Regulation Policy

Airline Reregulation Looming

On April 6 the U.S. Department of Transportation (DOT) released its "Proposed Statement of Enforcement Policy on Unfair Exclusionary Conduct by Airlines" to remedy alleged anti-competitive practices within the industry. Specifically, the DOT wants to stop major carriers from offering consumers significant discounts to compete with smaller carriers or new entrants in the market. -- if such fare wars hurt the smaller companies or drive them from the market.

In the 20 years since air travel was deregulated, say economists, air fares have fallen, travel and service options have increased, both large and small markets are better served and new competitors have successfully entered the industry.

  • Ticket prices, on average, are almost 29 percent lower today than they were in 1978

  • An even better measure of consumer savings is the price per mile of air travel -- which has fallen 40 percent, from 12.27 cents per mile in 1978 to 7.92 cents in 1997. .

  • Over the same two decades, the overall number of airline departures has risen from just over 5 million to 8.2 million -- a 63 percent increase.

  • And airlines served almost two-and-a-half times as passengers -- roughly 600 million compared to 250 million before deregulation.

Analysts warn that the DOT's policies could have a chilling effect on competition by discouraging fare wars that result in significant savings for consumers. Furthermore, they say there is little evidence of "predatory" pricing, since an airline that doesn't charge enough to recover its costs will financially weaken itself and be less able to compete with others.

Source: Adam D. Thierer, "20th Anniversary of Airline Deregulation: Cause for Celebration, not Re-Regulation," Backgrounder No. 1173, April 22, 1998, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.

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