Airline Deregulation Essay

Personal consumption expenditure also increased in 1998 compared to 1997. Because the aging population will decrease the labor force growth, this will reduce the economy’s potential to produce. This will increase the cost of labor for the airline industry. Households in the Northeast and West spent more than the Midwest and South in 1995. Because regional spending patterns are partly determined by climate, spending by region is not likely to change in the years ahead. 4. Political/Legal Environment With the deregulation of the airline industry came the advent of hypercompetition and also a decrease in wages for airline industry employees. Censuses show a 10% decline in the relative earning of airline workers after deregulation. Excess government intervention will be the only thing that will inhibit the rapid growth effects of deregulation both domestically and internationally. 5. Global Environment Growth in international travel will be determined on the successful application of Open Ski legislation and other agreements with foreign governments and carriers. On June 16, 1999, the United States and the United Kingdom were on the verge of a break through in their negotiations on an open-skies agreement between the two countries. This would create an open and competitive environment in one of the world’s largest international aviation market. The European Community has been working on its own version of Open Skies deregulation. European regulation is a national

Overall, the five forces model suggests that the overall intensity of competition in the airline industry is likely to be severe. Back in the early 1980 's competition was very intense. During the late 1980 's the monopolization of major routes by a few major carriers, the limited availability of free landing spots at major hubs and the emergence of limited brand loyalty and tacit price agreements have all helped reduce the intensity of competition. However, as already mentioned, slumping demand in the early 1990 's plunged the industry once more into a severe price war. Airline travel is a commodity-type product, with limited potential for differentiation.

From the looks of it, it seems like the ones who gained from federal government deregulations are the people, deregulation has created lots of new jobs. In this article the author states what kind of jobs it created, “So there the airlines were, scrambling to add new routes, to add new flights, and to respond to the millions of extra Americans flying their services. What did this require the airlines to do? Yes - add more jobs” (“A History of US Airline Deregulation”). Think of all the people that were able to get a job, either as people who worked at the airport, taxi drivers, airplane workers, security people, and so on. Another benefit would be that safety/security increased both on airplanes and at the airport. As the author states, “Deregulation has encouraged the airlines to become more safety conscious rather than less.” (“A History of US Airline Deregulation”). One of the airlines main priorities would of course have to be safety, if deregulation caused for less carriers, less routes, more fees, you can expect for more

After deregulation, the work of the labor unions began to crash down. New low cost carriers like Southwest, started taking large market shares. The labor unions had less bargaining power. To maintain profitability,

With the passing of the airline deregulation act of 1978, airline carriers were now provided with new options to help expand their route systems and to help the flexibility of innovative pricing structures. This flexibility allowed the carrier to now grow into new markets. Also, deregulation now brought many unwanted and very hostile takeovers and mergers. Many airlines became onboard with this and became giants in the industry.

Because of the deregulation of the government policy, there are a number of new airlines that entered the industry at first. However the most significant barrier to entry that new entrants face is significant post-entry competition from existing major airlines. The existing market is already saturate. In order to open market the new entrances have to lower the price of their limited routes. But they are facing the stronger competitor who can provide lower price on the same routes while create profit on the other non-competing routes.

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.

The Airline Deregulation Act of 1978 generated tremendous growth through new competition. In just a few years, the industry became flooded by new carriers offering lower fares and new routes. Initially, the years following deregulation, labor groups were able to effectively leverage better contracts. This was largely due to the abolishment of the Mutual Aid Pact (MAP). The MAP was created by airlines as an insurance policy of sorts. Other airlines would

The Airline Deregulation Act of 1978 opened up the pathway for what we now know air travel to be. It shifted control over air travel from political to a market segment. It was realized that a politically controlled economy did not served public interest. The Civil Aeronautics Board served as the airline regulatory agency which caused air travel to be costlier than it should. Under the CAB, there was constraints on operating and investing in the airline industry.

The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or

*The airline industry operates like the veins of the United States by pumping precious cargo throughout the country. Most *people don’t realize how different the airlines were a few decades ago. The entire industry was regulated by the government. Regulation is usually considered a more socialistic liberal idea that is opposed by conservative capitalists. Although I personally believe in a government with a small limited *role* in our daily lives, I have come to the conclusion that the airline industry is a rare exception that needs to return to regulation which would benefit the airlines and the consumers in numerous ways.

The years since regulation have been rocky for the airline industry. Airline after airline has declared bankruptcy and either ceased existence or emerged as a weaker airline. The surviving airlines have done so by merging and protecting their territory with tactics not even dreamed of in most industries. Robert Crandall said it best when he noted, "This is a nasty, rotten business (Petzinger,1995)." You would think that with the competition allowed by deregulation that a large number of new names would exist, but that does not seem to be the case. Most Americans still travel on American, Delta, United, US Airways, or Continental (Kane, 2003). The only true champion of deregulation is Southwest Airlines, whose success is paving the way for others such as JetBlue, but the obstacles are enormous. Initially, the airlines went after each other by slashing fares and driving competitors out of business. The industry quickly learned that although this tactic was effective, it was not profitable, and it was more economical to focus on controlling the air out of a few cities (hubs) than to attempt to directly compete in every single market. Since most of the major airlines already had key cities in which they controlled most of the takeoff and landing slots, airlines could charge higher fares and take in greater profits without any real head to head

Nowadays, the commercial competition has surpassed the limits of the previous era in which dominant markets are protecting their set market shares. Mega commercial activity back then was completely regulated by the government. The United States has privatized a lot of sectors related to energy, telecommunication, and transportation sectors. In response, the USA introduced the deregulations in the aviation industry to increase the competition in the aviation market.

The domestic airlines industry in the United States has been extremely competitive after it was deregulated in 1978. The intense competition is attributed to the fact that newer more agile carriers with lower cost structures were enabled to compete with established airlines because of the deregulation. In a regulated framework, cost increases in the airlines industry were passed along to consumers through a fixed rate-of-return pricing structure. During this period, the employees of established airlines were overpaid as labor unions obtained more power. Moreover, airlines mainly competed along the lines of service, in-flight movies, and meals because their prices were established by the Civil Aeronautics Board. However, the deregulation contributed to the emergence of an extreme price competition as many carriers reduced their prices significantly through fare promotions. Since then, the airlines industry has become one of the most competitive and profitable sectors in the economy.

The industry analysis can be performed by evaluating the ability of all firms to operate profitably within the airline industry. Porter’s five forces of competition model is a perfect tool to perform such analysis. The threat of new entrants is moderately high since President Carter signed the Airline Deregulation Act in 1978, removing U.S Federal Government control over fares, routes and market entry. Therefore, the industry has become less regulated and allowed many new firms to enter the market. Thus, the airline industry requires a lot of capital investments which can disinterest some investors. The bargaining power of buyers rests in the hands of the customers by reducing the price or by asking greater levels of service. It is highly powerful because customers can easily switch to another airline or even another transportation method. They also have the option to deal with a travel agencies that will recommend the best airline according to their needs. The bargaining power of suppliers is high because it is dominated by few large companies. Airbus and Boeing are two manufacturers that have both created a duopoly for the past 15 years in the supply of aircraft (business insider, 2017). The threat of substitute is very high, especially in short haul. There are many alternatives to air travel such as driving, taking the train or the bus. The intensity of rivalry among competitors is also high because there are numerous competitors selling a