is determined more accurately, however, by examining how many airline fatalities occur annually relative to the overall number of miles flown by the nation's air carriers. As Chart 3 illustrates, the overall safety record of America's airlines has continued to improve since deregulation: During the 20 years since deregulation, fatal accidents have averaged 0.0009 per million aircraft miles flown. During the 40 years before deregulation, on the other hand, fatal accidents averaged 0.0135 per million aircraft miles flown.
Airline safety has improved for airports of all sizes. The GAO also found that "for each airport group [small, medium-sized, and large], the accident rate was lower in 1994 than in 1987. The GAO study did not find any statistically significant differences between the trends in air safety for airports serving small, medium-sized, and large communities." 17
Service Quality Has Improved The quality of airline service can be measured in many different ways, including the number of aircraft departures, the total number of miles flown, the timeliness of service, other programs and services, and various frills or amenities. On the vast majority of these counts, the overall quality of airline service has improved since deregulation.
There are more aircraft departures than ever before. One method that can be used to measure service quality is the number of flights available to consumers before and after deregulation. This provides a good indication of how many options are available to consumers. According to the Air Transport Association of America, which represents the airline industry, the overall number of airline departures has risen from just over 5 million in 1978 when airlines were deregulated, to 8.2 million in 1997, a 63 percent increase over two decades. Chart 4 illustrates the rise in departures after deregulation.
There are more departures for small, medium-sized, and large airports alike. "The quantity of air service, as measured by the number of both departures and available seats, has increased since deregulation for all three airport groups," according to the 1996 GAO study. 18 "Specifically, in May 1995 small-community airports as a group had 50 percent more scheduled commercial departures than they did in May 1978; medium-sized community airports had 57 percent more departures, and large-community airports had 68 percent more departures." 19
Airlines fly more miles. Airlines also are logging more miles than before deregulation. Whereas carriers flew roughly 2.5 billion miles in 1978, they logged more than double that number last year alone, flying approximately 5.7 billion miles in 1997. Furthermore, as Chart 5 illustrates, this trend increased much more rapidly after deregulation than it did before market liberalization.
More Americans are flying than ever before. Airlines are logging more miles because more Americans are flying than ever before. Although approximately 250 million passengers were carried in 1978, roughly 600 million people (almost two-and-a-half times as many) traveled by air in 1997. As Chart 1 showed, this trend increased more rapidly after deregulation went into effect.
Airlines are more timely than ever before. Although little historical data are available to gauge these results, anecdotal evidence indicates that flights are on time more frequently now than before deregulation. Development of the airlines' "hub and spoke" system has made many different routes available to consumers, allowing travelers to reach their destinations via tightly coordinated routes. Delays continue within the system, but they are due primarily to the sort of airport mismanagement that accompanies government ownership of this important infrastructure component.
New types of services have become available. Many unforeseen consumer services and benefits sprang up following deregulation. For example, the travel agent industry expanded to assist consumers in booking air passage. This was facilitated by the development of sophisticated new computerized booking systems, which recently became directly accessible to consumers through the Internet. Not only has this development made it easier for millions of Americans to book air passage tailored to their specific needs, but it also has created new types of travel and vacation packages for consumers.
Airlines have developed new marketing options to serve the newly empowered consumer more effectively. Frequent flyer miles, for example, are a widely utilized consumer option that provides substantial discounts once the minimum number of miles has been logged. Many air travelers are able to strike time-saving or money-saving bargains with travel agents or airline reservation attendants, who can bump travelers to earlier flights or issue them discounted or free tickets to later flights if they are willing to surrender their tickets on an overbooked flight. Such bartering options were rare before deregulation. Consumers also have benefited from the rise of innovative low-cost carriers and commuter airlines that offer extremely competitive rates or that serve short-haul or "puddle jumper" routes. Such carriers crop up periodically to satisfy demands for cheaper, more frequent flights between certain destinations.
Frills and amenities may have declined slightly. Perhaps the only service quality variable that could be considered a deregulatory disappointment concerns the lack of airline frills and amenities. As the cliché goes, there is perhaps nothing worse than airline food. And outside of magazines for travelers to read or an occasional in-flight movie, airlines offer little for the consumer to do on the average flight. But this begs the question of whether such frills or amenities are a priority for most travelers. Clearly, most airline customers do not purchase tickets to receive a five-star dinner and the finest champagnes or wines. They are looking primarily for the quickest, cheapest path from one destination to another. Today's deregulated marketplace provides them with such options. Consumers looking for more expensive frills and amenities can get them on some airlines by flying first class.
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