Air Transport World

Change forever: the transition from total government control of the airline industry to open competition has been a wild ride that some enjoyed and some did not.(Regulation 2004)

In 1964, the US airlines were looking forward to a record year, especially for travel to Europe. With 88.52 million passenger enplanements, up from 77.4 million the previous year, they were not disappointed. They might have been, though, had their vision stretched to the end of the century: Their numbers were a drop in the bucket compared with the 666.15 million enplanements of 2000.

In 1964, 14 years before the airline industry was deregulated, the closest most Americans got to airline travel was the image, played over and over on black-and-white TVs, of the Beatles emerging from a Pan Am 707 at New York's newly renamed John E Kennedy Airport. Air travel was not for the masses, it was for Jackie Kennedy and Ari Onassis and the Beatles. The "jet set" was not anyone they knew.

In large part, that was due to the regulated pricing structure under which the airlines operated. They told a government agency, the Civil Aeronautics Board, how much money they needed to operate and CAB told them what fares to charge. CAB also told them where they could fly and how much to charge for a beer or a whiskey.

It was not a system that bred efficiency or competition. Airlines were forced to serve markets that were unprofitable, at times because someone at CAB had a friend or political crony who lived there, so ticket prices had to be artificially inflated, remaining beyond the reach of most people living in the world's largest airline market.

How did the industry reach this sorry pass? In the pantheon of airline gods, C.R. Smith stands out as the man who popularized the DC-3 and built the formidable American Airlines. A less-told tale is his role in convincing the US government that it needed to regulate airline routes and fares.

In the 1930s, airlines had to bid for airmail contracts, the bread and butter of the industry at the time. Bids were so ridiculously low that carriers knew they would not be able to fund expansion. The only answer, Smith believed, was regulation. He won the argument and the Civil Aeronautics Act of 1938 was passed, giving birth to what would become a monument to bureaucracy gone very, very wrong.

A typical route award involved mountains of paper. Al Becker, one of a handful of American Airlines executives from the regulated era who is still at the carrier, remembers a CAB route case in the late 1960s and early 1970s in which American was seeking authority to serve both Omaha and Des Moines. …

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