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BACKGROUND TO DEREGULATION OF CIVIL AVIATION.

THE INTELLECTUAL CLIMATE

Several strands in the intellectual and legal history of the United States came together in the 1970’s to spur a movement for deregulation.

1. There was a general disillusionment with the Government at all levels.

2. There was increasing doubt that the Government regulators in the economic area really had the techniques to do their jobs, even assuming a study purpose.

3. Proponents of the "market", of the teachings of Adam Smith and David Hume, could point to the increasing contrasts in economic growth between Japan and Germany on the one hand and, for instance, the Great Britain on the other.

THE FOCUS ON AVIATION


Commercial aviation was a likely candidate for deregulation for several reasons. One thing, it had glamour and was highly visible; for another, there were relatively few participants, in contrast, for example, with trucking: Some 8 Airlines provided about 90% of the service, and even with local service and non-scheduled carriers added in, the number of interest groups was small and the database accessible. Further, while several labor unions were involved in commercial aviation, there would be no enormous power group to contend with, such as the railway brother-hoods or the teamsters. Finally, an interesting change had been taking place in aviation - both International and Domestic; as more and more discretionary travel took place by air, aviation seemed to be ripe for real experiment in price elasticity; both the experience with international charters suggested that the fundamental premise of price conformity might be worth challenging. If Civil Aviation had always been the object of governmental care, as the attitudes toward that care were changing.

THE BEGINNINGS OF REFORM

· THE FORD ADMINISTRATION


The President Gerald Ford asked the Congress to establish a National Commission on regulatory reform. His idea was to launch a joint effort by congress, the executive branch, and the public sector to identify and eliminate, as he said, "federal rules and regulations that increase costs to the consumer without any good reason in today's economic climate".

In part, the President's initiative reflected his determination to restore confidence in the Government after the crisis of the last years.


· THE KENNEDY HEARINGS


The hearings in effect required the Ford Administration to move from general statements in favour of regulatory reform to specific commitments. The cab established an internal study group on regulatory Reform under a special staff, and department of transportation prepared for testimony to the Kennedy committee.


On the first day of the hearing, the acting secretary of transportation, John W. Barnum, came forward with the detailed criticism of airline regulation by the cab- on market entry, on anti competitive agreements, and on rate making. He suggested a number of reforms that might be made administratively, notably price flexibility- a "zone of reasonableness" within which fares could be set by different carriers for different flights without need for permission by the Civil Aviation Board.

Meanwhile, the Kennedy Hearings assembled a massive record of testimony - not only by airline and Government Officials, but by numerous economists who had been invited by the committee to take a hard look at the assumptions under which economic regulation of civil aviation had been controlled.

· THE ROUTE MORATORIUM

From the point of view of the Civil Aviation Board, a slowdown in route grants made sense: In a time of low load factors and rising costs, why should the Civil Aviation Boardcontinue to add capacity, unless service to the public was inadequate. From the point of view of the new breed of "anti regulators" discovery of the Route Moratorium was the major indictment: Not only did the moratorium suggest policy making behind closed doors, without a hearing or record, worse, the route Moratorium amounted, in the eyes of the reformers, to a complete barrier to market entry, i.e. to elimination of the only real opportunity for the forces of competition to affect the air transport system.


In the sub-committee's view, the Civil Aviation Board's route policies in general and its present route practices and procedures in particular have tended to thwart the provision of low-cost air transportation to the American public. Its respective entry policies have inhibited price competition that might otherwise have brought about low fares and fuller planes; they have tended to stabilize the market shares of major firms. On the other hand, the Civil Aviation Board had made serious and successful efforts to promote the expansion of the Nation's air transport system and to produce a reasonably efficient route network; it had also avoided carrier bankruptcy.

Moreover, procedural considerations suggested the need for fairly simple, coherent route award standards- standards that avoided giving the Civil Aviation Board discretion to handout such valuable commodities as routes free from effective Court review. Such standards could be found in a system that moved towards awarding routes to those "fit, willing and able" to fly them.

Navin Kumar Jaggi

Aashna Suri

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