Deregulation of the Airline Industry

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Deregulation of the Airline Industry The airline industry has been subject of intense price competition since it was deregulated, and the result has been a number of new carriers which specialize in regional service and no-frills operations. These carriers typically purchase older aircraft and often operate outside the industry-wide computerized reservations system. In exchange for these inconveniences, passengers receive low fares relative to the industry as a whole. This research examines two low fare air carriers, ValuJet and Southwest Airlines. By investigating these air carriers, we can better understand the economic impacts of price versus service in the airline industry as a whole, as well as, the impacts on passenger…show more content…
5541P): 1995 1994 1993 Revenue Passenger Miles (RPM) 2,624 941 44 Available Seat Miles (ASM) 3,813 1,471 63 Load Factor 68.8 % 64.0 % 69.7 % Revenue per RPM 13.4 13.8 13.1 Cost per ASM 6.8 6.8 9.8 Because Southwest's flights are generally an hour or less in length, the airline saves money by not having to serve meals. It has a liberal work rule arrangement with its unions, so productivity is high, and overall costs are low. For example, Southwest gets 672 hours per year on average from pilots versus 371 for American Airlines pilots, and 60 percent more passenger miles per flight attendant (Levinson, 1993, p. 34). These figures enable the company to realize profits during years in which the industry as a whole was suffering. The following chart identifies key operating statistics for Southwest (seat miles are in billions, cost factors are in cents) (Klein, 1996, p. 2077): 1995 1994 1993 Revenue Passenger Miles (RPM) 23.33 21.61 18.83 Available Seat Miles (ASM) 36.18 32.12 27.51 Revenue per RPM 11.83 11.56 11.77 Cost per ASM 7.07 7.08 7.25 In addition, the company has a 70
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