History of US Airline Regulation
Part 2 : 1926 - 1979 : Good
Intentions, but Successively Bad Regulations
A plane in the 1930s
using the 'Adams Airmail Pickup' system to collect a bag of
airmail on the fly without landing.
Part of a series on US airline
regulation and deregulation
- see extra articles listed in the right hand column.
The government increasingly
recognized the growing importance of aviation and the need to be
a world leader in this new field.
became more complex, the need to create order out of chaos grew,
and so regulation and management of aviation and its growing
plethora of support services evolved.
The industry became
increasingly viable and robust, and the government rationalized
its regulation, separating the safety and services side of
aviation, passing those to what became the FAA, while leaving
untouched the financial and management regulation of the
airlines with little questioning, for decades, as to whether
there remained a need for this or not.
In the second part of this
series, we record the evolving regulatory control of
the aviation industry.
The Growing Need for Regulation
Aviation in the
very dangerous. Unreliable planes and a ridiculous 'gung ho'
attitude by pilots, together with very little knowledge of
aviation science and how to best manage
marginal/risky/challenging flying conditions all combined to
create a lethal mixture from which very many pilots lost their
Some of this danger could be
overlooked and ignored when airplanes and aviation was rare (and
therefore so too were the accidents), and when aviation was a
nonessential curiosity rather than an essential service.
But as the importance of aviation grew, and as the number of
planes and flights grew (along with the numbers of accidents
and fatalities) these issues became more obvious and more
One could also opine that
another serious downside to this was that the much treasured
reliability of the US mail system (remember the Pony Express ethos) was being put at risk by delays, cancellations,
There was another issue too.
The field of aviation was evolving from something that required
no infrastructure at all to one that increasingly needed more
and more infrastructure to support it (navigational aids, night
flying support, emergency landing strips) and which started to
need some basic 'rules of the road' as well.
With the passing of airmail
carrying from the USPS' Air Mail Service to private enterprise,
the government realized that all these new companies were
developing in an uncoordinated and uncontrolled manner, and
wished to create some semblance of order to this rapidly growing
It was also concerned that
the railroads might muscle their way into the aviation industry
and possibly then kill it off to protect their railroad
investments, and so created ownership restrictions to keep the
railroads out of the aviation field.
Lastly, these were all good
and appropriate responses. The government truly
wanted to help and protect the fledgling aviation industry.
It wanted to help ensure the industry would grow and prosper,
and it felt that by establishing some quality and safety
requirements, it could ensure the industry proceeded in the
1926 First Aviation Regulation
These various different
evolving factors, all of which were commendable and sensible,
came together in the form of the 1926 Air Commerce Act. This
contained provisions for the testing and licensing of pilots,
issuing airworthiness certificates for planes, making and
enforcing safety rules, establishing air routes and operating
navigation aids, and investigating air accidents.
This was all
to be handled by the Aeronautic Branch of the Commerce
Department, which took over the services and systems and support
that had earlier been created by the Air Mail Service of the USPS.
Note that this first round
of regulation was primarily about creating some safety
parameters and some service infrastructure. The airlines
themselves experienced little regulation as to what, where and
when they could fly.
The balance of the 1920s
proceeded positively. This was the time known as the
'Roaring Twenties' with extraordinary economic growth, increases
in prosperity, and general positivism in all respects.
1930 - More Assertive
The government had another
great insight and in 1930, at the behest of Postmaster General
Walter Brown, it moved to encourage aviation companies not just
to carry mail, but instead to provide mail services on planes
that could and would also transport passengers and other
freight, too, as per the provisions of the Air Mail Act 1930.
Until that time, the
airlines had little incentive to extend their services to
passengers, because they could make vastly more money carrying
airmail than they could carrying passengers. In 1926,
airlines were paid $3 per pound for flying the mail a thousand
miles. To take in as much for carrying a 180-pound
passenger as for hauling an equivalent weight in air mail, a
line would have had to charge a prohibitive $540 per ticket - a
clearly impossible rate to charge.
Indeed, the rates paid to
the airlines to fly mail were so high that some airlines would
send letters to themselves and profit from it. In one
case, a carrier paid 9c each for Christmas cards that he sent to
himself, and was paid 18c each by the Postal Service for flying
This represented the first
major regulation of the airlines themselves, albeit through the
'back door' of allowing the Postmaster General to selectively
award airmail contracts as he chose.
change in the USPS' remit was now to award mail contracts not to
the lowest bidder, but instead to the lowest responsible bidder.
Another provision gave the Postmaster General authority to
extend or consolidate routes based on his own judgment.
