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The Airline Industry Is Hardly “Deregulated”

July 22, 2008

I noticed it pass without comment on even Megan McArdle’s blog that the airlines had been deregulated. As my wife works in the industry, I know that this is only true in a very small sense and is largely inaccurate.

It is true that fares are no longer directly regulated (i.e. set) by the old Civil Aeronaughtics Board that used to regulate airline fares, but air travel are still an incredibly regulated industry.

Among the many regulators:

  • The Department of Homeland Security
  • The Customs and Border Patrol subsidiary of DHS
  • Department of Transportation regulations of "deceptive trade practices" that can be used to justify almost any investigation or intrusion into market practices
  • The FAA

Airlines’ business is also heavily dependent on often unreliable government run services, for example:

  • Airports, which are government entities and federally regulated.
  • Air traffic control, which is is also still handled by the government and has stayed consistently behind the technology curve.
  • Security screening services, which are now run by DHS

Lastly, the industry is heavily unionized– the product of the Wagner Act.

The air travel industry is hardly a realm of unfettered capitalism.

The airlines themselves aren’t necessarily great companies, but what sorts of companies would you expect to find participating in such a heavily regulated industry?


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