It wasn't fully deregulated and left alone, some aspects were deregulated. As usual people like to bucket government policy as black and white but in reality it's usually somewhere in the middle.
[1] https://www.transportation.gov/policy/aviation-policy/small-...
It’s a miracle that airlines are as functional as they are. People REALLY like flying.
I've certainly had a few airline experience that ended in my wishing I had just driven from A to B because delays and the general inconvenience of it all meant that it would have been faster AND cheaper to drive, but of course we didn't know that when we booked the flight.
It's more that the government subsidizes their lack of resiliency in a back-handed way. This might not be so bad because markets are usually short-sighted and fail at this, so the only way for it to exist in a market system is for the government to pay for it. This is what the Farm Bill does. It subsidizes food production because people starve when markets are too efficient.
I would say that it demonstrates that, where competition exists, deregulation can achieve some pretty good results. It's worth noting that consumers can choose which airline to fly every time they fly and the cost of switching is non-existent (absent loyalty programs which is why they're called loyalty programs).
It's also worth noting that since airlines are pretty critical infrastructure, when there's an economic downturn and the government bails them out, the government is essentially subsidising the discounts of the previous 10 years and generally doesn't do it for the very small airlines that aren't too big to fail so it's also still a bit government-ish.