Deregulation Act of 1978 - Essay Example

 Deregulation Act of 1978 Regulations are laws or rules set to control actions by an individual or a group of people. They are distinct laws set by the government against the people, often on a specific industry; this might create doubt on their purpose, which is often for protection of the people. The effects of deregulation cannot t be quantified in terms of quality of life or cost thus; it becomes difficult to determine whether its effect are good or injurious to the people. Thus, quite a dangerous route to follow. The way to determine the effectiveness of regulation rules is to observe the industries under such policies of regulation and note their success before and after the regulations. The Airline Deregulation Act’s intention was to stop government control over airline industry policies. The control was majorly over routes, fares, and market entry of new airlines from commercial aviation. The government approved this Act on 24th October, 1978 and President Jimmy Carter signed it into law four days later (Kaps, 1997). Before the Act, the industry was more of a public utility with a government agency. The CAB; Civil Aeronautics Board determined the routes taken by each airline and the prices they charged their passengers. This has changed ever since after the incorporation of the Act which has seen the market shift to a market –driven industry. The customer demand determined the level of service and price charge. The deregulation Act came by after several flaws in the airline industry. One of them was the Middle Eastern oil case; this led to a rise in price of fuel costs. This shoot up in fuel cost led to price inflation. Another flaw was the development of the wide body aircraft that allowed for carriage of increased capacity to different and many routes with one flight. These two cases came when there was an economic fall that led to a strain on the airlines. This fall led to failure in the airline businesses, and rising fuel prices did not aid the situation at all. The Civil Aeronautics Board in response to this situation and trying to ensure reasonable return for the airlines allowed the different carriers to increase fares. It also embarked on a four year suspension by the carriers on authorizing new services and approved agreements among the airlines to limit the carriage capacity on specific routes. The public did not welcome this move with open arms the fares had increased. The airlines also did not see much change on the Civil Aeronautics Board last decision as through the 1970’s their earnings were poor despite the fare increment and limiting the capacity. Change reforms started in 1974 by the Ford Administration which created pressure on the government to create regulatory reforms. The reason for this pressure was that the government regulations were causing stress on the U.S airline industries and was the main source of inflation. Shortly after hearings of the Senate Committee on Administrative Practice and Procedure viewed that the prices would reduce if the government constraints on competitions reduced. Civil Aeronautics Board in 1975 in their report agreed with this conclusion. The report said that the CAB would no longer justify public utility type pricing and entry controls and that the airline industry was more of a naturally competitive one. Mr Kahn heightened the decision for the board to give the airlines an easier access to routes and a greater pricing freedom. Before the deregulation, the U.S airline industry operated in a relationship between costs and revenues. The airfares had to depend on the route and through consultations with the airlines flying in those routes according to a cost- plus formula. Many of the routes less frequently travelled were bank rolled by higher fares charged on most of the major routes. This method reduced the need to compete based on operational efficiency and satisfaction of consumer and meeting their desires. This kind of system guaranteed the airlines that the cost would be fully covered. The deregulation forced the airlines to be more efficient if they desired to succeed due to high competition. The Deregulation opened the U.S airline to free market principles which led forth to a more affordable industry. Opened the market to competitors and other low- cost airlines. It also led the disappearing of many carriers through mergers, bankruptcy and acquisitions. It became a world with a struggle for survival where only the strong survive. The General Accounting Office (GAO) reported a fare decrease by 21% from the year 1990 to 1998. The quality of service also improved in one hundred and sixty eight from the one hundred and seventy one airlines examined, this was due to competing service from a low fare carrier. It can be argued that the effects of deregulation include low cost, improved service and efficient competition. Thoreau in his book civil disobedience agrees with this statement. “That government is best which governs least”; and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe—‘That government is best which governs not at all’; and when men