November 2, 2018

Airline Deregulation at 40: Flying the Friendly Skies

Back when 1970s Democrats offered proof positive that deregulation does work.

“You are now free to move about the country” went the airline’s catchy little tagline. And one reason it became so successful was the passage of a bill that turned 40 this past week to little fanfare — the Airline Deregulation Act. Sponsored by Howard Cannon, a Democrat senator from Nevada, and signed into law by President Jimmy Carter after overwhelming majorities in both the Senate and House passed the bill, the bill was a game-changer in the airline industry, and proof positive that deregulation does work.

No longer did airlines have to beg the moribund Civil Aeronautics Board to change their prices or routes to become more competitive. Likewise, many small- and medium-sized airports were weeded out as service often moved to what’s known as a hub-and-spoke system.

Granted, there are some who miss the days of dressing up in their Sunday best to board a flight on which they were feted with full meals (even in coach) and had plenty of room to stretch their legs. But as the Reason Foundation’s Robert W. Poole Jr. recalled it, “Flying was a luxury because it was expensive, and it was expensive largely because of detailed federal economic regulations governing how air carriers could operate and, importantly, what they could charge. The government treated airlines as a kind of public utility and regulated them under the rationale that dog-eat-dog competition would threaten profitability and lead to skimping on safety.”

Studying competition in markets such as California and Texas, however, where intrastate flights were common — and exempt from the CAB directives — led observers to believe a more free-wheeling market would work. (One interesting sidebar Poole shares: The Harvard law professor who was instrumental in getting the ball rolling on deregulation was future SCOTUS Justice Stephen Breyer. The fact that most key players in this airline deregulation saga were Democrats makes one wonder just what happened to those erstwhile supporters of working Americans.)

Despite those fears about safety and loss of service to some markets, consumers have been the big winners, as low-cost, no-frills airlines moved into the market and forced others to compete, without sacrificing safety. While there are some who complain about smaller seats and hidden fees, the Competitive Enterprise Institute’s Mark Scribner points out that airlines still offer many of these amenities — if consumers want to pay a little extra up front.

All this seems to be working, as more Americans than ever take to the skies. It’s hard to imagine Congress or anyone else putting the genie back in the bottle and restoring us to the days where only a couple of airlines would serve popular routes, and prices would be fixed by anonymous bureaucrats. While today’s players might not mind the opportunity for rent-seeking that re-regulation would bring, they can’t with a straight face argue that airline deregulation wasn’t a success.

Moreover, airline deregulation created one of the templates that President Donald Trump seems to be following four decades later, as he continues to slash his way through the thicket of government red tape.

As we come upon the busiest time of year for travel, airlines are ready to serve you — and they aren’t taking as much out of your pocket (adjusting for inflation, of course) as they did 40 years ago.

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