Background
The notion of flight – of traversing the vast highway of the skies – was once a dreamlike idea that was invigorated into reality in 1903, when Orville Wright piloted the first powered aircraft a mere twenty feet above the sandy shores of North Carolina. The subsequent century expanded upon his success, innovating airplanes and developing a booming industry founded upon air travel. It is thus valid to assume that, globally, we as a civilization have changed how we live and experience the world as a result of the airline industry - we are able to settle, travel, and conduct business in places once deemed remote and inaccessible, and our world is undoubtedly more interconnected. Traveling by air has become a commonplace service, altering our perception of distance and diminishing travel time, and the industry is continuously making efforts to improve and advance. The Airline Deregulation Act of 1978 within the United States promulgated an era of unencumbered competition within the market, opening the floodgates for newer carriers – with a variety of lower pricing structures – to compete with formidable incumbents. Numerous carriers consequently filed for bankruptcy, and many of the industry leads consolidated their airlines to increase their power. Within the last twelve years alone, a series of bankruptcies and mergers have resulted in ten major U.S. airlines consolidating into four market-dominating mega-carriers: American, Delta, Southwest, and United. Why is
The airline industry has long attempted to segment the air travel market in order to effectively target its constituents. The classic airline model consists of First Class, Business Class and Economy, and the demographics that make up the classes have both similarities and differences to the other classes. For instance there may be similarities between business class travellers on a particular flight, but they will not all be travelling for the same reason. An almost-universal characteristic of air travel is that customers do not fly for the sake of flying; the destination is the important element and the travel is a by-product, a means-to-an-end that involves the necessity of an aircraft that gets the customer from point A to point B.
Flight has become romanticized by humanity, it provides “Freedom”. Throughout the majority human history, humans have used land and water for their transportation needs. The invention of the airplane opened the use of a third medium, air. Flight only has the illusion of freeing us from earth. Airplanes would not be able to maintain flight without their ground based systems. These systems are arranged along flight corridors or airways. The Transcontinental Airway was the first major flight corridor constructed in the United States. The ground systems constructed along these corridors have made major impacts upon the landscape of the early 20th century.
The results of airline deregulation speak for themselves. Since the government got out of the airline business, not only has there been a drop in prices and an increase in routes, there has also been a remarkable increase in airline service and safety. Airline deregulation should be seen as the crowning jewel of a federal de-regulatory emphasis. Prices are down: Airline
The Airline Deregulation Act of 1978 had substantial effects on labor relations in the airline industry. Prior to deregulation, airlines experienced stability within the industry; and unions flourished as they gained control in collective bargaining. However, once Congress passed the deregulation law, stability within the airline industry became compromised; and the relationship between labor and management became increasingly strained.
American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.
Market structure can be defined as patterns of behaviour by enterprises in an effort to adjust to the markets in which they operate (buy or sell). Pricing strategies and collusive behaviour mergers are a few dimensions of market conduct. It is the industry norm for a legacy carrier to offer service to most popular destinations; Delta reducing routes to a similar schedule as the low-cost airlines is not an option in the multi-billion dollar industry. In order to gain market share from low-cost airlines, Delta must create a value proposition that differentiates itself from its competitors. Many customers will pay a premium if the level of service provided is higher than the low-cost, no-frills
Airline deregulation is the process of removing the government-imposed regulations on the entry of new airlines as well the airline fare limiting the competition and growth of the airline industry. In the United States, airline deregulation mainly refers to the Airline Deregulation Act of 1978 signed by President Carter. President Carter signed the Act, but the act was proposed initially during Nixon’s presidency, and was carried out by the Ford Administration. The airline industry was growing dramatically during the 1960s and mid-1970s. Due to the steady increase in the demand, airlines were facing three major difficulties- lack of free and stable market, high ticket prices leading to poor productivity, and rising
The domestic US airline industry has been intensely competitive since it was deregulated in 1978. In a regulated environment, most of the cost increases were passed along to consumers under a fixed rate-of-return based pricing scheme. This allowed labor unions to acquire a lot of power and workers at the major incumbent carriers were overpaid. After deregulation, the incumbent carriers felt the most pain, and the floodgates had opened for newer more nimble carriers with lower cost structures to compete head-on with the established airlines. There were several bankruptcies followed by a wave of consolidation with the fittest carriers surviving and the rest being
