Similarly, the economic issues in the industry are also mostly concerned with deregulation. The evolution of industry structure plays an important role in determining the robustness and stability of lower airfares in unregulated markets (2000). Deregulation also keeps airline fares so low as compared to that of other countries. The reason for this is because despite the failure of most entrants since deregulation, investors continue to create new airlines. There is substantial evidence that entry, particularly by low-cost, low-fare airlines, has a substantial effect in constraining fare levels in markets served by the new carriers (2000). The second reason is that some in the industry have argued that financially marginal carriers may act in ways that depress prices below competitive levels, inducing contagion in financial distress (2000). In addition, some industry participants have argued that financially distressed carriers have cut prices in an effort to raise short-term cash, depressing market prices below efficient levels and threatening the financial security of healthy carriers. Another economic concern is the fact that the airline economy of the US is in a huge upset after the September 11 attack. Some of the companies declared bankruptcy while others are still struggling to survive (2003).…
The Airline industry was incepted in the 1930’s and was heavily regulated by the Civil Aeronautics Board. The CAB determined which routes they could fly, ticket rates, and when they could schedule flights. Airline consumers were severely limited by routes and schedules and many were locked out by high fares. During this time the Airline Industry continued to operate and grow, but did not generate impressive profits. In 1978 the US Government began the process of deregulating the Airlines. The Airline Deregulation Act was approved by Congress on October 24, 1978. As a result, Airlines were able to fly to new destinations, flown more frequently, and dramatically lowered costs. Airlines also innovated new services such as overnight and same day shipping, and determined what consumer in flight amenities to offer. One estimate by the Air Transport Association suggests that ticket prices today are 44.9 percent lower in real terms than they were in 1978. (Brennan…
Following the Deregulation in 1978, a competitive price war ensued among the airline industry as a direct result of the new freedom for airlines to set their own fares as well as route entry and exits. This gave rise to the operating structure of the airlines as it exists today, consisting of the point-to-point system and the hub and spoke system. With this came the change of focus for major airlines to non-stop, cross-country routes in densely populated cities, which, in a regulated environment, would be profitable. This resulted in the obvious outcome of increased competition, thus lowering the average industry prices for non-stop cross country routes which were profitable. This caused operating costs to increase, narrowing the profit margins. During the mid 80 's, acquisition led to eight airlines capturing a disproportionate share of domestic traffic. Due to a recession and increasing fuel prices in the 90 's, bankruptcy and collapse were common to many carriers. As a direct result, new airlines were formed, and now position themselves as low fare, no frill airlines.…
In October 1978, Congress passed, and President Carter signed, the Airline Deregulation Act (ADA). The Act created immediate fare flexibility, and put in place a series of “dates certain” for rapid and complete deregulation of prices and entry, ending with the abolition of the Civil Aeronautics Board itself at the end of 1984. Since the passage of the ADA, traffic and innovation have skyrocketed in the airline industry as consumers have saved in excess of $15 billion annually. Despite the recent turmoil in the industry, airline deregulation generally is regarded as a major success. Other deregulation experiences have not gone as smoothly. Railroads, for example, remained regulated for more than three decades after long-haul trucking and the Interstate Highway System began to erode their monopoly power. The delay in deregulation of the railroads cost the…
• Bailey, E. E., Graham, D. R. and Kaplan, D. P. (1985). Deregulating the Airlines, MIT Press, Cambridge, MA.…
Deregulation of airline industry in US brought many changes to the way the industry operated, which automatically resulted in increase in the number of carriers which specialized in services which were limited to regions and non-stop operations round the clock. These low cost carriers strategy was to purchase older cheaper aircraft and sometimes also operated outside the boundaries of industry wide online reservation systems which many of the larger carriers have implemented effectively. Against the inconvenience caused to the passengers, low fares as compared to the industry standards were offered to the passengers and every now and then new marketing strategies were implemented in order to lure more passengers to use their services on the basis of cost based competitive strategy. This paper also focuses on one of the low cost airline i.e. Delta Airlines and its oligopolistic position in the airline industry. By investigating Delta Airlines, a better analysis of price vs service impact in the airline industry as a whole can be understood and the impacts on travelers and people investing in the organization. Till late 1070s, much of the prices were setup by the government which resulted in price not being a factor of competitive…
To determine the profitability of the airline industry, we will do an industry analysis using…
Airline services were historically heavily regulated, in part because of concerns about monopoly and oligopoly arising from the fact that, in most cases, only a small number of airlines serve a given "city pair" market by providing direct flights between the cities concerned.…
* Airline Deregulation Act of 1978 led to entry of many players in the market and intense competition with low fares.…
References: Bailey, Elizabeth E., David R. Graham, and Daniel P. Kaplan. 1985. Deregulating the Airline.…
In recent years, the European airline industry has exhibited impressively dynamics. The sector has gone through a drastic change on both the supply and the demand side. Unlikely in other industries, the driving forces governing the recent changes do not depend mainly on technological factors, but on developments in the legal, institutional, and cultural domains. Legal and institutional aspects have clearly affected the structure of the market, while cultural forces have influenced spatial mobility and its characteristics. On the supply side, we observe that only a few industries have faced changes as dramatic as those that have occurred in the European airline industry in the past 20 years. Over this time period, the industry has evolved from a system of longestablished state-owned carriers operating in a regulated market to a dynamic, freemarket industry. Before the deregulation, only one or two flag carriers operated the European routes, with airfares being regulated by state bilateral agreements. The process of deregulation and the subsequent process of privatization have induced important changes in the structure of the airline market. This chapter presents a concise analysis of the main characteristics and changes in the aviation sector, mainly from the supply side, which has followed the deregulation.1 The aim is to draw a new profile of the airline industry in terms of new airline business models and compare their characteristics in a way which has rarely been presented in the literature to date. Section 2.2 describes the deregulation of…
The Airline Deregulation Act of 1978 removed government control over fares, routes and creation of new airlines. The Civil Aeronautics Board (the governing body on airlines during regulation) powers of regulation were removed thus allowing the industry to be exposed to market forces. The Act, however, did not remove or diminish the regulatory powers of the Federal Aviation Administration (FAA) over all aspects of air safety.…
During 1978, the US Government passed the de-regulation of airlines by which the Government monopoly over the airlines was significantly reduced and the airlines were exposed to competition both within and outside the country. The role of the CAB, the Civil Aviation Board, tried to bring about changes in the way industry handled airlines by reducing the fares on short haul flight and at the same time increasing the fares on long haul flights to offset losses.…
For many years, European Airlines are considered to be feed by the government. Before 1990s, the introduction of deregulation, this market was highly controlled by the government. Automatically, the result is high price as well as poor management and service. Consumers, of course, complained about the bad perform of them. Like most of the state-owned businesses, although some of the airlines intended to lower their price by cost cutting, redundancies and reorganization because of the increasing competition pressure, most of them failed because of the government interfere and strong labor reaction.…
Later on and as a result of the collapse of European Empires, most profitable target routes were mainly to North America and private charters airlines took advantage of their discounted charges to put Europe’ system of regulation in pressure. Despite some attempts of IATA to contradict this trend, heavily regulated and fragmented airline industry collapsed and the liberalization of the European airline industry took place in late 1980s as a combination of OPEC oil embargo and Single European Act, predecessor from an agreement to the abolition of “pooling agreements”, pricing fixing and government subsidies.…