Pros & Cons of Airline Deregulation

Pros and Cons of Airline Deregulation

Introduction

Deregulation has brought charges that safety has been reduced in the transportation industries . Although theory suggests that safety might be lower in a competitive market than in a regulated one , experimental evidence shows that safety has not declined since the transportation industries were deregulated but has actually continued to improve

Even though deregulation and partial deregulation have brought great benefits to the economy and to the consumer , some interests have been adversely affected . In the airline industry , organized labor has been the principal

loser . To this day , the major airlines are attempting to bring down their inflated labor costs . A number of airlines have established dual pay schemes where new employees are paid less

The deregulation process received a great boost in 1977 when President Jimmy Carter appointed Alfred Kahn to chair the CAB . This quintessential policy entrepreneur took charge at the perfect time . With a powerful intellect , a dedication to microeconomic efficiency , and a quick and infectious humor , Kahn set about reorganizing the CAB . Under Kahn , the board decided several landmark cases that tested open entry and unrestricted price competition (Civil Aeronautic Board 1978

The policy options , now , were narrowing . Early in 1978 , both houses of Congress passed bills to liberalize regulation . Airline executives , such as American 's Crandall , faced with the prospect of a policy that would leave the airlines half free and half fettered ' now shifted gears and called for the In October , 1978 , Congress passed the Airline Deregulation Act President Carter signed it ten days later . The act then place maximum reliance on competitive market forces . The Civil Aeronautics Board would automatically certify entry , unless doing so damaged the public interest . Fares would be flexible within a wide zone of reasonableness and mergers would be readily approved . If all went well , the Civil Aeronautics Board would cease to exist by 1985 (Crandall 1978

The first year of airline deregulation was one of the most difficult years of the history , commented Bob Crandall . As an industry , Airline Company seemed bent on giving away the store . And 1980 proved worse still . All but two of the major carriers lost money , with American Airlines ' first half losses the worst in the industry . Passenger traffic slumped because of the recession , and the price of jet fuel had doubled again

Intense competition for key routes , with wild fares discounting , caught the industry and its regulators by surprise

The major carriers were not at all prepared for the suddenness of competition . Although the deregulation act had proposed an ly phase-out of regulation , reallocation of routes and fare competition swept past the board 's half-hearted attempts at stabilization . By the spring of 1980 , carriers were virtually free to determine the routes they served and the prices they charged (Office of Economic Analysis 1982

In May , 1979 , World Airways , a former charter , offered a one-way fare of 108 between New York and Los Angeles and New York and San Francisco This touched off the transcontinental wars ' among...