Airline Deregulation Essay

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.

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.

Airlines simply just want another way to make more money for the executives. Privatizing our nation's air traffic will shift the airspace, general aviation, and will cost the passenger and the pilot more money. Air Traffic Control or ATC privatization has been proven to be ineffective

| Competition from low cost airlinesGovernment regulationsPrice volatility in petroleum marketIncreasing security and safety concerns

At the onset of the airline industry in the United States, major network airlines were the sole providers of air travel. This multifaceted industry was a difficult industry to break into as a consequence of “sophisticated customer segmentation, hub-and spoke models and costly information systems for reservations, fare wars and intense competition” (Thompson 2008). Shrinkage in airline ticket prices augmented the demand for airline travel. Many markets were simply deserted or over-looked by major network airlines; this is a region a fresh “second tier of service providers” could enter into. This endeavor proved to provide a consumer savings of billions per year. Thus in June of 1971, after a tumultuous battle with other Texas-based

One of the most important events in the U.S. aviation history and in particularly commercial aviation is the Airline Deregulation Act of 1978. With the signature of the act by Jimmy Carter started a new beginning of a never seen before airline approach in the United States. This new approach did not just changed the way passengers experience airline aviation with the freedom of pricing and routes, but it affected as well other areas such as aviation safety and employment. Its creation encouraged development by relying in a competitive market that was going to determine the variety, quality and price of air services. Before the act came into effect, the Civil Aeronautics Board (CAB) controlled factors such as: routes, ticket’s prices and charters

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

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 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

Routes and entry was limited, in the early 1970’s, only half the seats were filled on any given flight because prices were too high, airlines could not compete with pricing. The Airline Deregulation Act of 1978 allowed for LLC’s (Low Cost Carriers) to enter the market keeping prices low and competitive (Smith and Cox 2008). The Airline Deregulation Act of 1978 allowed the airlines the freedom to innovate in

1. Deregulation of the US airline industry in 1978 ushered in competition in the hitherto protected industry. Several low-cost, low-fare operators entered the competitive market after the deregulation.

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

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

*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 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.