The Financial Performance of the Airline Industry Post-Deregulation

Abstract

US Airlines were deregulated in 1978. Although economic regulation was criticized for having produced poor financial results for the airline industry, the industry’s financial performance has grown profoundly worse since deregulation. Deregulation is credited with having saved consumers billions of dollars; however, it generally has not taken blame for the massive financial losses the industry has suffered. Airline profitability has been decidedly worse since deregulation than before it. Washington Post economics editor Hobart Rowen described airline deregulation as a “bankrupt policy”, an appropriate description considering the astonishing rate of airline bankruptcies since deregulation. Even the consumer may not be benefiting as much as deregulation advocates allege. Paradoxically, consumer prices for US air travel have fallen at a significantly lower rate in the post-deregulation period than the regulatory period. The airline industry produces a healthy quantity of data, much by regulatory fiat. Data used to evaluate the financial performance of the airline industry are examined in Airline Management: Strategies for the 21st Century, which I co-authored with Laurence Gesell. Portions of Airline Management are updated and reprinted in this Article to support my thesis: the airline industry is in far worse financial condition after deregulation than before it. This Article demonstrates that even taking macroeconomic trends (e.g., recessions) and global events (e.g., terrorism and war) into account, the airline industry has suffered far more after – and partially as a result of – deregulation than under pre-1978 government regulation.

This Article is divided into four Parts. The introduction constitutes Part I. Part II describes the airline industry’s financial performance with numbers, tables, and charts, which reveal how the industry has performed historically – pre-deregulation and post-deregulation. A historical explanation of what occurred in the airline industry is offered, and the impact on financial performance is discussed. Part III examines the somewhat unique economic attributes of the airline industry that influence its financial performance and evaluates the principal economic theories upon which deregulation was predicated, explaining how these theories were fundamentally flawed. This Article concludes by offering a theoretical view of the industry that better explains why its financial performance has been so dismal since deregulation.

Keywords: airline industry, deregulation, airline industry's financial performance, airline industry's financial losses, airline bankruptcies, unique economic attributes, economic theory, flawed theory, DOT