Deregulation Of The Airline Industry example essay topic

Industrial consolidation through mergers, acquisitions, and bankruptcies further facilitated single-carrier concentration in hub cores. The acquisition of Republic by Northwest in 1986 increased concentration levels in Minneapolis / St. Paul and Detroit, while the TWA-Ozark merger in 1986 did the same for St. Louis. Similarly, Eastern's bankruptcy and subsequent dissolution increased Delta's market share in Atlanta from 58 percent to 83 percent. By regulating the airline industry, the CAB was able to employ an artificial price support. They regulated fares so that there was not competition amongst the carriers. Once regulatory controls were dropped, the airline industry was able to lower the price of tickets and still make a profit.

As the price per ticket dropped, the income effect caused supply to increase. The income effect states that consumers will purchase more goods and services as their income increases. A decrease in the cost per ticket has the effect of increasing the real income. As supply shifts to the right as a result of better technology, in the form of bigger and faster planes, and lower ticket prices, demand will increase too as stated by the income effect.

The CAB has transformed the airline industry by lifting regulations of uniform prices. This was in effect a monopoly for the individual firms. Consumers had only one option, to buy tickets from a firm regulated by the same board as every other airline. When the regulations were lifted, it was similar to adding a considerable number of firms to the industry. Now consumers were able to choose who they would have fly them to their destination and with the choice of various prices. In 1971, only about 50 percent of the adult population had flown on a commercial airline.

With deregulation and the development of hub systems, the figure in 1993 was higher than 75 percent. The result was that in 1993, nearly 450 million passengers traveled the skies annually, compared with 240 million passengers in 1978. These 450 million people are being treated to a higher quality of service by a domestic airline work force that has increased in size by 25 percent. Cheaper fares, a larger work force and higher quality service are the results of deregulation. Competition has forced airlines to provide quality service in an efficient manner.

Despite the cries of those who wish to re-regulate, the facts illustrate the many improvements in the industry. The deregulation of the airline industry was one of the smartest things the government has ever done to provide a more competitive market in which the consumer wins. The deregulation of the airline industry was most beneficial; it caused increased levels of competition amongst firms giving rise to a decrease in passenger airfares and an increase in carriers' airport presence, meanwhile not compromising passenger safety.

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