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Globalization and the airline industry
Research topics on the deregulation of the airline industry
The deregulation of the airline industry in 1978
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1978 Airline Deregulation Act 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 Senator Kennedy and the Ford administration both were heavy supporters of airline deregulation. Although initially all major airlines and feeder airlines were opposed to the thought of deregulation. During the early 1970’s the government began to notice that unregulated airlines when compared to their regulated counterparts were able to provide the same service but at a discounted price to the airline traveler. When the government compared this side by side the price per mile for a ticket on a unregulated airline to a airline that was regulated by the CAB the price was difference was astonishing. The major airlines had a fear that deregulation would lead to the small feeder airlines being able to compete with their most profitable routes. The Feeder airlines also opposed deregulation because they thought that the major airlines that had been held back by the CAB from expansion would be able to expand and take over all the feeder routes. According to (Lawrence, 2004) “The airline industry remained solidly opposed to deregulation until the hearings in the spring of 1977, when for the first time United CEO Richard Ferris came from the hotel industry, not eh airline, and some said that his conversion to the need for deregulation was the result of a failure to understand the working of air transport.” (p. According to (Poole & Butler, 1998) “What deregulation accomplished was to transform a static, cartelized aviation market into a dynamic, continually changing market. This process has gone through several waves-and is still continuing.” Under regulation as previously discussed mergers would only happen to prevent a break in service due to a struggling airline. At that point nothing more than the strong airline would take over service on that particular route. Bankruptcies have taken a major toll on all the major airlines since deregulation. In a regulated airline high operating cost didn’t mater due to the CAB setting the price of tickets. In today’s deregulated market all major airlines are still battling high labor cost that were set during regulation. Competition is fierce between the “Legacy Carriers” and the LCC’s for market shares. The Department of Justice has became involved to make sure that the new entries are able to gain market shares and compete with the major airlines. As a result of deregulation the number of major airlines has fluctuated from the 16 original legacy trunk carriers to as high as 90 airlines of which 10 were considered major. Since that time the 10 major airline carriers have merged to create 5 super carriers (See table below). (Lawrence, 2004 p.
In the Travel Pulse article "Airlines Leaving Us Little Choice – Like A Monopoly," posted by Rich Thomaselli, the practice of monopolization is observed in the airline industry. The author criticizes large airlines on their growth that has led to at “93 of the top 100 [airports], one or two airlines controlling a majority of the seats” (Thomaselli). The scornful article was written after recent events that have caused the Department of Justice and five States to sue two of the biggest U.S.
During the infancy of aviation no federal safety program existed. Some states passed legislation that required aircraft licensing and registration. Local governments passed ordinances that regulated flight operations and pilots. What this created was a patchwork of safety related requirements. In 1926 Congress passed the Air Commerce Act, which created the Department of Commerce. Historically the Federal Aviation Administration (FAA) dates from the Air Commerce Act of 1926. This was the first federal legislation of the government in aviation safety. The government finally realized that by regulating aviation a safer aviation industry could be attained. For example the Post Office suffered one fatality for 463,000 hours of flying versus non-regulated flying there was one fatality per 13,500 hours. As seen by regulating aviation safety is vastly increased.
whether or not that city had enough gates for the new carrier, and whether the
333-355. Hocking and Waud 1992, Oligopoly and Market Concentration' in Microeconomics 2nd Edition, Harper Educational Publishers, NSW, pp. 315-342. Kathleen Hanser, The Secret Behind High Profits at Low-fare Airlines'. a href="http://www.boeing.com/commercial/news/feature/profit.html">http://www.boeing.com/commercial/news/feature/profit.html/a> [accessed 15 May 2003]
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...
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.
It is very sad that it took two tragic and deadly accidents to make a significant change in the way aviation was regulated. The incidents that led to the creation of the bill that created the Federal Aviation Act of 1958 could have been prevented if safety precautions had been put in place sooner. Unfortunately, the aviation industry was only reactive rather than proactive when it came to airline safety. Nowadays, the private and commercial aviation safety is much more proactive and safety is the number one priority. FAA regulation has not only help aviation become one the top modes of transportation, but also one of the safest in the
The adage of the adage. The Air Commerce Act of 1926 is the legislation that set up rules and regulations regarding the pilot flying the aircraft, aircraft being flown, and other regulations regarding flight rules. Issues that caused The Air Commerce Act to be created is that the need to establish federal regulations that ensure safety of the pilots and the aircraft and also was due to the quick expansion in the aviation industry during the time, therefore rules and regulations are set up for people to abide by. According to AvStop.com, “The Air Commerce Act of 1926 established federal regulations regarding aircraft, airmen, navigational facilities and the establishment of air traffic regulations. Aircraft were required to be inspected for airworthiness, and were required to have markings placed on the outside of the aircraft for identification.
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).
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.
...ll regulates several areas of aviation, such as flight crew and aircraft certification, maintenance, as well as the national airspace system. Slot management is also something that is regulated by a third-party group. In our capitalistic society, it is clear however that routes and fares are both items that are best driven by the market.
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.
Although that did not last forever as the constant price increases on passenger and cargo fairs created a lot of discontent between the tax-payer and the airlines, considering the subsidies given to the airlines were funded by the American tax dollar. To solve the rather large amount of disgruntlement, the United States Government enacted the Airline Deregulation in 1978, and it wreaked havoc upon the airline industry and all of its participants, Northwest Airlines included. The airline was doing rather well until the deregulation where each airline became a part of a cut throat world, giving all the participants rather two rough options, which if were not followed created a certain doom for a particular company. Those two options being: (1) staying extremely flexible and constantly adjusting to the market or (2) creating strong alliances with other carriers that provided a safety net. Northwest Airlines choose to seek safety in numbers by finding a partner to initiate a merger with in 1986 (Moylan, 2008).
United Airlines fleet is known to be the oldest in service. In 2010, United Airlines merged with Continental. Unlike competitor mergers like Northwest and Delta or US Air and American United Airlines was not performing well, having low industry performance ratings. While their employees and customers satisfaction ratings are decreasing.