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History of airline deregulation in the global market
The deregulation of the airline industry in 1978
The deregulation of the airline industry in 1978
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1.0: Pre-Deregulation
US Airways began, in the mid 1930s, calling itself All American Aviation. It began service as an airmail carrier, supplying service to many small western Pennsylvania and Ohio Valley communities. Then, in 1949 All American Aviation changed its name to All American Airways; with the change of name the airline also changed direction in terms of the service it offered. The airline is able to focus on passenger service with the introduction of the DC-3. The airlines’ route system continues to grow, and in 1953 it changes its name again, this time to Allegheny Airlines.
In 1965, Allegheny Airlines began purchasing the turbine-powered Convair 580. One year later, the airline decided to purchase a DC9-10, and was replaced in 1967 by a DC9-30, which would eventually go on to form most of Allegheny’s fleet. That same year, Allegheny began commuter service Hagerstown, MD and Baltimore/Washington International Airport, which was run by Henson Aviation, forerunner of Piedmont Airlines. The introduction of this commuter service, and the use of regional airlines like Henson was just the beginning; today US Airways’ network includes 10 regional airlines that provide US Airways Express service to 172 cities throughout the nation (http://www.usairways.com).
Although retaining its name, in 1968 Allegheny merged with Lake Central Airlines. This merger allowed the airline to expand its route network further, from Pittsburgh, to encompass the Dayton, Columbus, Cincinnati, Indianapolis, and St. Louis. A few years later, in 1972, Allegheny acquired Mohawk Airlines. Mohawk airline served cities throughout New York and New England. Furthermore, with this merger, in addition to the added route network expansion, Allegheny also acquired Mohawk's BAC-1-11 jets. With these additions, Allegheny becomes the sixth largest airline in the world in terms of passenger boarding’s (http://www.usairways.com).
In 1978, arguably one of the largest events in the airline industry takes place, with the deregulation of the industry. With this, airlines have the freedom to expand route systems, and they also have the flexibility to develop new pricing structures; unfortunately, the industry also looses the protection of the Civil Aeronautics Board. Just like that a new industry is born.
2.0: Post-Deregulation through 1996
With the ushering in of a new industry via deregulation, Allegheny decided to yet again change its name, and in 1979 it became USAir. The company did so in order to express its ever expanding route network, which by post deregulation stretched to include: Arizona, Texas, Colorado, and Florida.
On October 28, 1978, President Jimmy Carter signed in law the Airline Deregulation Act of 1978. This law amended the Federal Aviation Act of 1958. According to (Lawrence, 2004) “its purpose was to encourage, develop, and attain and air transportation system which relies on competitive market forces to determine the quality, variety, and price of air services.” The Airline Deregulation Act (ADA) was to be slowly phased in over a four-year period. As stated by (Lawrence, 2004) “it provided, among other things: 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
Before the merger, American Airlines served more than 270 airports in over 50 countries, boasting combined fleet of 903 aircraft, with operating revenue of $25.76billion in 2013.2 US Airways served more than 207 airports in more than 20 countries, controlling a fleet of 621 aircraft, with operating revenue of $13.05billion in 2013.2 Together they have the opportunity to make more than 6,700 daily flights to 336 locations in 56 countries worldwide, earn upwards of $40billion in operating revenue, and employ over 100,000 employees.3
Southwest Airlines roots can be traced back to Texas in the 1960’s where a company by the name of Air Southwest Co. was created to provide interstate flights in Texas to avoid federal aviation laws. This technique of trying to avoid federal regulation was challenged when 3 other major airlines filed a lawsuit against Air Southwest Co.; later the state of Texas upheld Air Southwest Co. right to fly within the state of Texas and the Supreme Court decided not to review the case. (Southwest Airlines, n.d.) This was a challenging start for Southwest as it was being targeted right off the bat by some of its competitors. The company name was changed in the early 1970’s to Southwest Airlines Co. and a headquarters was established in Dallas, TX. The company’s main focus was interstate flights between the 3 major cities in Texas including Dallas, Houston, and San Antonio. (Southwest Airlines, n.d.)
In 1978, deregulation removed government control over fares and domestic routes. A slew of new entrants entered the market, but within 10 years, all but one airline (America West), had failed and ceased to exist. With long-term growth estimates of 4 percent for air travel, it's attractive for new firms to service the demand. It was as simple as having enough capital to lease a plane and passengers willing to pay for a seat on the plane. In recent news, the story about an 18-yr British...
