THE EFFECTS OF AIRLINE DEREGULATION ON AIRLINE SERVICE FROM AND TO NEBRASKA

The effects of airline deregulation on markets involving cities in Nebraska are investigated in this study. The study has three basic objectives. (1) To assess the effects of airline deregulation on fare and service conveniences in various markets involving cities in Nebraska. (2) To test the theory of contestable markets, as developed by Baumol, Panzar, Willig and others, in the context of air service to/from Nebraska. (3) To estimate the demand for airline services in city-pair markets involving cities in Nebraska. Chapter One discusses the evolution of airline regulation in the U.S. Criticisms of CAB regulation finally led to the passage of the Airline Deregulation Act in 1978. Chapter Two discusses the theory of contestable markets and reviews the literature on the applicability of the contestability theory to deregulated airline markets. Chapter Three reviews the studies at the national level regarding the effects of airline deregulation. While most of the investigators agree that travelers in dense markets have benefitted from greater price competition, there is no such consensus as to the effects of deregulation on small communities. Chapter Four reviews the demand studies. Air travel is found to be more income elastic than price elastic. Chapter Five investigates the effects of airline deregulation on fares, schedules, enplanements and service conveniences for markets involving cities in Nebraska. Deregulation is found to have raised real coach fares. Nonhubs in Nebraska are found to be adversely affected by deregulation. More involvement on the part of local and state agencies in helping the commuter airlines to provide adequate service is suggested. Chapter Six estimates the demand functions for markets involving cities in Nebraska using both time-series and cross-section data and tests the contestability theory in the context of markets involving Omaha. Price elasticity is found to have gone up after deregulation and the contestability theory is not supported. Finally, Chapter Seven presents the summary and conclusions