As the airline market developed, the US found it necessary to regulate interstate air transport as a “public utility.” Significantly, the “Civil Aeronautics Board” (CAB) regulated fares, routes, and schedules.
The benefit of regulation was predictability and widespread routes. For example, a carrier that wanted to fly from New York to Chicago might be required to open three far less profitable routes to lesser-demand airports. Conversely, traveler to major hubs subsidized the lesser-used routes through higher ticket prices.
Industry incumbent airlines favored regulation because it kept competition at bay. Indeed, the interstate airlines of the day needn’t worry about competition between one another nor from a startup.
Eventually, entrepreneur Kenny Friedkin realized California alone was a large enough market to support a small airline. Because his routes did not cross state boundaries, his airline was exempt from CAB regulation and free to set their own routes and rates.
Pacific Southwest Airlines
In 1949, Friedkin launched Pacific Southwest Airlines. They flew a Douglas DC-3 and operated out of a refitted WWII surplus latrine. The sole route was between San Diego and Burbank. However, by 1955, they upgraded to two DC-4’s, painting them to look like DC-6’s. Pacific Southwest added San Francisco and, later, Sacramento and San Jose. In time, they steadily increased the number of flights.
Friedkin liked to have fun, both in the offices and in the air. His motto was “The World’s Friendliest Airline.” He painted smiles on the nose-cones of his planes and encouraged his flight staff to joke with passengers. Unfortunately, Friedkin died of a stroke in 1962 leaving his son, a pilot, as the owner of the business. They stumbled for years, attempted to diversify into foreign markets like radio, and suffered a fatal crash in 1978. In 1988, Pacific Southwest sold to the airline that became USAir.
Herb Kelleher noticed Pacific Southwest and decided to create a similar airline in Texas. In 1967, Kelleher launched Air Southwest later renamed to Southwest Airlines. Kelleher’s Southwest initially flew between Dallas, Houston, and San Antonio.
In 1971, the US began to deregulate airlines, enabling competition across state lines. Kelleher jumped on the opportunity and became the first national discount airline in the US. Today, Southwest remains the largest discount US airline. Discounting and deregulation vastly lowered the cost of airfare, yet small markets are still served. Some of the prior regulated airlines failed, most notably Pan American World Airways (Pan Am). However, their failure is likely more attributable to financial shenanigans than deregulation or failure to compete in their respective markets.