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Assignment on Regulation, Deregulation, and Re-regulation In the Aviation industry
Solution
The regulation era in the aviation industry plays an important role in establishing the industry. The airline industry is one of the most financially unstable industries in the United States. The government plays an important role in the aviation. The air carriers are privately owned by the individuals or organizations, but the federal government interferes because its success impacts on the economic conditions of the economy. At the time of great depression, the nation's transportation, infrastructure, and operators play a vital role in the economy of the nation. The economy will be negatively impacted if the competition, uncertainty, and orders are not mitigated by the regulations. The regulatory oversights that the federal government instituted with the respect of the airline industry and it were implemented in 1934 (Truxal et al., 2013). The provisions were made for the establishment of federal aviation commission. The federal regulations have a number of motives for any industry.
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The transportation industry has general regulations, and airline industry has particular regulatory. The two main functions of regulatory include endurance of economic stability of the industry and provide assurance of safety to the passengers and operators. The safety has an important component of airline regulatory since 1930 because air traffic and couple accidents increased. The minimum standard requirement of cabin crew and ground crew is regulated through airline regulatory. The FAC is established to set the standard operating procedures for air traffic control and for in-flight and on-ground safety procedures as well as for the standard procedure in the events of aviation incidents and accidents. The reporting and tracking the incidents is more difficult than documenting the accidents. The under-reporting gives the bad impression on the public and actual safety of the industry. Civil aviation board plays an important role in the era of regulations. The CAB regulates the internal air transport market for forty years till 1978 in the United States. There are three main functions of CAB which includes identification of the routes and schedules of airlines, setting regulation of tariffs for each airline and antitrust regulations. Federal regulations ensure efficient operations which benefit the population and at the cost of undermining the free market. CAB controls the entry and exit of the players in the market. Transportation in the country increases steadily and suppressed 175 million consumers in 1969. It prohibits the reduction of tariffs and to require the same tariffs for the similar distance. It reduces the competition among the competitors in the airline industry. The CAB publishes the report of cost and revenue in every three months which helps to regulate the rates. According to the analyst, the interstate rates are higher than within the state for the same distance (Wong et al., 2015). The airlines are forced to compete due to the level of services provided by the airline companies. The promotional activities expense reduces the profit margin due to which the fuel crisis occurs in the 70s. The deregulation act in 1978 has made changes in the aviation industry. CAB introduces the carriers who are offering low rates with the practice of multiple carriers on the single route. The free entry and exit were implemented by the CAB and in 1978 the rates were changed. The reduction in the rates leads to increase the demand which maximizes the profits in the history of commercial aviation. Another recession came in the economy in the 1980s; the CAB ceased the interest in the public fate, whose demand is insufficient to create a new service. According to the law of supply and demand, CAB put the best carriers due to which many aircraft have been closed. The US congress introduced new principles to boost the industry. Before deregulations, only 20% of domestic airlines have two carriers. The consumer's choices increase rapidly, and a huge number of carriers enters into the market with new market strategies and rates. In 1978 rates were reduced by 70% and on some routes the prices were increased and competition was decreased. The positive impact includes the transportation of 600 million people in 20 years (Button et al., 2015). The system of management of deregulation and competition has fundamentally changed. The negative impact of deregulation leads to instability in the airline industry. The consolidated airlines have three global airlines, namely, delta, united and American which carries more than 100 million people. It results in the deterioration in the service of consumers. The aviation service is stopped in the small town which is subsidized by the state previously. In the United States currently, there are 90 airlines which are certified under Part121, and approximately 2170 airlines are certified under Part135. In the first 20 years deregulation and saved the consumers and lost $100 billion. In 2004-2005, the airline loses more than 40 billion US dollars and the huge amount of money were spent on maintenance of security. The loading fight increased which removes the barriers to entry in the airline industry. The aim is to create the loyalty for the frequent flyer. The scheme was successful, and it helps to increase the flow of passengers. For example, The United State reduces the intervention of government, and it spread the industry into many countries. The US market is constantly monitoring the industry. The US conducted the research and discussion on the consequences of the deregulation. The average age of aircraft is increasing constantly and funds for the renewal of the missing. The major challenges were faced by the industry and airlines paid 16% taxes for the infrastructure. The two bankruptcies were faced by the continental. Namely, Delta absorbs Pan Am in 1991, and in 2010 – Northwest. All the major US airlines faced major bankruptcy under chapter 11 (Molk et al., 2016).
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Molk, P., & Rowell, A. (2016). Reregulation and the regulatory timeline. Iowa L. Rev., 101, 1497-1681.
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Button, K. (2015). A Book, the Application, and the Outcomes: How Right Was Alfred Kahn in The Economics of Regulation about the Effects of the Deregulation of the US Domestic Airline Market?. History of Political Economy, 47(1), 1-39.
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Truxal, S. (2013). Competition and regulation in the airline industry: puppets in chaos. Routledge.
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Wong, S., & Brooks, N. (2015). Evolving risk-based security: A review of current issues and emerging trends impacting security screening in the aviation industry. Journal of Air Transport Management, 48, 60-64.
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