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Airline Deregulation and Its Effects The 1978 Airline Deregulation Act deeply affected the air transportation industry Fares established by the Civil Aeronautics Board CAB based on a uniform rate-of-return regulation prior to deregulation became subject only to market forces Firms facing bankruptcy were no longer automatically rescued with inflows of federal money Certificates of convenience and necessity previously required to open new routes were no longer needed Finally airlines dissatisfied with some of their less traveled routes could now choose to end service on those routes These developments led to intense price competition the entry of numerous new low-cost firms the development of hub and spokes networks and the beginning of what some predicted would be a perfectly contestable market The Airline Deregulation Act spawned the hub and spoke method of passenger delivery as well increasing the level of competition amongst firms causing a decrease in passenger airfares and an increase in carriers airport presence Legislatively mandated to promote the air transport system the Civil Aeronautics Board believed that passengers traveling shorter distances--more typical of travel from small- and medium-sized communities--would not choose air travel if they had to pay the full cost of service Thus the Board set fares relatively lower in short-haul markets and higher in long-haul markets than would be warranted by costs In effect long-distance travel subsidized short-distance markets In addition the Board did not allow new airlines to form and compete against the established carriers Concerned that government regulation had caused fares to be too high in many heavily traveled markets had made the airline industry inefficient and had inhibited its growth the Congress deregulated the industry The Airline Deregulation Act of 1978 phased out the governments control over fares and service but did not change the governments role in regulating and overseeing air safety Deregulation was expected to result in lower fares at large-community airports from which many trips are long distance and somewhat higher fares at
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