Antitrust Issues In The Air Transportation Industry

After decades of comprehensive structural and operational
regulation, the passage of the Airline Deregulation Act of 1978 resulted
in substantial deregulation of the air transportation industry. The
Department of Transportation (DOT) today, has the authority to review
airline agreements and joint ventures (which are also reviewed by the
Department of Justice (DOJ)), and to enjoin unfair or deceptive practices
or methods of competition.
This chapter is structured in four parts. Part A provides an overview
of the regulatory framework applicable to the air transportation industry.
Part B describes the federal antitrust review of mergers, slot swaps and
other agreements among air carriers, as well as conduct issues. Part C
addresses international antitrust issues. Part D describes private antitrust
litigation in the air transportation industry.
A. Regulatory Framework
History of Regulation
The federal government’s involvement in commercial aviation dates
back nearly a century. As early as 1918, Congress authorized airmail
service, the primary commercial aviation function at the time.1 The
industry grew over the next two decades, as technology improved and the
Postal Service received authorization to contract with airlines to carry
mail.2 This authorization helped spur the creation of companies like
United Air Lines, American Airlines, and Pan American Airways.3 In
addition to the Postal Service, the Department of Commerce played a
leading role in commercial aviation as an air safety regulator.4
HISTORICAL PERSPECTIVE, 1903-2008, at 1 (U.S. Dep’t of Transp. 2008).
2. See id.
3. See id.
4. See, e.g., Air Commerce Act of 1926, 44 Stat. 568, 49 U.S.C. § 171 (May
20, 1926).
114 Transportation Antitrust Handbook
a. The Civil Aeronautics Act of 1938
In response to substantial growth of commercial aviation in the
1930s, Congress enacted the Civil Aeronautics Act of 1938, which
consolidated federal oversight of the aviation industry within a dedicated
agency, the Civil Aeronautics Administration (CAA), within the
Department of Commerce.5 The CAA was given a broad range of
powers, including economic and safety regulation and the authority to set
rates. One impetus behind the act was a desire to “allow regulation of
‘chaotic’ competition among air carriers.”6 In the eyes of some in
Congress, competition was to be considered a “proven danger” that
justified regulation to moderate but not eliminate it.7 In fact, it appears
that Congress, on balance, sought to create a moderately pro-competition
policy that would allow for new market entry and restrain competition
only insofar as it might have eroded safety or impaired reliable service.
As described in part A.1.d below, the economic regulatory provisions of
the act arguably were carried out with a zeal that was perhaps
unanticipated by Congress.
b. Birth of the Civil Aeronautics Board (CAB)
In 1940, Congress reorganized several agencies of the government,
including the CAA. A new Civil Aeronautics Board (CAB) was given
responsibility for economic regulation of airlines, safety rulemaking, and
accident investigation, while the CAA’s remnants were restored to the
Commerce Department and made responsible for air traffic control,
safety regulation enforcement, pilot certification, and other safety-related
(1) CAB Regulatory Powers
The CAB served multiple economic regulatory functions. First, it
had the power directly to set rates through elaborate administrative
5. Civil Aeronautics Act, Pub. L. No. 75-706, 52 Stat. 973 (1938).
Print 1975) [hereinafter CAB Practices].
7. Christopher T. Tourtellot, Competitive Policy in Airline Deregulation, 28
AM. U. L. REV. 537, 544-45 (1979).
8. Federal Reorganization Plan No. III of 1940, 5 Fed. Reg. 2,107, § 7, 54
Stat. 1231, 1233 (1940) and Reorganization Plan No. IV, 5 Fed. Reg.
2,421, § 7, 54 Stat. 1234, 1235-6 (1940); see, Kraus, supra note 1, at 4.
Antitrust Issues in the Air Transportation Industry 115
processes, although it more often exercised its rate authority through
approval or disapproval of airlines’ rate filings.9 It also determined
through hearings what routes could be flown and by which airlines.10
Between 1969 and 1974, the CAB imposed a “route moratorium,” during
which “virtually all major proposals for competitive route authority were
denied a hearing,” and which fomented dissatisfaction within Congress
and generated momentum for airline deregulation.11
The CAB also controlled market entry by rigorously subjecting
prospective airlines to a statutory “fitness” test.12 Between 1950 and
1974, the CAB received seventy-nine applications from firms wishing to
offer scheduled domestic airline service, but granted none of them.13 As
of 1975, the CAB also had not allowed any major airlines to go bankrupt,
but instead allowed them to merge to avoid potential bankruptcy.14
(2) CAB Merger Review
The CAB adjudicated airline mergers in full public hearings.15 In
doing so, the CAB considered a merger’s effect on services and
competition, fairness to shareholders of the consideration paid, and the
finances of the carriers involved.16 The CAB’s competition analysis
included traditional antitrust factors such as the creation of a monopoly
or substantial lessening of competition.17 In addition, the CAB often also
9. See CAB Practices, supra note 6, at 10.
10. See, e.g., TWA-Southern Route Exchange Case, CAB, Dkt. 29001, Order
77-4-3 (Apr. 1, 1977) (order), available at
11. See Edward M. Kennedy, Comment: The American Airlines Industry and
the Necessity of Deregulation, 9 AKRON L. REV. 631, 632 (1975-1976).
12. Civil Aeronautics Act, Pub. L. No. 75-706, 52 Stat. 973, § 401(d) (1938).
The U.S. Department of Transportation continues to evaluate air carrier
applicants for fitness based on organizational and financial wherewithal.
49 U.S.C. §§ 41101, 41103, and 41738.
13. CAB Practices, supra note 6, at 6.
14. Id.
15. See, e.g., Allegheny-Mohawk Merger Case, CAB, Dkt. 23371, Order 72-
4-31 (Mar. 28, 1972), available at
16. See generally Delta-Northeast Merger Case, CAB, Dkt. 23315, Order 72-
5-73 & 72-5-74 (Apr. 24, 1972), available at
17. See Recommended Decision of Examiner Arthur S. Present at 17-18,
Delta-Northeast Merger Case, CAB, Dkt. 23315 (Apr. 24, 1972),
available at

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT