Legal basis was an intrastate airline that after deregulation operated 1984–1995 as the jet carrier
MarkAir The opportunity for intrastate carriers to escape federal economic regulation arose because of the
Commerce Clause of the
Constitution of the United States, under which the US federal government may only regulate interstate commerce, leaving states considerable leeway to regulate companies that operate solely within a single state, so long as that operation has minimal interstate impact. Prior to PSA's launch in 1949, it was not obvious that such a niche existed for airlines - PSA had to assert the Commerce Clause against the US
Civil Aeronautics Board (CAB), the federal agency responsible for economic airline regulation, and the CAB's requirement that PSA's service not have a material impact on interstate commerce required, among other things, that PSA not sell joint tickets to/from out-of-state cities and that PSA not sell tickets on its routes to anyone located outside California. It also meant that when the CAB allowed interstate carriers competing on such routes (e.g.
United Airlines and
Western Airlines) to match the lower fares of PSA, such fare matching applied only to tickets sold within the state of California - on purchases of tickets outside of California on United on a route within California that competed with PSA, normal (higher) CAB fares applied. The CAB took the requirement for minimal impact on interstate commerce extremely seriously. As an example, in the dying days of the regulated era, the CAB was still engaged in a fight with PSA and Air California over the service of these carriers to
Lake Tahoe Airport. This airport is located in California, right next to Nevada, and clearly many travelers used such flights to travel between California and Nevada. In the eyes of the CAB, this constituted a more-than-incidental impact on interstate commerce, which therefore meant such service should be regulated by the CAB, notwithstanding that the route itself was between two California points.
Geography vs law Hawaiian Airlines and
Aloha Airlines are examples of airlines that, prior to 1979, operated solely within a single state yet for several reasons remained regulated by the CAB. First, the carriers did participate in interstate commerce by, for instance, selling connecting tickets to the rest of the United States. Moreover, at times in their history the two carriers were directly subsidized by the CAB, including participating in CAB aircraft finance programs. Further, when the State of Hawaii attempted to certificate an intrastate carrier, Island Airlines, the CAB challenged it on the basis that the channels between the Hawaiian islands were under CAB jurisdiction and therefore no airline could fly from one Hawaiian island to another without engaging in interstate commerce. This was upheld in court. So intrastate Hawaiian carriers were limited to flying within the boundaries of each individual island. For similar reasons, California intrastate airlines could not fly too far offshore. In 1967, the CAB provided Pacific Southwest Airlines with a specific exemption to allow it to fly between Los Angeles and San Francisco more than three miles offshore.
Federal Aviation Administration asked PSA to request CAB permission to use such a routing in the name of safety. The "high seas" were otherwise reserved for CAB certificated carriers. Geographical intrastate operation alone did not imply legal intrastate status.
Role of state regulators Prior to 1979, airlines with such status were economically regulated, if at all, by their home state. For example, prior to 1965, the
California Public Utilities Commission (CPUC) regulated ticket prices for California intrastate carriers like PSA and Air California under pre-existing legislation pertaining to intrastate transportation generally. Only in that year did legislation increase the CPUC's authority to airline certification, market entry/exit and service quality.
Southwest Airlines was certified by the
Texas Aeronautics Commission (TAC).
Air Florida was overseen by the
Florida Public Service Commission. By 1976, 25 US states regulated intrastate carriers within their borders. Of the 25 requiring certification for intrastate airlines, 15 regulated flight schedules, 17 regulated quality of service, 19 regulated market entry/exit and 19 regulated prices. However, other than in a handful of states, intrastate carriers tended to be tiny, a reflection of the fact that the economic opportunity was limited except in larger states. But such state regulation tended to be lighter than that exerted by the CAB. Moreover, state regulators had an interest in seeing "their" airlines succeed. The CPUC allocated non-overlapping routes between Air California and PSA, ensuring the survival of Air California (a new entrant in 1967) against interstate airlines competing on Air California routes. In Texas, enabling legislation specified that the TAC was to encourage and develop intrastate air service.
Lamar Muse, Southwest's first CEO, saw the TAC as "anxious to have a real airline ... under the TAC's jurisdiction." In Florida, the Public Service Commission likewise sought to increase service by intrastate carriers.
Inability to swap state for federal (CAB) certificate During the regulated era, certification of new domestic scheduled passenger carriers by the CAB was extremely rare. From 1950 until 1974, there was only one certification (
Air New England). Only in the last year of regulation (1978) did the CAB relax and award economic certificates. Until deregulation it was impossible for an intrastate airline to swap its state certificate for a CAB certificate. Therefore, while intrastate carriers were one of the few ways to start a scheduled carrier, there was a natural limit bounded by the geography/demography/economics of the state they were certified within. PSA became superdominant within California, hitting a market share of 70% of passengers flying within California, but until deregulation had no ability to go beyond California.
Airline deregulation and the effective end of intrastate airlines The 1978
Airline Deregulation Act effectively abolished federal economic regulation of domestic air travel in the United States starting in 1979 (the CAB was dissolved in 1985 under the same legislation). Further, it protected federally certified air carriers from attempted state economic regulation. Federal, not state, certification now provided the most economic freedom for intrastate airlines, which left state regulatory bodies with no airlines to regulate. For safety purposes, intrastate carriers were regulated, as with any other US carrier, by the
Federal Aviation Administration (FAA). This too is a consequence of the Commerce Clause - one aircraft is the same as any other in matters such as air navigation, and it would make no sense for both state and federal agencies to both provide services like air traffic control. Courts have long viewed safety as a federal responsibility. ==Prominent intrastate airlines==