Before 1978, the former Civil Aeronautics Board regulated airlines, controlling the fares they could charge and the routes they could fly. Concerned that these practices caused economic inefficiencies and inhibited the growth of domestic air transportation, the Congress deregulated the industry in 1978. Deregulation was expected to result in fares that more accurately reflected airlines’ costs and, overall, more vigorous competition throughout the nation. Since deregulation, numerous new airlines have started operations, while established airlines have expanded into new markets. Many new airlines that began operations shortly after deregulation have failed, as have some long-established carriers, such as Eastern and Pan Am. Nevertheless, a few airlines that were formed in the wake of deregulation still operate, including America West and Midwest Express. In the early 1990s, over a decade after the industry was deregulated, a second wave of new airlines emerged. Airlines such as Vanguard, Spirit, AirTran, and Frontier now compete with established carriers in selected markets throughout the United States. These new entrants’ cost structures tend to be lower than those of their established competitors, permitting them to charge lower fares to a variety of destinations. In recent years, we have reported that these airlines’ ability to enter and compete in selected domestic markets has resulted in lower fares and better service in these markets. However, we also found that many other communities have not yet experienced vigorous competition and have not realized these fare and service-quality benefits. In 1990, we reported that from 1979—the earliest year for which reliable data on fares were available—through 1988, the average fare per passenger mile, adjusted for inflation, declined by 9 percent at airports serving small communities, 10 percent at airports serving medium-sized communities, and 5 percent at airports serving large communities. In 1996, we reported that the average fare per passenger mile, adjusted for inflation, continued to fall across all sizes of communities but that regional variations were evident. The largest decreases in fares since deregulation occurred at airports located in the West and Southwest, and increases in fares were noted at airports located in the Southeast and in the Appalachian region. The quantity of service, as measured by the number of both departures and available seats, had increased for all airport groups. The quality of service, as measured by factors such as the number of destinations served nonstop and the type of aircraft used, showed mixed results, especially for airports serving small and medium-sized communities. In 1996, we also reported that three types of “operating barriers” discouraged entry by airlines at several major U.S. airports. First, from 1990 through 1996 a few established airlines had markedly increased their combined control of takeoff and landing times (slots) at airports in Chicago, New York, and Washington. As a result, little new entry had occurred at these airports during this period. Second, long-term, exclusive-use gate leases at six other major airports prevented airlines that did not serve those airports from securing the necessary facilities to begin service and compete on equal terms with incumbent airlines. Third, the federal perimeter rule barring nonstop flights exceeding 1,250 miles exacerbated the impact of slots by preventing airlines from gaining entry into Reagan Washington National Airport. For all sizes of communities, average airfares have continued the decline noted in our 1996 report. Average airfares (expressed in constant dollars and in cents per mile) fell about 21 percent in constant dollars from 1990 through the second quarter of 1998. On average, airports serving medium-large communities had the greatest decrease in fares, and airports serving small communities, the smallest decline. However, such averages conceal large variations within the sizes of communities. For example, for passengers flying to or from airports in communities of similar size on trips of similar distances in 1998, one passenger traveling from one airport may have paid almost 3 times as much as a passenger traveling from a different airport. Our review of changes in airfares from 1990 through the second quarter of 1998 indicates that the trends of moderately decreasing average airfares identified in our earlier reports continued at airports serving most communities. Of the 171 airports we examined over the period, average airfares declined at 168. At some airports, the decrease was especially large. For example, at 22 airports, average fares declined by 30 percent or more in constant dollars. At many airports, the decline coincided with the introduction of competing service, often from a low-fare carrier, which, in most cases, was Southwest Airlines. Figure 1 shows the cities in which airfares have declined by the greatest percentage since 1990. At 3 of the 171 airports we examined, average airfares have increased since 1990. These airports serve Duluth, Minnesota (+2.3 percent); Fargo, North Dakota (+0.8 percent); and Dallas, Texas (Love Field, +7.4 percent). At each of these airports, generally only a single airline provided service. Northwest Airlines