Post Deregulation Act of 1978 Term Paper Example | Topics and Well Written Essays - 2500 words

Post Deregulation Act of 1978 - Term Paper Example The US Airlines industry was primarily a highly controlled one, with heavy regulations imposed upon the air fares, air routes as well as the air schedules. Prevalence of such restrictions within the airlines arena had serious implications upon market demand. The Civil Aeronautics Board (CAB) restricted the entry of new players within the industry, depending upon the approval provided by the Department of Transportation (DOT). Prior to deregulation, unless the DOT endorsed any indigenous airlines company as fit and able to commute passengers within the national premises, they could not operate within the domestic territory (Siddiqi, n.d., par. 1). The outcome of creating such a highly constrictive environment of operation had serious drawbacks upon the cost structure of the companies which were active in the business. Though initially, the profit margin earned by the US airlines industry was quite high, viz., 14%, the situation worsened following the restrictions inflicted by the boar d upon the margin. According to the guidelines being implemented, the profits earned upon stockholder’s equity could not be exceeded beyond a certain ceiling, so that the players who were already present in the market could not increase the air fares above a particular point (Kwong, 1988, p. 14). Though, a low air fare was considered as an advantage for the customers who availed the service, the companies suffered from bottlenecks as their avenues for procuring capital was approaching a standstill.