...Dean A DeFrank Transportation Principles Embry Riddle University Module Two Deregulation All modes of travel have experienced great changes through the years. Those changes were the government getting out of the travel management business and allowing the free market to determine the course of these modes of travel. The following will describe in simplistic form the effects of deregulation on each mode of travel. Airline Deregulation: The Airline Deregulation Act of 1978 removed government control over fares, routes and creation of new airlines. The Civil Aeronautics Board (the governing body on airlines during regulation) powers of regulation were removed thus allowing the industry to be exposed to market forces. The Act, however, did not remove or diminish the regulatory powers of the Federal Aviation Administration (FAA) over all aspects of air safety. Airline deregulation has enabled more competitive pricing and increased carrier flexibility. Prior to deregulation, airline pricing was regulated by the Civil Aeronautics Board. Additionally, air routes were also controlled tightly. With more freedom, carriers can offer more effective options to those who wish to use airfreight as a means of shipment. Railway deregulation: Railroad Revitalization and Regulatory Reform Act of 1976 eased regulations on rates, line abandonment, and mergers. Four years later, Congress followed up with the Staggers Rail Act of 1980. The most important features of the Staggers Act...
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...3/22/2015 U.S. Airline Industry Regulation Aviation industry has been traditionally marked by continuous change. As other industries, the airline industry required stages of development, with every stage it has its own pros and cons, the stages of development I will discuss are the regulation, deregulation, and re-regulation stages in the aviation industry. The airlines industry during the regulation era, Civil Aeronautics Board was created and had the power to price tickets and the the routes airlines flew, with the goal of serving the public interest. The main factor driving to those pros were the limited markets served, limited competition on routes, high ticket prices, and limited city-pair frequency.(Wensveen). The issues with aviation industry regulation is putting the industry in the hands of lawmakers with no experience in the business is a risk. That will cause higher costs and higher prices, because it reduces all competitor to the level of the least efficient company. Government regulations increased taxes on the airlines which resulted in reduced airline services. In a deregulated environment, government controls like entry and price restrictions for air carriers are removed allowing airlines to serve any given route and freely compete with other carriers.(Wensveen). The deregulation move realized that a politically controlled economy served no continuing public interest. Many benefits for the airlines happened after the deregulation act. Low-cost carriers...
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...The Impact of Deregulation on the Airline Industry The aviation industry in the United States was facing several problems such as falling productivity, high inflation, rising labor costs, higher fuel costs and low economic growth. These problems led to the deregulation of the airline industry in 1978 with the Airline Deregulation Act that removed the various controls that influenced the decision power of the companies. The deregulation lasted about three years and the main objective was to increase competition between airline carriers and lower service prices. The deregulation began with the easing of tariffs and liberalization of routes. During the regulations, customers paid high rates and hadn’t many options because there weren’t many airlines companies. After the deregulation, increased competition, new companies have emerged due to lowering barriers entry of new airlines industries and the price decreased. In this competitive environment, the company has increased its investments in quality and marketing as well as the efficient use of its fleet in order to attract more consumers. Also, the cost control has become a major factor in the management of airlines. However, the rapid growth of the airline industry has triggered some problems like congestion at some airports, travel delays and low runway capacity especially during peak hours of travel. These problems are caused due to increased demand and the lack of investment in some airports. The opening of foreign markets...
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...4 MAGIC CARPET AIRLINES: CLIMATE OF THE AIRLINE INDUSTRY Appendix A Prior to the Deregulation Act of 1978, the airline industry was federally regulated in regards to the routes airlines flew and the fares they charged. Typically, when carriers negotiated labor contracts they gave a specific percentage increase in wages and then petitioned the government for a similar percentage increase in their fares. With full deregulation, airlines were free to fly any routes, pay any wages, and to charge any fares they wished. Deregulation resulted in the formation of many new airlines. These new carriers were usually non-union and had substantially lower labor costs; thus, they charged lower fares. Competition for passengers forced the older carriers to lower their fares and to reduce service to smaller cities with unprofitable routes. To cope with deregulation, companies made other changes. Airlines realigned their route systems. They developed "hub and spoke" systems whereby passengers were funneled into a hub city by a small regional carrier utilizing small aircraft (as represented by a spoke on a wheel). Travelers connecting at a hub city from a small airline then transferred to the major. To encourage these transfers, major airlines began contracting with smaller regional airlines to provide this spoke system for their hub cities. This arrangement gave new opportunities to regional carriers. However, to obtain such arrangements, regional airlines had to also cut...
