Lower Fares At Large Community Airports example essay topic

The 1978 Airline Deregulation Act deeply affected the air transportation industry. Fares established by the Civil Aeronautics Board (CAB) based on a uniform rate-of-return regulation prior to deregulation became subject only to market forces. Firms facing bankruptcy were no longer automatically rescued with inflows of federal money. Certificates of convenience and necessity previously required to open new routes were no longer needed. Finally, airlines dissatisfied with some of their less traveled routes could now choose to end service on those routes.

These developments led to intense price competition, the entry of numerous new low-cost firms, the development of hub and spokes networks, and the beginning of what some predicted would be a perfectly contestable market. The Airline Deregulation Act spawned the hub and spoke method of passenger delivery as well increasing the level of competition amongst firms causing a decrease in passenger airfares and an increase in carriers' airport presence. Legislatively mandated to promote the air transport system, the Civil Aeronautics Board believed that passengers traveling shorter distances -- more typical of travel from small- and medium-sized communities -- would not choose air travel if they had to pay the full cost of service. Thus, the Board set fares relatively lower in short-haul markets and higher in long-haul markets than would be warranted by costs. In effect, long-distance travel subsidized short-distance markets.

In addition, the Board did not allow new airlines to form and compete against the established carriers. Concerned that government regulation had caused fares to be too high in many heavily traveled markets, had made the airline industry inefficient, and had inhibited its growth, the Congress deregulated the industry. The Airline Deregulation Act of 1978 phased out the government's control over fares and service but did not change the government's role in regulating and overseeing air safety. Deregulation was expected to result in lower fares at large-community airports, from which many trips are long distance, and somewhat higher fares at small- and medium-sized community airports. Increased competition from new airlines because it was not possible to enter the market without need to be approved by the CAB. Greater use of turboprop (propeller) aircraft by airlines in place of jets in smaller markets was also expected because these smaller areas could not economically support jet service.

In 1990, the General Accounting Office found that overall fares had fallen not only at airports serving large communities, as was expected, but at airports serving small- and medium-sized communities as well. It can be noted, however, that despite the overall trend toward lower airfares, some small- and medium-size community airports had experienced substantial increases in fares following deregulation, especially in the Southeast. As of the first six months of 1995, airfares overall continued to be below what they were in 1979 for airports serving small, medium, and large communities. Comparing full-year data for 1979 and 1994, the fares per passenger mile, adjusted for inflation, were about 9% lower for small-community airports, 11% lower for medium-community airports, and 8% lower for large-community airports. Despite the general trend toward lower fares, however, fares at small- and medium-sized community airports have remained consistently higher than fares at airports serving large communities, largely because of the economics associated with traffic volume and trip distance. As the volume of traffic and average length of haul increase, the average cost per passenger mile decreases, allowing for lower fares.

Airports serving small- and medium-sized communities tend to have fewer heavily traveled routes and shorter average distances, resulting in higher fares per passenger mile compared with those of large-community airports.