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The Structure Of The Airline Industry

2577 words - 10 pages

IntroductionFor several decades, the amount of air transportation activity has been growing consistently at about double the rate of world production due to globalization, the rise of world GDP, liberalization, etc. These growths was equally fuelled by an increase in business person's mobility and therefore demand for air travel, by a surge of world trade and therefore more business cargo, courier services as well as by significant increase in tourism. Air transportation is characterized by network attributes, high fixed costs, highly unstable demand as well as the need for great expertise and great emphasis on safety. It is therefore vital to look at the innovations behind the evolution of the airline industry & review what lies ahead in the future for their survival.Three innovations by major carriers in the 1980sIn the ever competitive era of the airlines industry, established airlines were being induced to bring about a stream of innovations that allowed them to provide various classes of ever-better service to their most attractive customers who are relatively price-insensitive and wanted predictable levels of service to as many destinations as possible. Since all the airlines had the same generic strategy, to do it better and faster than the competition is the name of the game. In the 1980s, according to Wensveen (2007, pp. 151-152), airlines first established the "hub-and-spoke" route structures, designed to funnel traffic from outlying regions for further transit, at very high load factors to major destinations, second, airlines adopted frequent-flier programs designed to enhance brand loyalty among business travelers and to exploit the differences between regional and national (or international) airlines in terms of more desirable destinations, third, the airlines developed sophisticated reservation systems that they used for at least two purposes which is to skew in their favor the display of scheduling information on the screens that were used in travel agents' offices, and to establish yield management programs.From a spatial perspective, "hub-and-spoke" route structures entail the concentration of traffic on one or two central hub airports where passengers or cargoes can change planes on their way to their eventual destinations (Berry, Carnall & Spiller 1996). This would allow airlines to built bigger aircrafts to consolidate large numbers of people & cargoes to the key hub then re-distribute from there to the final inland destinations using smaller aircraft at more frequency. The concentration of staff and aircraft at a hub also often results in a carrier offering more departures to more destinations than carriers that base operations elsewhere. Since the deregulation of the Civil Aeronautics Board (CAB) in 1978, it has fueled a trend towards concentration of business with a new cluster of "mega-carriers", with a number of small and midsize airlines being absorbed in the process (Wensveen 2007, p. 151). The Boeing...

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