My Ambition

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OnLine Case 2.3 Deregulation and the international airline industry When governments regulated their airline industries, in order to control both national and international competition, new airlines were prevented from entering markets, existing companies could not simply offer flights into or out of any airport of their choice, routes could not be poached and prices for specified routes were fixed. This regulation has been systematically reduced since the late 1970s. At this time in the USA, where flying is as commonplace as bus and train journeys, and airline seats are perceived as essentially a commodity product, domestic competition was opened up. This has unleashed the underlying competitive nature of the industry with dramatic effects. The industry is characterized by chaos. It is relatively easy to break into the industry once companies are allowed to do so. Planes can be leased and funded from revenue; maintenance can be bought in. Normally both fuel and planes are easily obtained. A company can enter by offering a limited service and concentrating on particular cities. Deregulation in the USA attracted such companies; and existing large airlines sought to expand their routes. Buyers were generally willing to fly with the airline which offered a flight at the time they wanted to travel, not differentiating, rather than building their arrangements around the schedule of their first-choice airline. The British government has sought competition rather than monopoly control in the UK, privatizing British Airways in 1987. In 1991 the CAA (Civil Aviation Authority) relaxed certain rules, allowing new airlines to fly into and out of Heathrow for the first time since 1977. This intensified transatlantic competition as two strong US airlines (American and United, the two largest airlines in the world), which were restricted to Gatwick, acquired Heathrow/America routes from two weaker competitors, TWA and Pan Am respectively. At the same time Virgin Atlantic was:...