A Law That Changed The Airline Industry Beyond Recognition (1978)

On Oct. 24, 1978, when President Jimmy Carter signed the Airline Deregulation Act, the airline industry changed forever, and it can be argued we’re feeling the repercussions still to this day. The Deregulation Act eventually dissolved the Civil Aeronautics Board (CAB), which regulated U.S. airlines like a public utility, setting where they could fly and what fares they could charge. Without the CAB’s guaranteed rate of return, many storied airlines – Pan Am, Eastern Air Lines, Braniff International – found they couldn’t compete in the new world of open markets and eventually were consigned to the dustbin of aviation history.

Before Deregulation, airlines competed on service alone, as fares were regulated by the government. Many remember this era fondly as the “golden age of aviation,” when stewardesses—as flight attendants were then known—carved chateaubriand on rolling silver carts and airlines put piano lounges in the upper decks of their Boeing 747s. Passengers dressed up to board flights, and flying was glamorous and exciting—and mainly for the rich.

Deregulation resulted in the rise of a new kind of airline—the low-cost carrier (LCC). At the time of Deregulation, Southwest Airlines was a small regional airline, prevented by CAB rules from flying outside of Texas. Today, Southwest is the largest domestic U.S. carrier in terms of passenger traffic, something no one could have foreseen in 1978. 

Southwest is a success story, but Deregulation allowed airlines to innovate new business models. People Express may have come and gone (and may someday be revived) but it, and others like it shook up the white-glove world of the U.S. airline industry and democratized travel. We may peer through our rose-colored glasses and yearn for the days of chateaubriand and piano lounges, but ultimately companies like Southwest, and newer ones like Spirit, allowed more people to fly more often. 

Deregulation left the international carriers, like Pan Am and Braniff, and to a lesser extent Trans World Airlines, without robust domestic feeder networks, and it allowed domestic carriers, like Delta Air Lines, to apply for international routes. Pan Am and Braniff scrambled to create domestic networks but ultimately were unsuccessful, although it took until 2000 for TWA to be absorbed into American Airlines.

And some argue that the massive consolidation of the U.S. airline industry in the last decade, which has resulted in three large carriers —four, when Southwest is included—is Deregulation’s final act. The network carriers that survive—Delta, United and American—learned to be tough competitors, and combined existing domestic networks with the international networks acquired in large part from carriers like Pan Am that didn’t make it. 

Read the November 6, 1978 story:

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Discuss this Blog Entry 21

on Jun 4, 2015

This article contains much DRIVEL. There are so many errors that the author must be an entry level employee for Aviation Week.
1. At least a half dozen other legacy airlines were unmentioned as casualties of deregulation.
2. People Express was just one of more than several low cost carriers, whose success was predicated ONLY upon flying lucrative routes, established by the legacy carriers after decades of their hard work.
3. Trans World and Braniff had domestic route structures in place long before deregulation.
4. Initially, all the international routes acquired by American, United, and Delta were from other airlines like Eastern and PanAmerican that folded in 1991. In spite of "deregulation", approval to operate these international routes had to be "approved" by the government.
Captain Eastern Airlines, (ret)

on Jun 5, 2015

Interesting, I didn't realize deregulation killed Eastern. I just thought it was because they were a lousy airline.

on Jun 5, 2015

It was because they had lousy unions and to some extent management. They had just started back up following an extended strike by their unions.

on Jun 28, 2015

pan am was dead before dereg. no domestic route structure, lost money in the winter, furloughed, then recalled for summer flying and made a couple bucs. as mentioned by another reader, bought National in a bidding war with lorenzo, forced to pay him off to get national, then went on to destroy a great little airline! (upwards of 80 flights a day out of Tampa alone!) pan am mgt was totally inept. 727's averaged about 3-4 hours per day, maybe! unions and corruption in New York raped the airline big time, and back to mgt, the bosses wife held the leases on some 737-200's that were quickly parked when the new boss arrived because it was cheaper to sit the aircraft and let the leasses run out!!! the airline could never get out of the flying boat mentality, just ask some of the senior pilots who wanted to be called "master pilot", and the flight engineers union, yes, a seperate union just for flight engineers, talk about a power trip!!!
Eastern was a GREAT airline, at one point before its demise it flew more passengers than any other carrier in the country including United, which had a fleet of 80 more airplanes!!!
yes, the machinest head at the time was looney tunes, but the destroyer of Eastern was one man, lorenzo. sold by borman to texas air corp, lorenzo, who by the way knew nothing of running anything, he was a corporate raider who knew one thing very well, airlines are worth more in pieces than as a whole entity. anyway, he systematically took Eastern apart, killing lucrative deals (consolidated freight deal, AKA, moonlight special), sold the best computer reservation system in the industry (system one) to continental for 200 million and paid for it with a note due 5 plus years down the road( analysists said the res sistem was worth 500 plus million!!). he continuede by closing hubs, stopping the first transatlantic route, and shifting flying to the other entities that made up texas air corp!! so, not only did Eastern have to pay TAC for each res, they had to pay TAC for buying its fuel for them, they had to pay for flight planning, which by the way, Eastern use to flight plan for other carriers, in other words, he destroyed Eastern.
so once again, we read another gloss over, blanket reson for for the demise of airlines. the coverage keeps keeps getting thinner and thinner over the years.

