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Airline Mismanagement

As aviation evolved, the government first felt protective and then fearful about this new industry.

Regulation changed from initially being in place to protect and nuture the industry and increasingly it was instead tasked with controlling the industry.

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A History of US Airline Regulation

Part 2 :  1926 - 1979 :  Good Intentions, but Successively Bad Regulations

A plane in the 1930s using the 'Adams Airmail Pickup' system to collect a bag of airmail on the fly without landing.

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



The government increasingly recognized the growing importance of aviation and the need to be a world leader in this new field.

As aviation became more complex, the need to create order out of chaos grew, and so regulation and management of aviation and its growing plethora of support services evolved.

The industry became increasingly viable and robust, and the government rationalized its regulation, separating the safety and services side of aviation, passing those to what became the FAA, while leaving untouched the financial and management regulation of the airlines with little questioning, for decades, as to whether there remained a need for this or not.

In the second part of this series, we record the evolving regulatory control of the aviation industry.

The Growing Need for Regulation

Aviation in the 1920s was very dangerous.  Unreliable planes and a ridiculous 'gung ho' attitude by pilots, together with very little knowledge of aviation science and how to best manage marginal/risky/challenging flying conditions all combined to create a lethal mixture from which very many pilots lost their lives.

Some of this danger could be overlooked and ignored when airplanes and aviation was rare (and therefore so too were the accidents), and when aviation was a nonessential curiosity rather than an essential service.  But as the importance of aviation grew, and as the number of planes and flights grew (along with the numbers of accidents and fatalities) these issues became more obvious and more relevant.

One could also opine that another serious downside to this was that the much treasured reliability of the US mail system (remember the Pony Express ethos) was being put at risk by delays, cancellations, and crashes.

There was another issue too.  The field of aviation was evolving from something that required no infrastructure at all to one that increasingly needed more and more infrastructure to support it (navigational aids, night flying support, emergency landing strips) and which started to need some basic 'rules of the road' as well.

With the passing of airmail carrying from the USPS' Air Mail Service to private enterprise, the government realized that all these new companies were developing in an uncoordinated and uncontrolled manner, and wished to create some semblance of order to this rapidly growing new industry.

It was also concerned that the railroads might muscle their way into the aviation industry and possibly then kill it off to protect their railroad investments, and so created ownership restrictions to keep the railroads out of the aviation field.

Lastly, these were all good and appropriate responses.  The government truly wanted to help and protect the fledgling aviation industry.  It wanted to help ensure the industry would grow and prosper, and it felt that by establishing some quality and safety requirements, it could ensure the industry proceeded in the right direction.

1926 First Aviation Regulation

These various different evolving factors, all of which were commendable and sensible, came together in the form of the 1926 Air Commerce Act.  This contained provisions for the testing and licensing of pilots, issuing airworthiness certificates for planes, making and enforcing safety rules, establishing air routes and operating navigation aids, and investigating air accidents.

This was all to be handled by the Aeronautic Branch of the Commerce Department, which took over the services and systems and support that had earlier been created by the Air Mail Service of the USPS.

Note that this first round of regulation was primarily about creating some safety parameters and some service infrastructure.  The airlines themselves experienced little regulation as to what, where and when they could fly.

The balance of the 1920s proceeded positively.  This was the time known as the 'Roaring Twenties' with extraordinary economic growth, increases in prosperity, and general positivism in all respects.

1930 - More Assertive Government Control

The government had another great insight and in 1930, at the behest of Postmaster General Walter Brown, it moved to encourage aviation companies not just to carry mail, but instead to provide mail services on planes that could and would also transport passengers and other freight, too, as per the provisions of the Air Mail Act 1930.

Until that time, the airlines had little incentive to extend their services to passengers, because they could make vastly more money carrying airmail than they could carrying passengers.  In 1926, airlines were paid $3 per pound for flying the mail a thousand miles.  To take in as much for carrying a 180-pound passenger as for hauling an equivalent weight in air mail, a line would have had to charge a prohibitive $540 per ticket - a clearly impossible rate to charge.

Indeed, the rates paid to the airlines to fly mail were so high that some airlines would send letters to themselves and profit from it.  In one case, a carrier paid 9c each for Christmas cards that he sent to himself, and was paid 18c each by the Postal Service for flying them.

This represented the first major regulation of the airlines themselves, albeit through the 'back door' of allowing the Postmaster General to selectively award airmail contracts as he chose.

A key change in the USPS' remit was now to award mail contracts not to the lowest bidder, but instead to the lowest responsible bidder.  Another provision gave the Postmaster General authority to extend or consolidate routes based on his own judgment.

