Air Transport Industry: Effects of Deregulation on Airlines

For airline carriers, deregulation created both opportunities and dangers because it forced them to operate without a financial safety net, which had set a lower limit for fares, provided by the government. During the 1980s entrepreneurs launched dozens of new airlines—most of which failed—and existing carriers intensified competition by expanding into markets they had not served previously. Numerous mergers occurred in the second half of the decade as carriers attempted to gain a greater share of the market and expand quickly.

Many airlines changed ownership or went bankrupt during the first decade of deregulation. Among the airlines that failed were some of the oldest names in aviation—Eastern Airlines, Braniff International, and Pan American World Airways. By the early 1990s, economic recession, high fuel costs, fears of international terrorism, and a greater number of seats than passengers were causing huge losses across the industry. By the mid-1990s profitability returned for many airlines following intensive cost-cutting and downsizing. Large commercial passenger airlines that remained included United Airlines, Delta Airlines, American Airlines, Northwest Airlines, and Continental Airlines. Many of the people who had lost their jobs because of airline bankruptcies were again working in the industry, this time for some of the new so-called niche market carriers, which specialized in serving small areas of the market.

Southwest Airlines, a small carrier operating within Texas before 1978, was one of the most successful airlines following deregulation. With its low-fare, no-frills service in short-haul markets, Southwest lured many travelers away from car travel and other airlines, in the process growing into a major airline. Other major successes occurred in the overnight delivery business—a new type of service pioneered by Federal Express Corporation, which developed a hub-and-spoke network for door-to-door deliveries nationwide. Regional airlines flourished, too, expanding their small-plane service into many of the small communities abandoned by the big jet operators.

No-frills service became fairly typical of the industry in the early 21st century after a number of airlines were challenged by a worldwide economic downturn and the September 11 terrorist attacks of 2001. Passenger travel declined precipitously. Nevertheless, with substantial aid from the U.S. government and with layoffs of employees, most of the airlines managed to survive.

 

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