Airline Deregulation Act

The Airline Deregulation Act of 1978 is one of the most consequential pieces of economic legislation in U.S. history. By removing federal control over airline routes and fares, it fundamentally altered the structure of American commercial aviation, set a model that other countries followed, and created the industry that exists today.

What Is the Airline Deregulation Act?

The Airline Deregulation Act is a United States federal statute signed by President Jimmy Carter on October 24, 1978, which phased out the authority of the Civil Aeronautics Board (CAB) over domestic airline routes, fares, and market entry. The CAB, established in 1938, had for four decades controlled which airlines could fly which routes, what prices they could charge, and whether new airlines could enter the market. The Act directed the CAB to progressively relinquish these powers: route entry was freed immediately, fare flexibility was phased in by 1983, and the CAB itself was abolished on January 1, 1985. Safety regulation, which had always been the province of the Federal Aviation Administration, was explicitly excluded from the Act's scope and remained unchanged.

How It Works in Practice

The Act's passage was the culmination of an unusual policy coalition. Alfred Kahn, the economist appointed by Carter to lead the CAB, had become convinced through his academic work and regulatory experience that airline regulation was inefficient and that consumers would benefit from competition. Senator Ted Kennedy and Ralph Nader — not typically allies of business deregulation — supported the measure because they believed regulation protected high fares that benefited airlines at consumers' expense. The airline industry itself was divided: smaller carriers and would-be entrants supported deregulation, while incumbents like United and American were ambivalent, fearing the loss of regulated profit pools. The Act's passage triggered immediate market entry: People Express, New York Air, Midway Airlines, and dozens of other new carriers entered the market in the years following passage. Existing carriers began building hub-and-spoke networks that allowed them to offer connections that new point-to-point entrants could not match. The CAB's final act before dissolution was to note that it had helped dismantle one of the most pervasive systems of economic regulation in U.S. history.

Why It Matters

The Airline Deregulation Act is the founding document of modern commercial aviation economics. Every subsequent development — the hub-and-spoke system, frequent-flyer programs, yield management pricing, the rise of low-cost carriers, the wave of airline bankruptcies and mergers — can be traced directly to the competitive dynamics it unleashed. The Act is also the most-cited example of "successful" economic deregulation in the subsequent policy debates over deregulating other industries, including trucking (1980), railroads (1980), telecommunications (1996), and electricity (1990s). Critics point to its mixed legacy: fares fell significantly on competitive routes but remain high on monopoly routes; service to small communities declined despite the Essential Air Service program created by the Act; labor conditions for airline workers deteriorated as competition drove cost-cutting; and the industry consolidated to a level that raises its own concerns about market power.

Key Facts and Figures

• The Airline Deregulation Act was signed on October 24, 1978, and its principal architect was Alfred Kahn, then-chairman of the Civil Aeronautics Board.
• The CAB was formally abolished on January 1, 1985, completing the deregulation process set in motion by the Act.
• By 1980, over 20 new airlines had begun operations in the United States using the Act's provisions, more new entrants in two years than in the previous 40 years combined.
• The Act created the Essential Air Service (EAS) program, which subsidizes scheduled airline service to small communities that would otherwise lose air service entirely — the program continues to operate today with an annual budget of approximately $300 million.
• Average domestic fares in the United States fell approximately 44 percent in inflation-adjusted terms between 1978 and 2011, according to Bureau of Transportation Statistics data, though the distribution of these savings was uneven across routes and passenger types.

Related Concepts

Airline Deregulation, Civil Aeronautics Board, Legacy Carrier, Hub-and-Spoke Network, Low-Cost Carrier