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Despite the worries of a fearful airline industry, the effects of deregulation were swift and overwhelmingly positive.

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A History of US Airline Deregulation

Part 4 :  1979 - 2010 :  The Effects of Deregulation - Lower Fares, More Travel, Frequent Flier Programs

This Time cover from 14 Aug 1978, published as the deregulation law was in the final stages of being enacted, captures the ambivalence of an anxious public about the impacts of deregulation on their future flying experiences.

Part of a series on US airline regulation and deregulation - see extra articles listed in the right hand column.



The airlines were deregulated in stages from 1979 - 1984, and at each step of the way, the net result was cheaper fares and more people traveling.

At the same time as these tangible and valuable benefits occurred, none of the negative impacts that the airlines and some sectors of the traveling public had worried about prior to deregulation came to pass.

The case for US airline deregulation, as seen in the 1970s (see the preceding article in this series), was compelling, and the outcome, as seen in the 1980s and beyond (please read on below and continued further in part 5), proved the wisdom of this move.

A Transition from Airline Regulation to Deregulation

The path from regulatory oversight to a more free market environment was defined in the Airline Deregulation Act of 1978 and completed in the CAB Sunset Act of 1984 which saw the end of the Civil Aeronautics Board on 31 December 1984.

In some respects, the airlines went a bit 'wild and crazy' when freed from their regulatory chains - for example, scrambling to open up new routes with no real sense underlying their expansion, other than because they now could.

And in some respects, they continued to act the same way they always had done - it being hard to throw off the formerly imposed constraints of perspective caused by the distorting presence of regulation.  This too was shown in their rapid growth - because routes had formerly been things of great value and almost impossible to secure; and so now the airlines were slow to realize that the concept of 'owning' a route and imputing any underlying value to such route 'ownership' was now entirely invalid.

A number of new airlines sprung into life, and almost as quickly disappeared again.  This is not something unique to the airline industry - it is a classic outcome of a regulated marketplace becoming unregulated, where first there is a rush of new entrants, followed by a period of rationalization and a reduction in the total number of participants - possibly even to levels lower than prior to deregulation.

Essential Air Service

In addition to airlines adding new routes, they also gleefully shed routes they no longer wanted, and for a while, the fears of some secondary cities at losing their air service seemed to be justified.

But a combination of government support in the form of the provisions of the 'Essential Air Service' section of the Airline Deregulation Act, and the subsequent growth of regional carriers, prevented all such locations from losing air service entirely.

The Essential Air Service concept was written into the Airline Deregulation Act to address the concerns of communities that feared they would lose air service.  Any and all of the 746 communities that were receiving scheduled air service in November 1978 were guaranteed to continue receiving 'essential air service', and if this meant the government had to subsidize an airline to encourage it to continue flying to the community, it would do so.

Currently 45 communities in Alaska and a further 108 in the rest of the US and Puerto Rico receive subsidies to allow them to get between two and four roundtrip flights a day, usually on 19 seater commuter planes.  This cost the US government $123 million in 2009.

This was clearly a political concession at the time that deregulation was passed, and it has been argued (quite convincingly) that much of this $123 million is an inappropriate subsidy to both airlines and communities that in some cases are not unusually needy to start with (due to being within 100 or so easy driving miles of a much larger airport).

The bottom line is that no communities have been harmed by the effects of allowing airlines to set their own schedules as they commercially wish to do, and many have benefitted enormously, due to the huge growth in air travel.

To take a random example, Bakersfield, CA initially lost service after deregulation, but these days has nine roundtrip flights a day, operating to Denver, Phoenix, San Francisco and Los Angeles.   These flights have between them 440 seats, and are operated by two different airlines (US Airways and United Express), and due to the flights going to hubs, service on from there to the rest of the country is convenient.

Most visibly, the airport also boasts a lovely new terminal, opened in 2006, and its older terminal is now being converted to a separate international terminal.

