Regulatory policy towards the air transport sector: goals, tools, effects

The concept of regulation, although frequently appearing in economics, has not received a clear definition that would delimit its scope. Regulation in a broad sense is often identified with state interventionism, which includes not only economic regulation but also social regulation, competition policy, as well as tax and customs policy.

Entities operating in the market are subject to regulation in two dimensions: microeconomic (regulation of economic sectors, markets) and macroeconomic (fiscal policy or, more broadly, economic policy). These dimensions can be identified with sectoral and horizontal regulation, respectively.
In this study, regulatory policy will be understood as legislative actions primarily aimed at eliminating market imperfections and strengthening competition. The state’s regulatory activity here also includes fiscal policy. Therefore, the presented work proposes a sensu largo approach to regulation, covering both sectoral and horizontal regulation.

The air transport market before deregulation and the first liberalizing actions
Until 1978, the air transport market in the United States was fully regulated by the Civil Aeronautics Board (CAB). The main tasks of this body were: allocating routes to airlines, limiting the ability of air carriers to enter new markets, and regulating transport tariffs. The main goals of the CAB included ensuring the American public had access to air services characterized by a high level of safety, operational efficiency, low prices, and the widest possible reach. In the 1970s, however, the disadvantages of such strict market regulation, leading to its inefficiency, began to be noticed.

Inefficient allocation of resources in the passenger air transport sector and the lack of competition had a significant impact on ticket prices, which were becoming increasingly higher, limiting the accessibility of air travel. In the 1970s, concerns became increasingly common that the highly regulated air transport sector might share the fate of the railways. The first oil crisis at the beginning of the 1970s, which led to a further increase in already high transport tariffs through a drastic rise in costs, also contributed to the introduction of legislation deregulating the air transport sector. (…)

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