on Feb 26, 2016

Very good analysis of the demise of Eastern, BTW were you familiar with fact Lorenzo was a management trainee after college. I meet him in Chicago while in Cargo Sales.

on Aug 20, 2015

No, Eastern was a great airline, it just had lousy management. Frank Borman, car dealer, not an airline manager, and we all remember lorenzo, the Wall Street turd that raped, pillaged and burned Eastern to the ground because as we know, airlines are worth more in pieces than as a whole entity. Eastern was the number ONE passenger carrying airline in the country at a time when united was the largest with almost 100 more airframes!!

on Feb 26, 2016

Eastern was a great airline. Sadly it had lousy managers.

on Feb 26, 2016

I was an Eastern Manager with 17 stations for the cargo product. Eastern trained their Managers extremely well. The Front line managers had to be extremely good as evidenced by how they kept Eastern afloat with the fool Borman as President. Personal history: I was told I was to address him as Mr. or Col. Borman, despite the fact I used my SAAB to haul him from Harvard Executive MBA classes frequently, then it was Frank and John. Later after he knifed Floyd Hall in back I was to address him as Col or Mr.

on Jun 5, 2015

Pan Am was really the only US airline that did not have a domestic route structure. They merged or bought National Airlines to try to "fix that issue". They made a shambles of that deal. Pan Am kept discontinuing routes that National had built up and turned it into just an International route feeder line for Pan Am. The domestic route structure was then non-existent.

on Aug 20, 2015

And remember how they got National, which by the way was a great little airline, bidding war with, you guessed it (maybe) lorenzo. Actually had to pay the bastard to go away so they could buy National! Then yes, they quickly dismantled their route structure (controlled Tampa with over 80 flights a day) once again leaving them with no domestic rte system and 2.5 hours utilization on its 727's/ day! I think the best utilization trio they had was JFK, st. Thomas, st. Croix, JFK. Just under 8 hours block!!

on Feb 26, 2016

Yep, very weak article on what actually happened. I lived through it and watch hundreds of thousands of employees lose everything. In the end, it cost the government billions of dollars in lost: corporate tax revenue, employee income tax revenue, and billions of dollars in bailout. Deregulation has ultimately delivered an industry that is monopolized by a few companies. Ticket prices and fees are going through the roof and frequencies and customer service have suffered greatly. My family and I do all we can to avoid flying now. If the drive is less than 24 hours, we will always choose to drive. If our vacation is long enough, we will make it a road trip and vacation combo. Unfortunately, that isn't always an option and with a family of 4, our flight from Cleveland to the West coast for holidays ran nearly $4000 this year, that was for coach purchased 9 months in advance. The planes were over sold, and there was absolutely no leg room, I'm 5'9" with 30" inseam. My knees were smashed into the seat in front of me and the seats did not recline. Our Delta 757 had an equipment change and our seats were changed to those next to the toilet. We all smelled like crap when we deplaned. Even the taxi driver commented on the toilet smell. Prior to deregulation, we were served meals, we had leg room, the planes were new, the flight attendants were beautiful, the planes were never over sold and you could fly into nearly every city in the US knowing you would be on a mainline aircraft. Today, your often shuffled from one no-name regional to another and served by a crew that is so grossly underpaid that the captain has to pay for the crews food if they want to eat together on the overnight. In the end, the "Frank Lorenzo" and management types who went from airline to airline were the only winners from the historical carriers. Southwest certainly has done well but it would be wrong for anyone at southwest to say they did it all on their own. De-regulation set up a system that favored southwest and so it flourished because its leaders understood the ramifications of the protections Southwest was afforded. Today, Southwest is a great company with great people, but it would not have survived without beneficial protective regulation that allowed it to be a tool of destruction for other companies that had grown up under a very different set of rules. I would trade Southwest any day for the industry we had prior to deregulation. Just my 2cents.

on Mar 9, 2016

"protections Southwest was afforded." ? What are you talking about? Southwest was never given any special protections. They were founded and operated under exactly the same rules as everyone else. Actually, they were more restricted and encumbered than the majors in their operations. As to why they destroyed the competition in both the regulated (they started flying in 1971) and deregulated world , one word, Productivity. A word completely foreign to the established US air carriers in both the pre and post regulated eras.

