Sidharth Kundathil Prasannakumar

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DEREGULATION: AIRLINE INDUSTRY

Airline Deregulation act was signed to law in 1978.
Airline Deregulation means the process of removing government-imposed restrictions on entry
and price restrictions on airlines effecting the carriers permitted to serve specific routes.

The airlines were deregulated in stages from 1979 - 1984, The outcome was cheaper fares and
more travels. But did not remove the regulatory powers of Federal Aviation Administration (FAA)
and authorities over all aspects of air safety and security.
The Deregulation Act dissolved the Civil Aeronautics Board (CAB), which regulated U.S. airlines,
setting the flight courses and the prices they could charge. The major airline companies around
that time – Pan Am, Eastern Air Lines, Braniff International – understood that they couldn’t
compete in the new open markets and were inevitably shut down.
Competition was absent before deregulation, Competition was based less on Price and more on
non-flight determinants (Legroom, Seat Quality, Amenities etc) Flying was more of a luxury back
then, Accessible only to the well off. CAB had also set up price controls to guarantee profitability.
With the Deregulation, the newcomers were able to operate at a cheaper fare- Low Cost Carrier
(LCC) with the help of modern airlines /technology and were also able to control the number of
labourers etc. while before the deregulation, those carriers that was established after the CAB
had difficulty entering the market
For example, Around then, Southwest Airlines was a small regional airline, as the CAB rule
prevented it from flying outside of Texas. Today, Southwest is the largest domestic U.S. carrier
in terms of passenger traffic and profit.
Sidharth Kundathil Prasannakumar
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Benefits:
Prices have Fallen.
Costs have declined Steadily since Deregulation. The yield (the revenue generated per
passenger mile) that airlines receive has fallen. Costs were almost 40% lower than prior to
deregulation, even when adjusted for inflation (Borenstein 2011)
An April 1996 General accounting Office Study found that” Average fare per passenger mile,
adjusted for inflation, has fallen since deregulation about as much at airport serving small and
medium size communities as it has at airports serving larger communities.” Furthermore, “The
average fare per passenger mile was about 9 percent lower in 1994than in 19979 at smaller
airpotrs,11 percent in medium airports, and 8 percent lower in larger airports”
Air travel Has become Safer:
Airline safety has improved since deregulation. Between 1939 and 1978 fatal airplane accidents
averaged 6 per year. After deregulation, from1978-1997, the average was only 3.5 fatalities per
year.
Service Quality has improved: (Competition)
There is more selection of air-travel available, there are more departures for small, medium and
large airports alike, airline is no longer constricted by the distance they could travel, more
people have access to air trael, carriers try to be on time, new services have become available
due to competition
New job Opportunities
In the decade from 1979 to 1989, airline employment increased from 356,000 people to 556,000
people. Almost exactly 200,000 more people were directly employed by the airlines.
Hubs and Spokes:
During the first 10 years of deregulation (the 1980s), the major airlines shifted a from point-to-
point to a hub-and-spoke route system. First, those living in the hub-airport city gained access to
a many-fold increase in the number of destinations and the number of flights. Second, residents
of small cities on the spokes of the hub, who may have lost some point-to-point service,
gained—via the hub—access to potentially hundreds of destinations via the hub.
Unforeseen Issues:
The deregulation act also resulted in an approximate 10% decline in earnings (Card 1996).
Aggressive Cost cutting measures and bankruptcies have taken a toll on labour management
relations and customer service. (Gittel 2004)
Airport Congestion: Changes by the airlines were constrained by the limitations of the aviation
infrastructure-airports and ATC (air traffic control) which had not been altered by deregulation.
Huge increases in landings and take-offs at hub airports put enormous stress on the ATC
system (ROBERT W. POOLE- 1998)
Since Deregulation, the airlines collectively lost $60 Billion (Borenstein 2011)
Sidharth Kundathil Prasannakumar
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RAILWAY DEREGULATION
On October 14, 1980, The President Jimmy Carter Signed the Staggers Rail Act to law. This law
deregulated Railways to a great extent, and replaced the regulation that existed since 1887
Interstate Commence Act.
Because every aspect like the price, service, and revenue constraints were imposed by the
government, there generally were little incentive for railroads to increase productivity, to lower
costs, or to provide services to their customers. Regulation in the railroad industry generally
restricted marketing and caused the majority of railroads to become operations-oriented rather
than marketing oriented in their approach to doing business with the public.

