From Fatal Conceit to the Friendly Skies: How Deregulation Made Flight Affordable

By Jeffery L. Degner AIER. Excerpt:

"With FDR’s creation of the Civil Aeronautics Board (CAB) in 1938, its designers claimed that it would centrally administer, “safety-related rulemaking, accident investigation, and economic regulation of commercial airlines.” Eventually, it would go far beyond such broad claims and do far more than that, engaging in price-fixing and the prevention of new entrants, just to name a few. Ultimately, the hubris of social engineers led them to declare what “fair” prices were across the airline industry.

In a 1975 report, no less than liberal senator Edward Kennedy admitted that “the Board’s experience suggests it is extremely difficult, if not impossible, to develop a cost-based ratemaking system that uses fair procedures and keeps fares in such an industry low.” In a more damning admission, “This is not to say that inherent defects are the only cause of the CAB’s failings. These may, for example, also reflect the human tendency to listen more closely to representatives, such as those for the industry, who are powerful, well-informed, and can reward regulators with future jobs or contracts.”

The ultimate effect of this centralized planning was to “control prices, restrict entry, and confer antitrust immunity.” In brief, the CAB was used to create a government-backed cartel in the interest of existing large carriers. In what amounted to a public confession of crony-capitalism, the CAB’s days were numbered. 

In the wake of the report, American Airlines was allowed to discount its fares up to 45 percent in an attempt to see whether airline travel could be “made available at a price all can afford.” Once this mild form of price competition was allowed, rivalrous competition showed suspicious legislators and regulators that allowing competition did indeed create greater value for consumers. Eventually, Senator Howard Cannon along with bipartisan supporters including Ted Stevens and Wendell Ford helped pass the Airline Deregulation Act in February of 1978. 

Since industrial leaders at the time, like Delta Airlines, had grown accustomed to the many protections they received under the CAB, they lobbied against the deregulatory move. They made claims that “free entry” and “free exit” were “untested concepts” that would result in the concentration of the industry into the “hands of only a few carriers…causing service deterioration at smaller cities and in smaller markets.” Delta’s doom-mongering didn’t materialize in either the short or long run. 

In the nearly 50 years since the abolition of the Civil Aeronautics Board, routes and flexibility have proliferated, and prices have declined continually. In fact, the last three decades have seen inflation-adjusted domestic airfares fall from $614 in 1995 to $397 in 2025. Further, the industry continues to grow, nearly doubling the number of employees since 1990. Prior to deregulation, air travel was undoubtedly a luxury good. Now, it has become so affordable that 80 percent of Americans with annual household income below $50,000 have taken flight at some point in their lives."