Airline Deregulation Act

Definition

The Airline Deregulation Act of 1978 was a significant piece of legislation that removed government control over various aspects of the airline industry, allowing market forces to dictate routes, prices, and competition. This act shifted the airline industry from a regulated monopoly system to a more competitive environment, significantly changing how airlines operated and affecting consumers and the economy.

5 Must Know Facts For Your Next Test

1. The Airline Deregulation Act aimed to eliminate government-imposed restrictions on airfares and routes, which had previously limited competition and innovation in the industry.
2. After deregulation, new airlines entered the market, leading to increased competition that often resulted in lower ticket prices for consumers.
3. The act contributed to the rise of low-cost carriers, which changed the landscape of air travel by offering affordable options compared to traditional airlines.
4. While many consumers benefited from lower fares, the deregulation also led to challenges such as service cutbacks on less profitable routes and increased airline bankruptcies.
5. The act's impact extended beyond just airlines; it had a ripple effect on related industries, including tourism and hospitality, by making air travel more accessible.

Review Questions

• How did the Airline Deregulation Act change the competitive landscape of the airline industry?
  • The Airline Deregulation Act fundamentally altered the competitive landscape of the airline industry by removing government control over routes and fares. This allowed new entrants to emerge, leading to heightened competition among airlines. The resulting competition prompted existing airlines to innovate their services and pricing strategies, ultimately benefiting consumers through lower fares and more flight options.
• Discuss the role of the Civil Aeronautics Board prior to the Airline Deregulation Act and how its elimination affected the airline industry.
  • Before the Airline Deregulation Act, the Civil Aeronautics Board played a crucial role in regulating the airline industry by controlling fares, routes, and market entry. The elimination of this oversight after deregulation allowed airlines greater freedom to set their own prices and determine their service areas. This shift fostered a more dynamic marketplace but also led to disparities in service quality, as some airlines focused on profitable routes while abandoning less lucrative ones.
• Evaluate the long-term effects of the Airline Deregulation Act on both consumers and airlines in terms of market dynamics and service provision.
  • The long-term effects of the Airline Deregulation Act have been complex, creating both advantages and disadvantages for consumers and airlines. On one hand, consumers enjoyed lower ticket prices and increased options due to competition among carriers. However, this competition has led to significant challenges for airlines, including frequent bankruptcies and consolidation within the industry. Furthermore, while major routes may have better service, smaller markets often experience reduced flights or service cutbacks as airlines prioritize profitability over coverage.

Related terms

Civil Aeronautics Board:

The federal agency that was responsible for regulating the airline industry before the Airline Deregulation Act, overseeing fares, routes, and market entry.

Market Competition: The economic condition where multiple companies vie for the same customers, which was promoted by the Airline Deregulation Act to improve services and reduce prices.

Hub-and-Spoke System: An operational model used by airlines that connects various smaller markets to major hub airports, becoming more prominent after deregulation due to increased competition.