40 Years of Airline Deregulation Prove the Free Market Still Works for Consumers

Forty years ago, President Jimmy Carter signed the bipartisan Airline Deregulation Act of 1978 into law, which marked a gradual ascent into a new era of innovation in our domestic air transportation system. Replacing heavy-handed government micro-management with a lighter touch that allowed free markets to evolve was not an easy task, but the results were well worth the struggle. Those of us stepping on an airplane today should pause to remember that without deregulation, we’d be doing so with much thinner wallets — or perhaps not doing so at all.

In the decades preceding the Airline Deregulation Act, aviation regulation was vested in the Civil Aeronautics Board, which had broad authority not only on safety and oversight regulations, but also on the economic operations of interstate carriers. The CAB had the ability to control the cost of ticket prices of private airlines, the routes carriers could service, who could enter or exit the market, among many other intrusive powers. This command-and-control type scheme may have preserved certain types of air service, but it was also political protectionism for incumbent operators and stagnation for consumers at its worst.

As a result of anticompetitive government policies, fares were unnecessarily expensive: A roundtrip airfare consumed about 2.5 percent of an average American’s entire yearly disposable income. This made the cost of flying prohibitive for most except the wealthy and businesspeople. In 1971 only one in four Americans stepped foot on an airline annually — about half what it is today.

But by the 1970s, the status quo just wouldn’t fly anymore; American air travelers wanted change and Congress began to take action. After analyzing intrastate airline markets, which were exempt from a good number of federal regulations, Congress found that prices were nearly 60 percent cheaper versus similar distances for interstate flights. Instead of competing for prices and convenience, airlines were more interested in offering roast beef plush carpeting on their aircraft.

As limited-government groups like National Taxpayers Union called for fundamental change, liberal Senator Ted Kennedy (D-Mass.) became a prominent part of the political aircrew behind deregulation, noting that “it is economically and technologically possible to provide present air service at significantly lower prices, bringing air travel within the reach of the average American citizen.” With even the CAB behind a major shift away from federal control, it was clear that the broad-based deregulation movement had enough tailwind to officially take off.

The resulting Airline Deregulation Act of 1978 replaced the “government knows best” policy by giving route determination and pricing power back to the marketplace, fully allowing carriers to compete with each other. Opponents claimed such actions would be a boon for large, greedy airlines at the expense of consumers, but the reality has been far different. Compared to the 1970s, fares today have fallen by 40 percent, leading to nearly doubling the number of commercial departures and nearly tripling the number of passengers serviced annually. Most importantly, these gains have not come at the expense of safety.

Airline deregulation even opened the door to further deregulatory actions across the transportation system, freeing entire sectors from the confines and shackles of big government. Two Congresses and two administrations worked to secure deregulatory victories for the trucking industry (Motor Carrier Act), the railroad industry (Staggers Rail Act), and the busing industry (Bus Regulatory Reform Act). Other nations liberalized their air travel services, while air couriers like FedEx and UPS revolutionized more efficient supply chains. Most recently, tax reform has enabled huge new airline investments in equipment and operations, fostering even more competition in the industry.

To commemorate this important triumph, National Taxpayers Union conducted an extensive analysis of how it all happened, and the often-surprising benefits of airline regulatory reform even surprised us. Our paper concluded that by transitioning to a freer market, “air travel became a middle-class option, commerce became vastly more efficient, other transportation modes experienced the benefits of reform, and taxpayers were freed from many bonds of subsidies and regulation.”

While all of these actions delivered boons to consumers and businesses, the unsung beneficiaries were without a doubt taxpayers. They avoided bailouts of failing infrastructure providers, saved resources from being wasted on pointless bureaucracy, and paid less for government services that utilized the transportation network.

These developments should have received plaudits from all corners of the transportation policy community. Unfortunately, a handful of consumer groups, lawmakers, and bureaucrats want to repeat the mistakes of years ago by working to impose stifling regulations that flatlined the economy. Indeed, policy should be flying faster in the opposite direction. Tax burdens on air travel remain heavy (20 percent or more on a typical ticket), while our antiquated government-controlled air traffic control system is way behind other countries that have switched to user-funded, user-accountable models.

Deregulation in the airline industry is a shining example that when government gets out of the way, the economy thrives, businesses prosper, taxpayers are protected and consumer well-being improves. Turning back the clock on all of this progress would be a massive mistake.

Pete Sepp is the president of the National Taxpayers Union, a nonprofit dedicated to lower and fairer tax policy at all levels of government.

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