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The Airline Deregulation Act of 1978 and Its Effects Term Paper

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Updated: Apr 2nd, 2019

Until 1978, the United States federal law controlled the aviation industry through the Civil Aeronautics Board (CAB). The inception of the Airline Deregulation Act marked a new dawn for the removal of government controls over fares, routes, and entrance into the market.

Initially, air transport was considered a government-regulated venture with its services being public utility. The CAB was obligated with the task of setting fares, allocating routes, and preparing schedules for the airlines.

By the active participation of the CAB in the industry, they were able to maintain low fares in the short-haul market or financially support industries in the long-haul market thus controlling the airlines rate of return.

The complicated processes of applying new routes or reviewing fares were enhanced by the bureaucratic nature of the CAB. Most of the air transport providers felt that they were being inhibited by the CAB from bringing radical changes that would meet the needs of their clients in the market.

On realising this, the congress pushed for laws that facilitated the deregulation of the airlines industries (Meyer, 1981). Their efforts bore fruit in the year 1978 when President Jimmy Carter agreed and signed the Airline Deregulation Act.

Consequently, the roles of CAB were phased out progressively until 1984 when it was completely abolished and later the benefits of the deregulation started to take effect.

Under the Airline Deregulation Act, several terms of conduct in the air industry were highlighted that would streamline the general operation of the airlines. Before the complete abolishment of the CAB, the Act stipulated that the task of setting fares was to be entrusted to airlines.

Consequently, the airline standards were liberalised such that new airlines could enter the market after meeting the terms and conditions of the Act.

In case of existence of routes that were being underutilised or had competitors that received subsidy from the government, the Act allowed new providers to join those routes.

Most barriers created by CAB such as blocking routes or introducing charter trips were expunged, and the airlines could provide services conveniently for them.

Consequently, the airlines were place in a fair arena and made flexible to serve the needs of their clients. Additionally, the role of CAB to decide on the appropriate airlines, which deserved subsidies, was eliminated, and thus airlines profitability relied on their own efforts and investment (Brenner, 1985).

To reduce the burden of CAB, the roles of maintenance of safety standards were transferred to the Federal Airline Association (FAA). After the disbandment of CAB, some of the key responsibilities that the board initially undertook were transferred to United States Department of Transportation (DOT).

Since then, the authority allowed the introduction of small carriers to replace the jets that offered domestic services increasing the efficiency in the air industry.

Similarly, other CAB duties were allocated to FAA to examine safety, and control air traffic. Additionally, the Act gave the secretary of transportation the main role of reporting to the congress on air safety and any matters arising due to the deregulation.

To ensure the air industry’s effectiveness from the onset of the deregulation act, the government used generated revenues to categorise the airlines. These categories include major, national, and regional airlines.

The major airlines category constituted of airlines with annual operating revenues of more than $1 billion. Due to their financial strength, they offer international and long-haul services.

National airlines usually operate with annual revenues of between $100 million and $1 billion. On other hand, regional airlines offer their services within specific regions and mostly attain annual operating revenues of between $20 million to $100 million.

Categorisation of airlines in this manner enabled the FAA to control and monitor the traffic and routes used by various airlines. Meanwhile, airlines could also be categorised depending on the services they offered like passenger or cargo airlines.

Any operational airline must have two specific certificates from the federal government authority. These certificates are the fitness certificate and the operating certificate.

The Department of Transport (DOT) is the sole authority entrusted with the issuance of the fitness certificate also known as the certificate of public convenience and necessity.

This certificate indicates that the airline has adequate finance and management capacity to handle scheduled services. Moreover, the certificate is issued to both the passenger and the cargo carriers.

On the other hand, operating certificate is issue by the FAA to indicate the various requirements critical for the operation of aircrafts with a capacity of 10 or more seats.

When the Airline deregulation act was enforced, it had dynamic benefits to both the airline providers and the passengers. Notably, the Act terms were suitable for the carriers as it streamlined the activities of airlines in the market.

The objectives of the carriers were outlined in the Act, borrowed from the initial roles of the CAB. Adequate consideration was given to the safety standards of the airlines, as it was the optimal priority in the air industry.

The Act stipulated that for the airlines to be granted the opportunity to operate in the industry, they had to comply with the safety measures of the passengers and their workforce.

