CIVIL AERONAUTICS BOARD

CIVIL AERONAUTICS BOARD (CAB) was established by Congress through the Civil Aeronautics Act of 1938. By the mid-1930s, the federal government had begun comprehensive economic regulation of banking, rail, trucking, intercity bus, and other industries. This trend reflected a general loss of confidence in free markets during the Great Depression. One core objective of this new wave of regulation was to restrict or even eliminate competition. The CAB and other agencies were expected to eliminate "destructive competition," a term describing a theory that held that unrestricted entry of new firms and unregulated competition could force prices to remain at or below costs, thus denying sufficient profit to survive and operate safely. Passenger travel by air was just beginning to be perceived as a viable industry. With war under way in Asia and approaching in Europe, an aviation industry was considered important to national defense, and the CAB was expected to ensure its survival. The CAB controlled market entry, supply, and price. Its board determined who could fly where, how many flights and seats they could offer, and set minimum and maximum fares. Interstate airlines needed certificates identifying the routes a carrier could operate and the type of aircraft and the number of flights permitted by each. New routes or expanded frequencies required CAB approval.

Once carriers acquired authority to operate between two cities, they were obligated to operate a minimum number of flights. Carriers needed CAB approval to abandon unprofitable routes and seldom got it. The "reasonable rate of return" from profitable routes would subsidize service on marginal routes. The CAB also operated a subsidy program to ensure service to cities that were deemed too small to support service. Whenever airlines got into financial trouble, the CAB arranged mergers with healthier airlines.

Regulated stability had its costs. Airlines could not respond quickly to changes in demand. As in other regulated industries, wages were high and supply exceeded demand. Airlines chronically operated with 40 percent of their seats empty. The protected environment kept prices high, which limited flying to the affluent few. This structure was first challenged under President Gerald R. Ford and was dismantled by President Jimmy Carter in the Airline Deregulation Act of 1978. After the 1978 act, most CAB functions ceased; others were transferred to the Department of Transportation and the Federal Aviation Administration. The CAB closed its doors in 1985.

BIBLIOGRAPHY

Burkhardt, Robert. CAB: The Civil Aeronautics Board. Dulles International Airport, Va.: Green Hills Publishing.

Douglas, George W., and James C. Miller III. Economic Regulation of Domestic Air Transport: Theory and Policy. Washington, D.C.: Brookings Institution, 1974.

Jordan, William A. Airline Regulation in America: Effects and Imperfections. Baltimore: Johns Hopkins University Press, 1970.

McMullen, B. Starr. Profits and the Cost of Capital to the U.S. Trunk Airline Industry under CAB Regulation. New York: Garland, 1993.

BobMatthews

See alsoAir Transportation and Travel .