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...Chapter 2: How Airline Markets Work...Or Do They? Regulatory Reform in the Airline Industry Severin Borenstein and Nancy L. Rose October 2008 Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business, U.C. Berkeley (www.haas.berkeley.edu), Director of the University of California Energy Institute (www.ucei.org), and a Research Associate of the National Bureau of Economic Research (www.nber.org). Address: Haas School of Business, University of California, Berkeley, CA 94720-1900. Email: borenste@haas.berkeley.edu. Nancy Rose is Professor of Economics at the Massachusetts Institute of Technology (econwww.mit.edu) and a Research Associate of the National Bureau of Economic Research. Address: MIT Department of Economics, E52-280b, 50 Memorial Drive, Cambridge MA 02142-1347. Email: nrose@mit.edu. Nancy Rose gratefully acknowledges fellowship support from the John Simon Guggenheim Memorial Foundation and MIT. We thank Andrea Martens, Jen-Jen L’ao, Yao Lu and Michael Bryant for research assistance on this project. For helpful comments and discussions, we thank Jim Dana, Joe Farrell, Michael Levine, Steven Berry, participants in the NBER conference on regulatory reform, September 2005, and seminars at University of Toronto, Northwestern University, University of Michigan, UC Berkeley, and UC Davis. This paper is forthcoming as Chapter 2 of Economic Regulation and Its Reform: What Have We Learned?, N.L....
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...How did the deregulation of air transportation in Europe foster entrepreneurial behavior and innovation in the European airline industry over the last twenty years? Case studies: SAS Airline & Ryanair Master Thesis in Entrepreneurship and Dynamic Business Contexts Spring 2007 Supervisor: Håkan Bohman Entrepreneurship Master Program Authors: Gilles Helterlin and Nuno Ramalho Acknowledgements We would like to express our gratitude to all who have contributed to the realization of this Master Thesis. A warm thank to our supervisor, Håkan Bohman from USBE (Umeå School of Business), for his guidance, his precious help and his advises during the last months. To Mr. Lundvall, from LFV (Luftfartsverket), Mr. Valinger from Scandinavian Airline and Mr. Wilsberg from SAS Braathens, Jessica Eriksson and Thomas Pettersson from USBE, thank you for your availability, willingness in answering our questions and for their so precious collaboration with interviews, comments and suggestions. Thank you also Sweden for the wonderful moments we have spent here. We will never forget your nature (your elks), your cold winter (-30°C), your long nights in winter and your short nights in late spring!! It has been a great experience and adventure up there in Northern Sweden!! We will miss you… Finally we would like to thank particularly the Studentexpedition for its kindness, without forgetting our family and friends (from Sweden, France, Portugal and Greece) for their everlasting daily support...
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...Exam Esequiel Final Garcia Dr. David Lowe ASCI 254 10/16/13 1. Discuss in detail the Deregulation Act and its impact on the airline industry. Include what brought it about, its provisions, and effects on the airlines industry, and its future. The Airline Deregulation Act is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to remove government control over fares, routes and market entry (of new airlines) from commercial aviation. The Civil Aeronautics Board's powers of regulation were to be phased out, eventually allowing passengers to be exposed to market forces in the airline industry. The Act, however, did not remove or diminish the FAA's regulatory powers over all aspects of airline safety. a. The effects of this Act. The maintenance of safety as the highest priority in air commerce; Placing maximum reliance on competition in providing air transportation services; The encouragement of air service at major urban areas through secondary or satellite airports; The avoidance of unreasonable industry concentration which would tend to allow one or more air carriers to unreasonably increase prices, reduce services, or exclude competition; and The encouragement of entry into air transportation markets by new air carriers, the encouragement of entry into additional markets by existing air carriers, and the continued strengthening of small air carriers. b. Exposure to competition led to heavy losses and conflicts with labor unions for a...
