Forty years ago, President Carter signed the Airline Deregulation Act (ADA), landmark legislation that has transformed air travel from an expensive, exclusive means of transportation to an affordable option for more Americans. Over the past 40 years, average roundtrip U.S. domestic airfares have decreased by more than 40%, from $629 to $340 (including fees, based on inflation-adjusted dollar amounts). However, frustration overcrowded cabins and ancillary service fees has led to calls for congressional action. Americans under the age of 50 may not be aware of how tightly the federal government controlled the industry before 1978. Prior to deregulation, the Civil Aeronautics Board (CAB), the federal agency with economic regulatory authority over airlines, decided how many (and which) airlines were licensed to fly any given route (e.g., New York to Dallas) and how much those airlines could charge passengers on that route. The CAB even had authority to prohibit airlines from terminating service on a given route. The ADA abolished the CAB and liberated the airlines to make their own, market-driven decisions about which routes to enter and exit and how much to charge. (The ADA focused on economic regulation; it did not alter the FAA’s broad authority to regulate airline safety.) The ADA did not strip away all federal economic regulation of airlines: rather, the legislation transferred a residual measure of authority to the U.S. Department of Transportation (DOT), including the authority to prohibit airlines from engaging in “unfair or deceptive practices” and “unfair methods of competition.” In doing so, however, Congress cautioned DOT to place “maximum reliance on competitive market forces and on actual and potential competition” as the best way to achieve “efficiency, innovation, and low prices” and “variety and quality of air transportation services.” Airline deregulation has been an outstanding, but arguably underappreciated, success. It has transformed air travel from an expensive means of transportation that was not accessible to many Americans into an affordable option for the traveling public. Fares are lower and airlines are offering more service options to more destinations. The highly competitive deregulated marketplace witnessed the demise of leading U.S. airlines of the regulated era (e.g., TWA, Pan Am, and Braniff), while others, such as Northwest Airlines, Continental Airlines, and US Airways, were retired by merger. Deregulation, however, also enabled the success of new entrant airlines, such as JetBlue Airways. Despite recent consolidation via the mergers of American Airlines/US Airways, Delta Air Lines/Northwest Airlines, United Airlines/Continental Airlines, and Southwest Airlines/AirTran, the airline industry argues that it continues to be highly competitive. The airlines object, however, that DOT, which was granted limited regulatory authority under the ADA, has pursued an excessively broad and aggressive approach to regulating the airlines. DOT, the airlines contend, should revert to the narrower regulatory focus Congress contemplated in the ADA by eliminating regulations that (in the airlines’ view) impose costs on airlines (and by extension consumers) that outweigh their public benefit. The airlines also argue that aggressive DOT enforcement has prevented the airlines from offering customers innovative fare programs by, for example, prohibiting airlines from advertising “free” travel where airlines offer zero-fare tickets but consumers are required to pay applicable taxes and fees. Some consumer advocates and politicians, by contrast, argue that airlines are overcharging consumers, including through ancillary service fees, and that greater federal regulation is required to protect consumers. The recently passed FAA Reauthorization Act included numerous measures that impose new restrictions on airlines, on such issues as airline fees, overbooking, and accommodations for passengers with disabilities. When the new Congress convenes in January 2019, with a Democratic majority in the House of Representatives, the impetus toward re-regulation of the airlines may increase. Rep. Peter DeFazio (D-Oregon), who historically has favored more extensive airline regulation, is likely to assume the chairmanship of the House Transportation Committee. In the Senate, meanwhile, Roger Wicker (R-Mississippi) is expected to become chairman of the Commerce Committee, which has responsibility for oversight of the airline industry. Senator Wicker recently co-sponsored (with Senators Ed Markey (D-Massachusetts) and Richard Blumenthal (D-Connecticut) the FAIR Fees Act, which, had it become law, would have required DOT to regulate the amount airlines charge for ancillary services, such as checked baggage and seat selection fees. If the FAIR Fees Act had passed, it would have marked the first time since deregulation that Congress would have directed a federal agency to regulate the prices airlines charge consumers – in effect, a partial return to the more detailed regulation of the pre-ADA era. Thus, the U.S. airline industry faces a critical legislative and regulatory test in 2019: will it prevail with its arguments that the benefits of deregulation are being undermined by a regulatory agency that needs to be reined in – or will skeptics in Congress, prompted by some consumer advocates, succeed in passing legislation to increase federal regulation of airlines?
1978 could be a watershed one for the US airline industry because it could face increased regulation. No federal agency has overseen the airline prices since deregulation in Next year, but that could change with the passing of bipartisan bill, the FAIR Fees Act, coupled with the installation of pro-regulation representative Peter DeFazio as chairman of the House Transportation Committee. The US airline industry has argued the benefits of deregulation would be undermined by more oversight, but consumer advocates are pushing hard for changes.