The Changing Airline Industry

A Status Report Through 1981 Gao ID: CED-82-94 June 24, 1982

In response to a congressional request, GAO reported on changes in the airline industry since the passage of the Airline Deregulation Act of 1978. The report discusses airline traffic; fares; profits; productivity; air service patterns, including service to small communities; and safety records.

Since deregulation, the airline industry has encountered two recessions, rapidly rising fuel prices, and the air traffic controllers strike, making it difficult to judge deregulation's role in the industry's performance. Since deregulation, the airline traffic increases posted in 1978 and 1979 have been eroded by declines in both revenue passenger-miles and the number of passengers. The average annual increase in passengers since deregulation was substantially below gains before deregulation. Air fares increased before and after deregulation, but at a lower rate than airline costs. The industry's rate of return on investment, exclusive of one extraordinary gain, fell to a 6-year low in 1981 in contrast to a decade-high rate of return in 1978 and an above-average return in 1979. Air traffic and load factors have declined, severely eroding airline productivity gains. Airline costs, which had decreased significantly between 1972 and 1979, rose in 1980 and remained at that level in the first half of 1981. Weekly departures have increased at large- and medium-sized communities since deregulation. Air service to smaller communities has experienced decreases in weekly departures since deregulation. Through December 1981, 356 communities, while not losing all air service, have been affected by some airline service terminations, but almost half continue to receive air service by one or more certificated airlines. There has been no evidence that deregulation has adversely affected air safety and, in 1981, the fatality rate for certificated carriers fell to one-fourth the 1980 level.

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