The antitrust implications of airline deregulation

• Author: Marvin S. Cohen
• DOI: 10.1177/0003603X8302800105
• Published date: 01 March 1983
• Date: 01 March 1983
• Subject Matter: Article

The

Antitrust

Bulletin/Spring 1983

The antitrust implications

of

airline deregulation

BY MARVIN S. COHEN*

131

From 1938 to 1978 the federal government, through the Civil

Aeronautics Board (CAB), regulated the domestic air transport

industry through control

of

entry/exit and pricing. The antitrust

focus during this period was primarily on mergers and agree-

ments, with attention given sporadically to price discrimination

issues. Deregulation has shifted this focus. Instead of mergers

and agreements and their alleged public benefits, antitrust practi-

tioners are now examining entry barriers, watching for predation,

and applying economic analysis to a functionally dynamic airline

industry.

"Deregulation" assumes that the airline industry will be better

regulated by competitive market forces

than

by a government

agency. The evidence to date tends to confirm the validity

of

that

assumption. However, as competition intensifies, vigilant en-

forcement

of

antitrust laws will be essential to the preservation of

an open competitive industry.

This article will survey the changes in the government's

treatment

of

mergers and agreements, and then discuss the

antitrust issues which have arisen as the government has with-

drawn from the economic regulation of air transport.

It

will refer

the reader to recent CAB publications and law review articles for

detailed antitrust analysis

of

these issues.

•Partner, Stroock &Stroock &Lavan, Washington, D.C. Former

Chairman, Civil Aeronautics Board (1978-1981). (Secretary, Pacific

Express, Inc.)

©19S3 by Federal LegalPublications, Inc.

132 The antitrust bulletin

Statutory framework

Pre-deregulation

CAB

antitrust policy

Since 1938, prior approval by the CAB has been required for

any airline merger or acquisition. Until 1978, the standard for

merger approval, while encompassing monopoly and competitive

constraint considerations, was essentially the general public in-

terest.' The Board would consider the "good" effects and

"bad"

effects of a proposed merger. National antitrust policy was

merely one public interest consideration among others. Mergers

were most often used to rescue failing airlines, and immunity

from the antitrust laws was automatically extended to approved

mergers."

Agreements among airlines which might otherwise have vio-

lated federal antitrust laws were permitted if approved and

immunized by the CAB on the ground that they served the public

interest.3The major agreements approved by the Board were the

agreements

of

the Air Traffic Conference

of

America (ATC)

establishing the travel agency system for domestic ticket distribu-

tion, the International Air Transport Association (lATA) agree-

ments establishing the travel agency system for international

tickets and allowing "price coordination" among international

airlines, and the scheduling committee agreements dividing slots

among airlines serving capacity-constrained airports.

In addition, the CAB was granted, in relation to air travel,

authority equivalent to both the Federal Trade Commission's

IFederal Aviation Act

of

1958, §408, 49

U.S.C.

§1378.

2

For

a full discussion

of

the old merger provisions

and

their

application by

the

CAB see North

Central-Southern

Merger Case, CAB

Docket No. 33, 136, at 21-23 (Feb. 9, 1979) (decision

of

Administrative

Law Judge Joseph Saunders); see also Keyes, Notes on the History

of

Federal Regulation

of

Airline Mergers, 37 J.

AIR

L. &

COMM.

357

(1971).

3Federal Aviation Act

of

1958, §412 (amended 1978), 49 U.S.C.

§1382.