How Deregulation Changed Flying Forever

Pre-Deregulation World

Before 1978, the U.S. Civil Aeronautics Board (CAB) controlled nearly every aspect of commercial aviation: which routes airlines could fly, what fares they could charge, and which carriers could enter the market. The system ensured stable profits for incumbents — American, United, TWA, Eastern, Delta, and a handful of others — but kept prices beyond reach of most Americans. A 1977 one-way coach fare from Los Angeles to New York was approximately $227 (over $1,100 in 2024 dollars). Flying was an elite activity.

The CAB's rationale was protecting the public from destabilizing competition that might compromise safety. Critics, led by economists Alfred Kahn and Theodore Schnitzer and supported by Senator Edward Kennedy's deregulation hearings, countered that the CAB was protecting incumbent airlines from competition — and that intrastate carriers like Pacific Southwest Airlines (PSA), operating outside CAB jurisdiction in California, consistently offered fares 50–70 percent below comparable CAB-controlled routes while flying profitably.

The Act (1978)

President Jimmy Carter signed the Airline Deregulation Act on October 24, 1978. The Act phased out CAB route controls by 1981 and fare controls by 1983, dissolved the CAB itself by 1985, and freed airlines to enter any domestic route without government permission. Safety regulation remained with the Federal Aviation Administration — deregulation was economic, not safety-related. Alfred Kahn, appointed CAB chairman in 1977 and the chief architect of deregulation, called it the most significant economic reform since the New Deal.

Immediate Impact

The impact was swift and transformative. Fares fell 40 percent in real terms over the decade following deregulation. Passenger numbers surged from 240 million in 1978 to 450 million by 1990 as working Americans flew for the first time. New entrants flooded the market: People Express offered New York–London flights for $149. Midway Airlines, New York Air, and dozens of others launched services on newly competitive routes.

The established carriers struggled to adapt. Braniff International, one of the most aggressive post-deregulation expanders, filed for bankruptcy in 1982. Pan American and Eastern, iconic brands with decades of history, collapsed in 1991. The hub-and-spoke network model emerged as the incumbent carriers' response — connecting smaller cities through fortress hubs like Dallas/Fort Worth and Atlanta, where dominance insulated them from competition.

Low-Cost Carrier Revolution

Southwest Airlines became the definitive low-cost carrier (LCC) template: single aircraft type (Boeing 737), point-to-point routes bypassing congested hubs, 25-minute turnarounds, and stripped-back service. Southwest's consistent profitability through recessions and oil shocks while legacy carriers bled losses proved the model's durability. By 2003, Southwest carried more domestic U.S. passengers than any other airline.

Spirit, Frontier, and Allegiant took the model further into ultra-low-cost territory, unbundling every service — seat selection, checked bags, carry-on bags, priority boarding — into separately priced ancillaries. By 2019, U.S. airline ancillary revenue exceeded $33 billion annually.

Global Deregulation

Deregulation spread globally over the following decades. Europe implemented a three-phase liberalization between 1987 and 1997, creating an Open Aviation Area where any EU carrier could fly any EU route. Ryanair and easyJet exploited this freedom, driving European average fares down by more than 50 percent over two decades. Australia deregulated in 1990, spawning Ansett's collapse and the rise of Jetstar. Asia followed more cautiously — AirAsia launched in Malaysia in 2001 and became the region's dominant LCC, transforming travel patterns across Southeast Asia.

Lessons and Legacy

Deregulation's legacy is mixed but largely positive for consumers. The average American takes 2.5 flights per year; in 1978, the number was under one. Fares in inflation-adjusted terms are roughly half what they were pre-deregulation. However, service quality on economy tickets has eroded substantially — seat pitch has shrunk, meals have vanished on short hauls, and ancillary fees have proliferated. Industry concentration has also increased: three U.S. carriers (American, Delta, United) control roughly 60 percent of domestic capacity. Whether this concentration represents a mature market or the re-creation of an oligopoly that deregulation was designed to destroy remains an open question.