The state of commercial aviation before and after the passage of the Airline Deregulation Act received much controversy from many different sides in the aviation industry. The Airline Deregulation Act caused many problems before and after it was enacted by the United States government. There were several possible courses of action. Two of these are included here as well as the problems and advantages of each. In conclusion, the rationale for the new law enacted by the government is presented.
5.2 Case Analysis: Airline Deregulation Act
I. Summary
The Airline Deregulation Act was a bill that was passed through the United States Congress and signed by President Jimmy Carter on October 28, 1978. The act was to supersede the Civil Aeronautics Board control and authority over the United States airline industry. The new law was enacted to privatize the airline industry, so that new or smaller private airline companies could profit from air transportation services. According to textbook readings
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(Lawrence, 2015), The Airline Deregulation Act purpose was to encourage, develop, and attain an air transportation system which relies on competitive market forces to determine the quality, variety, and price of air services. Before the act the Civil Aeronautics Board has full authority over the air routes and the airline companies that could profit from them such as Eastern, American, and TWA. II.
Problem
There were many problems before the Airline Deregulation Act was enacted by the US government. The problem was that the Civil Aeronautics Board limited the industry from its full potential. This ranged from limiting the air services available to the American consumers to allowing more companies to profit from the air transportation services.
Another problem with the Airline Deregulation Act after it was passed was that the airline industry opposed for it to be enacted. One problem was that the airline industry opposed deregulation as under regulation they would lose their protection from the Civil Aeronautics Board and their profitable routes they monopolized from. Under regulation there would no longer be an oligopoly as Eastern, American, and Trans World Airlines would have to compete for their profitable routes with other private airlines. The Civil Aeronautics Board would no longer be able to influence the market in their favor.
III. Significance of the
Problem The significance of the problem with the Civil Aeronautics Board authority over the airline industry was that the country was not able to benefit economically from a profitable market. With the Civil Aeronautics Board authority over the airline industry the country’s Gross Domestic Product would not be able to increase as a privatized and competitive market for the airline industry did not exist. According to the Federal Aviation Administration (2016), “Aviation accounts for more than 5% of our Gross Domestic Product, contributes $1.6 trillion in total economic activity and supports nearly 11 million jobs.” Also, many new and smaller airlines could have provided American consumers with more routes, destinations, and air services across the country. Not only could major cities provide air services but smaller cities as well. The Civil aeronautics board also limited the industry by creating regulations that would not allow the industry to improve. For example, in textbook readings (Lawrence, 2015). “Commuters wanted to be free of the CAB-imposed limitation of 30-seat aircraft.” With this limitation the airline industry would not be able to improve aircraft that could accommodate more passengers or cargo. This could have lead to many great aircraft never being built such as the Boeing 747. On the other hand, Eastern American, and TWA saw a loss in profits as they had to share the market with newer and smaller airlines. With the Airline Deregulation Act enacted the airline industry market was now capitalized. This created a huge problem for the airline companies the Civil Aeronautics Board used when they monopolized the air transportation industry. IV. Development of Alternative Actions Alternative Action 1. The Civil Aeronautics Board should provide fair airline laws and regulations regarding safety which would not limit the industry from advancing and or making improvements. Advantages. This would allow the industry to be regulated with fair laws, and permit the advancement of aircraft, services, and other aviation matters that could be provided to consumers. Disadvantages. The disadvantages would be that Eastern, American, and Trans World Airlines could not monopolize from the industry. Alternative Action 2. The government should not allow the Civil Aeronautics Board to influence fares, rates, routes, or prices in the airline transportation industry. Advantages. This would allow for many airlines to compete for profitable routes and influence the quality, variety, and prices of airline services. This will allow for more jobs and money to circulate throughout the country as well. Disadvantages. Eastern, American, and Trans World Airlines would not be able to monopolize the airline transportation market. V. Recommendation The demand for a fair airline transport industry was acknowledged by the United States government. The government made the right decision by implementing the Airline Deregulation Act. The rationale for the new law enacted by the government is clear and supported by the improvements it has shown over the years for the airline industry. The alternative actions also could have allowed improvement in the air transportation industry. The alternative actions provided would allow the Civil Aeronautics Board to have authority over the airline industry, but with less power and influence over the market. The Civil Aeronautics Board should have been more focused on fair airline safety regulations and laws rather the economics of the industry.
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.
The pros of an airline implementing a policy that bigger customers need to buy a second seat is that the weight capacity regulations will be followed to. As well as the cons of an airline implementing a policy that larger customers need to buy a second seat would result in a bigger people who travelling will not uses that airlines anymore, airlines would be glowered on by family or relatives of larger customers, airline’s policies could be vigorously monitored for discriminatory actions against overweight persons. As mentioned in the book there are no federal laws prohibiting discrimination against obese individual, although there are some places such as Wisconsin, DC, and California provide legal protection. (Harvey & Allard , 2012, p. 234)
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whether or not that city had enough gates for the new carrier, and whether the
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.
In today's competitive marketplace, all firms are seeking ways to improve their overall performance. One such method of improvement, recently adopted by many firms, is benchmarking. Benchmarking is a technique used to evaluate internal business processes. "In this analysis, managers determine the firm's critical processes and outputs, baseline those processes, then compare the performance of each process against a standard outside the industry" (Bounds, Yorks, Adams, & Ranney 1994). To effectively improve a business process to world-class quality, managers must find a firm that is recognized as a global leader, not just the industry standard. Successful benchmarking requires tailor-made solutions, not just blind copying of another organization. Measurement and interpretation of data collected is the key to creating business process solutions.
According to the International Air Transport Association, 2001 was only the second year in the history of civil aviation in which international traffic declined. Overall, it is believed that the IATA membership of airlines collectively lost more than US$12 billion during this time (Dixon, 2002).
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.
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As aviation matured, airlines, aircraft manufacturers and airport operators merged into giant corporations. When cries of "monopoly" arose, the conglomerates dismantled.
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.
Shortly after World War I, the U.S. Government discovered the abilities of the modern airplane and created the idea of utilizing aircraft to transport mail across the country. In 1917, Congress approved funding to experiment with the idea of delivering mail by air. By 1920, the Post Office was delivering mail across the entire country, eliminating over 22 hours in delivery times of a coast-to-coast route. With the success of the airmail service and the growing popularity of civil aviation, the U.S. Government recognized the need to develop set standards for civil aviation and in 1926 created the Air Commerce Act of 1926. The Air Commerce Act of 1926 called for the government to regulate air routes, navigation systems, pilot and aircraft licensing and investigation of accidents. The act also controlled how airlines were compensated for mail delivery. Later in 1930, Postmaster General Walter Brown made recommendations which were later known as the Watres Act which consolidated airmail routes and opened the door for longer-term contracts with the airlines. Brown handled the situation regarding new contracts poorly by only inviting a hand selected list of large airlines to the negotiation table. This move pushed smaller airlines to complain and the issue was pushed to Congress. Following congressional hearings President Roosevelt later decided Brown’s scandal was too much to deal with and canceled all mail contracts completely and handed over air mail delivery responsibility to the U.S. Army. That decision was a disaster, and one month later, air mail was handed back over to the private sector. This time, however contract bidding was more structured and fair to all. It was then clear that the airline industry was back in full swing...
Based on publicly available data the four mega-carriers have, information is 2018 or most currently available:
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