The Civil Aeronautics Board Procedures and Practices
The way that the CAB chose, over the years, to discharge its regulatory functions over the airlines heavily contributed to the ultimate decision to deregulate the airlines. It goes without saying that it was completely impossible to have the CAB grant new entry for any trunk carrier at any time during the 40-year period that it operated. Between 1950 and 1974, for instance, the CAB rejected all 79 applicants who applied for authority to create new certificated airlines. Moreover, any change to the status quo for existing carriers required the filing of an appropriate petition, the scheduling of hearings, and the presentation of evidence to support the petition, after which the CAB would proceed to mull over the issues presented in its own good time. The laborious routine by which “business” was done before the CAB effectively prevented practically any change in the status quo, or any expansion or improvement to the air transportation system.
The following examples are representative of CAB practices:
Example 1: When Continental Airlines sought permission to add a new route to its system from San Diego to Denver, the CAB studied the matter for eight years before finally granting the petition, but only after being ordered to do so by the United States Court of Appeals.
Example 2: When World Airways applied to fly a scheduled low-cost passenger service between New York and Los Angeles in 1967, the CAB considered the petition for six and a half years and then dismissed the case because the record was “stale.”
Example 3: When Federal Express entered the freight market it had to do so as an “air taxi,” whereby the size of its aircraft were limited to 12,500 pounds. When FedEx business increased, Fred Smith found that he had to fly two aircraft in trail from Memphis to the same destination in order to carry all of his cargo. He applied to the CAB for permission to fly a larger aircraft on these occasions on the reasonable principle that it was almost twice as expensive to fly two small aircraft as it was to fly one larger one. The CAB denied that request.
Example 4: The CAB occupied itself largely with trivialities, from fixing the exact price of drinks on airplanes to setting special fares for skiers.
Politics
Deregulation in general had become a common subject of conversation in the halls of Congress, applied to several areas of quasi-public activity. Railroads, trucks, public utilities, telecommunications, gas pipelines, banking, and natural gas were among the infrastructures discussed. As such, deregulation became a political topic, and it was bipartisan.
The drive toward deregulation was led by President Gerald Ford almost immediately upon his taking office on the resignation of Richard Nixon in 1974. As an economic conservative, he felt that the consumer was best able to “signal his wants and needs through the marketplace” and that government “should not intrude in the free market” except to preserve “well-defined social objectives.”
He found an unlikely ally in Senator Ted Kennedy, who convinced a young Harvard law professor named Stephen Breyer, who was to become an Associate Justice of the Supreme Court 20 years later on, to join his staff for a sabbatical in August 1974. In September Breyer attended a meeting of the major airlines with the Secretary of Transportation at which the Secretary openly urged the airlines to all “raise their prices” in order to help Pan Am. Breyer was shocked at this blatant price fixing and convinced Kennedy to hold hearings on the subject of airline deregulation. Committee hearings began in November 1974, and continued into 1975.
The hearings disclosed a history of impropriety at the CAB that extended nearly top to bottom. Breyer’s report issued at the conclusion of the hearings amounted to an indictment of the CAB commissioners, finding that there was “a strong likelihood of highly improper and possibly criminal behavior on the part of the Board members themselves.”3 Among the specific findings of the report were that the CAB had covered up the existence of an airline slush fund for illegal contributions to the Board and that the Board had observed an “unofficial moratorium” on granting any new route awards since 1969.