These and other related provisions of the Act gave a great deal of discretion and power to the Postmaster General, which he attempted to use for the betterment of the aviation industry as a whole.

Of course, his motives weren't entirely altruistic.  A reliable viable and profitable aviation industry would benefit the Postal Service and its massively growing need for more and more airmail to be shipped around the country every day, and the more viable and efficient the industry, then hopefully the rates for airmail freight could reduce.

The Postmaster General Changes the Industry

So, in May 1930, Postmaster General Brown summoned the heads of the major airlines and told them he was going to reshape the aviation industry through selective awarding of mail contracts, and he wanted to see a series of mergers to create economies of scale and to avoid competition between companies serving the same markets (hmmmm).

The airlines couldn't agree on how to do this themselves, and so they asked Brown to do it for them.  He accordingly designated and defined what became the 'big four' airlines - American, Eastern, TWA and United.

This was probably a good move and a great success.  The four remaining airlines had the confidence and financial strength to invest in their futures and in research and development to push forward the 'state of the art' in airline operations and airplane design.

The encouragement for planes to carry passengers and regular freight as well as airmail spurred the airlines and the airplane manufacturers into developing significantly larger planes.

This period of rapid growth and improvement culminated in 1936 with the introduction of the Douglas DC-3, one of the most reliable 'workhorse' type planes ever built, a few of which are still in service even today. 10,654 military and civil variants of the DC-3 were produced during its 11 year production run.

Economic Disaster and the Blame Game

But at the same time the airline industry was being reorganized by the Postal Service, the Roaring Twenties were giving way to the Great Depression.

The initial stock market crash on 29 October 1929 was followed by a gradual and partial recovery in stock prices for the six months that followed, but the hollow nature of this recovery was indicated by a skyrocketing unemployment rate, and the country (and world) entered an extended period of economic and social malaise - the Great Depression - that lasted through the balance of the decade.  It was not until World War 2 that the country rose out of the economic mire.

The previous Republican government was replaced by a Democratic government in the 1932 elections, with Franklin D Roosevelt ascending to the Presidency and Democrats controlling the House and Senate.

There was - understandably - a lot of general and undirected anger about the problems the country and its people were now facing, and for no real or valid reason, the Postal Service and its 1930 actions with the airlines became one such target for recrimination, spurred on by complaints from the airlines that had lost out in the massive reorganization.

The new government replaced the previous Postmaster General, and then proceeded to hold hearings into the possibility of government collusion and corruption in its dealings with the airlines, in early 1934.

This was a very gratuitous and baseless act, because during the short term of Brown as Postmaster General (1929 - 1933) he had visibly increased the efficiency of the Postal Service and had halved the rate they were paying for air carriage of mail from $1.10 to 54c per mile.

The matter was a bit like the McCarthy era in the 1950s, but this time it was the Postal Service and the airlines that were seen as the evildoers.  And, just like McCarthyism, the situation became very controversial, and there was some doubt as to the propriety of the Senate hearings.

The matter continued to get more and more out of hand, and then on 9 February 1934 President Roosevelt announced he was immediately cancelling all air mail contracts and directed the US Army Air Corps to once again provide mail services - even though no evidence of malfeasance had been uncovered.

It was only in 1941 that the entire review process was complete, with a finding that nothing improper had ever occurred, but that was well after the fact and no longer really relevant.  The genie was out of the bottle.

The US Army Fails Spectacularly in the Air

The US Army Air Corps were given a mere ten days notice that they would be required to take over the nation's airmail services.

To do this required planes the Air Corps did not have, and piloting skills it did not have either.  Bombers hastily had their bomb bays converted to mail bins.  Fighter planes filled all empty space around the pilot in the cockpit with bags of mail.

More seriously, airmail delivery was - surprising as it may seem - more demanding on pilots and their planes than were 'wartime' duties the Air Corps has trained for.

The wartime type activities the Air Corps trained for seem laughable today but back then seemed appropriate - they were largely weather dependent and bad weather would mean flights wouldn't operate.  This was clearly not the way that airmail service needed to operate, and a combination of inexperienced pilots (of the 250 pilots assigned to fly air services, only 31 of them had more than 50 hours of flying time in total), frail (and sometimes overloaded) planes, all gamely flying through weather they should have stayed well clear of, saw an astonishing and appalling rate of crashes and fatalities - sometimes more than one a day.

In total, there were 66 crashes during the short period the Army was carrying the mail.  Only 66% of all flights were completed, and fewer than half the mail flights and routes were operated than had been previously the case prior to the Army being interposed into the middle of the process.

