The Aging of the Fleet

There is concern from a safety standpoint about a tendency for airlines to keep old aircraft in use. In the early 1990s, about a quarter of the fleet of U.S. scheduled airlines was over 20 years old. Twenty years is a rule of thumb for what is called the economic design life of an airliner. More recent figures (1996) show the average aircraft age by carrier for the larger U.S. passenger carriers (in years) as Southwest, 7.9 American, 9.0 United, 10.9 Delta, 11.5 US Airways, 12.0 Continental,...

Long Haul Pickup and Delivery

Air cargo often travels long distances by truck, for example, from a mid-western city to New York City for onward travel by air to Europe. Air Cargo, Inc., negotiates contracts with over-the-road truckers for such hauls. Due to the deregulation of trucking, beginning with the Motor Carrier Act of 1980, the surface haul of air cargo is, for all practical purposes, free from governmental regulation. Accordingly, today a forwarder may develop its own nationwide trucking operation, as may an...

Other Merger Problems

Any government agency with responsibility for merger matters will find it difficult to oppose a merger if one of the parties is in severe financial straits. An airline in weakening financial shape is likely to offer a deteriorating quality of service, perhaps with some safety implications. If bankruptcy results, with the airline actually liquidated (that is, with its aircraft sold and its employees laid off), the public will be deprived of the service, the number of competitors in its markets...

Limited Managerial Control over Demand Factors

Airline management has only a limited control over some of the factors affecting passenger demand, and it has no control at all over others. It has no control at all over people's income levels or over the general state of the economy, or over services and prices of competing modes. It has only very limited control over technological advances that result in improved speed and comfort. Looking back to the time when the airlines changed their fleets from piston to jet aircraft, with a great...

Foreign Air Freight Forwarders

So far we have been considering only those air freight forwarders that are U.S. firms. But there are also firms of foreign nationality that have authority to accept and consolidate cargo within the United States for shipment abroad. Foreign firms have never been required to hold authority from the U.S. government if they consolidate shipments at the foreign point and send them into the United States. But to consolidate cargo that originates in the United States, the forwarder must register with...

Cross Section Analysis

Another method for seeking to estimate demand may be called a cross-section analysis of a market wherein we look at all factors that may have a bearing on air travel between the two points. In this method, population and income figures for each of the two cities are used, as is the geographical distance between them. These and other factors are employed to try to determine what the traffic between them by all modes ought to be and what fraction of it ought to go by air. Then management looks at...

Computer Reservations Systems

Beginning in the mid-1970s, certain airlines began expanding their computerized reservations systems so that travel agents could tie in to them. Immediate information as to flight schedules, available seats, and fares between any two points could be shown on a computer screen in the travel agent's office, with the facility for the agent to make reservations through the system. United Airlines was first, calling its system Apollo, and American Airlines followed with a system called Sabre. These...

Complaints of Unfair Treatment

U.S. carriers regularly complain of unfair treatment at foreign points in matters such as provision of airport facilities, currency exchange regulations, airport and airway charges, and taxation. For cargo, the list is longer and includes failure to furnish adequate cargo-processing facili ties, prohibitions or limitations on air freight forwarder charters, and requirements that cargo at the foreign airport be handled by the competing national airline. (We will refer again to cargo problems in...

Changes in the Labor Cost Situation

Even in the brief heyday of the new nonunion airlines, before the wave of mergers described in Chapter 3 had greatly reduced their number, their traffic was only a small proportion of total airline traffic. Yet their influence on labor costs throughout the airline industry has been great. Typically their work rules have allowed for maximum worker flexibility. For example, one employee may work at a ticket counter, then as a flight attendant, then handling baggage, all in the same day. Flight...

Airportairline Relations

As of 1997, DOT data showed that 207 airports in the United States accounted for 97 percent of all passenger enplanements. (The remainder took place at several hundred small points with limited regional or commuter air carrier service.)1 Nearly all are owned and operated by state governments or subdivisions of state governments such as cities, counties, or airport authorities. Airport management has varying degrees of independence from elected officials such as mayors and county commissioners,...

Domestic Rates after Deregulation

The deregulation of domestic rates has resulted in an expanding use of discount fares. This was especially marked in the 1980s. The proportion of discount traffic to total passenger miles in the domestic services of the major airlines rose from 57 percent in 1980 to 91 percent by 1987, and has remained close to 90 percent thereafter, with the average discount in the 60 to 65 percent range off the full fares.4 These figures seem especially remarkable in light of the fact that the discount fare...

Changes in Certification Procedures

The first change in long-standing entry procedure and policy was with respect to domestic cargo, in the cargo regulatory reform law of November 9, 1977, designated as P.L. 95-163. (This law was given no formal name by Congress, and only certain parts of it deal with regulatory reform. We will refer to it simply as the cargo regulatory reform law.) Under this law any airline that had conducted scheduled freighter service anywhere between January 1, 1977, and November 9, 1977, was entitled for...

