Civil Aeronautics Board (CAB)

The Civil Aeronautics Board (CAB) regulated the U.S. airline industry until 1984. The Civil Aeronautics Board is most widely known as the first in a series of efforts toward government deregulation, reducing government rules and regulations affecting American business.
The Civil Aeronautics Act (1938) mandated government regulation to promote “adequate, economical, and efficient service by air carriers at reasonable charges, without unjust discrimination, undue preferences or advantages, or unfair or destructive competitive practices.” When passed, the U.S. airline business was similar to the pharmaceutical industry before creation of the Food and Drug Administration (1906); anyone with an airplane could and did establish an airline, flying wherever he/she wanted to, charging whatever the market would bear, and using equipment he/she deemed air-worthy. It was a classic “free market” industry.
Concerned over the airline industry’s instability, safety record, and fierce price competition, Congress chose to regulate the industry. For almost 40 years the Civil Aeronautics Board regulated prices, routes, antitrust disputes, and consumer protection. In the 1960s and 1970s, led by economic theorists, particularly Alfred Kahn, U.S. politicians began to question the role of government control of transportation industries. In response, in 1978 President Carter signed the Airline Deregulation Act, phasing out the Civil Aeronautics Board’s role of controlling airline routes and prices by 1984. (Other roles of the CAB were transferred to the Justice and Transportation departments.)
Airline executives fought deregulation, arguing the United States had the strongest and safest airline industry in the world. Although they predicted chaos and disaster, the Civil Aeronautics Board was dismantled, and the U.S. airline market saw a surge in competition. Many new firms jumped into the market, and existing firms expanded into new service areas. There were both winners and losers as airlines learned how to compete and customers saw choices expand and prices decline.
Some areas with small populations saw airline service eliminated. Travel agencies, who were supported under Civil Aeronautics Board commission-fixing agreements, saw their fees cut by the airline companies. Throughout the industry, a new emphasis on marketing arose. American Airlines created the first frequent-flyer program, a practice emulated by other airlines and service industry providers. Southwest airlines is the low-cost leader and a model for many new airlines.
Further reading
Daube, Scott. “From Precept to Practice (History of Deregulation).” Travel Weekly 47 (30 September 1988): 47.