Airline Deregulation Act

Definition

The Airline Deregulation Act, enacted in 1978, aimed to eliminate federal control over the commercial airline industry, allowing airlines to set their own routes and fares. This shift marked a significant change in the industry, promoting competition and resulting in lower prices for consumers. The act fundamentally transformed how airlines operated, paving the way for new entrants and affecting service quality and market dynamics.

5 Must Know Facts For Your Next Test

1. Before deregulation, the Civil Aeronautics Board controlled airline routes and ticket prices, leading to limited competition and higher fares.
2. Post-deregulation, many new airlines entered the market, which increased competition and drove down ticket prices significantly.
3. While consumers benefited from lower fares, some legacy airlines struggled to adapt to the new competitive landscape, leading to financial instability and bankruptcy for several.
4. The deregulation led to significant changes in airline service patterns, including the emergence of the hub-and-spoke model that increased efficiency but sometimes reduced direct flight options.
5. Deregulation also contributed to concerns about service quality, as airlines focused on cost-cutting measures which sometimes resulted in reduced customer service and amenities.

Review Questions

• How did the Airline Deregulation Act impact competition within the airline industry?
  • The Airline Deregulation Act significantly increased competition within the airline industry by removing government control over routes and fares. This allowed new airlines to enter the market, which led to more choices for consumers and reduced ticket prices. The increase in competition also forced existing airlines to improve their services and operational efficiencies to retain customers.
• Analyze the economic effects of the Airline Deregulation Act on both consumers and airlines.
  • The Airline Deregulation Act had profound economic effects, primarily benefiting consumers with lower fares and more travel options. However, it also created challenges for airlines, particularly legacy carriers that struggled to compete with new low-cost entrants. This shift led to a wave of bankruptcies among traditional airlines that could not adapt quickly enough to the new competitive environment while trying to maintain profitability.
• Evaluate the long-term implications of airline deregulation on the quality of service provided by airlines.
  • The long-term implications of airline deregulation on service quality are complex. While consumers initially enjoyed lower fares and increased choices, many faced a decline in service quality as airlines focused on cost reduction. The emergence of low-cost carriers often meant less frills and amenities for passengers. However, competition also drove some airlines to innovate and enhance customer experience in order to differentiate themselves in a crowded market. The ongoing evolution of customer expectations continues to shape how airlines approach service in a deregulated environment.

Related terms

Civil Aeronautics Board (CAB): A federal agency that regulated airline routes and fares prior to the Airline Deregulation Act, overseeing the economic aspects of air travel.

Hub-and-Spoke Model: An airline routing system where flights are directed through central hub airports, allowing for increased efficiency and connectivity.

Low-Cost Carrier: Airlines that offer lower fares by eliminating many traditional services, often emerging as a result of deregulation.