Airline Deregulation

This essay examines the experience of airlines deregulation from 1978 to the present as a microcosm of the interaction of a real-world industry and the practice of government regulation. The area of most sweeping deregulation in the late 1970s and 1980s was in economic regulation in the narrow sense; that is, deregulation of restrictions on lines of business or territories which formerly regulated business could enter.

Traditionally, transportation industries (beginning with the railroads) were among the most subjected to government regulation of this type, as well as to operating and safety regulations, which generally have not been officially relaxed (though enforcement has often dwindled). Transportation systems were widely felt to be "technical monopolies;" moreover, control over transportation offered exceptional power, and such power in private hands seemed an apt object of governmental regulation. Thus, airlines were tightly regulated in the fares they could char

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ered (Douglas and Miller, 1974). By the middle 1980s, however, complications were beginning to appear. Fare policies became increasingly baroque, and it became harder even for professional travel agents to identify the lowest available fare over a given route. An underlying reason for much of this fare complexity is the dual nature of the air-travel market. The backbone of the industry is business flying, which is sensitive to time convenience, but relatively insensitive to price. Business flyers are supplemented by "discretionary" flyers (vacationers, etc.) who are highly price-sensitive and relatively insensitive to travel time. Much of airline tariff policy has become a matter of distinguishing the two, charging as Much as possible to business flyers, and charging low fares to other travellers who often fill otherwise-empty seats (and whose fares therefore go almost to pure profit). Another notable airline practice has been frequent-flyer programs, which are in effect "bribes" to individual business travellers to fly a particular airline at the boss's expense. Complex tariff policies might be economically justified as a mechanism for more efficiently allocating a scarce resource--seats on the most favored flights--whi
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Approximate Word count = 1281
Approximate Pages = 5 (250 words per page)

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