“The deregulation of air travel and other sectors of the economy in the 1970s was (and continues to be), in my view, a profound mistake. While controversial, I assure you that this contrarian take is not (entirely) a product of big-government sentimentalism from a crabby online socialist.”
There is not much to say about the life and legacy of President Jimmy Carter that authors and essayists have not already noted in a more eloquent way than I have. Suffice to say, the man was a rare specimen in the world of politics: a truly Great Man, more beloved after than during his time in power, who nevertheless set a standard for post-presidential life that no president in my lifetime is likely to surpass. Whatever people thought of President Carter while in office, his legacy will forever be tied to his charitable endeavors performed in the shadows of the public spotlight. In that sense, I agree with writer Jonathan Church that President Carter was “a man who was ahead of his time.” But I do take issue with Church’s brief and laudatory discussion surrounding President Carter’s achievements while in office, specifically his role as the “Great Deregulator.”
The deregulation of air travel and other sectors of the economy in the 1970s was (and continues to be), in my view, a profound mistake. While controversial, I assure you that this contrarian take is not (entirely) a product of big-government sentimentalism from a crabby online socialist. One can read more about the structural problems with airline deregulation (and air travel more generally) detailed by several eminent experts, including many who praise President Carter’s role as the “Great Deregulator.” In this essay, I will critique President Carter’s legacy regarding airline deregulation and explain why the free-market sentimentality around deregulation is shallow and ill-deserved.
Airline Deregulation was a Boon for Consumers….
It is worth discussing what my fellow pundits and I mean by “deregulation.” Concerning air travel, “deregulation” refers explicitly to the Airline Deregulation Act of 1978, itself part of a much larger packet of deregulatory reforms enacted during the Carter and early Reagan administrations. Before 1978, commercial aviation in the United States was overseen by the Civil Aeronautics Board (CAB), whose regulations on air travel structurally mirror those existing for utility industries such as gas, water, and power distribution. The CAB was one of many “alphabet soup” agencies created under the New Deal; its overarching prerogative was promoting and sponsoring commercial aviation development in the United States. Accordingly, the CAB controlled many aspects of the industry in ways that would be deemed “socialistic” by modern commentators (and not just Reaganite conservatives): It extensively used price controls to regulate airfares, centrally allocated flight routes to incumbent carriers, and even restricted the entry of new airlines from participating in the interstate travel market without official authorization. At the time, the industry was seen as a market with “natural monopoly” characteristics that merited utility-style command-and-control regulations, which economists usually disfavor.
As mentioned, one of the CAB’s primary duties was to restrain price competition between the various carriers, a somewhat heretical notion in a market economy (especially in these inflationary times). The agency was obsessed with precluding price competition, fearing it would spark a deflationary price spiral of bankruptcies and underinvestment that would strangle the nascent industry in its crib. Accordingly, it precluded airlines from offering discounted fares and deliberately slow-walked the approval of new carriers, which could take as long as six years (and considerable litigation) to secure.
Amid the energy crisis and stagflation of the 1970s, opposition to the CAB and other forms of industrial regulation coalesced into a broad coalition of strange bedfellows. Airline deregulation was championed by everyone from free-market paragons like Milton Friedman to liberal consumer advocates such as Ralph Nader and Senator Ted Kennedy. The time seemed opportune: The industry was reeling from the effects of stagflation and volatility in energy prices. Eventually, after much lobbying and horse-trading, Congress passed the Airline Deregulation Act (ADA) in 1978. The Act phased out the CAB and all its authority over pricing and route allocation across the interstate travel market. To be sure, this Act did nothing to weaken existing safety and environmental regulations, which have only grown more comprehensive in recent years. But by 1985, carriers were free to enter new markets, fly any routes they deemed profitable, and, most importantly, set their prices freely.
In fairness to its champions, it must be said that airline deregulation has been a boon for the average consumer. In the years immediately following the enactment of the ADA, the air travel sector was overwhelmed by a vigorous torrent of price competition as hundreds of startup airlines flooded the industry. According to the most recent estimates, airfares dropped by nearly 45% in the first three decades alone, boosted by the legalization of discounted fares and recurring waves of new startups competing with older legacy carriers. In this new golden age of air travel, carriers fiercely competed with one another, offering loyalty programs and devising complex yield-maximization schemes to target fare discounts for frugal and tight-fisted fliers. Overall, air travel went from being a luxury service to a staple of middle-class life, seemingly vindicating the champions of deregulation and free markets more generally.