The original Frontier Airlines was Denver's hometown carrier for 40 years before it folded its wings in 1986 following its purchase by New Jersey-based People Express. The former Frontier carried 87 million passengers over the years and was nationally recognized for both the quality of its service and its outstanding safety record.
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 ticket prices have fallen 40% since 1978. Flights are up: The number of annual departures is up from 5 million in 1978 to 8.2 million in 1997. Flights are safer: Before deregulation, there was one fatal accident per 830,000 flights, now the rate is one per 1.4 million flights. So what's the problem?
Before we discuss government intervention and its affect on an industry’s competition we must first seek to understand the five forces framework. The theory, discussed in 1979 by Micheal Porter seeks to evaluate the attractiveness of an industry. Throughout this essay I will explore the theory and then relate government action and its well-documented affects on the airline industry.
“Northwest Airlines is engaged principally in the commercial transportation of passengers and cargo.” (5) NWA is a complete full service air transportation carrier that is the forth-largest air carrier in the world that services over 750 destinations located in 120 different countries on 6 continents. They operate 2,600 flights daily around the world and operate more than 200 nonstop between the United States and Asia each week. Headquarters is based in Minneapolis/St. Paul. The main connecting hubs are located at Detroit, Minneapolis, Memphis, and Tokyo. Northwest employs 50,600 employees nationwide as of Dec. 31, 1998. (6) NWA also has 1269 Stockholders as of Feb. 26, 1999. (6) Northwest continues to improve cargo shipping by proudly dedicating 12 Boeing 747 aircraft and easily becoming one of the largest cargo airlines in the world. (4) Cargo is very profitable for Northwest because “Northwest has predicted cargo revenue will top the 900 million mark in 2000”. (3) The enormous fleet of aircraft contains 400 airplanes. (1) Northwest has subsidiaries wholly owned (Unless otherwise indicated by NWA) by Northwest Aircraft, Northwest Aerospace Training corps, MLT Inc, Express Airlines, and Express Airlines I. (6)
United Airlines aircraft have soared through the skies for more than 70 years. Initially used to transport U.S. mail, the planes soon took on a few adventurous passengers. In a matter of years, air travel was embraced by the general public, creating a demand for larger, faster, more luxurious aircraft.
The perennial crisis in the airline industry: Deregulation and innovation. Order No. 3351230, Claremont Graduate University). ProQuest Dissertations and Theses,, 662-n/a. Retrieved from http://search.proquest.com/docview/304861508?accountid=8364.
Since its first grand opening in 1971, Southwest Airlines has shown steady growth, and now carries more passengers than any other low-cost carrier in the world (Wharton, 2010). To expand the business operations, Southwest Airlines took over AirTran in 2010 as a strategy to gain more market share for the Southeast region and international flights. However, the acquisition of AirTran brought upcoming challenges both internally and externally for Southwest Airlines. In this case analysis, the objectives are to focus on the change process post the merger with AirTran, and to evaluate alternatives to address the impacts of the merger. II.
Additionally, deregulation and liberalization has accompanied the globalization of the airline industry, so that companies have had to compete against each other in new markets, as well as to gain entry into new territories. The rise of low cost local and regional airlines has made the competitive environment difficult to maneuver for large, formerly-state-subsidized national carriers. This has resulted in the need for strategic alliances between airlines in order to attempt to protect market shares and profits (Friehe and Curti, n.d.).
While sitting in Atlanta’s Hartsfield International Airport, one cannot help but to notice and feel an overwhelming dominant presence of one particular airline. Delta as we know it today, traces its roots way back to 1924. Huff Daland Dusters was founded as the world’s first aerial crop dusting organization. In 1928 the company became Delta Air Service, and the following year Delta carried its first passengers over a route stretching from Dallas, Texas to Jackson, Mississippi with stops in Shreveport and Monroe, Louisiana. In 1941, the company moved its headquarters from Monroe to Atlanta, Georgia.
Through increased competition, especially Southwest, AirTran is only available mainly in the eastern United States. Customers needing to travel to the western US probably will choose another airline that could create brand loyalty for another airline.
1. Issues 2. American Airlines’ objectives 3. The airline industry 4. Market 5. Consumer needs 6. Brand image 7. Distribution system 8. Pricing 9. Marketing related strategies 10. Assumptions and risks