Airline Deregulation and Laissez-Faire Mythology

By Paul Stephen Dempsey; Andrew R. Goetz | Go to book overview

16
THE CAB UNDER ALFRED KAHN: THE ORIGINS OF DE FACTO DEREGULATION

This chapter examines the principal efforts of the Civil Aeronautics Board in the late 1970s to deregulate the domestic aviation industry. As we shall see, the CAB discounted the industry's misgivings and proceeded steadfastly on a course beyond regulatory reform to deregulation.

President Gerald Ford became firmly convinced that the air transportation industry should be substantially deregulated. In 1975, he submitted a deregulation bill to Congress and appointed John Robson as chairman of the CAB. As CAB chairman, Robson reversed many of the anticompetitive regulatory features for which the CAB had been soundly criticized. The route moratorium and the capacity-limitation agreements were terminated. Yet, as a lawyer, he found himself constrained by the provisions of the Federal Aviation Act from advancing too radically in the direction of liberalizing pricing and entry.

His successor, Alfred Kahn, a Cornell University economist who was appointed CAB chairman by President Jimmy Carter, was not so inhibited. By 1978, the CAB had turned sharply. It began to grant operating authority by the bushel-basketful, at first to any carrier that proffered a low-fare proposal and, subsequently, to virtually any "qualified" applicant under an "experimental" policy labeled "multiple permissive entry." The CAB in 1978 amended its rate policies in the DPFI by essentially providing downward pricing flexibility, under certain circumstances of up to 70 percent, and upward flexibility of 10 percent. These efforts encouraged carriers to offer the lowest fares in history. The lower fares and the general economic recovery of the mid-1970s stimulated demand, which increased load factors and enabled carriers to realize the highest profits in the history of commercial aviation -- at least until 1979, when profits began to plummet, a trend exacerbated by economic recession.

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Airline Deregulation and Laissez-Faire Mythology
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface xiii
  • Acknowledgments xvii
  • Part I - An Introduction to the Deregulated Airline Industry 1
  • 1 - Introduction 3
  • Notes 7
  • 2 - Corporate Pirates and Robber Barons in the Cockpit 11
  • Notes 34
  • 3 - The Megacarriers 41
  • Notes 51
  • 4 - American Airlines 53
  • Notes 61
  • 5 - Continental Airlines 65
  • Notes 92
  • 6 - Delta Air Lines 103
  • Notes 106
  • 7 - Eastern Airlines 109
  • Notes 116
  • 8 - Northwest Airlines 119
  • Notes 122
  • 9 - Pan American World Airways 123
  • Notes 130
  • 10 - Trans World Airlines 133
  • Notes 139
  • 11 - United Airlines 141
  • Notes 149
  • 12 - USAir 151
  • Notes 155
  • Part II - Regulation and Deregulation: The Metamorphosis in American Public Policy 157
  • 13 - Origins of Regulation: The Legislative History of the Civil Aeronautics Act of 1938 159
  • Notes 164
  • 14 - The Traditional Regulatory Criteria 167
  • Notes 170
  • 15 - Cab Regulation, 1938-1975: The Congressional Perspective 173
  • Notes 176
  • 16 - The Cab Under Alfred Kahn: The Origins of De Facto Deregulation 179
  • Notes 187
  • 17 - The Airline Deregulation Act of 1978 193
  • Notes 197
  • 18 - Cab Implementation of the Airline Deregulation Act 199
  • Notes 210
  • 19 - The Demise of the Civil Aeronautics Board 215
  • Notes 217
  • Part III - The Results of Deregulation 219
  • 20 - Concentration 221
  • Notes 238
  • 21 - Pricing 243
  • Appendix 257
  • Notes 260
  • 22 - Service 265
  • Notes 276
  • 23 - The Economic Effects of Deregulation: The $6-Billion Myth 281
  • Notes 293
  • 24 - Safety 297
  • Notes 307
  • 25 - Airline Survival and Market Darwinism: Dawn of the Global Megacarriers 309
  • Notes 329
  • Part IV - Proposed Solutions: The Proper Relationship Between Government and the Market 333
  • 26 - Reregulation: Dare We Speak It? 335
  • Notes 341
  • 27 - Putting the Airlines Back on Course: A Modest Legislative Agenda 343
  • Notes 353
  • 28 - Conclusions 355
  • Notes 359
  • Epilogue: Toward a National Deregulation Day 361
  • Index 365
  • About the Authors *
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