Aviation Policy: Past and Present

Airline deregulation has been a symbol of the trend toward less expansive government over the past quarter century. The move from economic regulation to deregulation has delivered on its efficiency promises. There have been significant benefits to consumers in terms of lower prices and more convenient schedules. However, airline competition, particularly at hub airports, remains imperfect. The nature of these imperfections is explained better by models of oligopolistic behavior than by the contestability theory. Paradoxically for this industry, the terrorist attack of September 11, 2001, has ushered in an expanded role of government in aviation policy. This expanded role does not reinstate government intervention in airline economic decisions. Rather, it provides financial stabilization (bailout and loan guarantees) of the industry in the short run and long-term structural change in aviation security.