The Deregulation of Carriers as an Approach to Eliminate the Issues of the Airline Industry - Term Paper Example

Impact of de-regulation carriers Introduction The de-regulation of carriers is a process through which government imposed price restrictions and entry are removed over carriers, specifically those which are serving certain routes. This term basically relates to 1978 Airline Deregulation Act. It was a kind of new regulation that was developed so as to deal with various issues related to limited slot allocation in the airport. There was a dramatic growth experienced in the market due to integration of jets in early 1960s and mid 1970s. The number of passengers travelling by air increased considerably, ranging up to 200 million. This in turn resulted into a lot of strain on federal regulators to cope up with such intense situation. During this time frame deregulation of carriers had proved to be the best possible measure. Discussion The major problem which was witnessed in airline industry before deregulation was increasing costs of fuel, low productivity, high inflation rate, rising labor costs and low economic growth. This rising complexity of airline industry had resulted into high entry barriers for fledgling airlines, slow response from government for existing airlines in relation to their entering for competition with city pairings, and legacy airlines undertaking monopolistic practices by inflating ticket prices. In order to eliminate all such issues from the airline industry, deregulation act was framed. The major implications of deregulation of carriers were that it gave an opportunity for many small airlines to establish their presence in the industry. On the other hand it even enabled reduction in ticket prices which is an essential factor for those individuals belonging to low income group. In the present scenario there are still state supported airlines which exercises control over route entry and ticket prices (McMullen, 2001, pp. 90-91). However such an approach of deregulation of carriers has been adopted by European Union, England, Ireland, Australia, Scandinavia, and Central and South American States. In general context it can be said that this mechanism had enabled a strong control over complex airline industry. The entire pressure of growing demand for travelling by air was not on put over a single airline but was distributed across multiple airlines. There were many such marquee effects which had resulted due to deregulation of carriers. The first impact was airlines begin to quickly transform into hub and spoke system through which a particular hub or airport was selected by airlines that acted as a destination point for many flights coming from different cities (Cento, 2008, pp.101-102). This particular concept enabled decrease in plane sizes on basis of distance covered and even provided an option for transfer stations to passengers. In overall context this enhanced capacity utilization and caused reduction in fare prices. Though such network hub model is not productive for legacy airlines which has point to point route but it has increased convenience for customers in terms of providing significant routes. There are financial benefits gained by average travelers through such deregulation of carriers. The airfare has decreased considerably after such deregulation mechanism. This has even resulted into intense competition in the airline marketplace. It has provided a wide range of options to customers at a reasonable price (Winston & Peltzman, 2011, pp. 112-113). To be more precise this platform has increased the number of airlines and even increased range of destinations for passengers. On the other hand, service quality is another factor which plays a vital role in operations of airline. These services comprise of aircraft departures, seating comfort, total miles flown by airline, timeliness of service, cabin crew’s aesthetic appearance, various amenities and other services or programs. This factor was greatly affected by deregulation of carriers. It can be stated that this service quality suffered a great deal of deterioration after the new approach was incorporated in the system. This deterioration was in the form of deregulation of airline service quality. It even encompassed turmoil related to airline route’s massive restructuring, rising conflicts with employee union of airlines, price wars, industry consolidation and airline bankruptcies. In the recent years due to such deregulation there was a lot of delays and congestion witnessed in air routes. On the contrary, this can also be stated as success of deregulation, as it had caused increase in volumes of passengers travelling by air due to reduced prices. These impacts however were considered to be unforeseen surprises of deregulation of carriers. The other impact of such deregulation was easy entry and easy exit by different airlines. Since there was reduction in prices it had given immense opportunity to new players to enter into the industry which possessed low entry barriers (Sinha, 2001, pp. 72-73). On the other hand this industry is not comprised of any strict regulations and norms which even lowered the exit barriers for airlines. The airline staff has witnessed negative impacts of such deregulation as there are losses of jobs due to reduced number of flights, and even there is reduction in salaries so as to maintain operational costs that has been adversely affected due to price reductions. Essential Air Service Program is another positive impact of deregulation of carriers. It can be stated as a guarantee that is given to all small communities which were previously being served by some certified airlines. This would in turn help to maintain the overall commercial service. The program gives required freedom to airlines in relation to which markets to be served and required fare to be charged for such services. It helps to give minimum air service to all those communities that could not be so much profitable. The EAS program based on the concept of deregulation of carriers provided subsidized services and it was associated with identification of hub for community. Along with this condition, the aircraft type, trips and seats were even determined that are essential in order to reach specific hub (Barrett, 2009, pp. 76-77). Another impact of such deregulation was code share agreement that facilitated economies of scale for airlines. In this form of business agreement, two or more than two airlines could share the same flight. Sharing in this particular context refers to marketing or publishing the flight under self owned designator of airline and flight number as a component of published schedule or time table. There is a provision to purchase seat in designator of each airlines but the overall operations is under a single carrier known as operating carrier or administrating carrier. Deregulation of carriers has enabled passengers as well as airlines to explore benefits associated with code sharing agreement. In terms of passengers, it has given a choice of connecting flights and even enabled responsibility sharing amongst different carriers. On the other hand for airlines, this increased service frequency by one airline on specific routes, more exposure to subserviced markets and reduction in total operational cost. Regional jets are another positive impact of such deregulation of carriers. This has increased accessibility for customers along with wide range of choices which was restricted in previous years. Conclusion The deregulation of carriers was an approach which was basically initiated to eliminate the issues linked with airline industry. This industry was witnessing complexity in its system due to increase in demand but lack of supply. As per the analysis, this approach provided a platform through which routes can be effectively expanded and passengers can be offered competitive prices. It can be stated that deregulation mechanism offered an opportunity to all airlines in relation to controlling their overall operational costs and gaining economies of scale. This was beneficial not only for airlines but even for passengers as they could reach out to desirable destinations at competitive airfares. However this approach has increased competition in the airline industry along with that initiated conflicts amongst airline employees. References Barrett, S. (2009). Deregulation and the Airline Business in Europe: Selected Readings. New York: Routledge. Cento, A. (2008). The Airline Industry: Challenges in the 21st Century. UK: Springer Science & Business Media. McMullen, B. S. (2001). Transportation after deregulation. UK: Elsevier. Sinha, D. (2001). Deregulation and Liberalisation of the Airline Industry: Asia, Europe, North America and Oceania. USA: Ashgate. Winston, C., & Peltzman, S. (2011). Deregulation of Network Industries. Massachusetts: Brookings Institution Press. Read More