That part of the commercial system of air transportation consisting of airlines certified to provide domestic and international service.
In 1903, Orville and Wilbur Wright flew the first aircraft for a total of twelve seconds and reached a speed of 31 miles per hour. While many people were fascinated by the accomplishment, few could have guessed the impact that powered flight would have on the world or the progress that would be made in less than a century of innovation. The use of aircraft in World War I gave governments worldwide reason to consider aviation as more than a hobby of the wealthy or a barnstorming circus event. Aircraft now offered serious military possibilities. The years immediately after World War I found airplanes taking on another role as mail carriers. However, commercial development of the aviation industry did not really take off until the end of World War II. Maintaining an accessible, affordable, and safe air transportation network is now considered vital to any nation’s infrastructure.
At the end of World War I, Europe was faced with extensive damage to the railroad system that had once linked the continent. This provided an excellent opportunity for the fledgling aviation industry. However, early efforts to establish a viable passenger airline proved unsuccessful due to the high operating costs. In order to improve the odds of success, the governments of the major European nations, France, Great Britain, and Germany, became actively involved in the promotion of air operations through direct subsidies to national airlines.
In the United States, the political climate following World War I did not support such direct action to promote commercial aviation. Instead, the aviation industry received assistance from the U.S. Postal Service. The first private efforts to demonstrate the potential value of aircraft for mail delivery were conducted in 1911 and 1912. In 1916, the U.S. Congress made the first appropriation of money to be used to support airmail delivery. A second appropriation was passed in 1918 and the first official airmail route was flown on May 15, 1918, between Washington, D.C., and New York City. On February 2, 1925, the Air Mail Act of 1925, also called the Kelly Act, was passed. The Kelly Act, entitled “An Act to Encourage Commercial Aviation and to Authorize the Postmaster General to Contract for the Mail Service,” was intended to get the U.S. government out of the airmail business and support private companies wishing to enter it.
Walter Folger Brown, appointed postmaster general by President Herbert Hoover, was determined to provide greater direction to the aviation industry. To this end, he initiated passage of the Air Mail Act of 1930, also known as the McNary-Watres Act. Officially, the act gave the postmaster general the power to award airmail contracts without the competitive bidding process required by the Kelly Act and lowered the rate paid for airmail delivery by paying carriers for space used rather than weight of mail carried. The McNary-Watres Act had two major effects on the shape of the aviation industry. First, it encouraged consolidation of many small companies after Brown made it clear that airmail contracts would be granted to companies that were large, financially stable, and capable of conducting transcontinental routes. Second, the reduction in airmail rates encouraged air carriers to consider expanding operations to passenger service. Brown did get the consolidation that he wanted as smaller companies began to merge, forming the airlines now known as American Airlines, United Air Lines, and Trans World Airlines (TWA). He also got complaints from smaller carriers passed over for airmail contracts.
While other carriers vied for the domestic airmail routes, Pan American Airways was interested in the international market. With the Foreign Air Mail Act of 1928, Pan American began to establish itself as the foreign airmail carrier. The company went on to establish themselves as the premier U.S. international carrier. Although Pan American would lose its monopoly over international flights after World War II, it would continue to dominate international travel until the 1980’s.
When Franklin D. Roosevelt became president in 1933, he named James A. Farley postmaster general. After a U.S. congressional investigation into the awarding of contracts under Postmaster Brown, Farley canceled all contracts on February 3, 1934, and announced that the Army Air Corps would now deliver the mail. In a little over five months of service, the Air Corps recorded sixty-six crashes and twelve deaths, leading Roosevelt to order a halt to the operation. The Air Mail Act of 1934 reauthorized the postmaster general to award contracts based on competitive bidding, created a Federal Aviation Commission to study aviation policy, and required the separation of airline companies and aircraft manufacturers.
With the passage of the Air Mail Act of 1934, there were three federal agencies responsible for regulating the aviation industry in the United States. The Postal Service reviewed applications for airmail routes, while the Interstate Commerce Commission set and reviewed the rates to be paid. In addition, the Air Commerce Act of 1926 had given the Department of Commerce responsibility for insuring safety through the registration and certification of aircraft and the certification of pilots. After several months of study, the Federal Aviation Commission recommended the Civil Aeronautics Act of 1938. The act created the Civil Aeronautics Authority to establish policies relating to the safety and economics of air transport. The 1940 Amendment to the Civil Aeronautics Act gave the Civil Aeronautics Board (CAB) legislative and accident investigation authority, while a separate Civil Aeronautics Administration was charged with promoting and enforcing air safety.
The CAB was authorized to issue Certificates of Public Convenience and Necessity to any person or business it deemed fit, willing, and able to perform public air transport. No one would be permitted to engage in public transport without such a certificate. These certificates were often very specific in their limitations on the types of services the air carrier was allowed to provide. They might designate certain allowed routes, intermediate stops, through service, and prohibited stops or types of traffic. Passenger fares and cargo rates were also strictly regulated. Carriers wishing to change fares or rates were required to file a petition arguing the just and reasonable nature of the increase. Although route and pricing assignments were the most visible of the CAB’s activities, the board also exercised a broad range of other controls over U.S. air carriers, including setting standards for record keeping, maintenance scheduling, mergers, and intercarrier agreements. Labor issues were subject to the Railway Labor Act, which prescribed a detailed system of dispute resolution between parties, including intervention by the U.S. president if all other steps failed.
