Analysis of the Airline Industry 1

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Abstract
The airline industry is known to be the fastest mode of transportation throughout the United States. Consumers are constantly trying to find cheaper fares, while airliners are constantly analyzing consumer’s trends to decide how to charge fares. Airliners ultimate goal is to increase revenue. Sometimes the increase can lead to bad service and unfriendly competitive practices. The present day airline industry is dominated by larger air carriers. This paper will discuss why the airline industry has developed into an oligopoly, how price wars historically affected main carriers, why many startup carriers failed, and the advantages of price setting, variation in seat pricing and the advantages of collision of larger airlines. History

The first successful flight occurred in 1903 with the Wright brothers in Kitty Hawk, North Carolina. This marked the beginning of the aviation industry. At first airplane travel was not popular. After the U.S. involvement in World War 1, the airline industry’s growth stagnated until 1927. When Charles Lindberg successfully completed a solo flight across the Atlantic Ocean the industry began to evolve. A variety of air transport holding companies began to form, including American Airways, now know as American Airlines. In 1928, the Boeing Company and the United Aircraft and Transportation Corporation were developed. The United Aircraft and Transportation Corporation merged to form the United Airlines. A major growth of the industry occurred with the development of the mail transport system by the United States Postal System. The Kelly Airmail Act of 1925, allowed private airlines to have the opportunity to function as mail carriers through competitive bids. This expanded the opportunities of carrying other forms of cargo, including passengers. In 1926, because of the massive amount of air traffic, the Air Commerce Act was passed and it allowed Federal regulations of air traffic rules to provide safety. There was not a lot of support to allow for research and development of aircrafts and air space. It was not until the World War II, where enough support was generated. Research provided a way for aircrafts to evolve into a more modernized industry. There were still many air collisions, due to the fact that there was a lack of an accurate system in place, which could monitor the air traffic precisely. This flaw allowed for the founding of the Federal Aviation System and this agency was charged to develop the air traffic control system, to minimize air collisions.

In the years to follow, the number of passengers, and the cost of fuel increased dramatically. The Deregulation of 1978 brought the growth of smaller air carriers and mergers of the larger carriers. This act also marked the beginning of the air industry as it presently stands today. The Airline Deregulation Act Of 1978

Over the past 30 years, the airline industry has navigated away from the controlling over regulation strategies to almost no regulation at all. In the 1980’s, the Airline Deregulation Act was signed into law. The goals of the act were: to keep safety a priority; maximize reliance on competition in air transportation; avoid industry concentration, unreasonable increased prices, reduce service and exclusion of competition; and to encourage entry of new air carriers. This act contributed to the removal of government control over fares, routes, and market entry. The FAA still had regulatory powers over all aspects of airline safety, but the Civil Aeronautics Board (CAB) powers of regulation were eventually phased out. The CAB regulated all domestic interstate air transport route as a public utility. It set the airline fares; routes travelled, and set schedules.

As a result of the act fare prices were lower, passenger loads has risen, and aircrafts can go on longer routes. Costs had also fallen and competition had increased dramatically. Various conflicts with labor unions for many carriers,...
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