The Multiple Waves of Change Since Deregulation

This interesting article describes events since deregulation in terms of four 'waves of change' or periods of evolution.

The first period was the expansion of the traditional airlines, and the growth of the new 'hub and spoke' model, which filled planes and made it more convenient for people to travel to more destinations.

The second period was a counterbalancing growth in point to point services, largely by new carriers, most notable of which was Southwest.

The third period saw the growth of regional jet services by regional carriers, filling in the 'gaps' of the major airline's schedules.

The fourth period - which we are in at present - sees the 'unbundling of fares' with many things that used to be included in a ticket's price now being charged extra or no longer being offered at all.  At the same time, there is a reduction in airlines.

The Six Major Results of Deregulation

Okay, enough about the 'behind the scenes' intricacies of what happened since 1978.  What do these things actually mean to us - the traveling public?

Happily, the impacts of deregulation on us are profound and positive.  I've grouped the most significant of them into six categories.

Result 1 :  Airfares Dropped

In round figures, and in inflation adjusted dollars, airfares today are almost three times cheaper than they were in the late 1970s.

There is various data out there offering differing versions of this statistic, depending on the sources of the data they are using and the time period over which they are measuring the change.  A July 2010 Wall St Journal article refers to the cost to fly one mile in 1977 as being 8.42c and in 2009, it was 13.5c.  The article says that 8.42c in 1977 equates to 'more than 30c' in today's money.  That would suggest fares are 2.22 times cheaper.

The WSJ article cites the Air Transport Association as the source of its figures.  I can't find the data on their website, but they do have this fascinating page that shows airfare costs in 1978 (rather than 1977) and 2009 (with a different number than that quoted in the WSJ), plus a series of comparisons for other goods and services over the 21 years too.  The ATA table shows that domestic air travel costs per mile increased from 8.49c in 1978 up to 12.07c in 2009, an increase of 42%.  This contrasts with a weighted CPI that went from 65.2 up to 214.5 over the same period.  In other words, the 8.49c in 1978 is the same as 27.93c in today's money, which contrasts with the actual cost of 12.07c - ie, 2.31 times cheaper.

There's one other interesting fact in this table - a table which is crammed full of fascinating facts great for your next trivial pursuit game.  Note how the (unindexed for inflation) cost of international travel increased by 52%, compared to the unindexed increase of 42% for domestic travel.  When you consider that international travel, although also now vastly less regulated than domestic travel, is still somewhat more regulated, this would seem to gently show, from another dimension, the benefits of greater deregulation.

There is plenty of anecdotal evidence about fares being lower as well, and as in any situation, when one looks only at averages, one overlooks some of the better bargains that are now possible that weren't possible before (due to restrictions on discounting).  In other words, the average fare might be 2.3 times less expensive, but a bit of careful shopping around might find you a fare that is now 5 times cheaper than before.

For example, a roundtrip ticket between New York and Los Angeles was $208 in 1958, which translates to $1570 in today's (2010) money.  And whereas you'd fly nonstop today, you'd probably have made one or two stops back then (but you can't completely credit deregulation with making planes better and giving them longer range, although note our point 6 below for commentary on that point).

Overall Annual Savings Since Airline Deregulation

Another perspective is to look at how much we all saved, in total, each year.

A study that looked at the effects of deregulation through 1986 suggested passengers were saving $6 billion a year in fares, while airlines were getting $2.5 billion a year in extra revenue too.  Truly a win-win.

A more recent 1997 study, after adjusting for poorer service and fewer amenities, suggested that 80% of all passengers are benefitting from deregulation (and between them they fly 85% of all miles flown), with an overall saving per year of $19.4 billion compared to what the costs would have been with continued regulation.

This study is particularly convincing, because it was co-authored by Robert Crandall, at the time CEO of American Airlines, and a former strident opponent of deregulation.

Clearly deregulation is saving us huge amounts of money on every ticket we buy, and enabling us to travel more regularly.

