The Surprising Collection of Politicos Who Brought Us Destructive Airline Deregulation

On Aug. 3, 1981, about 13,000 employees of the Professional Air Traffic Controllers Organization went on strike in order to get higher pay, improved workplace conditions and a 32-hour workweek. President Reagan told the nation that the strike was a "peril to national safety" and demanded that the workers return to their jobs in 48 hours. Reagan fired the 11,345 air traffic controllers who ignored the order and banned them from federal service for life. Some were jailed, the union was fined and eventually it went bankrupt.

Reagan busting up PATCO is generally viewed by advocates and critics of unions as a defining moment in the history of American labor. However, few people contemplate the full impact of Reagan’s action. The workers weren’t just fired; they were permanently banned from federal service jobs. Many were jailed and thousands fell into poverty. The union was bankrupt and decertified.

There’s also a curious irony to the situation, which most people overlook: PATCO had backed Reagan during the presidential campaign.

One part of that story involves Ronald Reagan. Although the Republican candidate’s rhetoric was overwhelmingly pro-business, the campaign believed that it should identify a few labor unions that were worth courting. PATCO was a logical choice; many air traffic controllers were military veterans with socially conservative views.

The other part of the story is Jimmy Carter. The president’s Federal Aviation Administration had been extremely shrewd while negotiating with PATCO, and the Airline Deregulation Act, which Carter signed into law, further eroded the relationship.

The legacy of airline deregulation is seldom debated, even in progressive circles. It was no NAFTA, which had a discernable economic impact on the United States and Mexico; casual observers often assume that airline deregulation couldn't have been that bad, as flight prices have certainly gone down since the shift. Access to the skies, prior to the early '80s, meant access to a certain level of luxury. Swank design, three-course meals and unlimited amounts of booze.

Even now, despite the fact that flying in the United States is a major inconvenience for many people, there is still a belief that it’s better than the alternative. In an interview a few years before his death, Alfred Kahn, often referred to as the father of airline deregulation, took responsibility for the cramped legroom and reduced service quality. To Kahn’s mind, the tradeoff evened out. "Airlines were pretty unhealthy financially before deregulation, too. We didn't make things worse,” he said.

The Airline Deregulation Act was signed into law by President Carter, but the liberal role in this legislation certainly isn’t limited to the 39th president. Its legislative history is a case study on the birth of a new kind of Democratic politics, one that disowned the Keynesian near-consensus of the 1960s in favor of supply-side economics.

Massachusetts Senator Ted Kennedy was eyeing a presidential run in the early '70s, but lacked a compelling cause for voters to associate him with. At first, it seemed like Kennedy was the logical choice to take on Nixon, as he could claim jurisdiction for his subcommittee that was investigating the Watergate burglary and effectively build his opposition into a White House run. Kennedy’s committee had held three months of closed-door hearings on Watergate, and the prospect of a Kennedy taking on a corrupt president who hated the senator’s family was the stuff of Hollywood. The newspaper columnist Stewart Alsop imagined it would be, “the biggest political television show since the McCarthy hearings.”

The program, of course, never came to be. Republicans immediately shot back with questions about Kennedy’s connection to the 1969 drowning death of Mary Jo Kopechne. Kennedy “is the last person in the country who should lecture us,” declared Barry Goldwater. Kennedy’s camp soon realized the GOP had a point. Regardless of whether or not the president was a crook, mainstream America would have a hard time with the optics. “Of all Democrats,” wrote the New York Times’ Tom Wicker, “Kennedy [is] the one least able to make the moral case against the Nixon administration.” It was impossible to ever completely separate Watergate from Chappaquiddick in the collective conscious.

Kennedy needed a different cause to distinguish his political career if he was going to run for president, and because of the personal scandal that hovered over him, it couldn’t feature an overriding ethical component. Stephen Breyer, now an associate justice on the Supreme Court, traveled to Washington in 1974 to preside over Kennedy’s subcommittee on administrative practices and procedures. The airlines weren’t regarded as the highest priority in 1974, but there was some recent precedent when it came to altering the economic structure of domestic transportation. Nixon’s Council of Economic Advisers had sought to establish legislation that would stop price collusion in the rail and trucking industries.

