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U.S. Airline Industry Analysis - Essay Example

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The US airlines industry had been struggling since its establishment until the government passed the Airline Deregulation Act in 1978 in order to eliminate the restrictions over domestic routes and schedules and thereby to foster reasonable competition in the industry…
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U.S. Airline Industry Analysis
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Download file to see previous pages The US airlines industry again returned to profitability track by 1995 and continued this growth until the close of the 20th century. However, the 2001 terror attack together with a depressed world economy further worsened the growth status of the US airlines industry.
This paper will critically analyse the US airlines industry using international business theories and other strategic frameworks. A critical analysis During the beginning stages of the US airline industry, three airlines namely United Airlines, American Airlines, and TWA were in charge of transcontinental routes. In 1938, the Civil Aeronautics Board (CAB) was established with intent to manage the structure of the industry (Dempsey, 1979-80). The CAB set flight fares on the ground of cost plus a fixed margin and hence aircraft operators could pass cost increases to customers. In 1970, rampant increase in fuel costs and political shifts towards economic liberalization created the impetus for a total reform of the airlines industry. The development of contestable market theory also contributed to this strategic shift. According to this theory, “industries did not need to be competitive structured in order to result in competitive outcomes” (Grant, 2002). ...
Hence, this strategic shift might assist them to operate more number of aircrafts using the same amount of resources. As regulators argued, the deregulation resulted in new entries and price competition. In the words of Grant (2003, p. 31), although the deregulation strategy was potential enough to improve the declining industry growth, some unexpected contingencies like oil shock of 1979 and the air traffic controllers’ strike of 1981 caused severe difficulties to the US aviation industry. In order to overcome these troubles, aircraft operators across the US widely adopted mergers and acquisitions approach as they believed that combined operations would trim down operating costs. As Heimlich (2011) argues, M&A approach significantly assisted the US airline industry to overcome several cultural barriers. The ‘hub and spoke’ system introduced in 1980 greatly benefited the US airlines industry to increase its operational efficiency, reduce maintenance costs, establish dominance in specific regional markets, and to place barriers to new entrants. The development of this new system can be linked to the strategic management theory, which argues that a “change creates novel combinations of circumstances requiring unstructured non-repetitive responses” (Kahn, 2010). Introduction of low cost carriers became a potential threat to the industry by the beginning of 1990s and hence the country’s major airlines extremely struggled to confront with such budget airlines. As discussed earlier, the deregulation Act directly led to the evolution of a competition era and the major aircraft operators offered almost similar facilities to their customers. As a result, travellers could not easily distinguish between the offerings of ...Download file to see next pagesRead More
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