are prepared for it, that will be the kind of government …” (Thoreau, 2012). The act sought out to provide certain services. Maintaining safety was the highest priority, offer transporting services with maximum reliance on the competition available to proceed. Encouraging air service in key urban areas through either satellite or secondary transportation. To ensure to avoid unreasonable concentration of the industries, and encourage new air carrier entry into the air transportation markets. To continue to strengthen and encourage upcoming air carriers into the air transportation market. Further encourage existing air carriers’ entry into additional markets. These regulations led to the Civil Aeronautical Board becoming dormant in 1984 (USLEGAL.COM). The Deregulation Act allowed cargo freedom of operation on any of the available domestic routes while charging whatever cost that was bearable by the market. The following year after deregulation, Civil Aeronautical Board certified new cargo carriers as long they were fit, willing and able. The Deregulation also saw a change in the delivery system. There was a transformation to an overnight delivery of documents and small packages in the early 1970’s. This was because of the high quality demand for service that came with the deregulation. In 1994, there was a regulation of the intrastate air and truck express package shipment. The government still regulates air carriers on issues relating with safety. The effects of deregulation can seen up to date. It opened up the path for new carriers. 1978 reported forty three new carriers certified for service with large aircraft. Up to date the number has doubled; in 1998, there was a further rise with new airlines which offered low cost services. The rise in carriers was due to low prices for used aircrafts, availability for mechanics, and airline professional. Deregulation also caused increased competition, which has created more options for the consumers of this service. Currently passengers have a variety of options when they choose air travel. Deregulation has raised cases of safety. The argument is that, with increased competition, airlines started cutting back on safety and maintenance. This resulted to an increase in air fatalities. 1985 reported as the most critical year in terms of safety in the history of air travel worldwide. Critics argue that the deregulation added pressure to a system that was already full of stress. The ultimate cost of those $99 airline tickets may be measurable in more than services lost and leg room sacrificed (Nance, 1986). The difference in the system before the deregulation and after is that, previously the airline would just relax and make money by satisfying minor federal demands and regulations rather than the travelers who are quite choosy. Despite the large number of mergers, the industry has seen rise to one hundred and seventy five new carriers unlike before whereby Civil Aeronautical Board never allowed new carriers to enter the market. This stand saw them rejecting seventy nine applicants in the period between 1950 and 1974. This freedom of airlines enabled them to increase their efficiency in terms of services. They restructured their routes, and allowed price reductions. The most notable development was that of the 'hub and spoke’ system. This is whereby airlines route their passengers through certain hub points which enable their equipments to be used effectively. It is an advantage to customers who do not like transiting on their journeys thus they just travel one way without change of flight (Morrison, 1986). Currently the safety standards have heightened. At some point, the National Transportation safety Board recommended stringent standards for commuter airlines. These included improving the equipment used in the cockpit, and training and testing for pilots (James, 2013). The deregulation caused several changes, but as seen more good than harm. The problems explained are minor and can easily be controlled by proper management and stringent rules on safety. The competition created saw more attention shift towards the consumer thus better services followed (Hardaway, 1991). There was creation of more jobs thus, changing the people’s economic status for the better and creating a variety of jobs to venture into. The airline industry owes its expansion to the deregulation act which opened up several opportunities for development and creativity. Works cited Henry David Thoreau. Civil Disobedience. Hayes Barton Press, 2012. Print. Hardaway, Robert. M. Airport Regulation, Law, and Public Policy: The Management and Growth of Infrastructure. ABC-CLIO, 1991. Print. John J. Nance. Blind Trust. HarperCollins Publishers, 1987. Print. James. L. What Deregulation Has Meant for Airline Safety. November 12, 1986.Web, 3rd March, 2013. Kaps, Robert. W. Air Transport Labor Relations. SIU Press, 1997. Print. Morrison, Steven. A., and Winston, Clifford. M. The Economic Effects of Airline Deregulation. Brookings Institution Press, 1986. Print. USLEGAL. Airline Deregulation Act Law Definition .USLEGAL.COM (n.d). Web, 3rd March, 2013. Read More