The Deregulated Airline Industry: Legal Challenges for the Nineties

172 Pages·2014·7.55 MB·English

by  Vijayesh D. Roy

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Vijayesh D. Roy
University of Georgia School of Law
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Roy, Vijayesh D., "The Deregulated Airline Industry: Legal Challenges for the Nineties" (1992). LLM Theses
and Essays. 141.
https://digitalcommons.law.uga.edu/stu_llm/141
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THE DEREGULATED AIRLINE INDUSTRY : LEGAL CHALLENGES FOR
THE NINETIES
by
VIJAYESH D. ROY
B.A. (Hon) - Economics, st. Stephens College,
University of Delhi, Delhi, India, 1979.
LL.B, Faculty of Law, university of Delhi, Delhi, India,
1982
Advocate
The Supreme Court of India and The High Court of Delhi
New Delhi
A Thesis Submitted to the Graduate Faculty of the
university of Georgia in Partial Fulfilment of the
Requirements for the Degree
MASTER OF LAWS
Athens, Georgia
1992
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THE DEREGULATED AIRLINE INDUSTRY : LEGAL CHALLENGES FOR
THE NINETIES
by
VIJAYESH D. ROY
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Gra uate Dean ....
To my wife, Kakoli
for her support, patience and encouragement
and
To my son, Abhrajeet
for
being so understanding at so young an age
iii
ACKNOWLEDGEMENTS
I am very grateful to Professor Gabriel Wilner and
other members of the Graduate Admissions Committee for the
opportunity to attend the LL.M Program and for awarding me
my Graduate Assistantship and Tuition Scholarship which
made being here so much easier. I also wish to sincerely
thank Professor Fredrick Huszagh, Director of the Graduate
Program for his help and guidance through out the Program.
I am also grateful to him for helping me choose the
subject of my thesis, and for agreeing to chair my Reading
Committee.
I wish to express my gratitude to Prof. James F.
Ponsoldt for agreeing to be my major advisor and also for
his extremely interesting introduction to the complex
subject of American Antitrust Law. His passionate belief
in the importance of antitrust and the broad range of
subjects discussed in his class made his courses among the
most lively in the Law School.
I wish to thank Professor Thomas Schoenbaum for
devoting so much time to his graduate students in spite of
his rather crowded schedule this year. I was fortunate to
be able to attend Prof. La Salle's course on the Law of
the European Communities and share his insights on the
iv
v
rapidly developing events in Europe, and wish to thank him
for that. I am also grateful to Prof. Dorinda Dallmeyer
for her extremely interesting and innovative approach to
the subject of international negotiations.
without the cooperation and assistance of Professor
Surrency and his staff of libranians completing this
J
program would have been impossible. A special thankyou to
them.
I wish to specially thank Ms. Jane Korbes for always
being so helpful and for helping me keep track of
Professor Ponsoldt's busy schedule.
Of all the persons associated with the Graduate Legal
Studies Department, Mrs. Raye Smith, Administrative
Secretary of the Program, is perhaphs the most deserving
of individual and collective gratitude of the graduate
students. Throughout our stay she has acted as our
guardian angel, smoothing out our difficulties with tact,
consideration and efficiency.
Finally, I wish to express my thanks to my mentor and
guide, the Hon. Mr. Justice Arun Kumar, of the High Court
of Delhi at New Delhi, India, for his constant
encouragement and support. I would also like to thank all
my professors in the Faculty of Law, University of Delhi
for their help and guidance.
TABLE OF CONTENTS
Page
Dedication iii
Acknowledgements iv
Chapter 1: INTRODUCTION 1
1.1 Clarification of Key Terms 3
1.2 Issues Raised by Airline Deregulation 7
1.3 Scope and Focus of Thesis 8
1.4 Organization of the Thesis 10
Chapter 2: THE REGULATORY STRUCTURE PRIOR
TO DEREGULATION 12
2.1 The Civil Aeronautics Act of 1938 and the
formation of CAB 12
2.2 The Powers and Functions of the CAB 13
2.3 CAB Ambivalence towards Competition 19
2.4 Limitations of CAB Regulation 25
2.5 The Cyclical Nature of CAB Regulation 28
vi
vii
31
Chapter 3: THE TRANSITION TO DEREGULATION
31
3.1 Rationale for Regulation
3.2 Theoretical Challenge to the Basis
33
for Regulation
36
Political support for Deregulation
3.3
44
3.4 Deregulation
Changes Brought about by "Deregulation"
3.5
46
to the Regulatory structure
48
3.6 The Theoretical Basis of Deregulation
THE FUNCTIONING OF THE
Chapter 4:
55
AIRLINES\AFTER DEREGULATION
56
4.1 Key Assumptions and Actual outcome
4.2 Airline Competition and the
77
"New Industrial Organization Theory"
Chapter 5: ANTITRUST ENFORCEMENT
93
AND THE DEREGULATED AIRLINE INDUSTRY
95
5.1 Consolidations, Mergers and Acquisitions
101
5.2 Computerized Reservation systems
110
5.3 Control of Airport Slots and Facilities
113
5.4 Predatory Conduct
5.5 Reasons for the Ineffectiveness of the
123
Antitrust Machinery
5.6 Attempts to Increase Competitiveness
128
in the Airline Industry
viii
Chapter 6: ASSESSMENTAND POLICY IMPLICATIONS 130
6.1 The Gains of Deregulation 130
6.2 The Futile Public Debate about the Relative
Merits of "Deregulation"and "Reregulation" 133
6.3 The Challengeof the Nineties 135
6.4 The Lessons of the DeregulationExperience 136
6.5 The "Public Interest" 147
6.6 The Choice of RegulatoryStructure 149
6.7 Proposed RegulatoryMeasures 153
BIBLIOGRAPHY 158
CHAPTER 1
INTRODUCTION
Ever since the beginning of commercial air travel,
the airlines have been among the most regulated of
industries. Aside from extensively regulating aviation
safety, technical standards and operational procedures,
nations have also traditionally controlled the commercial
aspects of the airline business. Most nations have done
this by restricting their airline markets to one state
owned airline.
The United states is one of the few nations where
private ownership and more than one carrier has been
permitted since the inception of the industry. However,
even then, for over forty years the federal government had
strictly controlled the routes, rates and capacity of the
airlines. It also severely restricted entry and exit from
the market and prohibited acquisitions and mergers of
airlines without its prior approval. In addition, domestic
routes were reserved for "national" carriers and a clear
distinction was maintained between carriers permitted to
fly on international flights and those permitted to fly on
1