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Airline Deregulation

             The Airline Industry is characterized as an oligopoly, that is an industry being dominated by few firms producing similar products -- Available Seat Miles (ASM). Prior to 1978, the airlines were highly regulated by the CAB (Civil Aeronautics Board). The CAB was able to dictate ticket prices, route authorities, and barriers to entry or exit. An anti-competitive industry was promoted for decades under the CAB, in which prices were adjusted to meet the rising operating costs of the airlines. Airlines became highly inefficient under regulation, and allowed costs and capacity to soar without regard to profitability. After numerous price increases during the early 1970's, the consumers demanded a more competitive industry -- lower prices. Eventually the consumer won, and the Airline Deregulation Act was passed in 1978. This act was designed to promote competition among carriers by increasing efficiency and lowering costs, thus, airlines were forced to charge what the market would bare, not what CAB dictated. Many airlines have prospered, yet many others have failed, during deregulation. The following report lists the key developments in the industry over the past 19 years. .
             Increased competition .
             Deregulation allowed existing carriers to enter and exit markets freely, charging prices according to demand. As predicted, deregulation spurred an increase in competition and lowered ticket prices on most routes. Airlines began competing in more route segments and exiting unprofitable markets, making room for regional carriers. New low-cost carriers focused on highly profitable niche markets serving point to point, O & D (Origin and Destination) traffic. In contrast, major airlines increased capacity on high demand markets and began establishing hub and spoke systems. .
             Low cost carriers .
             The first of the low-cost carriers to introduce a drastically reduced ticket price was People Express Airlines (PEX).

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