Oct 30th, 2023

Airline Deregulation: 45th Anniversary

Airline deregulation occurred 45 years ago. It was the single biggest event in American civilian aviation history in the last 50 years.  It changed everything.  We just celebrated its anniversary. On October 24, 1978 then President Jimmy Carter walked into a press conference with an announcement.  The United States was going to pursue deregulation of the civilian aviation industry.

What is regulation?

Prior to 1978, the United States airlines were regulated by the government.  The move was made in the 1930s by Franklin Roosevelt to get the fledgling industry off the ground (pun intended).

Beginning in 1938, the Civil Aeronautics Board (CAB) was established.  Soon the government regulated all aspects of the airline industry.  1) What airlines would be awarded which routes.  2) When the flights would depart and land.  3) How much could be charged.  4) Who could land at what airport.  The government called all of the shots.

The regulation resulted in a very inefficient and expensive system.  I remember my Dad coming home from a business trip.  He told me that there were about five passengers on his flight.  Two of them were his work associates.  The stewardess (what we used to call flight attendants) was on her first flight out of training.  She sat and talked with the passengers and kept asking them if they wanted more food.  This particular route was not profitable, but was mandated by the government.

On October 24, 1978 President Carter announced that all of that would end.  The FAA would still regulate the safety of the airlines.  However, competition and free markets would determine airline routes, fares, departures and arrivals.

Who were the Winners?

The primary winners were the customers.  Despite the dim view held by some in the United States and particularly the intelligentsia, capitalism does work for the “common man”.  Free markets bring lower prices for customers.  The flying public has been the primary winner in deregulation.  Once airlines were allowed to compete for routes, the most popular ones began to drop in price.  The reason: more airlines were allowed to fly those routes.  Once there was competition on the route, the way to compete was by lowering prices.

Other winners were new airlines.  Since the 1970s many airlines have come into existence such as Frontier, Spirit and Allegiant.  Others have grown immensely by competing well.  Southwest was a small airline serving less than half a dozen states when it began flying in 1971.  Now it is a dominant airline in the domestic market.

Airline personnel have also benefited.  With the advent of new airlines and new routes new jobs were created for pilots, flight attendants, mechanics, air traffic controllers, baggage handlers, etc.  Competition helped the aviation pie get bigger for everyone.

This has a spillover effect as airports grew larger, creating construction jobs.  Then industry around the airports grew such as hotels and rental car agencies.  The advent of overnight delivery also increased the size of the pie.

Additionally, deregulation led to the advent of innovative flight programs — Ideas such as credit cards earning airline miles.  Frequent flyer programs had been illegal during regulation.  They are now the industry norm and enjoyed by thousands of the flying public.

Who were the Losers?

The only way for an airline to distinguish themselves prior to deregulation was through service.  From my observation, in flight service has been one of the few areas to suffer since deregulation.  Rather than being seen as luxurious, one often feels like they are part of a herd of cattle.

In a capitalistic society there are always winners and losers.  Who lost in deregulation?  I would answer with The Big Three.  I am not referring to the three largest US automakers. Rather, three of the largest US Airlines in 1978: Eastern Airlines, Trans World Airlines (TWA) and Pan American Airways.

The three held dominant positions at the time.  Eastern Airlines had many of the most lucrative routes up and down the US eastern seaboard: New York, Philadelphia, Boston and Washington DC.  There were led by Apollo 8 astronaut Frank Borman.  They had the best routes and the biggest labor problems.  Relations between management and labor was legendarily bad.  The union was powerful and many said corrupt.  If there was going to be a disagreement between leadership and the union in the airlines, you could bet on Eastern.

Trans World Airlines better known as TWA started in middle American.  They had a strong foothold across the United States based off their strategic central hub in St. Louis, very near the center of the country. They supplemented the domestic routes with a strong international offering.

When it came to international, nobody did it better than Pan American Airways, better known as Pan Am.  The pioneered international travel with their Clipper airplanes in the 1930s being the first to regularly traverse the Pacific Ocean.  Under visionary leader, Juan Trippe (left), they had spearheaded the building of the Boeing 747 (see Session 10 of Doctor Aviation).  Their international service was billed as suave and sophisticated.  Pan Am conjured up visions of high class.

So what happened to the Big Three?  They had the best routes and also the biggest debt.  They had highly leveraged their companies in order to buy more and bigger airplanes.  Labor costs were also partially funded in this way.  At the time, the huge debt load was “no big deal”, the three had a monopoly on the most lucrative routes.  They were “guaranteed” a steady stream of income to pay off the debt.  All of that changed on October 24, 1978 when Jimmy Carter signed The Airline Deregulation Act.  The rules of the game were altered radically and the three airlines were caught off guard.  Carter had given little warning and the three were caught holding huge quantities of debt of which they could no longer afford.

The Carter Legacy

Jimmy Carter was among the most personally honorable presidents of the 20th Century.  His private life revealed no scandals and he was widely regarded as honest.  A trait that we could use more of in political life.  However, his presidency is widely regarded as ineffective.  He was swept out of office by a Ronald Reagan landslide in 1980.

Besides his personal character Carter’s greatest legacy is likely his decision to deregulate the airlines.  It is not a move generally associated with the Democratic Party of which Carter was a member.  However, Carter had the foresight to let the market be free.

I believe in fairness he should have given more notice and transition time to those being affected.  Those operating under the historical rules (e.g. Eastern, TWA, and Pan Am) would have had a greater chance of survival.  While this could have helped, it cannot be argued that Carter’s decision, overall, has been good for the airline industry and has helped the traveling public.  It is cheaper to fly in the United States than in any time in history.  This would not have happened without deregulation. 

For more information see this Smithsonian article

Note; An earlier version of this blog was published in November of 2018

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