These and other related
provisions of the Act gave a great deal of
discretion and power to the Postmaster General, which he
attempted to use for the betterment of the aviation industry as
Of course, his motives weren't entirely
altruistic. A reliable viable and profitable aviation
industry would benefit the Postal Service and its massively
growing need for more and more airmail to be shipped around the
country every day, and the more viable and efficient the
industry, then hopefully the rates for airmail freight could
The Postmaster General Changes
So, in May 1930, Postmaster
General Brown summoned the heads of the major
airlines and told them he was going to reshape the aviation
industry through selective awarding of mail contracts, and he
wanted to see a series of mergers to create economies of scale
and to avoid competition between companies serving the same
The airlines couldn't agree
on how to do this themselves, and so they asked Brown to do it
for them. He accordingly designated and defined what became the
'big four' airlines - American, Eastern, TWA and United.
This was probably a good
move and a great success. The four remaining airlines had the
confidence and financial strength to invest in their futures and
in research and development to push forward the 'state of the
art' in airline operations and airplane design.
encouragement for planes to carry passengers and regular freight
as well as airmail spurred the airlines
and the airplane manufacturers into developing significantly
This period of rapid growth
and improvement culminated in 1936 with the introduction of the
Douglas DC-3, one of the most reliable 'workhorse' type planes
ever built, a few of which are still in service even today.
10,654 military and civil variants of the DC-3 were produced
during its 11 year production run.
Economic Disaster and the Blame
But at the same time the airline industry was being reorganized by the Postal
Service, the Roaring Twenties were giving way to the Great
The initial stock market
crash on 29 October 1929 was followed by a gradual and partial
recovery in stock prices for the six months that followed, but
the hollow nature of this recovery was indicated by a
skyrocketing unemployment rate, and the country (and world)
entered an extended period of economic and social malaise - the
Great Depression - that lasted through the balance of the
decade. It was not until World War 2 that the
country rose out of the economic mire.
The previous Republican government
was replaced by a Democratic government in the 1932 elections,
with Franklin D Roosevelt ascending to the Presidency and
Democrats controlling the House and Senate.
There was - understandably -
a lot of general and undirected anger about the problems the
country and its people were now facing, and for no real or valid
reason, the Postal Service and its 1930 actions with the
airlines became one such target for recrimination, spurred on by
complaints from the airlines that had lost out in the massive
new government replaced the previous Postmaster General, and
then proceeded to
hold hearings into the possibility of government collusion and
corruption in its dealings with the airlines, in early 1934.
This was a very gratuitous
and baseless act, because during the short term of Brown as
Postmaster General (1929 - 1933) he had visibly increased the
efficiency of the Postal Service and had halved the rate they
were paying for air carriage of mail from $1.10 to 54c per mile.
The matter was a bit like
the McCarthy era in the 1950s, but this time it was the Postal
Service and the airlines that were seen as the evildoers.
And, just like McCarthyism, the situation became very
controversial, and there was some doubt as to the propriety of
the Senate hearings.
The matter continued to get more and more out of hand, and then
on 9 February 1934 President Roosevelt announced he was
immediately cancelling all air mail contracts and directed the
US Army Air Corps to once again provide mail services - even
though no evidence of malfeasance had been uncovered.
It was only in 1941 that the
entire review process was complete, with a finding that nothing
improper had ever occurred, but that was well after the fact and
no longer really relevant. The genie was out of the
The US Army Fails Spectacularly
in the Air
The US Army Air Corps were
given a mere ten days notice that they would be required to take
over the nation's airmail services.
To do this required planes the Air
Corps did not have, and piloting skills it did not have either.
Bombers hastily had their bomb bays converted to mail bins.
Fighter planes filled all empty space around the pilot in the
cockpit with bags of mail.
More seriously, airmail
delivery was - surprising as it may seem - more demanding on
pilots and their planes than were 'wartime' duties the Air Corps
has trained for.
The wartime type activities the
trained for seem laughable today but back then seemed
appropriate - they were largely weather dependent and bad
weather would mean flights wouldn't operate. This was
clearly not the way that airmail service needed to operate, and
a combination of inexperienced pilots (of the 250 pilots
assigned to fly air services, only 31 of them had more than 50
hours of flying time in total), frail (and sometimes
overloaded) planes, all gamely flying through weather they
should have stayed well clear of, saw an astonishing and
appalling rate of crashes and fatalities - sometimes more than
one a day.
In total, there were 66
crashes during the short period the Army was carrying the mail.
Only 66% of all flights were completed, and fewer than half the
mail flights and routes were operated than had been previously
the case prior to the Army being interposed into the middle of
A Rose by Any Other Name
Barely three months later, on 1 June, President Roosevelt
reversed himself and returned the carrying of air mail back to
the airlines, but with a set of draconian provisions, for
example, the airlines that had formerly held contracts were
prohibited from getting new contracts.
