Question

List at least 4 ways the behaviors of airlines in the US have changed since the deregulation of the late 1970s. Who has gained by the deregulation of the airline industry? Who has lost? Explain your answer using economic concepts including monopoly power, competition, producers' surplus, consumers' surplus, deadweight loss, etc.

Answer 1

In the airline industry, fares and rates decreased significantly, load factors skyrocketed, more people began to travel, seats became smaller and less comfortable, and tightening security created additional burdens for travelers

The industry achieved unprecedented levels of safety surprising many of deregulation’s early detractors.

Within the first two years, many new airlines were formed. Nearly all the new start-ups focused on a low-fare business model, some unashamedly emulating Southwest and others following new business models, exemplifying the predicted market diversity and dynamism.

Its business strategy was focused on a “low-fare with good service” concept.

The longstanding incumbent airlines adapted their route systems and aircraft fleets to enhance their survival and profitability in markets that had become highly competitive.

Many economists argued that the regulatory environment created and administered by CAB limited competition to the detriment of travelers, resulting in high prices and unresponsive service.

Losers and Winners:

Shareholders lost billions of dollars, employees were laid off, small towns lost services, and many old and new companies went bankrupt or were absorbed by others.

Air travelers have benefited from substantially lower fares. Passenger volumes have grown considerably, both domestically and internationally. Airlines and aircraft manufacturers are profitable. Major airports have become shopping malls in addition to transportation hubs