…And Bad for Everyone Else
That said, the transition to a deregulated airline industry was—by no means—a free lunch. Indeed, many of the pundits who laud the effects of deregulation gloss over the transitional hiccups or write them off as necessary sacrifices for the public interest. But what interest are we talking about? Before deregulation, regulators generally conceived of the public interest as a broad, all-encompassing vision that included various stakeholders, such as workers and sparsely populated hinterland communities. But in the age of deregulation, the public interest was redefined to refer exclusively to consumers and their voracious demand for cheap goods and services. Yet there is reason to believe that our myopic uber-obsession with consumer welfare has obscured a more realistic and damning view of American air travel. Our preoccupation with the benefits of lower airfares has blinded us to the costly impacts that deregulation has wrought upon the industry. To overcome this bias, we must look beyond consumer welfare and critically review deregulation and its effects on air travel and society in general.
Unsurprisingly, the biggest loser in the great airline deregulation game was labor. Before deregulation, airline jobs were widely seen as stable, well-paid, and, above all, accessible for blue-collar workers without college degrees. The regulatory framework under the CAB gave air carriers a guaranteed minimum profit margin, from which further investments could be made and, more importantly, concessions extracted through the collective bargaining process. Everyone from ordinary baggage handlers to highly skilled pilots received generous compensation relative to the rest of the economy and airline workers today. However, after deregulation, the market was saturated with an excessive supply of new entrants that drove down airfares and compensation. Real weekly earnings for workers (including pilots and mechanics) dropped by nearly 13% in the first two decades following deregulation. While there was a brief boom in compensation and hiring during the economic boom of the late 1990s, the September 11th terrorist attacks threw the industry into recession, leading to mass layoffs and widespread pay cuts. An extended period of stagnation and muddled growth ensued until the Coronavirus (COVID-19) pandemic again devastated the industry. Struggling from overcapacity and limited demand, airlines began relying on the threat of bankruptcy to renegotiate union contracts and reduce compensation levels that were once the envy of blue-collar America. In the aftermath of the pandemic, the industry has been plagued with labor shortages due to the historic decline in inflation-adjusted compensation, with carriers lobbying Congress to relax training standards (a sort of neoliberal version of Diversity, equity, and inclusion) in a desperate bid to stay afloat. In a telling anecdote, the famed Captain “Sully” Sullenberger from the so-called Miracle on the Hudson said he was “uncharacteristically worried” about the industry’s future given the deterioration in pilot compensation and retention.
Some might argue that while, yes, working in the airline industry does not pay as much as it used to, this is a small price to pay for cheap and timely air travel. Ironically enough, however, the post-deregulation industry has been marked by a severe decline in service quality. Flight delays and cancellations have increased in recent years, worsened by existing labor shortages and chronic underinvestment in operational infrastructure. Disasters such as the January, 2023 airline “meltdown” and the July, 2024 “outage” have become increasingly frequent in recent years, partly because of labor shortages stemming from low pay and job insecurity. These problems can also be attributed to the rise of the so-called “hub-and-spoke” business model, which became prominent in the aftermath of deregulation. Before 1978, the industry was primarily structured around a “point-to-point” system, which prioritized direct flights between destinations and thus incentivized the production of larger passenger planes that could travel farther without refueling. The shift to the hub and spoke model—where air traffic is concentrated at “hub” airports connected to “spoke” destinations—has been widely lauded as a key contributor to increased efficiency and cost-effectiveness in the broader industry.
Still, such praise elides more pessimistic concerns about excessive airport congestion, overuse of “hub” airport infrastructure, and resulting declines in flight timeliness and service quality. Moreover, the shift towards the hub and spoke model has contributed significantly to regional inequality, concentrating air traffic in a few major “hub” airports, mostly in big cities such as New York and Los Angeles. This has left smaller towns in the heartland with fewer choices and reduced business, exacerbating regional inequality and fueling the urban-rural divide that distorts our modern political discourse. Whether one looks at increased consumer dissatisfaction, higher rates of delays and abrupt mass cancellations, or the blatant overcrowding of passengers thanks to an overreliance on small planes, it is indisputable that deregulation has led to a deterioration in overall service quality.
Oh well, flight cancellations might be up, and service quality has gone down, but at least the airline companies are still profitable, right? After all, profits are a vital part of the functioning of a market capitalist economy, with higher profits encouraging investors and startups to enter industries and innovate to reduce costs for the average consumer. Unfortunately, declines in service quality have been accompanied by a marked deterioration in the economic fundamentals of the American airline industry. Air travel may be complex and technical, but the economics is straightforward: Revenues must exceed expenses, at least in the long run, or the whole business goes under. But thanks to excessive price competition, air carriers cannot even balance their books. The pandemic devastated the airline industry, wiping out nearly 40 years of accumulated profits in months. Periodic shocks to air traffic, such as the September 11th attacks and the pandemic, have left the industry in a volatile cycle of boom-and-bust profitability, the same destructive cycle regulators at the CAB sought to avoid before President Carter’s reforms. The average airline is heavily indebted and chronically unprofitable, with the whole industry having accrued net losses since 1978. Unable to make air travel sufficiently profitable, airlines have turned to financial engineering schemes and share buybacks to stay afloat and attract capital from dubious investors, alongside the occasional taxpayer bailout. After both September 11th and the pandemic, the federal government has used taxpayer money to cover airline losses, while the CEOs cut wages and nickel-and-dimed their harried customers. American air carriers are the epitome of “zombie firms,” fundamentally-unprofitable businesses that barely earn enough to pay the interest on their debt obligations. Airlines are failing one of the most basic business tests in a capitalist economy: turning a profit. Deregulation has effectively replicated the gray inefficiency of Soviet-style central planning for the modern American traveler.