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...Airline Labor Relations More than half of airline industry workers are members of unions. Airline unions have a relatively long history in the United States. They differ from unions in some industries in that that are craft unions; there are separate unions for pilots, flight attendants, mechanics, and the like. This has led to a multitude of recognize airline unions, making labor relations for airlines a particularly complicated endeavor that may require dozens of separate labor contracts. Airline Unions and Collective Bargaining: A Brief History In 1934, the National Labor Relations Board introduced industry-wide bargaining to the airline industry. The most significant development, though, came in 1936 when the airline industry was included under the Railway Labor Act. The Act put in place standardized procedures for collective bargaining, including procedures for developing labor contracts and mediating grievances. Under the Railway Labor Act, collective bargaining in the airline industry was placed under the oversight of the federal government through the National Mediation Board (Wensveen, 2011). From 1936 to 1978, labor relations in the airline industry ranged from initial hostility to occasional accommodation or even cooperation, but the arms-length dealing approach eventually became most common. Government regulation of the airline industry during this period imposed constraints on the bargaining process that made it fairly orderly, as compared with labor relations...
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...One of the industries which perhaps has shown the most changes in market model is the airline industry in the United States. The airline industry can be analyzed different before and after deregulation and before and after the terrorist’s attacks of September 11th. These events have changed the industry in terms of both airfares and market concentration in major airports. Prior to deregulation in the 1970’s the Department of Transportation (DOT) served its goal by looking after the public interests. Once the focus of the DOT shifted to assuring airlines were operating under strict safety standards and procedures this gave a chance for airlines to take on any domestic route it felt capable of performing. Deregulation resulted in structural changes for airlines. Following deregulation, most of the largest airlines began to operate in the now well known hub-and-spoke system, which allowed for efficient connections for passengers from small- and mid-sized cities, but it also has increased airline concentration at hubs. As a result, the net effect has been to increase the choice of carriers at non-hub cities and to increase the frequency of service but also to increase the market concentration at hub cities. According to Parkin, (2011) most governments use a mechanism for allocating airport boarding gates and facilities, in some cases it even allows for competitive bidding for boarding gates and landing rights thus encouraging competition among airlines, and it also might encourage...
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...Mod 7 * ------------------------------------------------- Question 13.6 out of 3.6 points | | | Prior to 1946, the airports of this country were financedAnswer | | | | | Selected Answer: | by state, county, or municipal governments. | | | | | Question 23.6 out of 3.6 points | | | Which of the following statements concerning the Federal Airport Act of 1946 is not correct?Answer | | | | | Selected Answer: | Smaller cities greatly benefited from the federal financial support. | | | | | Question 33.6 out of 3.6 points | | | The Airport and Airway Revenue Act of 1970Answer | | | | | Selected Answer: | imposed taxes on all users of the airport and airway system. | | | | | Question 43.6 out of 3.6 points | | | Under the Airport and Airway Development Act of 1982, theAnswer | | | | | Selected Answer: | All of the above | | | | | Question 53.6 out of 3.6 points | | | The National Transportation Safety Board (NTSB) was created by theAnswer | | | | | Selected Answer: | Department of Transportation Act. | | | | | Question 63.6 out of 3.6 points | | | Which of the following was not a reason for passage of the act creating the Department of Transportation?Answer | | | | | Selected Answer: | To promote the development of civil aeronautics. | | | | | Question 73.6 out of 3.6 points | | | The NTSB is charged with all of the following...
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...STRATEGIC ALLIANCES IN THE GLOBAL AIRLINE INDUSTRY Abhishek Goel1 Abstract Strategic alliances are common to any industry. Their presence is felt quite significantly in the airline industry. Starting in the US in 1978 deregulation of airline industry has since brought about sea changes in functioning of the industry. This paper attempts to understand the developments and strategic alliances that have occurred in the airline industry since deregulation. These strategic alliances exist in various forms and differ widely in scope and no consensus on classification was found. The advantages and disadvantages of strategic alliances with respect to the airline industry have been discussed. It is felt that the industry is getting increasingly concentrated. However, no conclusive remarks can be made about consumer welfare. “Airline Business Alliance Survey of 2000 reports that there are 579 alliance agreements in place, up from 280 agreements (more than double) in 1994 when the survey was first conducted. Five major alliances (Star, Oneworld, Qualiflyer, Sky Team, and Wings) account for some 60 percent of all air travel.” (Mason, 2002) The lines above make the issue important enough to understand the phenomenon that is guiding the industry. Almost a decade back Oum, Taylor and Zhang (1993) argued that the airline industry will be marked by strategic alliances and these alliances will be global in nature. The guiding factors will be several that include formation of blocs, resource...