A Rose by Any Other Name

Barely three months later, on 1 June, President Roosevelt reversed himself and returned the carrying of air mail back to the airlines, but with a set of draconian provisions, for example, the airlines that had formerly held contracts were prohibited from getting new contracts.

This requirement was satisfied by airlines simply changing their names - for example, Northwest Airways became Northwest Airlines.

These new requirements were enshrined in the Air Mail Act of 1934.

Lessons and Outcomes

There are two telling aspects to the events of early 1934, both of which endured long beyond the brief four month period.  The first is a sense of distrust by the government towards the airlines.  Not so obvious, but worthy of consideration, is how the airlines must have viewed the government?  First the government, via the Postmaster General, completely rewrites the game plan and rule book for the airlines.  Second, the government on a whim and completely unfairly destroys the airlines and gives the lifeblood of their business to the Army.  Third, the government returns the business back to the airlines after spectacularly failing to operate airmail services itself, while gratuitously (and clumsily) seeking to further ensure the destruction of the previous airline companies.

What sort of company would want to be so terribly at risk by a potentially out of control government?  Perhaps unsurprisingly, 1936 saw the formation of the Air Transport Association, the main lobbying organization for the airline industry.  Since that time, the airlines have become very adept at managing their relationship with the government.

The second telling aspect of these events was the government's sense of responsibility for and control over the airlines, a legacy that endured for the next 45 years.

Of course, the government's sense of responsibility and control was mirrored in the reality that the government was - at least in the 1920s through perhaps the 1940s - the driving and dominant force in the airline world, due to its ability to award profitable mail contracts to airlines.

The other part of the government's role was not so much the market driven reality of it being by far the largest single customer for all airlines, but its ongoing regulatory role. If the government was not determining which carriers prospered and which failed by way of allocating airmail carriage contracts, it could do so through its regulatory process instead.

One good thing that came out of this bad experience was that bidding for air mail contracts was made more competitive, and this in turn encouraged airlines to diversify away from what was now a less certain/guaranteed (and less profitable) revenue stream from airmail carriage, and to become much more focused on carrying passengers.

1935 Onwards - An Industry Matures

The country and the aviation industry both struggled to return to normal during the second half of the 1930s.

A formal organization to manage air traffic control was created in 1935 by what was now being called the Bureau of Air Commerce.

In 1938, the Civil Aeronautics Act transferred responsibility for non-military aviation from the Bureau of Air Commerce to a new body, the Civil Aeronautics Authority, which still remained under the aegis of the Commerce Department.  This was an unwieldy organization with a wide range of different responsibilities.

Realizing this, the organization was split in 1940 into the Civil Aeronautics Administration (CAA) and the Civil Aeronautics Board (CAB). The former was involved in air traffic control and safety programs, the latter was to handle safety rulemaking, accident investigation and the economic regulation of the airlines.  This marked a better division of responsibilities, although there was still a mix of not altogether related duties assigned to the CAB.

With the increasing sophistication of airlines, airplanes, and aviation support systems, there was a thought to be a continued need to evolve the management and oversight of the aviation industry.  And so, in 1958 the Federal Aviation Act replaced the CAA with a new organization, the Federal Aviation Agency - an organization that continues in existence to the present day, albeit renamed as the Federal Aviation Administration in 1967, becoming part of a newly created Department of Transportation.  At the same time, the safety rulemaking powers were taken from the CAB and consolidated in the FAA as well.

Lastly, in 1967 the CAB also lost its accident investigation powers, those passing to the new National Transportation Safety Board.

This left the CAB with its remaining powers to regulate the airlines, the routes they flew, and the fares they charged.  The government had now completed a transition of responsibilities such that all the infrastructure, service, support, and safety type issues were centralized in the FAA.  As for what remained - the management and control of the airlines - this was left, essentially untouched and unquestioned, in the hands of the remaining part of the CAB, which had an extensive oversight role that saw it involved in almost every aspect of civil aviation.

Airlines were assigned specific routes and service areas and given formulas governing the fares they could charge and the profits they could earn.  They were even subject to rules prescribing the kinds of aircraft they could fly and their seating configurations.

So how effective was the CAB at regulating the airlines?  Did it help an industry to grow and prosper?  Was the public rewarded with new services, more airline choices and more flights?  Did air fares drop and drop with the continued improvements in airplane design and cost efficiency?

None of these things happened, which set the stage for a growing move towards abolishing the CAB and stripping the industry of its regulatory chains.  Please read the next part of our series for a detailed look at the problems with the CAB and airline regulation in the 1970s and the reasons for its abolition in 1979.

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 30 Jul 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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