Economic Report of the President

nications industries through the regulation of common carriers andbroadcasters. Several important steps toward deregulation of theseindustries were initiated in 1982. The government can enhance thedevelopment of these industries through continued deregulation.EFFECTS OF AVIATION DEREGULATIONUntil the late 1970s the Civil Aeronautics Board (CAB) regulatedthe airline industry extensively. It allocated interstate routes amongthe airlines and controlled airline fares on those routes. Through itscontrol of air routes, the CAB restrained entry into the airline industry.From its inception in 1938 until the late 1970s, the CAB did notallow any new airline to enter the interstate trunk market. Largely asa consequence, air fares were higher on most interstate routes than ifprice competition and freedom of entry were permitted. This was reflectedby the differences in fares between intrastate city-pairs thatwere not subject to CAB regulation, such as Los Angeles-San Francisco,and comparable interstate city-pairs that were. The latter oftenhad fares that were as much as 60 percent higher than the former.In 1977 the CAB began to ease restrictions on fares and entry. In1978 the Congress affirmed and extended the CAB's measures bypassing the Airline Deregulation Act. This act provided for the gradualderegulation of the airlines, with the termination of CAB domesticroute authority in 1981, the termination of CAB domestic pricingauthority in 1983, and the elimination of the CAB itself in 1985. Subsequentsteps were taken to increase potential competition in internationalaviation. In July 1982 the U.S. Government entered a multilateralagreement with several European governments that permitsgreater flexibility in airline fares for trans-Atlantic flights than waspreviously allowed.While rising aviation fuel costs, the weak economy, and the 1981air traffic controllers strike complicate assessment of the effects ofgradual deregulation, route and fare competition have increased substantiallysince 1977. From 1978 to 1981, the number of U.S. certificatedairlines more than doubled (from 36 to 86). The market shareof the major trunk airlines declined from 87.3 to 80.4 percent in thepast 3 years while, during this same period, the market share of thelocal, intrastate, and new airlines increased from 11.5 to 16.4 percent.Aircraft departures from large, medium, small, and nonhub airportsincreased substantially over the 2 years immediately followingairline deregulation. The percentage of domestic markets with fouror more carriers grew from 13 in May 1978 to 73 in May 1981. InApril 1982, 77 percent of the domestic coach traffic of the major airlinesmoved on discount fares, compared to 46 percent in April1978. And while operating expenses per available seat mile rose by109