Deregulation, airline

Remember that proponents of airline deregulation argued for price benefits of competition, but they did not foresee how it would revolutionize the logistics functions of corporate America through the rise of companies such as Federal Express. Similarly, those who advocated telecommunications competition did not anticipate the new value-added services provided at the switch and whole new categories of customer-owned equipment connected to the network. 

Airline deregulation permitted the establishment of a number of new entrant airlines, since they no longer needed to apply to the CAB for permission to fly particular routes. Thus, the OTA (1988, pg. 27) reports that 119 carriers... entered the industry between 1978 and 1986 Mark Kahn (1988, pg. 3) cites statistics from the New York Times indicating 128 new entrants (of which only 37 were still in existence as of November 1987). Gray (1987, pg. 34) states that Many new carriers have little notion of or experience in how an... 

Overall, therefore, the experience of the aviation industry suggests that economic deregulation did not have a negative impact on the overall safety record, but that safety cannot be taken for granted after deregulation. The situation is well summarized by Lauber (1988, pg. 228), who notes that the accident statistics do not demonstrate that safety has suffered under airline deregulation— but neither do they prove that there has been no impact... Vigilance, therefore, must be continuous. ... 

Melvin A. Brenner (1988a), Airline Deregulation—A Case Study in Public Policy Failure, Transportation Law Journal, Vo. 16, pp. 179-227. 

Paul S. Dempsey and Andrew R. Goetz (1992), Airline Deregulation and Laissez-Faire Mythology, Westport, Conn., Quorum Books. 

Federal Aviation Administration (1992), Annual Report on the Effect of the Airline Deregulation Act on the Level of Air Safety, Washington, D.C. 

Alfred E. Kahn (1988a), Surprises of Airline Deregulation, AEA Papers and Proceedings, Vol. 78, pp. 316-322. 

Alfred E Kahn (1988b), Airline Deregulation—A Mixed Bag, But a Clear Success Nevertheless, Transportation Law Journal, Vol. 16, pp. 229-251. 

Steven A. Morrison and Clifford Winston (1986), The Economic Effects of Airline Deregulation, Washington, D.C., Brookings Institution. 

Clinton V. Oster, Jr., and C. Kurt Zom (1989), Airline Deregulation Is It Still Safe to Fly , in Transportation Safety in an Age of Deregulation (Leon N. Moses and Ian Savage, editors), Oxford, Oxford University Press. 

Efficiency became the watchword after deregulation. With competition opened up to all comers, the airlines fought hard to make money by cutting costs and increasing productivity. Coupled with an unexpected crisis in the supply of fuel in 1979, there was an industrywide effort to acquire the latest, most efficient equipment using the latest engine technology. 

Deregulation resulted in a number of changes to the nature of the airline industry. In particular ... 

Fares dropped sharply after deregulation (especially for leisure travel), greatly increasing the volume of airline transportation. 

The post-deregulation tendency of airlines to reduce their investment in support functions such as engineering and employee assistance. 

The maintenance violations at Eastern would appear to indicate that deregulation may have contributed to reduced safety at this airline because of Eastern s attempts to cut comers on maintenance... Although no accidents were attributable to Eastern s maintenance violations, evidence that maintenance managers under pressure to dispatch aircraft were falsifying records and impeding the FAA investigation is disquieting. 

The TRB report (pg. 184) notes that Eastern was financially weak and suffering from contentious labor-management disputes, both of which had predated deregulation. Smaller fines ( 1.5 to 2 million) were also levied against American Airlines and Pan American (Wallich, 1986a, pg. 70) Pan Am, like Eastern Airlines, had been financially troubled (Oster et al., 1992, pg. 122). 

As with equipment failure, pilots and others expressed concern that the pressures of deregulation would result in higher rates of human error. For example, O Malley (1993, pg. 106) quotes a first officer at Northwest Airlines as saying ... 

As might be expected, airline profitability has been far more variable after deregulation than before. The CRS (Fischer, 1986, pg. CRS-2) notes that Under regulation, when the industry had a good year, its benefits normally were spread among all carriers. In 1984 and 1985, however, the distribution of profits was dramatically different. Fischer concludes (pg. CRS-3) Carriers have shown that it is possible to move from the financial brink to profitability, and in some cases, back again, in a relatively short period of time. ... 

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