How Deregulation Has Affected the Airline Industry - Research Paper Example

How Deregulation Has Affected the Airline Industry Table of Contents Table of Contents 2 Introduction 3 Discussion 4 Conclusion 6 Works Cited 7 Introduction Deregulation refers to the removal of governmental regulatory control from an industry or an organization. The Airline Deregulation Act passed in 1978 removed the regulation and control of the United States government from the aviation industry (“Deregulation and Its Consequences”). The Act passed stated the benefits that the industry would gain – they included lower fares, less barriers to entry for new airline companies, more flight services, and enhancement of quality due to the increased competition (“Deregulation of the US Airline Industry”).

Discussion Initially, deregulation of aviation industry was opposed by existing airline companies, as they feared increased competition; labor unions opposed it, as they feared retrenchment from jobs; safety advocates viewed passenger safety to be in danger due to the sacrifice in the quality. However, the oppositions have been suppressed, as the Act conciliated other airlines by providing subsidies. Moreover, the workers were assured of higher unemployment benefits in case they lost their jobs.

Most importantly, the Act affected the passengers, as the airline companies were given the liberty to expand their routes and set fares as they saw fit. This liberty, however, abolished airlines operating in less advantageous routes, thereby causing problems for the passengers of smaller cities (“Deregulation and Its Consequences”). New airline entrants benefited from the deregulation Act, as they conveniently entered the market without facing larger demands from the existing airline companies.

Thus, few companies had the leverage to strategize their own management methods and conditions for providing employment. In order to lower the prices of the fares, the companies invested in lesser amount of fixed cost, as they paid lesser salary to the employees, employed few managers who had the abilities to perform multiple jobs and made the purchase of equitable stock compulsory (“Deregulation and Its Consequences”). After the detachment from the government regulation, major airlines competed against each other in terms of low fares, enhanced services, and value for their money.

Statistics reveal that in the year 1979, operating revenues of both domestic and international airlines rose steeply. Furthermore, the competitive fares enabled large scale of fliers in the same year, and approximately 317 million passengers flew through the American cities (“Competition and Regulation in the Airline Industry”). Deregulation, on the flip side, had a negative impact on the employees of the airline industry. Cost cutting and wage inequalities were the most common aspects in this industry.

Since deregulation, those working in the airline industry were not satisfied with the amount of remuneration they earned. After lowering the fares, the companies insisted on low wages and cost cutting to generate profit (“Deregulation and Its Consequences”). Conclusion Recently, the airline industry has been operating in an environment where the firms set prices individually and selected routes according to their desires and market demands. Though there were great fluctuations in the profits of this industry in the US, the deregulation has generally had a positive impact, as airfares have been reduced, competition has increased, and the quality of services has improved.

Works Cited “Deregulation of the US Airline Industry: A Labor Retrospective 30 Years Later.” EU-US Aviation Forum. 2008. Web. 07 Jun. 2012. “Competition and Regulation in the Airline Industry.” Federal Reserve Bank of San Francisco. 2012. Web. 07 Jun. 2012. “Deregulation and its Consequences.” U.S. Centennial of Flight Commission. 2011. Web. 07 Jun. 2012.