Heathrow Airport recently reported that its passenger numbers in 2020 had fallen back to levels not seen since the 1970s, with passenger numbers falling from pre-pandemic levels of around 80 million per year, to just 22 million. Yet what was most surprising about this statistic was not that numbers had fallen so low, but that in a year of lockdowns, border closures and mandatory traveller quarantines, passenger numbers had only fallen back to 1970s levels. Rather than highlighting how much the Covid-19 Pandemic had reduced air travel, it highlighted simply how rare flying was pre-1980.
There is one major reason why so few people travelled by plane in the 1970s: cost. On most routes, only national flag carrier airlines such as British Airways and Air France were allowed to operate, insulated from competition by government regulation that froze out any would-be competitors. For all practical purposes, this meant that the aviation industry acted as a duopoly. As a result, prices were high and air travel was a pursuit available only to the wealthiest in society. For instance, in the 1970s, a return flight from London to New York would cost around $550 or $3,200 in today’s prices - a price out of reach for the vast majority of people.
Then in the 1980s and 1990s the airline industry was transformed forever. Starting with the Thatcher government deregulating air travel between the UK and Ireland in 1986 and followed by the EU in 1992, the airline industry was deregulated and opened to competition. No longer were flag carriers the only airlines allowed to operate on a given route and this created an opportunity for low cost carriers such as Ryanair (formed 1984) and Easyjet (1995) to enter the market and provide a “low cost, no frills” alternative to customers. The effect on incumbent firms and the industry as a whole was dramatic. Average prices were slashed, passenger numbers exploded and flag carriers were generally replaced by low cost alternatives on many routes.
As shown in the chart below, passenger numbers had been stagnant in the early 1980s but rose dramatically in the years following the 1986 and 1992 deregulations. The impact was particularly pronounced at regional airports such as Luton and Birmingham, whereas more established locations like Heathrow saw much less significant increases. This highlights the egalitarian nature of the reforms. With air travel no longer the preserve of a predominantly metropolitan upper-middle class, provincial airports rapidly expanded to serve the new jet-setting working and lower middle classes. Furthermore, the fall in fares and expanded number of routes post de-regulation made many more cities across the UK and Europe considerably more accessible not only to tourists but also businesses and potential investors, making the increased economic integration that defined the continent in the 1990s and 2000s much easier.
In this sense, the deregulation proved an important source of ‘levelling up’, not just providing opportunities to fly for millions of people across the country, but also bringing jobs and investment to the areas where these booming airports were located. This is something the current UK government should perhaps bear in mind, given that the current political orthodoxy appears to be that only state intervention can achieve levelling up, airline deregulation is a potent reminder that this is not always the case.
To demonstrate this point, consider this anecdotal example. In 1978, for his 16th birthday, my father was given airline tickets by his parents to go and visit family friends who had moved from Northern Ireland to Leeds some years earlier. Like most other teenagers at the time, he had never flown before, again for the simple reason that flying was so expensive. The tickets for that relatively short flight from Belfast to Leeds-Bradford cost my grandfather almost a week’s worth of wages from his job at a local factory. It is telling that the cost was so exorbitant that no other members of the family joined him on the trip. Compare that to the situation today, where the same flight can be found easily for £35, or just four hours work on minimum wage and where millions of similarly economically positioned families are able to take holidays abroad every year.
Detractors at this point may be muttering “Post hoc, ergo propter hoc” – that just because the fall in prices and expansion in passenger numbers coincided with deregulation, it does not necessarily mean they were caused by that deregulation. Some may argue that it was technological change that caused the fall in prices and that this would have happened anyway without the need for deregulation. However, there are a number of serious flaws with this objection. Several empirical studies have concluded that it was deregulation and privatisation that caused the fall in prices and expansion in passenger numbers (for examples, see Eckel (1997) and Barrett (1997) ). Further evidence in favour of the benefits of deregulation come by comparing areas of the world today that have a deregulated airline industry with those that do not. All areas today have access to the same aviation technology as each other, and yet areas with deregulated markets such as Europe and South East Asia have significantly lower prices and higher passenger numbers than areas such as South America where regulation remains in force.
Another problem with the technology argument is that there has not actually been a significant amount of technological innovation in the aviation industry over the past four decades. Although they are cheaper and there are a lot more of them thanks to deregulation, passenger planes are still very similar to how they were in 1980. Boeing 747s still dominate the skies, just as they did in the 1970s, flight times for conventional jets are relatively unchanged and the failure of supersonic travel actually means that the industry has arguably gone backwards in this area since 1980 rather than forwards. An opponent may argue that this technological stagnation may also be an unintended consequence of deregulation. That the reduction in airline profit margins with the introduction of more competition has meant they have had less to invest in new and improved technology. However, the case for this is fairly weak, with stagnation likely driven by factors beyond deregulation and even the airline industry itself. Innovation and progress often come to the aviation industry via the military, and in many ways, the aviation industry is still running off the fumes of the advances made during WW2 and the early Cold War. Moreover, almost the entire transport sector from ferries to trains to cars has experienced something of a stagnation over the past few decades, particularly in terms of speed, so it would be unfair to single out airline deregulation as the cause of this.
Now this is not to say that deregulation is a silver bullet to every industry’s problems, and there have been cases where it has went spectacularly wrong but overall, it is clear that the rapid expansion in air travel since 1985 can be attributed to the deregulation and introduction of competition to the airline industry. This competition drove down prices, opening up air travel to the masses. The simple fact is that there have been millions if not billions of business trips, school visits and family holidays taken over the past 30 years that simply would never have happened had the pre-1980s policy remained in place. So, the next time you join millions of others in booking a last minute city break Paris, or a sunburnt week in the south of Spain, take a moment to thank the deregulation that made it possible.