Graph Source: Association of American Railroads

With the Deregulation act, railroad’s approach of selling its services to shippers shifted from “This
is what I can do for you and this is how much it will cost. Take it or leave it.” To “These are my
needs, what’s your best offer?” - Dr. Henry W. Vanderleest , Professor of Marketing at Ball State
University.
In short, Deregulation allows the Customer to determine price, quality and type of transportation
service offered by individual railroads, which gives them greater opportunity to compete
successfully against each other as well as against competing modes.
The effects of De-Regulation on Railways are:
Price Flexibility:
Freedom to adjust rates is the important benefit of railroad deregulation. Railroads can now make
price adjustments subject to certain guidelines without approval from Interstate Commerce
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Commission (ICC). Currently, nearly 65 percentage of all rail rates are entirely free from
regulation.
With deregulation, the usual practice of all railroads seeking approval together from the ICC for
the same percentage rate adjustment has also been eliminated in favor of individual railroads to
set their own rates. As a result, the reliance on ICC to routinely publishing and filing rates
developed by carriers have reduced. The customers are able to bargain better because of the
choices of rates available in the market
Service contracts.
The legalization of service contracts (The process by which individual railroads tailor a specific
rate and service package to the needs of a particular shipper) was also resulted from the
Deregulation. The new law encourages railroads to experiment in developing rate and service
packages for individual shippers. Before the Deregulation, railroads and shippers were hesitant
to enter into contracts because they feared antitrust litigation. Although the ICC has no role in the
development of contracts, it must approve the final agreement between the railroad and shipper.
However, most contracts are approved without any hiccups.
Intermodal Transportation
Eased regulatory measures have encouraged railroads to offer intermodal transportation services
to their customers. Before Deregulation, railroads were prohibited from offering service to
shippers through other modes. This is now changed and now, railroads can provide shippers
“Overall” transportation service using all modes. It is expected that the popularity of intermodal
transportation services will continue to increase as this concept allows railroads to react to
competition from other modes and increase revenues by moving traffic from one point to another
over longer distances.
Consolidation
The Deregulation has also increased interest in mergers. This is because, aim of deregulation is
to encourage railroads to become more self-contained.
Because of their high fixed costs, railroads have always been most efficient on long hauls where
stopping, starting and the number of interchange points are minimal. With mergers, railroads are
able to compete more effectively with other modes of transportation and increase revenues by
handling the shipment from origin to destination on one system.
Abandonment
Abandonment of unprofitable lines was also possible with deregulation. Before Deregulation, it
was extremely difficult for railroads to cancel service from areas which do not provide profitable
volumes of traffic. This resulted in cross subsidies where shippers on a railroad’s more profitable
lines were charged higher rates to cover losses elsewhere.
Although it is easier to discontinue nonprofitable lines, it is expected that most railroads will
attempt to avoid abandonments as long as possible by stepping up their marketing efforts to
promote use of the line in question. If and when a line is abandoned for lack of traffic, however, it
remains to be seen if the marketplace will offer enough incentive for another carrier to move into
the area and provide service.
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Marketing
Railroads are also intensifying their sales and promotional efforts. In communicating with their
customers about available services, for example, many railroads have adopted traditional
consumer goods promotional techniques such as radio and television spots, billboard advertising
and direct mail flyers. These methods complement promotional techniques generally used in
industrial marketing such as trade shows and personal sales calls.
Conclusion
After years of deferred maintenance, decreasing traffic and inadequate profitability, railroads are
making a comeback. Removing the restrictions through deregulation has given railroads the ability
to meet changing market and competitive situations as well as the freedom to make business
decisions independent of government sanction.

