AIRLINE HISTORICAL PERSPECTIVE 5
In1978, the Airline Deregulation Act was enacted and, as a result,shifted control over the airline travel systems from the politicalstructures and the Civil Aeronautics Board (CAB) to the market sphere(Rose, 2012).Before the Act’s formulation, the government and the CAB solelycontrolled the American airlines similarly to a public utility, whererestrictions were imposed on the pricing of fares, entries, exits, aswell as other airline services. The economic liberalization of thecarrier systems was part of the phase of deregulation that wasfounded on the growing realization that CAB and government controlledeconomy served no enduring public interest. The airline deregulationAct formed a larger part of a growing global aviation liberalizationtrend particularly, in the American, European, Asian markets, etc.Airline deregulation demonstrated a boom for the US airline industry,which later extended to the European industry.
AirlineDeregulation: A Boom
Underthe politically controlled air travel industry, operating andinvestment decisions were significantly controlled. The CABregulations, which restricted price, entry, and exits, implied thatairlines were constrained to competing on frequency, food service,and the competence of cabin crew (Rose,2012).With the introduction of airline deregulation, dissolution of the CABregulatory barriers took place, a scenario that instigated theestablishment of growth in a new kind or air travel that createdconfidence in the structural competitiveness and further allowed theairline industry to develop a new business method. Apparently, thetransformation served as a boom for the aviation industry in the US.As such, potential benefits were achieved due to reduced prices,greater efficiencies, a decrease in structural stringencies, entry oflow-cost carriers, and increased competition.
Governmentregulated airlines are still common in some countries while some haveadopted the deregulated policy. A comparable but a less laissez-fairemethod is applied to the European market (Borenstein& Rose, 2014).Aviation liberalization eventually led to the creation of theEuropean Union open skies arrangement(Borenstein & Rose, 2014).In general, the boom from airline deregulation has warranted thepolicy as consumers reap more in benefits and the air transportsystems have the flexibility required to boost their financialviewpoint.
ReasonsSupporting the Deregulation being a Boom
Thetransition of the airline industry in the US from being highlyregulated to being a deregulated sector brought forth freedom fromregulatory chains, which further instigated massive development andsuccess in the air transport industry as noted below.
Firstly,the boom is attributed to the development of hub and spoke system,which sparked the need for serving extended markets(Blonigen & Cristea, 2012).The hubs are strategically located terminals used as transfernetworks for passengers and cargo to move from one region to another.The system was critical in the transportation of travelers and cargoto their final destination. Additionally, airlines have achieved anincrement in the load factors on trips to and from small towns, whichfunctions to cut operating expenses allowing carriers to offerdiscounted prices.
Secondly,the boom led to the rapid development of the market resulting in theintroduction of new carriers, resulting in unparalleled competitionin the air transport industry (Borenstein& Rose, 2014).Interestingly, the largest increase in competition was seen in thesmall and medium-sized markets. These days, airlines compete in everyaspect of the key market.
Thirdly,due to the heightened competition on a majority of the routesdiscounted fares, and growing availability of flights in the airlineindustry have substantially grown (Blonigen& Cristea, 2012).In 1977, the American Airlines carried at least 240 millionpassengers annually. Recent research shows that more than 80% of theUS population has used air transport (IATA, 2014). The above reasonsare in line with my view that affirms that airline deregulation wasindeed a boom for the aviation sector in the US.
Predictionfor the Future Global Air Transport
Currently,the air travel industry is entirely different from what the scene wasbefore 1978. Series of developments and the realization for a moreliberalized airline economy intensified the pressure for deregulationwhich has shown to contribute to increased success. IATA (2014)forecasts reveal fast growth in aviation markets. Traffic within aswell as to and from the US is expected to grow at a rate of at least3% annually that will see more than 1 billion airline traveler by2034 (IATA, 2014). The China market is expected to surpass the US asthe global leading passenger market come 2030. Concerning fares andavailability, in the previous years, air tickets have been expensivedue to increased cost of fuel. However, in the impending years, thereducing trend of prices is expected to resume to about 2% annually(IATA, 2014). Additionally, air travel availability is projected toincrease with the addition of new longer range and mid-sizedaircraft.
Theimpact of deregulation on the US economy has been optimistic andreflective. The wake of the Airline Deregulation Act, has allowedairlines to develop new strategies, while the consumers areexperiencing a reasonable market. The future of this industry looksbright and promising marked by the outstanding fast growing airtransport market.
Blonigen,B. A., & Cristea, A. D. (2012). Airportsand urban growth: evidence from a quasi-natural policy experiment(No. w18278). National Bureau of Economic Research.
Borenstein,S., & Rose, N. L. (2014). How airline markets work… or do they?Regulatory reform in the airline industry. In EconomicRegulation and Its Reform: What Have We Learned?(pp. 63-135). University of Chicago Press.
IATA.(2014). New IATA Passenger Forecast Reveals Fast-Growing Markets ofthe Future. Retrieved fromhttp://www.iata.org/pressroom/pr/Pages/2014-10-16-01.aspx
Rose,N. L. (2012). After Airline Deregulation and Alfred E. Kahn. TheAmerican Economic Review,102(3),376-380.