dominates Duluth and Fargo, and Southwest dominates Dallas Love Field. We were not able to examine in detail each market to determine what factors may have contributed to the decrease in average fares. For example, we were unable to account for differences at airports where competition—and thus airfares—on individual routes may vary widely. On routes out of St. Louis where low-cost airlines offer competing service, fares may be considerably lower than on other routes from the same airport where no such competition exists. Whether the overall average airfare for the airport may have increased or decreased over time depends on the number of passengers flown on all of those routes and the fares they paid. Similarly, we were not able to examine differences in the extent to which certain destinations (such as Las Vegas or Orlando) tend to be more heavily dominated by leisure travel than by business travel. Leisure travel tends to be more price-sensitive, and average airfares in those markets thus tend to be lower than those where there is more business travel. Because some significant changes can occur over the span of nearly 9 years, we examined fare changes from 1990 through 1993 and then from 1994 through the second quarter of 1998. Table 1 summarizes the change in average airfares over the period for airports serving each size of community, according to the length of the passengers’ trips. Although average airfares decreased for most communities throughout the period, since 1994 average airfares increased for certain segments of the traveling public—mostly for passengers making short trips to or from medium-large and large communities. For the 171 airports we examined, from 1994 through 1998 average airfares decreased at 132 airports, suggesting that most communities—small, medium-sized, medium-large, and large—and travelers from those communities have benefited from deregulation. Average fares for passengers making certain trips to or from several airports dropped by more than 50 percent over the period. Average fares for short-and long-haul trips from St. Petersburg, Florida; medium-haul trips from Dallas Love Field; and long-haul trips from Mission, Texas, and Grand Junction, Colorado, decreased from 52 to 77 percent. Fares in some of those markets appear to have been influenced by the introduction of additional competition, especially from low-cost airlines. During the same period, however, average fares increased at 39 airports—13 serving small communities, 4 serving medium-sized ones, 9 serving medium-large ones, and 13 serving large ones. In most cases, the control of a large percentage of the airports’ passengers by a single airline contributed to the increase in fares. Of the 13 airports serving small communities, 12 were served by an individual airline that controlled at least 40 percent of the traffic. Of the four airports serving medium-sized communities, three were dominated by an individual airline that carried more than 40 percent of the traffic. Of the nine airports serving medium-large communities, seven were dominated by an individual airline that carried more than 40 percent of the traffic. Of the 13 airports serving large communities, seven are hub facilities for major airlines. For example, the average fares for passengers making short trips to or from Greensboro, North Carolina; Roanoke and Norfolk, Virginia; Charleston, South Carolina; and Buffalo, New York, all increased by 30 percent or more from 1994 through 1998. Low-cost airlines, such as AirTran, American Trans Air, or Southwest, served none of the 17 airports at small or medium-sized communities in 1998. For the 22 airports serving medium-large and large communities where average airfares increased since 1994, individual low-cost airlines had market shares in 1998 that exceeded 10 percent at only four–Houston Hobby Field, Dallas Love Field, Cleveland Hopkins International Airport, and Midland/Odessa, Texas. At each of those airports, the low-cost airline was Southwest. Figure 2 shows the location of these 39 airports, most of which are in the East and Southeast. For passengers flying to or from airports serving communities of similar sizes on trips of similar distances, the fare at one airport can cost almost 3 times as much per mile flown as the fare at a different airport. For example, passengers flying to or from Las Vegas in 1998 paid, on average, 9 cents per mile, while passengers flying to or from Charlotte paid 28 cents per mile. Moreover, passengers flying to or from airports serving small and medium-sized communities in 1998 paid, on average, over 12 percent more than the national average airfare. Similarly, passengers flying to or from airports serving large communities in 1998 paid, on average, over 8 percent more than the national average. Appendix II summarizes the changes in average airfares for each of the cities we examined during this review. Our review of air service quality factors for scheduled airline departures from May 1978 though May 1998 indicates that the overall quality at most communities served by the airports we reviewed has improved since deregulation. However, the extent to which the overall quality of air service has improved for the 171 airports that we reviewed varies by the size of the community served.