Airfares compared to Canada

Many people would argue that airfare drops are as much due to better technology and more efficient planes as they are due to deregulation.

There is an element of truth in this statement (although see on to benefit 6 for an interesting take on technological development).  But the massive drop in travel costs is due to a great deal more than improved airplane efficiency.

Here is an interesting chart, taken from this analysis, that puts this into clear context.  Compare the steadily decreasing airfares in the US after deregulation with the more or less steady airfares in the more regulated and less competitive Canadian market.

This analysis shows very vividly the extra savings inspired by deregulation.

Result 2 :  Air Travel Increased

Again using round figures, there are twice as many flights and three times as many people traveling, compared to the 1970s.

To be specific, in 1978 the US airlines carried 275 million passengers.  In 2009, they carried 770 million passengers.  In 1969 there were 5.4 million flights, in 2009, there were 10.1 million.

In a lovely circle of positive reinforcement, lower fares encouraged more people to travel, which justified more flights, which allowed for lower fare, and for more people to travel, and so on.

Air travel, once reserved for the wealthy and elite, has been truly democratized and become freely available for all.

Airlines fly to more destinations

There is another dimension to the growth in air travel.  Individual airlines could now offer service to more places.  For example, American Airlines flew to only 39 destinations prior to deregulation.  Now it flies to 260 different locations - six times more than before.

This ability for individual airlines to build comprehensive (and subsequently, global too) route systems meant that airlines could now try to get all the travel business from each individual traveler, which in turn lead naturally to one of the paradigm shifting approaches to earning passenger loyalty - keep on reading for result 3.

Result 3 :  Frequent Flier Programs

American Airlines is generally credited with developing the first frequent flier program, its Aadvantage program, launched in May 1981, and quickly followed by United Airlines with its Mileage Plus program, launched one week later.

In fact, the first airline frequent flier program was launched by Frank Lorenzo's Texas International Airlines in 1979 (subsequently merged into Continental Airlines in 1982), but it gained little traction and has been largely forgotten about.

No matter who was first, frequent flier programs have become a very important (some would say a too important) part of our travel experience, and are entirely a child of the deregulation era.

There are approximately 125 million Americans enrolled in airline frequent flier programs.  And while it is true that it can sometimes be difficult to find space on flights when wishing to redeem earned miles (there are about 10 trillion as yet unspent miles in our combined accounts), many people do succeed in doing this.  In 2004, 20 million free tickets were redeemed by frequent fliers.

So next time you check your frequent flier mileage balance, next time you earn miles on your Visa card, and next time you redeem your miles for an upgrade or a free ticket, thank deregulation.

A $20 billion annual saving seems like a compelling argument in favor of airline deregulation.  The fact that no community enjoying air service in 1978 has suffered subsequently negates any concerns about the downsides of allowing airlines to choose where they fly to, and the clear result - twice as many flights and three times as many passengers - is further conclusive evidence of the benefits of deregulation.

As a cherry on top of the icing on the cake, there are also the frequent flier programs we all love so much.

However, there are three more equally compelling reasons still to come.  To read about these, please click now to learn about more benefits of airline deregulation - job creation, safety and better more efficient planes.

Part of a series on US airline regulation, deregulation, and whether or not there should be reregulation introduced again now - please see extra articles listed at the top in the right hand column

Related Articles, etc

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Originally published 13 Aug 2010, last update 30 May 2021

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.

Related Articles
1.  The Development of the Aviation Industry prior to Regulation 1911 - 1926
2.  A History of Airline Regulation 1926 - 1979
3. The Seven Reasons for Airline Deregulation in the 1970s
4. The Effects of Deregulation post 1979
5. More Benefits of Deregulation post 1979
6. Present Day :  Remaining Regulatory Constraints
7. More on remaining regulatory constraints
8. 2010+ : Should we Re-regulate the Airlines?
9. More on re-regulating
10. Why Re-regulation is a Bad Idea

Please see also
Is airline competition always fair?
Airline competition 1980 -2010 RIP


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