De Facto Deregulation

As a result of the hearings, President Ford caused the resignation of the Chairman of the CAB, Robert Timm, and in early 1975 appointed John

Robson, an Undersecretary at the Department of Transportation and a career bureaucrat, in his place. Although Robson knew little about the airline industry, he set about to remedy the short­comings and failures that had been disclosed in the Kennedy hearings, including the liberaliza­tion of charter rules and the approving of new routes, which continued during Robson’s tenure at the CAB. A CAB staff report was issued in July 1975 recommending deregulation within five years. Incredibly, in April 1976, all of the CAB commissioners announced that they sup­ported deregulation.

The changes kept coming under what was now known as “de facto deregulation.” Liberal­ization of charter rules had these operations fly­ing more routes, longer distances, and with fewer restrictions, thus creating immediate competition for the scheduled airlines. This, in turn, caused the scheduled airlines to make application to the CAB for permission to make a legitimate, long – range competitive response to the charterers. The CAB then began granting those applications, thereby setting up an incipient competition there­tofore unknown under regulation. Airlines were then allowed to unilaterally raise or lower prices “within zones of reasonableness,” and on speci­fied routes, they could enter or exit without prior authority.

The CAB had no jurisdiction over intrastate carriers like Southwest Airlines, and although Southwest could charge what it pleased subject only to the rules of the Texas Public Utilities Commission, its fares were substantially less than those mandated under the CAB regimen. Southwest was stiff competition for any air­line flying within the borders of Texas and that competition included interstate carriers Texas International and American Airlines. When Texas International sought CAB authority for its “peanut fares,” (its regular CAB-mandated fare discounted 50 percent) in order to com­pete with Southwest, the CAB obliged. Again, when American Airlines wanted to institute its “Supersaver” fare in March 1977, a charter-like discount theretofore prohibited by CAB phi­losophy, the CAB approved. Significantly, the “Supersaver” fares applied to seats on regularly scheduled flights on which standard fare pas­sengers had purchased tickets. Thus began the confusing and seemingly inequitable pattern of full-fare passengers seated beside someone who had paid a fraction of full fare. These low fares also invited into the cabin leisure passen­gers, bringing with them their small children and babies, to occupy the center seat previously left unfilled. American Airline’s coast-to-coast traffic soon increased by 61 percent.

Word spread and the trend continued as Allegheny Airlines instituted “Simple Saver” fares and TWA started “Super-Jackpot” fares to Las Vegas. By 1978, discount fares were widely available, prices had fallen by 8 percent, and air traffic had increased by 17 percent. Whether noticed or not, deregulation had already begun.