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Deregulation of the U.S. airline industry
Deregulation of the U.S. airline industry
Forces that effect the airline industry
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One of the world’s most competitive and prominent industries is the airlines industry. It generates huge amounts of income as well as employment each year. Some of the common names in US air travel service providers are Alaska, Northwest, Southwest, US airways, American etc.
According to the latest statistics given by the International Air Transport Association (IATA), the airline sector will post a profit of $9 billion in 2011. After the recent credit crunch, economies are now coming back to normal, business travel is increasing and investments in the airlines are now rising.
Political/Legal influences
Privatization
Over the years airlines have undergone large-scale privatization; previously a significant portion of airlines industry was government-owned. Privatizing the industry has led to drastic increase in the number of air service providers and the airline travellers.
Legal provision
Civil Aeronautics Board (CAB) was established to control the activities of the commercial Airline industry; it used to set the rates and even the mergers in the industry till the first forty years after its establishment. Then Airline Deregulation Act 1978 was adopted to make the industry more efficient and privately owned. This act removed the powers of CAB, subsequently CAB was wound up in 1984. This act still gives the authority of regulating air safety to government through Federal Aviation Administration. All airlines need to have 2 certificates:
1. Fitness certificate (issued by Department Of Transportation): To ensure the airline is financially and management-wise strong enough to carry on the services adequately.
2. Operating certificate (issued by Federal Aviation Administration): To ensure that the airline maintains it cre...
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Manufacturers of large aircrafts are conducting large scale outsourcing of key components especially from japanese manufacturers.
Better communication
Over the years, airlines have introduced new ways of adding value to the firm, for instance online reservation system and forwarding information to the system have opened new avenues to reach customers. (Lars Perner, 2007). Improvements in air-traffic management are also being implemented to ensure flight safety and cordination among aircrafts and various aviation companies (Capoccitti, Khare, & Mildenberger, 2010 ).
The role of research in military technology has contributed a lot to the commercial jets (Collopy, 2004). The commercial airline industry has gone way ahead than the military aircraft industry, due to its public outreach. However the technology in military aircrafts is still way ahead.
The objective of this research report is to provide a thorough analysis of Alaska Airlines. In order to do this we chose to compare a similar company against them. The company in comparison is Spirit Airlines. Both companies compete in the same type of business through airline transportation. Many of their services include; security, safety, transportation of passengers as well as luggage, ensuring vehicle safety while in transit, concierge services, providing entertainment aboard plane, checking weather conditions prior to flight, and much more. All of the data gathered for this report was obtained from the company’s 10-k filings with the SEC.
Growth of commercial aviation was greatly influenced when the U.S. Air Mail Service was created in the early 1920’s. The Post Office was one of the first to impose aviation regulations. It required its pilots to be tested, pass medical exams and have at least 500 hours of flying experience. The Post Office set up aircraft inspection schedules and preventive maintenance programs for the pilots to have a safe airplane to fly. These early regulatory requirements improved air carrier safety.
For the phase-out of the CAB and its authority over domestic routes and fares, For the phase-out of existing economic regulations formerly constituting barriers to competition, Safeguards for the protection of air carrier service to small communities, For the facilitation of entry of air carriers in to new markets, and For certain protection of airline employees who may be adversely affected by the results of the Act.” (p. 228-229) During the times of regulation the Airline industry was completely controlled by the Civil Aero The CAB controlled everything from the price of fares, the routes that the airlines would travel and service, and also airline mergers. According to (Lawrence, 2004) “it was specifically charged with the promotion, encouragement, and development of civil aeronautics.”
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. Because the reasons can differ greatly in the motivations for a customer wanting to fly, it can be difficult to divide the market into discrete segments, that is, there is always going to be overlap in the preferences and characteristics of any given segment. With that in mind, the commonalities that are shared between the clientele that make up the respective classes can easily withstand analysis.
The Airline Industry is a fascinating market. It has been one of the few industries to reach astounding milestones. For example, over 200 airlines have gone out of business since deregulation occurred in 1978. Currently, more than 50% of the airlines in the industry are operating under Chapter 11 regulations. Since 9/11, four of the six large carriers have filed for and are currently under bankruptcy court protection. Since 9/11 the industry has lost over $30 billion dollars, and this loss continues to increase. Despite the fact that the airline industry is in a state of despair, JetBlue has become the golden example, a glimpse of what the industry could be.
After September 11th, 2001, the airline industry experienced a significant drop in travel. The reasons for the airline industry downfalls also included a weak U.S and global economy, a tremendous increase in fuel costs, fears of terrorist's attacks, and a decrease in both business and vacation travel.
On October 24, 1978, President Carter signed into law the Airline Deregulation Act. The purpose of the law was to effectively get the federal government out of the airline business. By allowing the airlines to compete for their customers' travel dollars, was the thinking, that fares would drop and an increased number of routes would spring up.
After World War II there was an excess of aircraft and trained pilots in the United States, which significantly increase in private and commercial flights. An increase in the use of private aircraft and large passenger planes meant an increase in the possibly of aircraft safety incidents. Even though safety measures had been put in place to tend to large number of aircraft in the skies, in late 1950’s there were two unfortunate accidents that finally led to legislation that would be a major change to the world of aviation that affects us even today. The introduction of the Federal Aviation Act of 1958 spurred several changes in aviation that eventually led to the creation of the Federal Aviation Administration.
The Five forces in the airline industry can be easily broken down, firstly the threat of new entrants. Over the last 10 years there has been a huge influx of new low cost companies in Europe such as “Easyjet”, or “Ryan Air” as the low cost niche slowly becomes more full we are seeing less and less entrants since the market has become saturated. The better an airlines brand image, such as British Airways being a recognised name and the use of frequent flier or airmiles schemes the less likely a new entrant with lower prices will be able to break into the market. Next we have Supplier and buyer power in the industry. In terms of the suppliers of aircraft the main two are Airbus and Boeing and so it may seem that this few suppliers would have a lot of power over the airlines, but intact it tends to just increase the competition between the suppliers as they fight for major contracts with the big airlines. The bargaining power of customers in the
Northwest Airlines is one of the pioneers in the airline transportation industry and is ranked at the fourth largest air carrier in the United States today. The success of the carrier depends on the quality and reliability of the service at a reasonable price. Close competitors force Northwest to innovate their services by increasing efficiency. This essay will try to examine different perspectives in the services needed to successfully complete the company’s objectives. The analysis will explain historical and financial perspectives that may give a better understanding of the current market trend of the organization.
As aviation matured, airlines, aircraft manufacturers and airport operators merged into giant corporations. When cries of "monopoly" arose, the conglomerates dismantled.
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
Several large scale, interrelated conditions have affected the airline industry over the past several years in such a manner that every carrier has had to respond in order to remain viable and competitive.
2- American Airlines’ objectives American Airlines’ prime objective is to bring back value to air travel, through stimulating business travel, lowering prices etc. So in other words America...
In India, one can never over-look the political factors which influence each and every industry existing in the country. Like it or not, the political interference has to be present everywhere. Given below are a few of the political factors with respect to the airline industry: