Today one of the world’s most competitive and prominent industries is the airlines industry. They generate huge amounts of income as well as employment. Some of the common names in US air travel service providers are Alaska, Northwest, Southwest, US airways, American etc.
According to the latest statistics given by the International Air Transport Association (IATA), the airline sector will post a profit of $9 billion in 2011. Business travel is increasing and even the airlines are now investing again.
Over the years airlines have undergone large-scale privatization, as a significant portion of it used to be government-owned. Privatizing it has led to drastic increase in the number of air service providers and the airline travellers.
Initially, Civil Aeronautics Board controlled the activities of the commercial Airline industry. It established the rates and even the merger in the industry till forty years. Then Airline Deregulation Act 1978 was adopted to make the industry more efficient and privately owned. This act removed the powers of CAB, thus this institute was wound up in 1984. This act still gave the authority of regulating air safety to government through Federal Aviation Administration. All airline need to have 2 certificates,
1. Fitness certificate (issued by Department Of Transportation). It is to ensure the airline is financially and management wise, strong enough to carry on the services adequately.
2. Operating certificate (issued by Federal Aviation Administration). It is to ensure that the airline maintains it crew and aircraft condition (avjobs.com, 2011)
Deregulation reduced the airfares, increased competition, and increased the use of air travel drastically.
Fiscal policies of the government can have significant impact on the industry’s performance. Governments generally tend to impose high taxes on airline industry, which is usually passed on to the customers, or the number of staff is cut down to reduce costs. In United Kingdom when the government imposed high taxes on the aviation industry, the number of cargo operators reduced (My-Efficient-Planet, 2010).
At the same place governments tend to support aviation industry by building airports, roads and hotels near airports. In addition governments tend to arrange security at the airport to ensure safe journey. The terrorist attacks of September 11, 2001 had negative implications for the industry. All the airlines changed their routes, marketing tactics and prices. They also tried to reduce the fear and negative image that got associated with airlines. Governments have imposed strict security checks on air travel passengers in order to avoid any unforeseen terrorist activity.
The growth of airline industry in any country is directly proportional to the GDP growth of that country. The demand of the aviation industry is based on the elasticity of demand and the current market condition. (InnovativeThinker, 2007)