Polling the Passengers and Prospective Passengers

This method consists simply of quizzing passengers or prospective passengers, either by personal interview or by printed questionnaires. Often an airline will simply leave a copy of a questionnaire on each passenger seat on certain flights and compile data from those that are turned in. The disadvantages of this procedure are obvious There is no way to compel passengers to fill out the questionnaire, nor to know whether those who turn in completed forms are a typical sample of all passengers,...

Mergers And Acquisitions

The merger or consolidation of two or more airlines into one company involves the concepts of both entry and exit. It is an action that may have important consequences for the entire airline industry and the public, and it can generate much controversy. When two airlines merge, each route system is added to the other so that a single enlarged system is formed. To the extent that both airlines may have been competing in some markets prior to the merger, there will obviously be a reduction in the...

The SCurve Controversy

Many airline officials will contend that passengers in a market are attracted to an airline in a proportion greater than that airline's capacity bears to the total capacity of all the airlines in that market. For example, if there are two airlines in the market and one has 60 percent of the capacity, prospective passengers will tend to think first of this dominant carrier when they decide to reserve space on a flight. Also they will be most likely to find the most desirable departure time and...

Books

Air Transport Association of America. Air Cargo from A to Z. Washington, D.C. Air Transport Association of America, undated. Bailey, Elizabeth E., David R. Graham, and Daniel P. Kaplan. Deregulating the Airlines. Cambridge, Mass. The MIT Press, 1985. Biederman, Paul. The U.S. Airline Industry End of an Era. New York Praeger, 1982. Brancker, J. W. S. IATA and What It Does. Leiden A. W. Sijthoff, 1977. Butler, Gail F., and Martin R. Keller, eds. Handbook ofAirline Finance. Washington, D.C....

Questions

Discuss the total cost concept justification for using a more expensive mode of transportation. Include each element in physical distribution. Describe the just-in-time concept. What special responsibility does it place on the transportation system Why is it unlikely that we will see a new uncompromised freighter aircraft designed and produced in the near future Why might the lighter-than-air airship be a good cargo carrier What are its limitations as a cargo carrier Give examples of...

Some Demand Characteristics

There are certain characteristics of the demand for airline service that, while not unique to airlines, are at least unusual. Air transportation is what economists sometimes call an intermediate good and the demand for it a derived demand , in the sense that most people use air transportation as a means to achieve some other purpose. Very few passengers fly merely for the sake of flying. Consequently, when trying to estimate passenger demand, it is necessary to go into all the various reasons...

Frequent Flyer Programs

In 1981 the airlines began instituting frequent flyer programs, under which a passenger is awarded points in the form of coupons or certificates for every flight taken on one airline, the number of points being based on the flight distance and sometimes on the type of ticket purchased. For example, in 1988 American Airlines was awarding a mileage-based number of points for coach tickets, whether or not at discount fares, 120 percent of that number for a business-class ticket, 150 percent for a...

Restrictions on Fifth Freedom

There are limitations on entry other than those relative to frequency and capacity. One of these is a restriction on carrying Fifth Freedom traffic. To understand this problem, it is first essential to master a classification of international traffic that originated back at the time of the Chicago Conference on International Civil Aviation in 1944 and remains in current usage today. Under this classification, traffic is broken down into five categories called freedoms, defined as follows First...

Frequency and Capacity Restrictions

We said that we would examine any major limitation on the degree of entry, and in the international sphere there is such a major limitation. We refer to restrictions on frequency and capacity. The word frequency means, of course, the number of scheduled flights, measured usually by the week. The word capacity means the total number of seats made available during a particular period, again usually a week. It will be obvious that the two terms overlap, but they are not identical. If an airline...

The Production Function And Factor Costs

In elementary economics we talk about factors of production and break them down into land, labor, capital, and managerial entrepreneurship. We also consider how these factors are brought together in certain proportions to create a particular output. An industrialized country may put a lot of capital and a little labor together to produce an article. A country with low-wage labor and not much capital will use a lot of labor and little machinery to produce the same article. Similarly, in the...

Preface

This book is an introduction to the economics of the airline service of the United States, both domestic and international, for the reader whose need is for a relatively simple, yet college-level, text. It is intended as a textbook for one-semester courses of the type becoming common in U.S. colleges today and bearing such titles as Aviation Administration, Air Transportation, or Economics of Air Transportation. Since the appearance of the fifth edition in 1995, there has been a continuation of...

Multiple Designation

Multiple designation is a term used in international air transportation to mean that one country designates more than one of its airlines to fly a particular international route. U.S. policy, at least up until the second Bermuda Agreement, has been to insist that bilateral agreements permit multiple designation without any numerical ceiling on the number of airlines on any route. Bilateral agreements have used the expression an airline or airlines designated by the Government of , although many...