Airline Deregulation and Laissez-Faire Mythology

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