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Abstract: The US airline industry was deregulated in 1978 and has undergone significant changes in industry structure, profitability, employment, passenger volume, and patterns of service and fares, among other characteristics. This paper sets out to make three contributions to the literature as related to the story of airline deregulation. First, discussion of economic theory will provide the context for an updated overview of the positive, negative, and really negative results of US airline deregulation, summarized in the form of “the good”, “the bad”, and “the ugly”. Second, this paper provides a periodization of the 30-year history of US airline deregulation that is important in understanding the cycles of change as reflected in the industry’s financial performance and other relevant data. Third, this paper contributes to the renewed debate about the efficacy of deregulation and liberalization policies, particularly at a time when the global financial crisis has cast a harsh spotlight on the (un)desirability of these policies. Some of the good results during the 30 years of airline deregulation, from the industry and consumer perspective, include higher passenger volumes, more service to the most popular destinations, and lower fares on average. Bad results include financial and employment instability, diminution in the quality of airline service overall, and fewer flights and higher fares to smaller places. The recent 2000–2005 period has been particularly ugly, as the airline industry has lost over $30 billion, and several high-profile carriers, such as United, Delta, Northwest, and US Airways, were forced into bankruptcy. [Copyright &y& Elsevier]

Current problems in the US airline industry such as increasing industry consolidation, fortress hub dominance, predatory behavior, and high fare “pockets of pain” have their roots in the flaws of the theories that supported airline deregulation in 1978. Contrary to pre-deregulation expectations, the industry is characterized by large economies of scale, large barriers to entry, and a lack of contestability in airline markets. These inexorable economic forces are producing increased levels of monopoly and oligopoly control over city-pair markets resulting in a larger share of travelers paying higher fares. Additional mergers and acquisitions will exacerbate the problem. As these trends continue, the US Congress and the US Departments of Transportation and Justice will be under increasing pressure to take serious corrective actions. [Copyright &y& Elsevier]