Air transportation services were allowed to significantly rely on the competition that existed in the market. Thus, matters of fares were solely determined by the airlines.

Similarly, the Act emphasized on the need for the air services to put in more effort on the development of airports in the urban areas like the secondary or satellite airports.

By the act of encouraging competition in the air services, the government was able to reduce instances of monopoly where a single air service provider would increase prices uncontrollably.

Economically, the Act advocated for the easing of entrance requirements and conditions for new air carriers thus enhancing the growth of the economy.

The Airline Deregulation Act had great objectives that would foster the growth of the air industry and therefore contribute to the streamlining of the air services and improvement of the county’s economy.

To promote the growth of the economy, the Act provided incentives to American-owned international airlines to provide domestic services in the country.

After the deregulation, a major streamlining was done in the airline industry regarding the line personnel, operations, maintenance, sales and marketing, reservation and ticketing and staff personnel.

The Line personnel are individuals involved in the operation of the scheduled services of an airline. These personnel include plane mechanics, pilots, flight attendants, reservation clerks, ramp-service agents and security guards.

Their welfare and operating conditions were dynamically improved. Operations entail the flight crew responsible for the safety and effectiveness of service delivery during the flight.

The other elements incorporate the personnel in ensuring that the business of the airline is successful. Additionally, deregulation improved the conditions of operation of the airlines and the governing bodies (Miller, 1981).

Because of deregulation, there was a significant growth in the hub and spoke networks compared to prior years. Hubs refer to airports that are strategically located in the areas where there is ease of access by the passengers and cargo.

These locations are collection points for passengers and cargo. In this regard, the exploitation of small markets with a small population became realistic and profitable.

At the same time, hubs that allowed access of the planes to collect selected passengers or cargo handled variation in the destinations of the passengers in one location.

The growth of the hub and spoke networks also improved the ability of the airlines to handle numerous markets and manage the size of the fleet.

With the radical improvement of the hub and spoke networks, collection and dropping of passengers in various cities with different origins and destinations was economically handled. Nevertheless, these hubs were favourable for numerous carriers due to the convenience attached to it.

Deregulation allowed the increase in the size of the carriers due to the entrance of multiple new carriers. This was fostered by the fact that there were many cheap available second hand aircrafts, the availability of airline line professionals like pilots and mechanics and soft terms of airline operations by the government.

With time, the objectives of the congress were achieved by the increase in new entrants in the market creating a stiff competition that worked in favour of the customers.

The increase in the competition necessitated most of the airlines to offer direct, low-cost and no-frills services, which improved the air transport in general.

Notably, although over the years there have been fluctuations in the market due to the varied conditions of the economy, the deregulation act has still played a key role in retaining the numerous carriers in the industry (Morrison, 1986).

Affordable fares have been an achievable objective due to the stiff competition created by the enormous carriers. Significantly enough, most carriers have been offering discounted fares to their passengers or for cargo.

Evidently, fares have significantly decrease compared to the CAB era. This result has affected several other transport sectors like the interstate bus and rail due to the efficiency associated with airlines operations between cities.

Concerning the passengers, these changes have been significantly beneficial in various aspects such as enabling them to save on their travel expenses.

Additionally, passengers’ needs are met in the most outstanding manner because of the stiff completion. Furthermore, low costs have reduced disparity among the passengers, as most fares are affordable by many air transport users.

The stiff competition in the airline market due to deregulation has sparked innovations concerning marketing designs and styles. Major innovations have been geared towards the frequent flyer programs of the airlines.

For the airlines to retain and attract more customers, these programs have been enticing, and the benefits of such offers are paramount to the passengers.

These rewards usually offer free tickets or advancement in the class an individual is placed in the carrier. To earn such offers or gifts, it is required for one to be a frequent and consistent flyer in the airline of choice. Earning of points also at times depend on the mileage covered by an individual on his or her flights.

Additionally, these marketing improvements have led to the establishment of the credit card industry within the air transport. Possession of such specific credit cards has allowed passengers to gain promotions and other rewards that improve their welfare. Notably, these services and improvements have caused radical changes in the airline industry and thus are viewed to be beneficial and complementary to deregulation.

Computer reservation system (CRS) has been an important development because of deregulation. These systems have enabled the workforce within the airlines to handle and process effectively the numerous services that occur on a daily basis.

