Airline Deregulation
The Airline Industry is characterized as an oligopoly, that is an industry being dominated by few firms producing similar products -- Available Seat Miles (ASM). Prior to 1978, the airlines were highly regulated by the CAB (Civil Aeronautics Board). The CAB was able to dictate ticket prices, route authorities, and barriers to entry or exit. An anti-competitive industry was promoted for decades under the CAB, in which prices were adjusted to meet the rising operating costs of the airlines. Airlines became highly inefficient under regulation, and allowed costs and capacity to soar without regard to profitability. After numerous price increases during the early 1970’s, the consumers demanded a more competitive industry -- lower prices. Eventually the consumer won, and the Airline Deregulation Act was passed in 1978. This act was designed to promote competition among carriers by increasing efficiency and lowering costs, thus, airlines were forced to charge what the market would bare, not what CAB dictated. Many airlines have prospered, yet many others have failed, during deregulation. The following report lists the key developments in the industry over the past 19 years.
An increase use of small wide body aircraft and narrow body extended range (ER) aircraft to service "thin" long distance domestic (New York - Orange County) and international routes (Denver - Frankfurt). Before the introduction of aircraft such as the Boeing 757-200ER or B767-200ER, long distance flights dictated the use of wide body aircraft (DC-10, B747-200) for performance reasons. As the range of the new narrow body aircraft increases, the possibility for long "thin" routes increases. Hubs offer great advantages to the dominate carrier -- allowing the carrier to feed regional passengers onto its domestic and international flights. This allows the carrier to realize the effects of "economies of scale" by focusing the work-force on processing these banks of flights. By offering more connecting flights into the hub, airlines gain increased marketshare (S-curve theory). Some important lessons were learned from the PEX failure; Airline seats are commodities, and most customers will be attracted to the lowest priced seat. Customers search for the most value for the lowest price, as a result customer service is the key to return customers. Business travelers search for the most value, and are willing to pay a premium ticket price for this service. An airline must attract a sufficient amount of high yield business travelers to sustain a profit, balancing the low yield from discount tickets. The key lesson from PEX is that small niche carriers should not attempt to over-expand without adequate cash reserves -- to sustain long fare wars with major carriers in certain markets. Hub region must have favorable weather (minimize flight delays attributed to weather).
Some topics in this essay:
Airlines Atlanta,
Air Cinderella,
Deregulation Act,
Hub Spoke,
Delta Express,
Board CAB,
Delta USAir,
Atlanta Airport,
Origin Destination,
Industry Trends,
low-cost carriers,
body aircraft,
market share,
pex able,
narrow body,
operating costs,
hub spoke,
origin destination,
satellite airlines,
major carriers,
carriers low-cost carriers,
low cost carriers,
wide body aircraft,
origin destination traffic,
direct operating costs,
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Approximate Word count = 1620
Approximate Pages = 6 (250 words per page double spaced)
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