As far as vital to the economy goes, is it necessary for about every small city (and some large towns) to have air service? Is it vital to the economy that 3-4 carriers compete for passengers at places like CHS or BOI - each trying to eke out a profit?
I can't see re-regulation happening in my lifetime if ever. Besides, how would you regulate? Set fares? Based on who's costs - the highest cost carrier or the lowest? Would it be mandated which carriers served ORD, Washington, NYC? And kick anyone else out? Regulation worked reasonably well for the industry when you only had what are now legacy carriers, but it was the ultimate barrier to entry - the CAB decided who flew where and when.
From the consumer perspective, deregulation led to an overall decrease in fares. According to a GAO study conducted in 1995, average yield for small cities decreased 37% in constant dollars. For medium cities, the decrease was 47%, and for large cities it was 41%. There was an accompanying increase in service - less short haul non-stop but greater connecting service to more cities - especially at smaller cities. The same GAO report cited FAY, which had non-stop service to 9 cities in the SE in 1979 but to only 2 in 1995. Yet one stop connecting service was available to about twice as many cities, particularly cities in the west. This was primarily due to emergence of hubs - under the CAB most service was point to point so the hubs opened up a whole new world of one stop service through the hubs for smaller markets.
Parker is right about one thing - the industry has too many carriers for all to be consistently profitable. But I'm not sure the answer is re-regulation as much as it is to reduce the number through consolidation. And if that consolidation leads to one or more failing, so be it.
Jim