Comparison of the State of Commercial Aviation Before and After the Passage of the Airline Deregulation Act

Summary

Airline Deregulation Act (ADA) was signed in 1978, October 24th by Jimmy Carter the then president of the United States. The main objective of signing this act was to regulate airline industry by the federal government and permit competition within the aviation business. Before its approval, the industry was controlled by Civil Aeronautics Board (CAB), a body that was under the federal jurisdiction (Moore, 1986). The body controlled major operations in the Airline industry ranging from air transport routes, schedules, and setting fares. The signing of the Airline Deregulation Act lead to suspension of Civil Aeronautics Board in order to transform the commercial aviation and hence offer other smaller airlines chances to penetrate the market and removing certain economic regulations that lead to unfair competition.

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Problem

With the Civil Aeronautics Board (CAB) as the body controlling the airline industry under the government oversight, the government had so much control of airline market thus determining which companies of airline flew and also, setting up of fares and routes for every airline.

Significance of Problem

In a market where many people wanted to engage in Airline industry at that particular time, the Civil Aeronautics Board (CAB) tightly regulated the market in a way that proved futile for penetration of other competitors (McEachern, 2011). Any airline company had to persuade the CAB to be allowed to operate new routes. Besides, a few decades before deregulation, potential entrants had to submit over 100 applications to be permitted a chance to operate new long-distance routes. Surprisingly, no single airline in the interstate was granted authorization (McEachern, 2011). More importantly, Airline Deregulation Act (ADA) was to solve the past challenges characterized during CAB era which enforced very stringent submission regarding regulated prices. CAB had thus formed a cartel which engaged in price-fixing method among major 10 airlines to block entry of new airline businesses.

Development of Alternative Actions

Alternative Action 1: The United States government could have allowed price competition and entry of new airline industries into Airline industry. This deregulation would have insulated price competition. However, with deregulation considered as a viable action, the worry was that entry of multiple airline industry would endanger safety of the passengers and quality of services offered in the airline industry.

Alternative Action 2: Apart from allowing price competition and new entry, the government could have instead improved infrastructure both in interstate and intrastate jurisdictions. One major physical barrier to competitive entry in Airline industry is new facilities and new airports which automatically unlocks slots and gates (Kahan, 2018). By having multiple facilities and airports in various destinations, multiple airline companies can be run efficiently free from challenges ascribed to congested airports and inability to get landing and arrival slots.

Recommendation

Demand for regulation in airline industry was required to adjust terms of operating an airline business. It is therefore sensible to conclude that in business, it is fair to have new entrants in a market where there is an oligopoly that records abnormal profits at the expense of an exploited customer and other competitors (Moore, 1986). Therefore, the United States government allowing price competition and entry of new airline industries into Airline industry could have solved the challenges related to price-fixing and formation of cartel that artificially fixed prices by dictating routes and destinations for passengers. As such, this makes Alternate Action 1 the viable solution for the government having too much control of the Airline industry thus the signing of the Airline Deregulation Act (ADA).

References

Kahan, M. (2018). Confessions of an Airline Deregulator. [online] The American Prospect. Available at: http://prospect.org/article/confessions-airline-deregulator [Accessed 21 Jun. 2018].

McEachern, W. A. (2011). Economics: A contemporary introduction. Cengage Learning.

Moore, T. G. (1986). US airline deregulation: Its effects on passengers, capital, and labor. The Journal of Law and Economics, 29(1), 1-28.