It only gets worse. One of the major selling points for deregulation was the prospect of improving consumer choice beyond the incumbent carriers protected by the CAB. This was a legitimate observation, as the CAB was notorious for slow-walking authorization for new entrants. And, in a brief window in the late 1980s and early 1990s, the industry saw improvement in consumer choice, with dozens of new firms entering the market and driving down airfares. Unfortunately, this was later eclipsed by a much more extended period of mass bankruptcies and consolidation, as the pressures of destructive price competition drove market concentration to pre-deregulation levels. The Big Four carriers control roughly 80% of the domestic interstate travel market, and most of the nation’s busiest routes are dominated by one or, at most, two carriers. We have reached a bizarre situation where vigorous price competition coexists with excessive market concentration, a feat that only deregulation could have accomplished.
Was It Worth It?
Okay, okay, one might argue: Yes, workers have gotten stiffed, profits are nonexistent, and consumer choice is virtually the same as in 1978. But it was all worth it! Inflation-adjusted airfares have declined by over 40%, the number of passengers has tripled since 1978, and the industry is far more dynamic and vigorous than it ever was under the stagnant conditions of the CAB, right?
Well, not exactly. While it is true that airfares have declined substantially in recent years, accompanied by greater usage by ordinary Americans, it is not entirely clear that deregulation can take credit for it. In the 10 years before deregulation, which free-market economists widely lament as a period of stagnation and decay, the inflation-adjusted cost of travel (measured in terms of revenue per passenger mile) declined by 2.1% a year, with a 7.6% annual increase in traffic (measured in terms of domestic revenue per passenger mile). By contrast, in the decade following deregulation, the inflation-adjusted cost of travel declined by only 2.0% per year, with traffic increasing by a paltry 6.1%. The picture becomes even cloudier in the decades following deregulation: from 1988 to 2009, the real cost of travel declined by only 1.9% per year, while traffic crept up by only 2.4% annually. Indeed, the airline industry performed much better before deregulation than after; at the very least, it must be said that the trends of greater affordability and usage likely preceded the implementation of deregulation.
But how could the pro-deregulation economists have gotten it all wrong? One clue is their conflation of consumer welfare with well-functioning markets. The economist Alfred Kahn and other free-market supporters argued that deregulation would spur greater price competition, revitalizing business fundamentals while generating substantial consumer savings relative to preexisting trends. Their argument was premised on the belief that the industry was “naturally competitive;” therefore, regulation unnecessarily raised prices to the detriment of the broader industry, a compelling argument in inflationary situations. However, as economist Paul Stephen Dempsey has argued, airline markets are not perfectly competitive. Instead, they are characterized by high barriers to entry (in the form of upfront capital costs), excess capacity, and seasonal demand, characteristics typically associated with oligopolies. In oligopolistic markets, the rationale for greater price and entry regulation holds more sway as a potential counterbalance to predatory pricing and other anti-competitive behaviors, which companies are more likely to use to ward off new entrants at the expense of service quality and consumer choice. Thus, deregulation may have succeeded in improving consumer welfare but at the cost of worsening the industry’s long-term health and dynamism.
So, What Does it All Mean?
The great economist Joan Robinson, herself no stranger to intellectual controversy, famously shocked her peers with her belief that even the most rigorous economic models are shot through with hidden ideological assumptions that escape the eye of the most scrupulous theorist. Yet she did not despair in the face of this epistemological quandary. Indeed, she spent her life aiming to rescue economics from age-old dogmas and expose the faulty ideological assumptions hidden within complex economic models. Above all, she urged economists to adopt a public stance of intellectual humility, recognizing the importance of interrogating hidden assumptions when laying the groundwork for public policy decisions.
To many people, the death of President Carter represents the end of a bygone age of public decency and candor, to be contrasted with the rank polarization and opportunistic gamesmanship of contemporary politics. Many, including Church, have highlighted President Carter’s support for deregulation as a significant triumph of his legacy. However, as illustrated above, airline deregulation was by no means a clean and straightforward affair. Consumers may have secured considerable savings, though the connection to deregulation is somewhat ambiguous. And this came at the expense of workers, lesser-traveled cities, and other stakeholders damaged by deregulation. President Carter had many accomplishments in his long career, from fighting for free and fair elections globally to the humble work of building homes for the less fortunate. Airline deregulation was not one of them.
Elie Nehme graduated from the University of Texas School of Law. He is a writer and attorney based in Los Angeles.