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...financial performance. Apply and reflect on economic ideas and theories. Demonstrate some specific examples of how economics can help us to understand the behaviour or well-being of firms as well as, if you wish, the limitation of economics. So that to end, you are being assessed less on coverage but more on application. How Economic Factors Affect the Aviation Industry Introduction The aviation industry is particularly susceptible to external economic factors because it affects and depends on a substantial number of industries. Also, because the industry involves operating between borders, then economic factors from other parts of the world other than the domestic market also affect it. Issues such as fiscal policies (both within and without the countries of destination), wage inequality and positive and negative externalities have a way of changing operations within this industry. How shifts and price elasticity of supply and demand affect the aviation industry Supply and demand price elasticity of airline carriers may vary depending on the nature of the industry. For new and emerging industries such as the Indian aviation sector, then price elasticity of demand and supply is near perfect. The number of transporters being added into their markets are largely affected by the nature of demand for the commodity the country underwent rapid economic growth in the late nineties thus setting the stage for a shift in the country’s business arena. Many people within India...
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...organization to have a comprehensive understanding of their current environment. Environmental scanning is used to establish the focus of the strategic plan. To conduct an environmental scan external and internal information should be evaluated. A SWOT analysis will focus on the strengths, weaknesses, threats, and opportunities. We will discuss the most signification environmental threats for Southwest Airlines. There are many environmental factors that could influence the performance of the company, Southwest Airlines, which provides low-cost air travel and service. This student will discuss two environmental threats pertaining to Southwest Airlines. Two environmental factors that have a major impact on how businesses operate are: economic factors and regulations. September 11, 2001 terrorist attack on the World Trade Center was a moment in history that effected Nation and the U.S. economy. Most importantly the airline industry was threatened by the aftermath of the economy. “The events of September 11 have had some of their worst economic effects on the airline industry, leading to a dramatic fall-off in passenger demand and substantially higher costs” (Gowrisankaran, 2002). After the attack in 2001 the Transportation Security Administration (TSA) within the Department of Homeland Security were given the safety and security regulation responsibilities (Smith Jr. & Cox, 2008)....
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... Seite 1/53 REPORT ABOUT EASYJET Analyses about Industry, Market, Competition and chosen strategy Reinhard Fellner Wien, am 09.06.2002 C:\Users\rf\Documents\A R C H I V 311013\F 160108\B820_Strategy\TMA\TMA01\TMA01_B820rf.doc I R M E N R E I N H A R D 301109\MBA FILES Druck: 20.11.13, 22:42 REPORT ABOUT EASYJET Seite 2/53 Executive Summary Deregulation has seriously changed the environment and structure of airline industry. Out of STEP analysis I have identified the following ain issues: Deregulation will stimulate competition, but also market growth Lower prices will cause focus on costs Focus on security measures will increase costs There is no need for added values in connection with prestige Analysing the airline industry by Porter’s “Five Forces” I have stated: Big Player and/or Alliances fight a price war, often using a second brand (Buzz, etc.) Big Players have not identified and reacted on the change in environment Few structural changes to support the need of cost effectiveness und to bring them in line with new customer requirements Because of the very static picture I have supported that analysis by BCG strategic model: BCG's Strategic Enviroments Matrix Many Source of Advantage FRAGMENTED Airline Industry SPECIALIZATION 2nd brand for Budget Segment STALEMATE Budget Airlines VOLUME Few Small Size of Advantage Big Global airlines which come from the „Fragmented Segment“ with a 2nd brand...
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...Rob Royster Airline Industry What is the dollar volume of this industry? (this must be included) The worldwide airline industry generates about $500 billion annually. Major international companies include Air China, Deutsche Lufthansa, Air France-KLM, Japan Airlines, and British Airways. http://www.firstresearch.com/Industry-Research/Airlines.html Is this industry a part of a broader industry group? Please note the NAICS classification code. 4811 http://www.firstresearch.com/Industry-Research/Airlines.html Is this a national or international industry? Today, the global airline industry consists of over 2000 airlines operating more than 23,000 aircraft, providing service to over 3700 airports. In 2006, the world’s airlines flew almost 28 million scheduled flight departures and carried over 2 billion passengers In the US airline industry, approximately 100 certificated passenger airlines operate over 11 million flight departures per year, and carry over one-third of the world’s total air traffic – US airlines enplaned 745 million passengers in 2006. US airlines reported over $160 billion in total revenues, with approximately 545,000 employees and over 8,000 aircraft operating 31,000 flights per day http://web.mit.edu/airlines/analysis/analysis_airline_industry.html Is this a mature, established industry or a new, developing industry? Since the birth of flight in 1903, air travel has emerged as a crucial means of transportation for people and products. The hundred-plus...
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