1978- Airline Deregulation Act, Term Paper Example

The aviation industry is the most regulated sectors in terms of policies and safety measures. Today’s aviation industry in US is very different from the one prior to 1978, where Civil Aeronautics Board (CAB) determined flight routes and airfare, (Gillen & Morrison, 2005). Those days made the aviation industry look like a public utility. However, in modern era, the aviation industry is customer driven and the customers who determine the prices and levels of service.

What became a turning point in the aviation industry was the airline deregulation act of 1978, enacted by the congress and signed into law by the then president Jimmy Carter. This was after yielding to a series of pressures in the 1970’s from numerous studies from economists who pointed major impacts of regulated airfares. The major causes that led to deregulation were the advent of aircraft widebody that led to increased capacities of airlines, (Savage, 1999). The Middle Eastern oil embargo of 1973 led to widespread rise in oil prices due to inflation and this created adverse effects on the aircraft industry making deregulation inevitable. All these coincided with economic downturn that adversely affected the operations in the aviation industry.

The CAB, as mandated to ensure reasonable returns on operations in aviation industry, allowed aircraft operators to increase airfare. In addition, CAB, set new guidelines on limiting capacity on major routes, and allowed more services to be offered in the aviation industry. However, none of these proved fruitful as inflation continued to bite and financial situations of major airline operators continued to deteriorate. The general sentiments by the public, that the moves by CAB created more misery and inflation, led to removal of constraints on competition by the government. This gave the airlines freedom of determining the airfare as well as having an easy access to major routes, turning the aviation industry into a competitive market place.

The enactment of deregulation act in 1978, therefore, phased out CAB and this led to drastic decrease in prices in aviation sector to a tune of over 40%, after factoring in inflation. In the end, this has saved commuters in the aviation industry billions of dollars. Originally, travelling by air was a preserve of the wealthy due to high travel charges, however, it is affordable now for anyone to use and this has led to unprecedented growth in the aviation industry. Many carriers have been broad on board including the low-cost carriers that broad stiff competition to “legacy carriers” (U.S Air, Continental, American, Delta and Northwest).

Aviation regulations go behind merely the regulations of the routes and airfare. The other major component of the aviation industry is the cargo, which is handled by cargo carriers in the aviation industry who operate between major routes. The deregulation of cargo handling in the aviation industry was first done by the congress in 1977, when it allowed operations on diverse routes by such carriers. In addition, Congress declared a year later that as long as such carriers were found to be fit, willing, and able, then CAB would have to authorize their operations, lifting regulations on cargo carriers and allowing for competition in the market.

After the deregulation of cargo, another major development followed in form of the rapid increase in the overnight deliveries of small packages and documents. The deregulation of the cargo handling had some dramatic impacts of express cargo delivery. Although the delivery of high-value and time-sensitive parcels begun in 1970’s, deregulation opened the door for further growth in such services. Such carriers as express carriers got working freedom and this ensured the growth of this segment of the aviation industry. Further regulations were passed by the congress in 1994 that preempted the efforts by the states to regulate intrastate air deliver of express documents.

Express package delivery did not spell the last part of deregulation in the aviation industry. Further deregulations followed and this touched the passengers, setting up free market competition. The government control over domestic rates, regulation and controls of domestic schedules and routes were removed and subsequent disbandment of CAB. The congress set the complete removal of these controls over a span of four years and complete freedom to be attained by December 31, 1981, for routes and services. Complete deregulation of all the rates was in effect by the end of 1983. CAB ceased to operate in January 1985, although majority of its mandates shifted to other government agencies in the department of Transport.

Finally, there remain some regulated aspects of the aviation industry, notable the international aviation market. The international operations between countries are governed by bilateral and this determines fares and number of flights between states. U.S made steps, which have been successful in liberalizing its international flight’s market. However, in case of territories where restrictions still exist, (department of transport) DOT determines which flights and the number, which can be allowed to operate such routes.

In conclusion, deregulation has spurred growth in the aviation industry, (Gillen, 2006). However, freedom to fly takes a personal responsibility and involves observation of federal, state and local regulations and rules regarding safety. The national airspaces are under the control and regulation of Federal Aviation Authority, which determines the aircraft and pilot requirements under various classes of aviation. The state controls and regulates construction of airports, operation and maintenance.

References

Gillen, D. (2006). Airline business models and networks: regulation, competition and evolution in aviation markets. Review of Network Economics, 5(4).

Gillen, D., & Morrison, W. (2005). Regulation, competition and network evolution in aviation.Journal Of Air Transport Management, 11(3), 161–174.

Savage, I. (1999). Aviation deregulation and safety in the United States: evidence after twenty years. Springer, 93–114.