Airline Deregulation – The Next Step

In the 20th anniversary year of airline deregulation, air travel is again at the forefront of public policy. Policymakers have been besieged with a variety of complaints: that business fares are up, that some smaller cities are not receiving the kinds and amounts of air service their residents would like to have, and that small start-up airlines can’t compete effectively. The host of proposals to solve these alleged problems includes a throwback to 1978: government control of the prices charged and routes served by major airlines.

Any such attempts to put the government back in the business of micromanaging routes and service are misguided and will significantly harm consumers. Despite the criticisms, airline deregulation has provided – and continues to provide – enormous benefits to the average traveler. Economists from the Brookings Institution and George Mason University have estimated that consumers save some $19.4 billion per year thanks to lower fares generated by the competitive airline marketplace. Additionally, American cities received much greater access to air travel, due to an aviation marketplace in which airlines can provide service when they, not bureaucrats, perceive demand. Millions of Americans began to fly for the first time in their lives. Airline deregulation democratized American air travel.

Serious problems remain, of course. But those problems stem not from too much reliance on the marketplace, but too little. When it deregulated airlines in 1978, Congress unleashed market forces on one segment of the air-travel system – but it failed to free up the critical infrastructure on which the airlines depend: the airports and the air traffic control (ATC) system. These essential elements of the air travel system remain not only government-controlled, but government-owned. Today’s real policy challenge is to remove the remaining government interventions in aviation infrastructure that restrict competition and hinder the growth of airline service.

The benefits of reform could be substantial. For instance, new technology exists which could produce up to a 50 percent increase in capacity at congested airports like LaGuardia and Reagan National, and which could greatly expand the number of air routes between cities. But these new technologies are likely to come about in a timely fashion only if Congress dramatically changes the structure and funding of today’s obsolescent air traffic control system. As the National Civil Aviation Review Commission found, the ATC system must be turned into a business-like organization, funded directly by its users.

Another key policy reform is for airports to be free to expand their capacity directly, rather than wait for the FAA to make runway grants or to install upgraded landing equipment. Congested airports should be allowed, for instance, to levy market-based access charges during peak hours, with the revenues earmarked for capacity-enhancing investments within the same metro area. Reliever airports in the Chicago, New York, and Washington areas could provide nonstop regional jet service to supplement service offered at the existing congested airports.

In short, technological advances unleashed by a more intelligent, modern, and market-based airline policy can give us a much more competitive and robust airline market. It would be capable of handling many more customers and extending the benefits of air travel to an even larger slice of the American traveling public. Policymakers should resist the temptation to micromanage every seat and landing slot in the country. Instead, they must finish the job they started in 1978, by freeing up aviation’s infrastructure to cope with a dynamic, evolving aviation marketplace.

This article is adapted from the new CEI study Airline Deregulation: The Unfinished Revolution, by Robert Poole and Viggo Butler. Poole is President of the Reason Foundation in Los Angeles. Butler is chairman of United Airports Limited. To order copies of Airline Deregulation: The Unfinished Revolution, contact CEI at (202) 331-1010, e-mail [email protected], or check it out on the web at