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Airlines Essay

1566 words - 6 pages

Deregulation of the Airline IndustryThe airline industry has been subject of intense price competition sinceit was deregulated, and the result has been a number of new carriers whichspecialize in regional service and no-frills operations. These carrierstypically purchase older aircraft and often operate outside the industry-widecomputerized reservations system. In exchange for these inconveniences,passengers receive low fares relative to the industry as a whole. This researchexamines two low fare air carriers, ValuJet and Southwest Airlines. Byinvestigating these air carriers, we can better understand the economic impactsof price versus service in the airline industry as a whole, as well as, theimpacts on passenger and investor confidence.Until 1978, air transport rates were approved by the government, whichmeant that price was not a primary competitive factor. Instead, airlines wouldcompete on service and image. The airline industry was dominated by giants(American, United, TWA) which offered nationwide and some international service,and by regional carriers, such as Southwest, which offered short trips betweenairports not served by the nationals.Deregulation of the airline industry brought about in 1978 introduced asituation in which the national and regional carriers were suddenly able tocompete in an environment that resembled a free market. Rate schedules werelifted, price fixing was eliminated and route management was removed. The mainfactors that affected whether an airline could serve a particular city waswhether or not that city had enough gates for the new carrier, and whether thecarrier was able to afford to purchase them. Companies such as Southwestrecognized potential for low fares, and began building a niche for themselves byoffering low fares with equivalent low levels of service. Southwest's successgave rise to a new generation of low fare airlines, with ValuJet entering themarket in the early 1990's. Unfortunately, ValuJet suffered a string ofaccidents which brought the future of this air carrier into question.ValuJet is a low-priced airline that offers inexpensive tickets forregional travel. Based in Atlanta, the airline serves the Southeastern UnitedStates and competes with Continental Airlines as well as with other smallregional carriers. It serves 31 cities primarily in the southeastern UnitedStates. The airline began its service with flights to Tampa and Orlando fromAtlanta in 1993. The no-frills strategy paid off for the fledgling airline,which posted half again as many revenue passenger miles in April 1996 as it didin April 1995. However, the company announced that it was slowing the expansionof its services, voluntarily, at the same time that it posted this impressiverevenue mark (Cole & Pasztor, 1996, p. A6).Perhaps due to overexpansion or to poor luck, Valujet experienced aseries of mishaps in its short history. In January 1994, a DC-9 skidded off arunway in Washington which resulted in the entire airport being shut...

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