References:
Railroad Performance Under the Staggers Act -B. Kelly Eakin, A. Thomas Bozzo, Mark E.
Meitzen, and Philip E. Schoech
A Critique of the Staggers Rail Act,” Transportation Journal (Spring, 1982)- Ernest W. Williams
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TRUCKING INDUSTRY
The Motor Carrier Regulatory Reform and Modernization Act, all the more ordinarily known as the
Motor Carrier Act (MCA) of 1980 is a United States government law which deregulated the
trucking business
The government has been directing costs and rivalry in interstate transportation as far back as
Congress made the Interstate Commerce Commission (ICC) to administer the railroad business
in 1887. Truckers were brought under the control of the ICC in 1935 after constant pressurization
by state controllers, the ICC itself, and the railways which had been losing business to trucking
organizations.
Benefits:
Job opportunities
Deregulation has made it less demanding for non-association specialists to land positions in the
trucking business. This new rivalry has weakened the Drivers' Union, and International
Brotherhood of Teamsters. Before deregulation, ICC-directed truckers paid unionized specialists
around 50 percent more than similar laborers in other ventures.
Intermodal Transportation
Intermodal carriage has surged sharply since 1980: from 1981 to 1986, it grew 70 percent. The
ability of railroads and truckers to develop an intermodal network is a result of the MCA and the
Staggers Act (1980).
Price Flexibility
The motor carrier industry has made little utilization of the rate zone arrangement and has rather
picked independent filings, which have increased sharply. These independent filings have
increased price competition. Truckers have been able to slash rates mainly by improving
efficiency. Truckers have possessed the capacity to cut rates for the most part by enhancing
effectiveness—reducing empty backhauls, eliminating circuities, pricing flexibly, and reducing by
about 10 percent the proportion of employees who are drivers and helpers.
New Carriers emerged
The number of new firms has also increased. By 1990 the total number of authorised carriers
exceeded forty thousand, approximately more than double than what was authorized in 1980.
The ICC had likewise granted nationwide authority to about five thousand freight carriers. The
price of operating rights granted by the ICC, which once was worth hundreds of thousands of
dollars which was once unaffordable by the truckers, has dove close to zero now that operating
rights are easy to obtain.
Just in Time Inventory System
One of the economy's major gains from trucking deregulation has been the considerable drop in
the cost of inventory. Since truckers are able to offer on-time delivery service and more flexible
service, Industries/Manufacturers can arrange components just in time to be used and retailers
can have them just in time to be sold resulting in cheaper inventory costs. Without the partial
deregulation that resulted from the 1980 act, these changes would not have been possible.
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Current law also gives right to truckers to collude on tariff increases in rate bureaus. In any other
industry such agreements would violate the antitrust laws. Although any single carrier can file
separate rates, a rate bureau's filing for higher tariffs leads to pressures on all carriers to change
their costs.
Deregulation has worked well.
Between 1977, the year before the ICC started to decontrol the industry, and 1982, rates for
truckload-size shipments fell about 25 percent. The General Accounting Office found that rates
charged by LTL (less-than-truckload) carriers had fallen as much as 10 to 20 percent, with some
shippers reporting declines of as much as 40 percent. Revenue per truckload ton fell 22 percent
from 1979 to 1986. A survey of shippers indicates that they believe service quality improved as
well. Some 77 percent of surveyed shippers favoured deregulation of trucking.
- Industry of Thieves: Paul Todd
Shippers reported that trucking companies are much more willing to negotiate rates and services
than prior to deregulation. Truckers have tried different things with new price and service options.
They have redone routes, reduced empty return trips, and provided simple rate structures.
CONCLUSION
Trucking deregulation is incomplete. As per a study, abolishing all remaining federal controls
would save shippers about $28 billion per year. A Department of Transportation study done by
researchers at the University of Pennsylvania's Wharton School estimated that abolishing state
regulation would save another $5 billion to $12 billion.

References:
Trucking Deregulation:1st Edition by Thomas Gale Moore
Industry of Thieves: Paul Todd