Air transportation industry: The Civil Aeronautics Board Period - Business in United States of America

Air transportation industry

Air transportation industry: The First Airlines

Air transportation industry: Deregulation

Air transportation industry: After September 11, 2001

By 1938, there were 250 passenger flights each day in the United States. However, the system was perceived as too chaotic by the administration of Franklin D. Roosevelt, which considered airlines to be a kind of utility. In line with the prevailing pro-regulation ideology, Congress passed the Civil Aeronautics Act of 1938. Not only did it create the Civil Aeronautics Board (CAB) to regulate routes and rates, but it also froze all existing airmail contracts in perpetuity. 

Prices for flights were determined by the CAB based on the costs provided by the airlines themselves so that the airlines were guaranteed to make a profit. Eventually airlines made a distinction between first class and coach, but even flying coach was so expensive that Pan Am partnered with the Household Finance Corporation to help middle-class travelers pay for tickets through installments.

Hughes bought a majority of TWA stock in 1939 and worked with the Lockheed Corporation to develop the L-049 Constellation. It had a pressurized cabin that allowed it to fly at high altitudes, four engines that made it twice as fast as the DC-3, and the same range as the China Clipper. In 1955, Pan Am began flying the first passenger jet, the Boeing 707, and flight times were reduced even further. PanAm started flying the Boeing 747, the first jumbo jet, in 1970. 

American Airlines developed the first computerized reservation system, Sabre, during the early 1960’s. It enabled American to manage its inventory of planes and seats more efficiently and eventually accumulated reams of data. United build the second system, called Apollo, and other airlines such as Eastern, Delta, and TWA built their own systems as well. In 1976, United offered to place its terminals in the offices of travel agents, although American actually placed more Sabre terminals in those offices than any other airline. By the mid-1980’s, American’s terminals were in 34 percent of the 30,000 travel agencies in the United States, and United’s were in about 25 percent.

In 1969, the CAB allowed the airlines to offer discount fares such as youth and family fares. Two airlines, however, began offering low-price tickets as the norm, not the exception. Pacific Southwest Airlines (PSA) and Southwest Airlines both flew within the borders of just one state, PSA in California and Southwest in Texas. Consequently, they were not subject to CAB regulations and could set their own prices. The volume on PSA’s route between San Francisco and Los Angeles was so high that the airline could sell a one-way ticket for $10. In 1971, Southwest began flying between Houston, San Antonio, and Dallas Love Field Airport and charged $26 for a one-way ticket, except for the last flight of the day, for which it charged $10.

Braniff, also based in Texas, cut ticket prices within Texas even further, to $13 for a one-way ticket. Texas International Airlines received permission from CAB to offer “peanuts fares,” which were 50 percent off their regular rates. Continental Airlines countered with “chickenfeed fares,” and American introduced “super saver” fares that required advance purchase and one-week layovers.

A service company, founded in 1971, revolutionized the air cargo business. Originally based in Little Rock, Arkansas, Federal Express (better known as FedEx) moved to Memphis in 1973. Its concept was to guarantee next-day delivery of packages via a central hub. The company started with fourteen airplanes connecting twenty-five cities.