Airline deregulation

Airline deregulation is the process of removing entry and price restrictions on airlines affecting, in particular, the carriers permitted to serve specific routes. The term usually applies to the Airline Deregulation Act of 1978. A new form of regulation has been developed to some extent to deal with problems such as the allocation of the limited number of slots available at airports.

Airline services were historically heavily regulated, in part because of concerns about monopoly and oligopoly arising from the fact that, historically, in most cases, only a small number of airlines provided direct flights between a given "city pair".

Airline deregulation began in the US in 1978. It was a part of a sweeping reduction in price and entry controls in United States transportation begun with initiatives in the Nixon Administration, carried out through the Ford and Carter Administrations, and followed up on in the 1980s.

Economists who have estimated the costs and benefits of airline deregulation have cited major gains in economy for consumers and productivity in the industry. Morrison and Winston estimated in excess of $15 billions per year after about ten years after the Act was passed.

Many other countries have since deregulated their domestic markets, and a similar process has applied to airline markets within the European Union. However, many international airline markets remain subject to tight regulation.

Airline Deregulation in the United States

Prior to 1978, the Civil Aeronautics Board (CAB) controlled many aspects of domestic aviation in the United States. In particular, airlines required permission to serve any given route and incumbents could raise many obstacles to the granting of permission. The system was dismantled as a result of the Airline Deregulation Act.

A new problem has arisen in that when civil suite are filed against an airline in either state court of Federal court, the airline will seek to dismiss the matter under the ADA and this is often granted. The courts will however handle personal injury and breach of contract claims.

The DOT has taken the position that it has neither the authority nor the facilities to try or mediate most disputes between consumers and the airline, leaving many consumers to fend for themselves in a legal "No man's land" with their claims.

Airline Deregulation in Australia

Prior to 1990, Australia operated a ‘Two Airlines policy’ which effectively guaranteed the maintenance of exactly two airlines, one public (TAA, later Australian Airlines and then Qantas) and one private (Ansett), with almost identical fares, fleets and schedules. Discounting was only permitted to the extent that it did not necessitate an increase in standard economy fares. With the repeal of the two airlines agreement under the Airline Agreement Termination Act, which went into effect on 30 October 1990, this restriction was abandoned, along with limits on entry to the industry.

A number of unsuccessful attempts to enter the Australian market were made. The first successful new entry was Virgin Blue which was launched in 2000. The subsequent fare war and the decline in air travel following the September 11 attacks led to the collapse of Ansett, the rise of Jetstar and the restoration of a oligopoly market.

References

Stephen Morrison and Clifford Winston, The Economic Effects of Airline Deregulation (Studies in the Regulation of Economic Activity); Brookings, 1987

Alfred E. Kahn, article in the ConciseEncyclopedia of Economics