Deregulation of Airline Industry - Essay Example

This turned away many potential investors’ as well international airlines to the restrictive measures that this body had put in place. This led to policy makers to rethink the operation in this industry and the contribution that the regulation imposed by the CBA affected the growth of this industry (Sinha, 2004). Therefore, in 1978 the Airline Deregulation Act was enacted in an effort to reverse the slow growth that this industry experienced. The main aims of this paper is critical analyze and evaluate the effects of deregulation to the major stake holders in this industry as well consider how it affected various micro economic variables (Smith & Cox, 2011).

Before deregulation airline on competed on the basis of the quality of the cabin crew, the frequency in which the airline offered its services and other auxiliary services such food they offered to their client, price were fixed since they were regulated by the CBA (Smith & Cox, 2011). . This increased completion among the existing airlines and the new airlines that were joining the market. Therefore, competition basis shifted from food and the frequency to the fares that airlines charged (Sinha, 2004).

The increased competition which was being experienced in the market, led to establishment of low cost airlines such as the Ryanair in Europe after the European Union deregulated the airline industry. Low cost airlines charges lower prices so to facilitate their establishment in the market. The low cost airlines assumed that consumers of airlines service were rational that is there price responsive, therefore if the charged lower price they would be to capture a considerable proportion of the market (Krugman & Wells, 2009).

Deregulation was advantages to the consumers of services from this industry since increases in supply caused the prices charged in this to decline as illustrated below by graph entitled average domestic airfares. Decline in the fares charged by the airlines was beneficial to consumers, since this increased consumer surplus (Krugman & Wells, 2009). In addition to this consumers had a wide variety to choose from; that is due to the increase in the number of airlines the consumers now had wide service provider to choose from.

The quality of services offered in this industry also improved as compared to the time before deregulation. When the number of airline service provider increased in the market every airline had to brand its services as best in the market. This was beneficial to the customer as he obtained more quality services at cheaper prices (Sinha, 2004). The decrease in prices and improvement in quality fostered increased