Analysis and Recommendations for the Airline Industry

The United States carries over one third of the globe’s total traffic, where Over 1.5 billion passengers fly annually. Over the past 20 years, air travel has grown at an average of about 5% per year, the reason for annual change is usually differences in economic growth, and of course other environmental factors, such as the current war. As a rule, the annual growth in air travel has been about twice the annual growth in GDP. Deregulation, liberalization, and competition have essentially altered the management strategies and practices of airlines. Productivity improvements and cost management have been two of the greatest concerns for US airlines for the past twenty years. As a whole, the airline industry must continue to improve their specialization in terms of fleet utilization, pricing and revenue management, and schedule optimization.

The airline industry is one of the largest global industries in the world. Airline companies in the airline industry have gone through challenging obstacles in the past decade. Many changes have occurred within the industry and increased regulations have driven up cost for the industry. The attacks on 9/11 left the industry in shock when planes were used in terrorist attacks in the United States. These attacks changed the mentality of the industry and shifted the focus towards safety. Safety was also a major concern in the industry with the breakout of SARS in 2003 and the H1N1 flu in 2009. The airlines had to ensure that public health and safety of the travelers were

The terrorist attacks of September 11th caused many changes in our country. Although there were many after effects of the September 11th attacks, the airline industry was most impaired. This paper will explain two factors related to the airline industry that were most affected, the American people and the economy.

The terrorist attacks on September 11, 2001 shook the United States in a profound way, deeply upsetting the national perception of safety within U.S. borders. No industry or sector of the economy felt the impacts of these events more than the airline industry. Both the immediate reaction to the attacks and the long-term repercussions have negatively affected the industry. Today’s airline industry is much different than it was prior to September 11. There is a much smaller work force, more low-cost carriers, more security and more fees associated with flying.

The situation of the U.S airlines has been affected by a number of factors through time and is not a secret that has been passed by moments difficult, especially in the economic part. One of these factors were the terrorist’s attacks of 911. No other event in history has changed the way of doing business that the fateful events of September 11, 2001. Apart from the significant human loss, the millionaire impact to the economy of New York and in the United States and multi-million dollar expenditure associated with the global war against terrorism, attacks on the World Trade Center (World Trade Center or WTC) in New York and the Pentagon trembled the authority of the United States, at a time when it was going through a recession. All this made

September 11, 2001, was a horrific event that rocked the world and the way people viewed the safety of airline travel. The airline industry was hit the hardest after that day and it was uncertain if they could regain their customer’s

Berry, S., & Jia, P. (2010, August). Tracing the Woes: An Empirical Analysis of the Airline Industry. American Economic Association, 2(3), 1-43. Retrieved from http://www.jstor.org/stable/25760397

The 9/11terrorist attacks seriously affected air travel and led to the demise of many airlines. Scores of airline industry workers still need to regain what they lost in both wages and benefits, and are hopeful of an industry turnaround this year (USA Today, 2009).

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

Airline deregulation was the process of removing the government imposed regulations on the entry of new airlines as well the airline fare limiting the competition and growth of the airline industry. In the United States, airline deregulation mainly refers to the Airline Deregulation Act of 1978 signed by President Carter. President Carter signed the Act, but the act was proposed initially during Nixon’s administration, and carried through Ford administration. The airlines industry was growing dramatically during 1960s and mid-1970s. Due to the steady increase in air travel, and strict regulations imposed by the Civil Aeronautics Board, the industry faced three major difficulties- lack of free and stable market, high ticket prices leading to poor productivity, and rising labor and fuel costs. Airlines have adopted many new strategies ever since the industry has been deregulated. The path since the deregulation has been challenging, as the airlines have faced various hurdles such as terrorism, war, recession, high fuel prices over the years impacting the economic structure of the United States. These challenges have raised the question concerning whether the deregulation should be considered or even reversed.

A drop in fares has been the best result of the Airline Deregulation Act of 1978. It has been the impetus for the increase in the number of flights, which in turn has spurred a drive for greater safety in airlines. But with the current airline market, this development has given us one negative. Since ticket prices have dropped to new lows, the realities of an industry which operates on such economies of scale dictates that only a few competitors have the capacity to operate within the market. This is not the desired effect of either political side on this issue, but it is an economic necessity with the environment that has been created, very similar to that of public utilities and phone companies.

The airline industry is interpreted as being very unstable due to the immediate reaction to tragedies. The airline industry was affected following the September 11th tragedy and it affected other industries indirectly. The airline industry plays a key role in

According to my research the power of buyers is medium to increasing within the airline industry. Over the last few years, buyers have been presented more choices when choosing an airline carrier. The internet has created a structure of easier pricing information and allows the buyer to more easily compare pricing. Buyers can sometimes find pricing discrepancies on the exact flight due to less fragmented pricing information at the buyers fingertips. The internet and it’s ability to compare prices has also allowed the emergence of a few budget airlines to be profitable. Much of the bargaining power of the power can still depend on where the flier is traveling. The “hub” system, mentioned earlier still allows the larger airlines to dominate certain cities and creates an environment of higher prices in that market. For example, a flight from Nashville to Santo Domingo, DR presents the flier with very low bargaining power. Unless the flier wants to fly through NYC or Newark, NJ, he/she must fly American Airlines via Miami. The price for this flight is typically very high due to no other airlines

Closely linked to economy - The airline industry can be described as highly cyclical since it