Policy Study

Airline Deregulation

The Unfinished Revolution

Executive Summary

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, some smaller cities are not receiving the kinds and amounts of air service their residents would like to have, that small start-up airlines can’t compete effectively, as well as continued consumer complaints about congestion and delays. A variety of solutions have been proposed, including, for the first time since 1978, federal control over some of the prices charged and routes served by major airlines.

Any return, however, to a regulatory system that has the government micromanaging routes and services would be misguided. Such a “solution” would do little to improve air travel and would cause significant harm to 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 the lower fares resulting from a competitive airline marketplace. American cities have been offered much greater air travel access, thanks to an aviation marketplace in which airlines are free to provide service when and where demand exists, without having to seek permission from central planners. Millions of Americans began to fly for the first time in their lives. Airline deregulation democratized air travel in America.

There are, of course, serious problems remaining. But these problems stem not from too much reliance on market forces, but too little. In deregulating the airlines in 1978, Congress unleashed market forces on one segment of the air-travel system-but failed to free up the critical infrastructure on which the airlines depend, namely 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.

Not surprisingly, problems emerged when a consumer-responsive airline industry placed demands on a still bureaucratically controlled infrastructure. The problems typically have been blamed not on the infrastructure managers, largely invisible to the traveling public, but rather on the airlines themselves. This is unfortunate. Instead of reregulation, today’s real policy challenge should be to remove the remaining government interventions in aviation infrastructure that restrict competition and hinder the growth of new forms of airline service.

The benefits of such 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 Washington National, and which could greatly expand the number of air routes between cities. But these new technologies are only likely to come about in a timely fashion if the structure and funding of today’s obsolescent air traffic control system is dramatically changed. As the National Civil Aviation Review Commission found, the ATC system must be turned into a businesslike 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, technology and intelligent policy changes can give us a much higher-capacity, more-competitive airline market. Policymakers should resist the temptation to micromanage who flies where. Instead, they must finish the job they started in 1978, by freeing up aviation’s infrastructure to cope with a dynamic, evolving aviation marketplace.