Effect of Deregulation on U.S. Airline Industry

BACKGROUND ON THE CIRCUMSTANCES LEADING TO DEREGULATION

Deregulation of the air transport industry in the United States was initiated by the Carter Administration in 1978 (Thayer, 1983). Momentum was building for deregulation of the industry in the face of resistance by most of the minor and some of the major American airline companies (Meyer and Oster, 1981). The principal concern of the smaller airlines with respect to deregulation was a fear that the larger airlines would (1) enter the profitable mediumhaul markets which regulation of the industry had denied to them, (2) underprice the smaller airlines operating in these markets, (3) drive the smaller airlines out of the industry, and (4) eventually raise prices in the mediumhaul markets. Many of the managements of the larger airlines said publicly that they feared that deregulation would ultimately result in (1) an oligopolistic airline industry in the United States, which (2) would be far less competitive than the industry which existed in the

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which increased the size definition of a commuter aircraft from a 30 to a 60passenger capacity (commuter aircraft are subject to less stringent operating requirements than are larger aircraft). Advantages also accrued to many regional and local carriers which had not been subject to regulation. In the lower tiers of the industry, these carriers tended to employ younger, less experienced, and, thus, lower paid personnel. Deregulation provided these carriers, with their cost advantages, an opportunity to compete against trunk carriers successfully in some markets. The major trunk carriers fared less well under conditions of deregulation. Several of the major carriers have either been forced out of business, are continuing to operate under tenuous financial conditions, or have been absorbed by another major carrier. Most recently, it has been announced that TWA will attempt to acquire Pan American. Deregulation in the airline industry was expected to improve customer service by increasing competition. Competition was expected to improve as a result of (1) the flexibility permitted in the setting of fares, (2) the freedom of carriers to alter services offered according to demand, and (3) an increase in the number of competi
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Approximate Word count = 2516
Approximate Pages = 10 (250 words per page)

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