on Jun 5, 2015

Southwest Airlines also needs to grow up. You can have 99 flights a day between cities that do not have slot restrictions just to meet the demand. But the larger cities that they have added in recent years must have larger equipment to meet the demand. They need to be at least ordering the 737-900's or 737-9 MAX and realistically looking at the 787 or A350 for major domestic routes and international routes. Now that the international routes from Air-Tran now have a nationally and internationally known brand under Southwest, they will need the capacity. Air-Tran was unknown to many areas of the U.S. not to mention other countries. I know several people in the Southeast U.S. that at a meeting I was in a few years ago, had not heard of Air-Tran. They even knew the Allegiant Air name, Southwest, and most of the majors at the time. Southwest has added much more value to the routes of Air-Tran because of their known brand. A full 737 is a good thing unless you had to leave another plane worth of potential passengers to other airlines or they did not fly to that destination at all because of the lack of seats.

on Jun 7, 2015

Perhaps the most "expert" insight on this event comes from the man who concieved and directed it: economist, and (at the time) CAB chairman, Alfred Kahn.

Google the following phrase (including quotes):

"Alfred Kahn" airline deregulation

--------
Among the links that show up are:

* his dereg essay on a libertarian website

* a PBS interview with him on the issues

* his 1988 essay "Surprises of Airline Deregulation"

* his obituaries in the
** NY Times ("liberal")
and
** The Economist ("conservative")
...which provide more context.

on Feb 26, 2016

The Economist is NOT conservative--they endorsed Barack Obama for President! The two (endorsement of a liberal and being conservative) are incompatible.

on Feb 26, 2016

Deregulation of the airline industry was not the cause of subsequent consolidation. Every industry has been consolidating, it's just a coincidence that deregulation happened right at the start of the consolidation era. Where are all the mom and pop stores where we shopped when I was a kid? Today, it's Walmart, Costco and just a handful of others.
I don't think the article said anything wrong, it just didn't go into all the minutia you folks are griping about.

on Feb 26, 2016

Some of this looks like Monday Morning Quarterbacking. I think it's safe to say that a number of factors killed Eastern and Pan Am, and it's pointless to say that only one thing did each in. Eastern and Pan Am were hurt by deregulation, but they were also hurt by management that didn't adjust, unions that didn't adjust and/or went on strike, and in Pan Am's case, terrorism in the Lockerbie crash. None of these things alone would have killed either, but combination of the negative factors and outcomes in response to these events doomed each.

on Feb 26, 2016

The real problem with deregulation was the name. Anyone who has stacked up the many parts of 14-CFR knows the airlines are far from deregulated, and we haven't even mentioned Op Specs, LOA's and required training manuals.

If safety, prosperity and innovation are our goals, what we need is to turn over the regulation of the airlines to the insurance companies and reduce the FAA to just the policing of criminal activity.

on Feb 26, 2016

If you believe in Free Market principles, then deregulation is a very good thing. Government should have never been involved in the first place in setting rates as a method of guaranteeing rates of return (which didn't work by the way) and determining where an airline can fly . . . that is called "crony capitalism", where private companies co-mingle with government agencies (CAB) to seek their best interest while preventing other companies from competing.
And who thinks that the "Golden Age of Aviation" was a good thing? From my perspective, we are in the "Golden Age" now . . . a time where more people can afford to fly and travel because of "Free Market" principles.
The only role government should play is that of "Safety" . . . the aviation industry is heavily regulated when it comes to safety. The difference though is that Title 14 of the Code of Federal Regulations applies to all airlines equally. I have been involved in aviation maintenance for over 25 years and I can tell you first hand that government deregulation of aviation commerce has been a very very good thing.

on Feb 26, 2016

The "Golden Age of Aviation" as far as air carriers were concerned was indeed over when airlines like Continental could no longer run advertisements like the one, "we really move our tails for you" and not get sued by the persons with the tails - right there went the pleasant, domestic air travel experience.

on Feb 26, 2016

The Cornell Professor Cohn (spelling , always have trouble with his name) was invited to speak to the Eastern Management meeting about need for deregulate the passenger business, He had dereg'd the cargo the previous year. Afterwards he joined a group about 5 or 6 of us who ran largest cargo stations, looking at me he asked why my freight rated had not dropped due to dereg'd. My answer was; I raised Boston rates to make them profitable on a stand alone basics.
He asked what would happen when he dereg'd passenger business, my answer was: their would be a total of 4 airlines left after massive bankruptcy of the rest. He disputed this but who was right!
Cohn believed their was no competition in the airline industry. I disputed this and offered him the opportunity to spend some time with my Freight Sales Reps. He left abruptly as he was not getting answers his ivory tower plan was based upon.

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