The Impact of Deregulation Carriers - Research Paper Example

The Impact of De-Regulation Carriers The Impact of De-Regulation Carriers Introduction The airline industry has experienced a number of changes since the year 1978. Then, the industry was like a public utility where the government through the governing body had the mandate of determining the routes that different airlines flew and the travelling rates. However, this market today is driven by the level of customers’ demands, which determine the kind of service, and the prices to be levied (Williamson, 1985). The Deregulation Act The act was approved by the congress in 1978 and later signed into law by President Jimmy Carter (Peck, 2009). This was due to the pressure for most economists on the economic impact of unregulated industry. Various developments lead to deregulation in this industry. Firstly, invention of larger aircrafts with a higher carrying capacity was a significant boost to the industry. Secondly, oil prices from Middle East Countries were skyrocketing due to the high rate of inflation at those economic times. At this time, most businesses were falling apart while the number of clients and prices increased tremendously. Hence, the aeronautic board had to react to save the condition. The allowed the carriers to increase their prices in different directions. Further, the board gave permit to new service providers in the market. This aimed at limiting the carriers’ capacity in different routes (Williamson, 1981). Impact of deregulation Widespread of hub-and-spoke networks These networks existed on a limited space in the previous years. In most cases, these hubs are located at the airports where they are used as transfer points for passengers and cargo moving from one point to the other (Peck, 2009). They also serve as points of collection for both cargo and passengers. These hubs enable most airlines to serve an increased number of markets. This is because when a passenger uses a hub, he or she can easily connect to a dozen of flights to different destinations in the same day. An airline that has adopted such a system enables its clients to connect their flights all in one way without using other carriers. Most clients enjoy this as they only stay at one route and avoid the hustle of transfers from one airline to the other. Further, adoption of this system by most airlines enabled them to achieve high load factor to minor destinations mostly the small cities in which the airlines operated. This enabled the airlines to reduce the operating costs hence low fares to customers. Customers in different cities can connect though different terminals to reach their destinations through the use of hubs. Most airlines in the country have maintained hubs due to the advantages derived from them. Introduction of new carriers in the industry When the congress passed the Act in 1978, new players in the airline industry were given permits to operate. Presently, the number of aircrafts operating has doubled since then. However, the number keeps on fluctuating in relation to the existing market conditions. These new airlines mostly offered direct flights to various destinations at lower costs. This attracted most customers to them due to their improved and better services on the industry. New routes were also introduced due to the increased number in the market. This was also fuelled by low costs in acquiring planes, and availability of personnel to work in those airlines. This led to the creation of more jobs in the industry, hence, raising the living standards of people employed under this economic bracket. Increased and improved competition Presence of new airlines in the market together with the great expansion into new and larger markets prompted competition in the industry (Levine, 1987). In the market today, customers have a variety of options to use different types of carriers depending on their services and charges. Hence, these airlines have greatly improved their services and rates with the aim of attracting more clients into their airlines. Further, hub-and-spoke system adoption has increased the level of competition in smaller markets. Intense competition has been experienced in both small and the medium sized markets. Discounted fares With increased completion in the industry, most airlines have discounted their fares to different destinations. However, this depends with the current demand and the prevailing economic conditions in the economy. With the deregulation, the prices of the fares lowered by thirty-five percent as compared to the rates in 1978 (Peck, 2009). The industry competes with the rail and bus services which are mostly used by middle and low-class citizens. The airlines in this industry give a discount of two third to their customers with the aim of attracting most of them to use their services. Increase in number of customers With the increased level of competition in the industry, vat growth has been witnessed. This has been achieved by the discounted fares, flights traveling to different routes and reliability of flights. The number of customers has increased substantially with deregulation of the airlines. Most people preferred the use of airline services in order to save time used while travelling. Additionally, there was a small difference in the amount saved while travelling using either rail or road transport. This is an added advantage to the government as it leads to increased revenue collected. This means more developments not only in the airline industry, but also in the entire economy (Brandy, 2000). The frequent flyer programs Deregulation in this industry has leads to a number of innovations, one of them being the use of flyer programs. In this situation, regular customers are given free tickets, and they are also entitled to other benefits offered by the airline. This program has been adopted by most airlines. All aim at attracting their customers to use their airlines. A customer is issued with a smart card where he is credited with points per every service. The rewards mostly in form free tickets are issued when the total points reach the expected level. However, in this case, the customer must remain loyal to a particular airline which may prove difficult due to the nature of the prevailing conditions in the market. Innovations such as code sharing These agreements can be between different parties all offering a similar service. This enables airlines to offer coordinated services to their clients. These agreements make use of a flyer program where they provide a schedule of coordinated flight connections in different routes (Peck, 2009). In some cases, smaller airlines are permitted to use some of the markings used by larger airlines (Federal Aviation Administration, n.d). This also applies in the international routes between different countries. This aims at enabling different partners in the industry to expand their reach on the global market through different partners (Forbes & Mara, 2006). Conclusion Deregulation of the airline in the USA has lead to growth of the industry in a number of ways. Hence, this was a good move by the federal government. Introduction of new carriers in the industry led to increased competition, which led to the provision of better services to the clients. More developments and innovations in this industry led of more jobs, hence, solving the issue of unemployment in the country. Further, more operations were an added advantage to the government due to the additional tax collected by the revenue board in the country. This means more development in terms of access to better services from the government. References: Brandy, T. (2000). The American Aviation Experience: A History, Carbondale, III. Southern Illinois: University Press. Federal Aviation Administration. (n.d.). FAA Guide to Ground Vehicle Operations. Retrieved 30 September from http://www.faa.gov/airports/runway_safety/media/ground_vehicle_guide_proof_final.pdf. Forbes, S. J., & Mara, L. (2006). Control Rights, Network Structure and Verical Intergration: Evidence From Regional Airlines. California: Sage Publisho creatio ers. Levine, M. E. (1987). Airline Competition in Deregulated Markets: Theory, Firm Strategy and Public Policy. Yale Journal on Regulation , 393-494. Peck, B. (2009). 30 Years after Airline Deregulation: Who is the Big Winner? Retrieved 30 September from http://moritzlaw.osu.edu/news/allrise/2009/01/30-years-after-airline-deregulation-who-is-the-big-winner/. Williamson, O. (1981). The Vertical Intergration of Production: Market Failure Considerations. American Economic Review , 112-123. Williamson, O. (1985). The Economic Institutions of Capitalism, New York. Free Press , 2-16. Read More