The Civil Aeronautics Act included a clause, Section 401e, which stated that all carriers that had provided adequate and continuous airmail service between May 14 and August 22, 1938, would be granted a permanent Certificate of Public Convenience and Necessity. The first airline to receive this certificate was Delta Air Corporation. Fifteen other carriers received such a certificate, including American Airlines, Braniff International Airways, Chicago and Southern Airlines, Continental Airlines, Northwest Airlines, Pennsylvania-Central Airlines, Transcontinental & Western Air, Eastern Air Lines, Inland Airlines, Mid-Continent Airlines, National Airlines, Northeast Airlines, United Air Lines, Western Air Express, and Wilmington-Catalina Airlines. Under the CAB, five mergers were eventually approved among this original group. Chicago and Southern and Northeast Airlines merged with Delta. Inland merged with Western. Mid-Continent merged with Braniff. Pennsylvania-Central became Capital and later merged with United. The airlines known as Transcontinental & Western changed their corporate name to Trans World Airlines.
The years between 1938 and 1958 were growth years for the airline industry. The Douglas aircraft, the DC-3, was introduced in 1936 and became one of the most popular passenger aircraft in history. From the airlines’ perspective, the two-engine aircraft, which seated twenty passengers, substantially lowered their operating costs, making passenger operations more attractive. The introduction of the first jets into commercial service in 1956 was a watershed event for aviation. Almost overnight, the speed of air travel doubled, but the jet also created problems for airlines not used to maintaining these new aircraft and air traffic systems not used to the speed with which incidents might occur. A series of accidents led to public outcry for government action to improve the safety of the skies.
The Federal Aviation Act of 1958 modified the old Civil Aeronautics Act of 1938, expanded the power of the government over matters of safety, and created the Federal Aviation Agency as an independent agency answerable only to Congress and the president. With the formation of the Department of Transportation in 1966, the agency’s name was changed to the Federal Aviation Administration (FAA) and placed under the secretary of transportation. The FAA consolidated all air safety research and development under one agency and assumed responsibility for the creation of safety rules. The fact that air travel increased from just over 1 million passengers in 1938 to 267 million in 1978 meant that the FAA served a vital role in developing a safe air transportation system.
While technological developments continued to improve the safety of air transportation, a growing number of critics began arguing against the economic regulation of the industry. These critics contended that the regulation of route entries and exits as well as prices created fares that were higher than the unregulated intrastate routes. This regulation limited competition on profitable routes and prevented carriers from exiting less profitable ones. In the wake of public distrust with government caused by the Vietnam War and the Watergate crisis, the political climate was ripe for deregulation of the domestic airline industry. The Airline Deregulation Act of 1978 marked the end of an era.
World War II diverted the attention of many governments from issues of commercial domestic aviation and interrupted international aviation. In the closing year of the war, however, the Allied Powers, led by the United Kingdom, the Soviet Union, and the United States, were ready to begin considering the role of aviation in the postwar world. A conference was held on November 1, 1944, in Chicago, Illinois, involving representatives of fifty-four allied nations to consider matters relating to international aviation. The Chicago Conference, as it is commonly known, considered four proposals for the international aviation environment. Australia and New Zealand suggested creating an airline with international ownership and management. The United States proposal favored individual ownership and unrestricted rights to all international markets with the fares and frequency of flights determined by free market forces. The British also wanted individual ownership, but they favored tight regulation of market entry, fares, and frequency. They suggested the creation of an international body to regulate matters relating to international aviation. The Canadian proposal represented a compromise between the U.S. and British positions. It called for limited competition and a multilateral organization to allocate routes and review questions of fares and frequency. Unfortunately, the representatives were not able to reach agreement on any of the proposals.
In 1946, the United States and Great Britain met again to address the question of international aviation. The result of the meeting was an agreement commonly called Bermuda I, after the site of the meeting. This agreement became the first bilateral air service agreement, that is, the first agreement between two countries on the air rights granted to each party. Bermuda I set the pattern that all other agreements would follow. It established the principle of reciprocal rights or the exchange of air rights in air service agreements. Bilateral agreements would also designate the number and sometimes the name of the carriers from each side allowed to operate to each country and would establish limits on capacity and route frequency. As a result of Bermuda I, an international body was established to allocate routes and set fares. This organization, the International Air Transport Association (IATA), was made up of representatives from all airlines providing international service. A second organization, the International Civil Aviation Organization (ICAO), was formed to deal with technical and safety-related aviation matters. Over time, bilateral agreements became the key to international aviation. Agreements would be negotiated by governments, often with the input of their major carriers. These agreements were designed to protect the national carriers from international competition.
