Airline Deregulation

Abstract

Canonical economic airline regulation embodies two critical elements. First, the government controls who may provide air service on any given route. The Civil Aeronautics Board (CAB) held this authority in the United States during the agency’s forty years of strict airline regulation (1938–1978). Over this period, de novo entry was virtually impossible, consolidations reduced the number of active carriers in the industry over time, and expansions by incumbent carriers into new markets were relatively rare. Despite the existence of a dozen national airlines and almost as many regional airlines, generally only the largest routes were served by more than one or two carriers. Until the 1980s, most European and Asian countries vested national authority for scheduled flight operations in a single state-owned ‘flag’ carrier. International air service is governed by bilateral agreements negotiated between the two relevant governments. These typically restrict scheduled service to a single carrier from each country, often with capacity restrictions or revenue-sharing agreements that enshrine negotiated market divisions between the two countries.