At the onset of the airline industry in the United States, major network airlines were the sole providers of air travel. This multifaceted industry was a difficult industry to break into as a consequence of “sophisticated customer segmentation, hub-and spoke models and costly information systems for reservations, fare wars and intense competition” (Thompson 2008). Shrinkage in airline ticket prices augmented the demand for airline travel. Many markets were simply deserted or over-looked by major network airlines; this is a region a fresh “second tier of service providers” could enter into. This endeavor proved to provide a consumer savings of billions per year. Thus in June of 1971, after a tumultuous battle with other Texas-based
In recent years, the U.S. airline industry has been restructured and consolidated into a number of mergers. By 2014, the top 6 airlines controlled 94% of domestic market share by available seat miles. Mergers in the U.S. airline industry reduce competition and increase efficiency in resource utilization. It also benefits customers with a wider range of coverage with more routes and destinations. It was inevitable for American Airline to become a merger. After 2005, when the top airlines merged (Delta with Northwest and United with Continental), American was starting to lose its market share to its peers. Competitors took advantage of enlarged capacities and geographic coverage, while America was struggling to maintain its unit revenue. American’s
A drop in fares has been the best result of the Airline Deregulation Act of 1978. It has been the impetus for the increase in the number of flights, which in turn has spurred a drive for greater safety in airlines. But with the current airline market, this development has given us one negative. Since ticket prices have dropped to new lows, the realities of an industry which operates on such economies of scale dictates that only a few competitors have the capacity to operate within the market. This is not the desired effect of either political side on this issue, but it is an economic necessity with the environment that has been created, very similar to that of public utilities and phone companies.
Airlines Industry is large and growing, it is also the most fiercely competitive sector. It facilitates international trade, world economy growth, tourism and international investment. The airline industry has over time with the use of modern technology been able to take advantage of the short haul, high frequency and gained a competitive advantage over other forms of travel, such as buses and railroad travel. Additionally, the airline industry still holds the market for global travel at a low cost and convenient way to travel. The aviation industry gives a good contribution to the GDP which includes the following: airline services, general aviation, civil airport operations, aircraft manufacturing, and
3,4- The Airline industry and the market The airline industry is large, specially in the United States, mainly due to the “ Deregulation” of the industry. In 1938, the Civil Aeronautics Board was created to control the growth of the air transportation industry. This board had the authority to control entry, exit, prices and methods of competition. In the late 1970 this structure was found inefficient and in 1978 deregulation took place. Due to the deregulation of the industry competition intensified, prices dropped, and the number of people travelling increased. Many new companies emerged and regional airlines saw deregulation as an opportunity to expand. Due to the rise in competition, by 1986 mergers started to take place and in 1987 64.8% of the market was controlled by the four largest airlines. The demand for air travel is determined mainly by price, studies revealed that half of the leisure travellers and on quarter of business travellers did not have a preference for a particular airline, which means that prices determined the
The years since regulation have been rocky for the airline industry. Airline after airline has declared bankruptcy and either ceased existence or emerged as a weaker airline. The surviving airlines have done so by merging and protecting their territory with tactics not even dreamed of in most industries. Robert Crandall said it best when he noted, "This is a nasty, rotten business (Petzinger,1995)." You would think that with the competition allowed by deregulation that a large number of new names would exist, but that does not seem to be the case. Most Americans still travel on American, Delta, United, US Airways, or Continental (Kane, 2003). The only true champion of deregulation is Southwest Airlines, whose success is paving the way for others such as JetBlue, but the obstacles are enormous. Initially, the airlines went after each other by slashing fares and driving competitors out of business. The industry quickly learned that although this tactic was effective, it was not profitable, and it was more economical to focus on controlling the air out of a few cities (hubs) than to attempt to directly compete in every single market. Since most of the major airlines already had key cities in which they controlled most of the takeoff and landing slots, airlines could charge higher fares and take in greater profits without any real head to head
Demand for air travel is embarking on a period of unprecedented growth with expectations that by 2030 the number of commercial planes around the world will nearly double to 47,000 (John Mandyck, 2017). This literature review will outline the growth of aviation and current issues surrounding the growth of Air Travel combined with its scope to be sustainable. Topics such as green technology, public awareness and behaviour are the focus of this review. The meaning of sustainability is varied and highly contested as a specific definition, however for this review it will referred to as 'Avoidance of the depletion of natural resources in order to maintain an ecological balance' (Oxford Dictionary).