The material presented above indicates that fares have fallen on average but that some fares have risen. Using the methodology used in Figure 7, Figure 10 shows how fares actually paid in 1993:4 compare with an estimate of what regulated fares would have been for the same trips if the CAB continued to apply the fare formula that they used under regulation. Seventy percent of passengers, accounting for 78 percent of all passenger miles, paid fares less than or equal to what they would have paid had regulation continued. However, some passengers (14 percent of passengers, 10 percent of passenger miles) paid fares more than twice what they would have under regulation. This perceived inequity of fares is undoubtedly partly responsible for instances of public dissatisfaction with deregulation.

#### 3.3. Service Quality and Network Structure

Fares have declined, on average, but what has happened to service quality? One aspect of service quality is how easy it is for a traveler to get a seat on the flight of his or her choice. This is (inversely) related to the load factor, the percentage of seats filled. A low load factor means that, on average, travelers will have a relatively easy time getting a seat on their preferred flight. As load factors increase, travelers face an increasing probability that the flight of their choice will be sold out, necessitating taking a flight with a less preferred departure time. As shown in Figure 11, load factors have increased under deregulation, although there was a trend in that direction in the early 1970s.

Although average load factors have increased, this has not been uniform across routes. In particular, Figure 12 shows average load factor as a function of distance for 1978 and 1993. Load factors have decreased for flights less than 900 miles and have increased for flights greater than about 1200 miles. This was expected. Under regulation, because fares were set below cost for short routes and above cost for long routes, airlines responded by reducing flight frequency on short routes and increasing flight frequency on long routes. With the lifting of pricing regulation, airlines responded by raising fares for short routes and (relative to the lower demand) increasing the frequency of service, resulting in a lower load factor. On long routes, airlines lowered fares and reduced frequency (relative to the higher demand), resulting in increased load factors.

Another change that is receiving a lot of attention is the increased reliance on hub-and-spoke route structures under deregulation. Although, as shown in Figure 13, the percentage of passengers who take connecting flights has only increased from about 28 percent in 1978 to about 32 percent in 1994, a dramatic change has occurred in the nature of those connections. In 1978 slightly less than half of all connections were interline connections, where passengers change airlines as well as planes. Today, interline connections have all but

38 comparison airports are in California, Nevada, Arizona, and Florida, which are likely to have a higher percentage of pleasure travelers than the 15 concentrated airports. Finally, some of what appears to be a hub premium is, in fact, a carrier premium, charged by the hubbing carriers at all airports they serve.