The decision by the United States to begin deregulation of its own markets in 1978 also affected international aviation. Invoking U.S. antitrust law, which prohibited competitors from colluding to set price and allocate supply, the U.S. government issued a notice to IATA that it was considered an illegal cartel. U.S. airlines were notified that they could no longer participate in the fare- and route-setting mechanisms of IATA. The U.S. government later announced its intention to pursue a strategy of liberalizing aviation markets by pursuing new bilateral agreements, known as Open Skies Agreements, that reduced or eliminated route restrictions and freed carriers to offer fares responsive to consumer demand.
Efforts to free air carriers from economic regulation proceeded on both the domestic and international fronts after 1978. Domestically, the Airline Deregulation Act resulted in the phase-out of the CAB and the establishment of the FAA as the chief agency concerned with matters relating to aviation. Although carriers would still be required to file for a Certificate of Convenience and Necessity, they were now free to enter and exit markets based on consumer demands. Fares would now be determined by the market forces of competition and consumer demand.
People Express in many ways typified the fate of the many carriers that arose after 1978. It was the first carrier established after deregulation and one of many carriers to begin operation as a no-frills, low-fare, regional carrier. The demand for its service was tremendous, leading to explosive growth. In only six years, it became the tenth-largest carrier in the nation. However, to achieve this rate of growth it began acquiring new aircraft and eventually whole carriers, including Frontier Airlines, Britt Airways, and Provincetown Boston Airlines (PBA). Its rapid growth and high debt, along with renewed competition from the large, prederegulation carriers, eventually sent People Express to the brink of bankruptcy and resulted in its acquisition by another carrier. Since the beginning of deregulation, over two hundred carriers have started and failed. Most never achieved the size of People Express before high start-up costs and intense competition forced them into bankruptcy. The fate of the established carriers was often not much better after deregulation. Under the CAB, no major U.S. carrier had ever gone bankrupt, because fares were set and new routes allocated to ensure that airlines made a profit. The cost of operation was not a critical factor to success. The new, deregulated start-up carriers would challenge the older carriers with lower costs and lower fares. In 1982, Braniff International became the first major airline in the United States to file for bankruptcy. It would not be the last. Pan American and Eastern eventually ceased operations entirely. Other carriers faced periods of serious financial crisis, as fuel hikes, economic downturns, and low-cost competition threatened profits and forced cutbacks.
On the international scene, the U.S. government began pursuing a strategy of encirclement to encourage liberalization. In effect, the United States would attempt to sign Open Skies Agreements with countries surrounding major restricted markets, such as Great Britain and Japan, in an effort to divert traffic and revenues from them. It was hoped that this pressure would encourage more rapid liberalization. The final step in the liberalization of the international aviation markets would be to allow foreign carriers to fly domestic passengers, known as cabotage. For instance, in 2001, British Airways had the right through bilateral agreement to fly passengers into New York City, but the airline could not pick up passengers in New York City and fly them to another destination in the United States. One of the features of the European Union (EU) has been to allow carriers from any EU state to fly within the territory of another member state. There are proposals to establish such provisions across the Atlantic between Europe, the United States, and Canada.
While there is still debate about the effects of deregulation on national and international markets, there is evidence that fares have declined. In the light of declining fares, carriers have focused on cutting costs, creating hubs to funnel traffic from smaller markets into larger ones, and utilizing technology to manage revenues. More affordable airfares also means that more people are likely to travel by air. In 2001, it was forecast that more than one billion passengers a year would board an aircraft in the United States in 2011. (This prediction was made, however, before the terrorist attacks of September 11, 2001, resulted in a drastic reduction in U.S. air travel due to security concerns.) Internationally, the rate of growth in passenger traffic is higher in the Latin American and Asia-Pacific markets, where developing nations are turning to air transportation to link their countries and support their industries.
Cappelli, P., ed. Airline Labor Relations in the Global Era: The New Frontier. Ithaca, N.Y.: Cornell University Press, 1995. A collection of articles written by industry experts that focuses on the labor issues involved in deregulation and international aviation. Heppenheimer, T. A. Turbulent Skies: The History of Commercial Aviation. New York: John Wiley & Sons, 1995. A very readable history of the development of aviation up to the deregulation of the U.S. aviation market. Kane, R. M. Air Transportation. 13th ed. Dubuque, Iowa: Kendall/Hunt, 1998. A widely used introductory text for airline management. Sochor, E. The Politics of International Aviation. Iowa City: University of Iowa Press, 1991. An excellent, insider view of the development of the international aviation environment. Toh, B. “Towards an International Open Skies Regime: Advances, Impediments, and Impacts.” Journal of Air Transportation World Wide 3, no. 1 (1998). A very good background on the goals and tactics used by the United States government in pursuing more liberalization in the international air transportation industry. Wells, A. T. Air Transportation: A Managerial Perspective. 3d ed. Belmont, Calif.: Wadsworth, 1994. One of the most widely used introductory texts in the air transportation industry.
Airline industry, U.S.
Delta Air Lines
Frequent flier miles
Pan Am World Airways
Pilots and copilots
Trans World Airlines
United Air Lines
World War I
World War II
Pan American was one of the earliest airlines to shift its focus from mail delivery to world tourism.