Passengers walk through Hartsfield-Jackson Atlanta International Airport, the world's busiest airport based on passenger traffic, and the main hub of Delta Air Lines. Tami Chappell/Reuters

The concentration of airline service resulting from deregulation has tilted the economic playing field toward larger metropolitan areas.

Various factors have contributed to America’s widening regional divide: deindustrialization, globalization, and the clustering of knowledge jobs in large cities. But it is not just the result of companies and people preferring big, dense cities. National policies also bear some of the blame.

Many commentators believe that lax antitrust policies have allowed the biggest and most powerful firms, which are located in the country’s richest regions, to grow even bigger and more powerful. Recent research by Robert Manduca finds that rising regional inequality is in large measure an outgrowth of the outsized economic gains realized by the top 1 percent of Americans.

An additional national policy appears to play a significant role—the deregulation of America’s airlines. The sweeping deregulation of the airline industry brought about by the 1978 Airline Deregulation Act essentially eliminated the restrictions that once required airlines to fly to smaller and medium-sized cities. In doing so, it freed the airlines to shift their flights from these smaller places and concentrate them in much larger and more profitable ones. Since airports and airline service are key to regional economic development, airline deregulation is another factor that has tilted the playing field toward larger cities and metropolitan areas.

The chart below, from a paper published a few years back in the Journal of Urban Economics, shows the enormous shift in airline service that occurred in the wake of the 1978 deregulation. Note the steep decline in passenger traffic in small and medium-sized metros, and a similarly steep increase in large ones.

Reprinted from the Journal of Urban Economics, Volume 86, Bruce A. Blonigen and Anca D. Cristea, “Air service and urban growth: Evidence from a quasi-natural policy experiment,” pages 128-146, © 2015, with permission from Elsevier.

This study, by economists Bruce Blonigen and Anca Cristea, looked at the economic impact of such deregulation overall, and its impact on small and mid-sized metros versus larger ones. Blonigen and Cristea examined the effects of air service on population, income, and employment growth for more than 260 metros, while controlling for a wide range of factors. They used the 1978 deregulation as a kind of natural experiment—a breakpoint of sorts—that allowed them to zero in on the question of causality: Are large metropolitan areas successful because they have airports, or do they have airports because they are successful?

The answer, according to the paper, is the former. “Our findings suggest that exogenous increases in air services lead to statistically and economically significant increases in regional growth,” the authors wrote. Airports essentially drive the growth of regions where they are based, fueling the expansion of existing industries and the growth of new ones. “We also find evidence that shifts in industrial composition are associated with a growth in the aviation networks,” Cristea and Blonigen added.

All in all, the study found that a 50 percent increase in annual air traffic leads to a 1.6 percent increase in annual population growth, a 1.7 percent increase in annual income growth, and a 2.7 percent increase in annual employment growth. Under its most conservative estimates, a 50 percent increase in an average city’s air-traffic growth rate generates an additional stream of income over a 20-year period equal to 7.4 percent of real gross domestic product, the equivalent of $523.3 million in 1978 dollars, or $2 billion today.

This is in line with the findings of my own research, which shows that airports are one of the key engines of urban economic growth. And in their book Aerotropolis, John Kasarda and Greg Lindsay suggest that airports drive 21st-century economic growth in a way that is similar to how railroads propelled growth in the 19th century, and the automobile and the interstate highway system in the mid-20th century.

As a result of deregulation, small and medium-sized cities have had to turn to incentives—or bribes—to get airlines to provide the service that regulators once required them to provide. As Blonigen and Cristea noted, in a survey by the Airports Council International–North America, more than 60 percent of responding airports reported using subsidies or other incentives to attract domestic flights, while more than 40 percent used incentives to attract international flights.

In this way, airports and airline service reinforce and magnify America’s regional divides. As air service has shifted to bigger cities and hub airports, those metro areas gain disproportionately, while smaller and mid-sized metros not only lose flights, but become less connected to the national and global economies, and miss out on the local economic benefits associated with airline service.

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