Breyer made a list of subjects Kennedy’s panel could potentially tackle and traveled to the senator’s house to go over them. The scene is described in Barbara Sturken Peterson and James Glab’s Rapid Descent: Deregulation and the Shakeout in the Airlines:

“[O]ut of the list of ten items, all aimed at giving substance to the committee and, by implication, Kennedy himself, regulation of the airline industry was plucked from obscurity. Breyer recalled that he felt compelled to point out to Kennedy why no one in Congress had gone near the subject—it was too technical and dull to generate much press coverage. But the more they chatted, the more Kennedy perceived the advantages of such an exercise. Relaxing regulations on airline would inevitably lower fares, Breyer said. Kennedy would appear as a champion of the consumer at a time of raging inflation and soaring oil prices. And economists had been arguing for years that airlines could operate much more efficiently without regulation.”

The United States Senate Judiciary Committee began hearings on airline deregulation in 1975, with Ted Kennedy leading the charge. Since 1938, airline prices and routes had been set by the Civil Aeronautics Board. The system was stringent and bureaucratic, and nearly every attempt to provide lower fares was rejected. Meanwhile, airline profits were guaranteed. In addition to these justifiable gripes, CAB was also a government agency during a time when confidence in institutions had all but eroded. In his book Hard Landing, Thomas Petzinger Jr. describes the allure of such a target:

An attack on the CAB would have a wonderful populist ring, while exposing the labyrinth of federal airline regulation would give Kennedy at least a narrow conservative stripe; he could be seen as a champion of the growing movement to curb the size of big government.

Breyer enlisted the help of his friend Phil Bakes, who had been working on the Watergate prosecution. The two men immediately hit a wall when they realized all airline issues had to go through Howard Cannon, a senior Democratic senator from Nevada. Not only was Cannon chairman of the Subcommittee on Aviation, he was heavily connected to the airline industry, as it was instrumental to the success of Las Vegas. So Kennedy began allowing his staffers to work alongside Cannon’s, contacted him before any public announcements related to the hearings, continually praised his leadership and downplayed his intentions. This was all done while Breyer, Bakes and others launched an ideological campaign for public support. As Petzinger describes it:

“Everything had to be perfect. No one was asking to abolish the CAB, other than a few academics in Cambridge and Ithaca. Deregulation—the word itself was just being born. It was a concept without a constituency. Nobody had ever written his congressman asking for it. This was policy making from whole cloth. Every small advantage had to be seized, every tiny argument mustered.”

Kennedy’s most important intellectual weapon in the war was one of those academics: Alfred Kahn, a Cornell professor and New York State utilities regulator. Kahn, who described himself as a “good liberal Democrat,” had caught the eye of Kennedy’s committee because of his 1970 two-volume work The Economics of Regulation. The book’s thesis was that even faulty competition was preferable to regulation. Kahn’s testimony for the committee was regarded as insightful and humorous; the press was laudatory.

Another notable voice in favor of deregulation was consumer advocate and eventual presidential candidate Ralph Nader. In fact, the idea that government regulation served the interests of business had become a popular one, thanks in part to the consumer advocacy movement. A 1977 poll reported that 81 percent of the American people believed “large companies have a major influence on the government agencies regulating them.”

In Fluctuating Fortunes: The Political Power of Business in America, David Vogel writes that:

“The deregulation of airlines first appeared on the political agenda... when the consumer movement was still relatively influential, and the argument for airline deregulation originally reflected the influence and ideology of consumerism. By the mid-1970s, owing in part to the influence of Ralph Nader and streams of book-length exposes of the regulatory process published under his auspices, ‘the idea that government regulation served business interests permeated mass attitudes.’”

Nader was one of the first people to testify. He told the committee, “Throughout the land people are repulsed by arrogant and unresponsive bureaucracies serving no useful public purpose, and they are looking at this congress to get on with the national house cleaning job that is needed.”