Activities like keeping track of fares and service changes have been possible with the use of such systems. Nonetheless, the travel agents have been able to monitor the schedules and fares of their passengers.

Similarly, the systems have enable the travel agents to not only to maintain records of schedules and fares, but also give chances to their clients to make advance booking for their listed flights. As a result, the airline owners have been successful in offering services to their clients in a systematically and convenient manner.

Another important innovation was the advancement in the code sharing agreements. Such agreements allow the travelling agents of airlines to issue tickets for the airline using a two-letter code.

These agreements enable large and regional airlines to conduct business together with efficiency in service delivery to the clients. On the same note, the U.S airline and foreign airlines can conduct business within the country’s states.

Similarly, these agreements facilitate the conduct of marketing innovations like the frequent flyer programs without the interference of other airlines. Notably, the regional airlines have been able to paint their carriers with trademarks of large airlines thus boosting their market competitiveness.

Furthermore, In the event that the large airlines cannot land on certain hubs, the regional airlines facilitate the collection of clients and cargo.

Despite the use of the code sharing agreements, each carrier is able to benefit and their working conditions or programmes are unaffected. Overall, code sharing enhances the effectiveness of the airlines and efficiency in service delivery to the clients.

In spite of the numerous benefits derived because of deregulation, there have been some pitfalls from its implementation. The benefits offered by the deregulations have been uneven in the entire national air transportation network.

Repeatedly, costs have decline in most of the high traffic and long distance routes compared to the shorter ones. In this regard, large airlines have been able to nourish in the market unlike the regional airlines, which encounter enormous challenges.

Moreover, the shorter routes carriers have been ineffective in handling financial difficulties thus most are discouraged and may be forced to quit or join the competitive long distance operators (Williams, 1994).

Another major obstacle was the exposure to stiff competition, which led to numerous losses and aroused conflicts between the labour unions and the carriers.

Because of the decline in the profits generated by the carriers, they were forced to reconsider the working conditions and reward policies in order to remain operational.

In this regard, there have been rampant disagreements between the carriers and the labour unions concerning the improvement of the working conditions.

Notably, deregulation led to the inability of some carriers to survive in the stiff competition influenced by the costs and the labour unions demands, forcing them to quit the market.

Moreover, these carriers were unable to meet the costs and cover for their liabilities and were eventually liquidated due to bankruptcy. Examples of carriers that were liquidated at the aftermath of deregulation are Eastern, Braniff, American West Airlines and Pan Am and other multiple smaller airlines.

The aftermath of such losses was detrimental to the potential entrants and some of the operators who remain in the industry. Nonetheless, the airlines’ workforce encountered numerous challenges in the transition period to other remaining airlines.

Finally, the Airline Deregulation Act led to a new dawn in the air industry by bringing in radical changes in the operation and management of the airlines.

For most of the airlines with great effort and investment in the sector, they realized their objectives. Nevertheless, it is observed that the deregulation prompted the government to be more vigilant in terms of regulating and ensuring the safety of the passengers and personnel on board every flight.

Furthermore, the deregulation enabled the growth of numerous industries within the air industry improving the economy on a general scale.

These industries have created employment opportunities and assisted most airlines in achieving their major objectives of flourishing and being competitive in the market.

From the government’s perspective, the deregulation act has simplified their roles due liberalization. The government therefore remains with precise and convenient duties of ensuring that the operations of airlines meet the set requirements.

As per the society, the Act created an overhaul in the efficiencies with which the airlines and the government conduct their business.


Brenner, M. A., Leet, J. O., & Schott, E. (1985). Airline deregulation. Westport, Conn.: (Box 2055, Saugatuck Station, Westport 06880).

Meyer, J. R., & Oster, C. V. (1981). Airline deregulation: the early experience. Boston, Mass.: Auburn House Pub. Co..

Miller, J. R. (1981). The airline deregulation handbook: with the complete text of the Airline Deregulation Act of 1978. Wheaton, Ill.: Merton House Pub. Co.

Morrison, S., & Winston, C. (1986). The economic effects of airline deregulation. Washington, D.C.: Brookings Institution.

Williams, G. (1994). The airline industry and the impact of deregulation (Rev. ed.). Aldershot, Hants, England: Avebury Aviation.

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