1978 Airline Deregulation Act revolutionizes commercial air travel
In the late 1970s, airline deregulation transformed the commercial aviation industry. The jury is still out on its impact.
Unlike many other countries, American airlines are not government owned. The United States was, and still is, one of few countries in the world big enough to sustain a community of several financially healthy airlines. However, prior to the Airline Deregulation Act passed by the U.S. Congress on October 15, 1978, the U.S. commercial aviation industry had for decades been strictly regulated by federal oversight.
Why deregulate?
For some time, the scheduled airlines had been watching their non-scheduled competitors, the charter airlines, develop low-fare travel flights. Passengers were willing to forego meals or ideal departure times for a reduction in price. The price differential was often extreme.
After WWII, most of the world’s scheduled airlines had joined IATA, the International Air Transport Association, which set standards of basic service which airlines should offer in terms of comfort, meals and fares. IATA was widely regarded as somewhat dictatorial. Although it introduced tourist fares in 1952 and economy fares in 1958, scheduled airlines subject to IATA regulations could not compete with the low fares offered by charter companies. By the late 1960s, the trans-Atlantic market had effectively self-deregulated with non-scheduled airlines doing a roaring trade. This development benefited populous markets of the Eastern U.S. and places such as Disney World and Florida. The de facto result was that a process of unofficial deregulation was already underway for almost a decade prior to the actual 1978 Act.
Gradual deregulation of international travel
Official deregulation of international travel was also a gradual process, effectively beginning in the early 1970s, when the CAB authorized a handful of scheduled airlines at paired international cities to be given reciprocal traffic rights. The international airline structure had thus already been somewhat liberalized by the time of the passage of the 1978 Airline Deregulation Act. The new measures had succeeded in eroding some of the advantages of the low fare charter airlines, as scheduled carriers could now also begin to offer bargains. Rigid IATA control of fares had also become a thing of the past.
At left: President Jimmy Carter signs the Airline Deregulation Act, October 24, 1978. Photo courtesy Wikipedia Commons – Public Domain.
Pressures mount
Air travel was expanding so quickly, however, that airlines on both sides of the Atlantic were anxious to share the trans-ocean travel business. A groundswell of government persuasion and lobbying met with a sympathetic response. The main issue was the addition of airlines into the hitherto protected intercontinental domains of Pan Am, British Airways, TWA and Northwest.
By the end of the 1970s, the net result of all these factors was a general perception that the time had come for U.S. commercial aviation to be stimulated in the interests of free competition, without hindrance from bureaucratic brakes.
Domestic impact is abrupt and immediate
With popular pressure for something more be done, the Deregulation Act of 1978 did not disappoint. The legislation was so sweeping and abrupt it had few historic precedents. Acted into law by Congress on October 15 1978, the Act was signed by President Jimmy Carter on October 24th.
Ostensibly, the Act allowed airlines in all categories to add one new route a year while protecting one of their own existing routes from a new entrant. But on October 18, 1978, even before the President had signed the Act into law, the airlines lined up outside the CAB building in Washington and systematically claimed hundreds of new routes. What the legislation had not addressed were the several thousand routes that were available but had never yet been applied for, and these dormant city pairs could be added without infringement on the one-year clause. By the spring of 1979 the field was open and when the CAB’s control over route authority was phased out on December 31, 1981 (another measure included in the Act), open entry by almost any airline to any city pair it coveted was effectively valid. The airlines simply did what they wanted and told the Department of Transport what they’d done after the fact.
| 1978 | Airline Deregulation Act signed into law | Removed federal control over fares, routes, and market entry. |
| 1979 | Civil Aeronautics Board begins phased withdrawal | Airlines gain freedom to set prices and expand service. |
| 1981 | Major fare wars begin | Increased competition leads to lower ticket prices. |
| 1982 | Emergence of low-cost carriers (e.g., People Express) | New entrants challenge legacy airlines, reshaping market dynamics. |
| 1984 | Civil Aeronautics Board officially dissolved | Full transition to market-driven regulation completed. |
| 1985 | Wave of airline mergers begins | Consolidation reshapes industry structure and route networks. |
| 1990s | Hub-and-spoke model dominates | Airlines optimize operations, but regional disparities emerge. |
| 2000s–Present | Ongoing consolidation and fare stratification | Market efficiency improves, but concerns over service quality and access persist. |
This timeline traces the pivotal moments that reshaped post-deregulation American aviation—from the signing of the Act in 1978 to the rise of low-cost carriers and the consolidation trends that followed. Each milestone marks a shift in how Americans fly, compete, and connect.
Airport space hotly contested
This unregulated scramble for routes applied internationally as well as in the United States. The once closely guarded overseas turf of Pan American Airways, though infiltrated by other airlines after the Second World War, disappeared. Cities like London were besieged with requests for counter space at airports. The pattern was repeated all over the world. Not surprisingly, airlines with access to strongly protected gates and slots at busy airports – those with long-established “fortress hubs” — held strong cards and most played them well. They were not about to surrender this valuable, and unregulated, asset. New airlines were denied access to many remunerative markets, a trend that had not been anticipated by the designers and supporters of deregulation. Instead of fostering a favorable climate for emerging new airlines, deregulation was having the opposite effect. As historian R.E.G. Davies says in his book, Airlines of the Jet Age, “Big fish devoured minnows, or the minnows just died.”
Fare wars erupt
In addition to the freedom to add new routes, the other freedom was the removal of restrictions on fare levels. Fare wars erupted across the board. However, travelers discovered that the new legislation only applied to routes where the traffic volume was high. If someone wanted to travel to an out-of-the-way place, the fare was likely to have increased or the service to have been suspended altogether.
Break-even factor increases
Another quickly felt result of the legislation was that the number of filled seats needed to cover break-even costs rose alarmingly. Even with flights filled to capacity, total revenue was no higher than before. With costs remaining the same, yields began to decline. An 80% load factor became recognized as the minimum to break even, operationally, whereas pre-deregulation 60-65% had been accepted as the industry norm.
Passenger growth plateaus, squeezing profits
By the early 1980s, almost everyone who wished to travel by air was already doing so. The accelerated rate of passenger growth of the 1960s and 1970s had begun to level off. One or two bad years of total traffic growth could spell disaster for an airline already under extreme pressure from the other competitive forces it was now facing. Older airlines that found it difficult to change their ways saw financial difficulties spiral.
Braniff becomes a cautionary tale
One of the first major carriers to succumb to the effects of deregulatory overreach was Braniff Airways. Following deregulation, Braniff applied for more than 300 new routes and took steps to activate them. Necessary and vital market research was cast aside. The cost of expansion far exceeded any resultant increase in revenue. Load factors plummeted and by 1980 Braniff had begun to lose money hand over fist. On May 12, 1982, all operations were suspended with a total debt estimated to be close to $1 billion. On December 7, 1982, Braniff filed for Chapter 11 bankruptcy. Although the airline was subsequently reorganized and given an injection of new capital it was never able to fully get back on its feet. It was to enter Chapter 11 bankruptcy two more times before finally folding its wings in July 1992.
The Airline Deregulation Act of 1978 reshaped aviation, democratizing air travel but also exposing the industry to volatility. It was a bold leap into free-market skies—one that lifted some carriers to new heights and grounded others for good.
Up Next: Air Florida is Deregulation success story. Until it isn’t.