Airline deregulation Act of 1978

Airline deregulation Act of 1978

Introduction

The Act shifted the regulating authority from the Civil Aeronautics Board (CAB) to the liberal forces of the market. CAB whose term officially expired in December 31, 1984 followed a global liberalization trend.

Safety

The government still handles regulation when it applies to safety as explained in chapter 6 of the Act through the Federal Aviation Authority. The Act only gave way to a free system of entry and exit of service providers and they were allowed to set their own rates and choose own routes (Kucinski E 1990). In a broader sense, it only freed government economic regulations. http://www.avjobs.com/history/airline-deregulation.asp

Economic impact

As a result of the free market, prices were reduced and the percentage of seats that were filled increased. Low-cost carriers (LCCs) compete against the “legacy” airlines that already had a strong base before the deregulation. In the last two decades the airfares have declined by 25% and 44.9% since 1978. Most of the major carriers (9 carriers between 1978 and 2001) had been declared bankrupt or liquidated. The save in quality and amenities by passengers has been estimated at $19.4 billion dollars annually. Where 85% is of the passenger saving is accounted for in passenger. Airlines have innovatively applied the hub-and-spoke system which utilizes different plane sizes to reduce prices (Susenapathy PW 1991). http://www.econlib.org/library/Enc/AirlineDeregulation.html

Other effects on Air transportation

Competition has shifted from crew quality to prices making them lower. In this case there many people using flights and also higher load factors. This brought about the need to have the control grid upgraded. There are still instances of delay as a result of the grid infrastructure being under government control. The delays are estimated to cost $5 billion annually.

Conclusion

The big airlines are in a struggle to maintain profitability against the LCCs which have high productivity, minimized hourly wages and no pension deficits. There are still domestic economic controls which tend to protect locally registered airlines from international competition in transporting passengers and cargo. http://www.econlib.org/library/Enc/AirlineDeregulation.html

 

 

References

  1. Airline Deregulationhttp://www.avjobs.com/history/airline-deregulation.asp retrieved 25th June 2011.
  2. The concise encyclopedia of economics, Airline Deregulation http://www.econlib.org/library/Enc/AirlineDeregulation.html retrieved 25th June 2011.
  3. Kucinski E (1990) The Airline Deregulation Act of 1978: safety, the public interest and policy analysis, Texas Tech University.
  4. Susenapathy PW (1991) The airline deregulation act of 1978, an assessment on the hub-spoke system and airline concentration, Kansas State University.