The Rise and Fall of the Civil Aeronautics Board - Opening Wide the Floodgates of Entry

Transportation Law Journal, Vol. 11, issue 1, 1979

95 Pages Posted: 14 Mar 2013

Date Written: 1979

Abstract

The 95th Congress will be remembered as Jimmy Carter's first. It will also be remembered as the least productive, in terms of numbers of pieces of legislation passed than any since the 73rd, which was Franklin Roosevelt's first. Yet, it was the 95th Congress that gave away the Panama Canal, created 152 federal judgeships for President Carter to fill, introduced a mild civil service reform act, and promulgated the most significant piece of legislation in the field of transport regulation in the past forty years.

In 1938, President Roosevelt signed into law the Federal Aviation Act which established the Civil Aeronautics Board [CAB] as an independent regulatory agency designed to provide classic public utility type regulation over the air transportation industry, then deemed to be in its infancy. Essentially, the agency was given authority to regulate three broad areas of economic activity, “Entry,” “Rates “and “Antitrust.”

In 1978, following an exhaustive evaluation of the past forty years of regulation, Congress passed and President Carter signed into law the Airline Deregulation Act which will (a)dismantle the regulatory umbrella which has traditionally shielded the industry from the competitive influences of the marketplace, and (b) abolish the Civil Aeronautics Board altogether by 1985.

But even prior to the promulgation of this revolutionary piece of legislation, the Civil Aeronautics Board, under the leadership of Chairman Alfred E. Kahn, had already made incredible strides toward deregulation from within, without legislative guidance. The Board had already adopted the most liberal entry and rate policies in the history of transport regulation reversing a full 180 degrees the prior course of government in this field.

Actually, the legislation did little more than sanction what the Board had already done, moot the serious questions raised by many carriers as to the legality of the Board's radical course, and extend to the Board a few additional tools to accomplish the policy objectives it had already adopted. Subsequent to the promulgation of the Airline Deregulation Act, the CAB proceeded on a course of wild abandonment, awarding operating authority in an indiscriminate manner to virtually all who sought it. It far surpassed even the intent of Congress as expressed in this revolutionary legislation. We are now left with a voluminous record in the public domain which explains, in detail, the arguments on both sides, and the rationale behind the policies which prevailed at the Board and in Congress.

This article shall endeavor to explore that record. Although the legal arguments are now virtually moot, the policy arguments remain, for it is too early to grasp the full impact of these decisions upon the airline industry, small communities, and the public. Both the Board and Congress made a plethora of predictions as to the effect of deregulation; all were optimistic. Although the Civil Aeronautics Board is designated by the new legislation to self-destruct in 1985, it must prepare a report to Congress the preceding year explaining these effects. If the results of airline deregulation prove to be less than beneficial to certain sectors of the economy, or if the self-serving predictions of the CAB prove ultimately to have been erroneous, Congress may well have second thoughts about the demise of both airline regulation and the CAB. The importance of this analysis lies not only in the compilation of a record with which to judge the market effects of a radical change in governmental policy, it lies also in its relevance to the contemporary debate over deregulation of surface modes of transportation (i.e., motor carriers and railroads). An identical objective is sought and many of the same arguments are being made in support of surface deregulation.

The instant discussion will confine itself to a review of the policy arguments in support of and opposed to the traditional regulatory scheme. It will also endeavor to examine and analyze the issues of whether the Board traditionally applied quasi-judicial entry criteria consistent with the legislative history of the 1938 legislation, and whether it now regulates entry in a manner consistent with the intent of Congress as expressed in its 1978 amendments. The focus here shall be the subject of regulated entry in domestic scheduled passenger air transportation. Obviously, it is difficult to discuss entry without also discussing the rate objectives in, or the antitrust consequences of, deregulation. In order to comprehend the magnitude and implications of contemporary developments, it is necessary to begin with a discussion of how and why entry in air transportation came to be regulated.

Keywords: Airline Industry, Economic Regulation, Civil Aeronautics Board, CAB, Deregulation, Airline Deregulation Act, Competition, Monopoly, Entry Provisions, Rates, Antitrust, Destructive Competition

Suggested Citation

Dempsey, Paul Stephen, The Rise and Fall of the Civil Aeronautics Board - Opening Wide the Floodgates of Entry (1979). Transportation Law Journal, Vol. 11, issue 1, 1979, Available at SSRN: https://ssrn.com/abstract=2233081

Paul Stephen Dempsey (Contact Author)

McGill University - Faculty of Law ( email )

3690 Peel Street
Montreal, Quebec H3AIW9
Canada

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