The foes of airline deregulation, like American Airlines chairman Bob Crandall, eventually lost Cannon as an ally. He had been their most powerful bulwark against the push for deregulation, able to block any reform via his aviation subcommittee. Cannon was close with many in the industry, but he wanted to be re-elected and Vegas’ casinos wanted cheap charter flights. In addition to this, Kennedy was a rising star and Cannon was better off aligning himself with the lawmaker than publicly opposing him.

Jimmy Carter was sworn into office in 1977, and that year he appointed Alfred Kahn the chairman of CAB to spearhead the deregulation of the industry. A bipartisan coalition emerged, arguing against regulation. The American Association of Retired Persons, the National Taxpayers Union, the Aviation Consumer Action Project (which was affiliated with Ralph Nader), the Cooperative League of the U.S.A., the American Conservative Union, Common Cause and the Public Interest Economics Group all advocated for legislation.

Cannon introduced an airline deregulation act into the Senate barely a year later, and in the fall of 1978, Jimmy Carter signed it into law.

At the signing ceremony, Carter remarked, “For the first time in decades, we have deregulated a major industry. When I announced my own support of airline deregulation soon after taking office, this bill had few friends. I'm happy to say that today it appears to have few enemies.”

Despite the frustrations of flight in the United States, airline deregulation doesn’t seem to have many enemies nowadays either. Insofar as people know about it, they often assume that the legislation effectively democratized the skies and allowed the middle class to travel more readily. In many ways, this is true: in the late '50s, more than 80 percent of Americans had never been on a plane. Having to put up with a few inconveniences, in exchange for access to air travel, seems like a pretty great tradeoff, as Kahn said.

However, a deeper examination of the airline industry makes this entire argument cloudy. In a 2013 AlterNet piece on the legacy of airline deregulation, David Morris identifies a number of troubling economic reports that cast major doubts on the common assertion that the policy had a direct impact on lowering ticket prices:

• Deregulation advocates point to the 50 percent price drop in airfares since 1980, but they neglect to point out that their own research indicates that only a portion (possibly a very small portion) can be credited to deregulation.
• A 1990 study by Paul Dempsey of the Economic Policy Institute adjusted for changes in energy prices and concluded that airline fares fell more rapidly in the 10 years before 1978 than the 10 years after.
• The most thorough analysis of the legislation’s economic impact was done by David B. Richards. His research indicates, “That the grant of pricing freedom to the airline industry has generally resulted in average prices being higher than they would have been had regulation continued...”

“How could this be?” Morris asks. “The answer is simple. Without constraints, unfettered competition often becomes unfettered concentration. Paradoxically, the authors of the original deregulation law seemed to understand that this could be a problem... But liberals and conservatives, blinded by the large number of new entrants into the market in the 1980s and the oil-price-drop-induced fare decreases, looked the other way when major airlines began to merge.”

As for the frequently overlooked dark side of airline deregulation, it was nicely summarized in a 2014 Jacobin piece by Llewellyn Hinkes-Jones:

“By drastically reducing ticket costs, the major airlines would take on an unsustainable amount of debt that, combined with the loss of business to the new entrants, would lead to layoffs or bankruptcy. Pension funds were then raided and labor contracts voided to pay for the price wars. With each airline company collapse, thousands of employees were laid off, decimating union membership.

To compete, the legacy airlines also drove down the salaries of their pilots, and cut benefits and vacation time. Besides a reduction in compensation, a two-tiered pay system has been set up with decent pay for incumbent pilots and markedly low wages for new entrants. Starting salaries for pilots are now as low as $15,000 a year, even as CEO pay rises inexorably. Remarking on a career in which he had seen his pay cut in half and his pension eliminated, captain Sully Sullenberger told the BBC in 2009 that he did not know ‘a single professional pilot who wants his or her children to follow in their footsteps.’”

This kind of economic structure has inevitably led to the service cuts and ridiculous baggage fees we associate with traveling today. To accept Kahn’s rhetoric about a tradeoff is to assume that a tradeoff was ever actually necessary, or that there wasn’t a way to improve airline regulation short of busting the entire thing up.

In November 2014, President Obama’s Justice Department dropped its lawsuit against the merger of US Airways and American Airlines, paving the way for just four airlines to control 85 percent of the U.S. market. In many ways, it was the culmination of a Democratic project that began nearly 40 years before.