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Celebrating the 40th Anniversary of Airline Deregulation

Forty years ago today on October 24, 1978, President Jimmy Carter signed the Airline Deregulation Act into law. This bipartisan legislation led to the elimination of price controls and route-setting by the now-abolished Civil Aeronautics Board. Since then, U.S. airline passenger volumes have increased by 210 percent—from about 250 million in 1978 to 850 million in 2017—while average inflation-adjusted airfares have fallen by more than 40 percent. Formerly a luxury for the wealthy, air travel has become democratized so that nearly 90 percent Americans have flown in their lifetimes and nearly 50 percent last year.

This major shift in federal policy led to great upheaval in the airline industry. Carriers such as Pan Am, Eastern, and TWA all disappeared as deregulation led to aggressive competition, cost-cutting, and risky experimentation in the air travel business. The industry has since rationalized its networks and consolidated to efficiently serve them. While this wasn’t a good time to be an airline investor, it was great for consumers, who have largely demanded and received ever-lower airfares. The entire ultra-low-cost carrier model led today by Spirit and Allegiant would never have existed in a pre-deregulatory environment.

Unfortunately, some politicians and activists have been urging re-regulation of the industry out of supposed concerns for consumer wellbeing. They complain about small seat sizes and a la carte ancillary fee structures, ignoring that most consumers have consistently chosen lower prices and more choices over white-glove service. First and business classes still exist on most airliners, and carriers have introduced more comfortable premium economy seating for slightly higher airfares, but most passengers continue to choose the cheapest seats they can find. The people get what the people want and the gains to consumers are undeniable.

For more on the success of the Airline Deregulation Act, see CEI founder Fred L. Smith, Jr.’s entry in the Concise Encyclopedia of Economics, 2nd edition, as well as the entry in the Concise Encyclopedia of Economics, 1st edition, by the father of airline deregulation, the late Cornell University economist Alfred E. Kahn.