Deregulation: Lessons to be Learned of the Airline Industry

In American politics, the common debate is not one between capitalism and socialism, rather a debate between the free market and a mixed market. The focal point of this debate is more often than not on the role of the government in the economy, more specifically a number of regulations governing said economy. The argument from the left is that regulation serves to protect the “little guy,” while the right claims it only gives the rich more power because only they can afford the regulation. Who is correct? A solid case study of deregulation working to benefit all can be found in the airline industry.

On January 1st, 1914, the first scheduled passenger flight took off, with the St. Petersburg-Tampa line. While revolutionary air travel did not become popular until after the close of the Second World War, travel by air would become even more widespread with the development of the 707, the first successful jet airliner. But even with the rise in popularity of jet travel, it still remained a luxury. But why? Why would such a booming industry remain primarily exclusive to the rich? The answer is simple, government regulation. In fact, at one point, it was illegal for a transcontinental war to cost less than $1,000. The reason? During the early 1970s, the United States supported Israel in the Yom Kippur war which triggered an oil embargo against the US by Arab nations. With a severe shortage of oil, prices skyrocketed, hurting working many working Americans.

But the regulations didn’t just hurt the financial aspect of the American worker, it also proved deadly for many. The Federal Aviation Administration (FAA) like many other big government programs became riddled with corruption. The DC-10 aircraft, which entered service in 1971, had a severe design problem, wherein, the outward facing cargo door would become unlocked in flight causing explosive decompression. The FAA was well aware of this issue at the start of the DC-10s service, but due to the friendly relationship between FAA officials and the company that created the plane, the company and DC-10 operators were spared groundings and mandates. This decision would prove disastrous when the door aboard American Airlines Flight 96 failed, nearly bringing down the aircraft. Unfortunately, this still was not enough to cause change within the FAA, which would prove fatal for 346 passengers aboard Turkish Airlines Flight 981, who while departing out of London, experienced the same problem resulting in a loss of control, in which there were no survivors. Many other stories followed the same path.

DC-10 Plane

But fortunately, a change would come, on October 24, 1978, despite the war waged against it by major airlines, the Airline Deregulation Act was signed into law by President Jimmy Carter. The effects of this law were quickly felt, ticket prices fell while smaller airlines such as Frontier and Southwest were freed of regulation. Additionally, millions of jobs were created in the aviation field, and the FAA was restructured to combat cronyism whilst protecting the passengers.




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