This requirement was
satisfied by airlines simply changing their names - for example,
Northwest Airways became Northwest Airlines.
These new requirements were
enshrined in the Air Mail Act of 1934.
Lessons and Outcomes
There are two telling
aspects to the events of early 1934, both of which endured long
beyond the brief four month period. The first is a sense
of distrust by the government towards the airlines. Not so
obvious, but worthy of consideration, is how the airlines must
have viewed the government? First the government, via the
Postmaster General, completely rewrites the game plan and rule
book for the airlines. Second, the government on a whim
and completely unfairly destroys the airlines and gives the
lifeblood of their business to the Army. Third, the
government returns the business back to the airlines after
spectacularly failing to operate airmail services itself, while
gratuitously (and clumsily) seeking to further ensure the
destruction of the previous airline companies.
What sort of company would
want to be so terribly at risk by a potentially out of control
government? Perhaps unsurprisingly, 1936 saw the formation
of the Air Transport Association, the main lobbying
organization for the airline industry. Since that time,
the airlines have become very adept at managing their
relationship with the government.
The second telling aspect of
these events was the government's sense of
responsibility for and control over the airlines, a legacy that
endured for the next 45 years.
Of course, the government's
sense of responsibility and control was mirrored in the reality that the government was - at least in
the 1920s through perhaps the 1940s - the driving and dominant
force in the airline world, due to its ability to award
profitable mail contracts to airlines.
The other part of the
government's role was not so much the market driven reality of
it being by far the largest single customer for all airlines,
but its ongoing regulatory role. If the government was not
determining which carriers prospered and which failed by way of
allocating airmail carriage contracts, it could do so through
its regulatory process instead.
One good thing that came out
of this bad experience was that bidding for air mail contracts
was made more competitive, and this in turn encouraged airlines
to diversify away from what was now a less certain/guaranteed
(and less profitable) revenue stream from airmail carriage, and
to become much more focused on carrying passengers.
1935 Onwards - An Industry
The country and the aviation
industry both struggled to return to normal during the second
half of the 1930s.
A formal organization to
manage air traffic control was
created in 1935 by what was now being called the
Bureau of Air Commerce.
In 1938, the Civil
Aeronautics Act transferred responsibility for non-military
aviation from the Bureau of Air Commerce to a new body, the
Civil Aeronautics Authority, which still remained under the
aegis of the Commerce Department. This was an unwieldy
organization with a wide range of different responsibilities.
Realizing this, the
organization was split in 1940
into the Civil Aeronautics Administration (CAA) and the Civil
Aeronautics Board (CAB). The former was involved in air traffic
control and safety programs, the latter was to handle safety
rulemaking, accident investigation and the economic regulation
of the airlines. This marked a better division of
responsibilities, although there was still a mix of not
altogether related duties assigned to the CAB.
With the increasing
sophistication of airlines, airplanes, and aviation support
systems, there was a thought to be a continued need to evolve
the management and oversight of the aviation industry. And so,
in 1958 the Federal Aviation Act replaced the CAA with a new
organization, the Federal Aviation Agency - an organization that
continues in existence to the present day, albeit renamed as the
Federal Aviation Administration in 1967, becoming part of a
newly created Department of Transportation. At the
the safety rulemaking powers were taken from the CAB and consolidated in the FAA as well.
Lastly, in 1967 the CAB also lost its accident
investigation powers, those passing to the new National
Transportation Safety Board.
This left the CAB with its
remaining powers to regulate the airlines, the routes they flew,
and the fares they charged. The government had now
completed a transition of responsibilities such that all the
infrastructure, service, support, and safety type issues were
centralized in the FAA. As for what remained - the
management and control of the airlines - this was left,
essentially untouched and unquestioned, in the hands of the
remaining part of the CAB, which had an extensive oversight role
that saw it involved in almost every aspect of civil aviation.
Airlines were assigned specific
routes and service areas and given formulas governing the fares
they could charge and the profits they could earn. They were
even subject to rules prescribing the kinds of aircraft they
could fly and their seating configurations.
So how effective was the CAB
at regulating the airlines? Did it help an industry to
grow and prosper? Was the public rewarded with new
services, more airline choices and more flights? Did air
fares drop and drop with the continued improvements in airplane
design and cost efficiency?
None of these things
happened, which set the stage for a growing move towards
abolishing the CAB and stripping the industry of its regulatory
chains. Please read the next part of our series for a detailed look at the
problems with the CAB
and airline regulation in the 1970s and the reasons for its
abolition in 1979.
Part of a series on US airline
regulation, deregulation, and whether or not there should be
reregulation introduced again now
- please see extra articles listed at the top in
the right hand column
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30 Jul 2010, last update
28 Nov 2012
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