Airlines, Airports

1
Chapter 3

• Airlines, Airports
• International Aviation

2
Air Transport Policy

• Interventionists Pro-Regulation
• Serves a larger public interest
• Safer, avoids monopolies, market stability
• Free-Marketers Anti-Regulation
• Competition is necessary
• More cost effective
• Contestable Markets
• Even if no competition, threat will be there!

3
U.S. Deregulation

• Airline Deregulation Act of 1978 (Carter)
• Removed economic regulation of scheduled flts
• Market Entry Removed (1982)
• Route competition, service, pricing (1983)
• Effects
• 1978 (36 carriers), 1983 (123!)
• Discount fares from 15 (1976) to 90 (1987)
• Changed tourist flows created destinations!

4
Long-term Effects

• Yield-Management Pricing
• Sabre (American), Apollo (United)
• Majors cut prices to beat Minors (Illegal?)
• Reagan Market Supply/Demand
• Development of Hub-and-Spoke Systems
• Competitive advantage at the Hub!
• Causes higher fares 60 of market share
• Frenzy of Mergers/Acquisitions
• Majors bought-out many minors (Table 3.2)
• 1999 5 carriers have 72.5 of market!

5
EU Liberalisation

• Prior to 1987
• Each member state regulated its own markets
• Favoring restrictive, anti-competitive agreements
• Protected National Flag Carriers (state owned)
• Charter airlines least regulated
• 1985 one fourth of pax! US lt 1 out of 100!
• Unscheduled Vacations good Hurt business travel

6
EU Liberalisation (cont.)

• 1987, 1990 1993 EU Aviation Packages
• Removed most regulatory constraints
• Fares, frequency of service, market entry, etc.
• Late 1990s more liberal than U.S.!
• 1997 Cabotage is legal (illegal in U.S.)
• Can have a domestic flight not in your country!
• Results
• No evidence of lower fares
• No new entries National pride flag carriers
  kept

7
Strategic Alliance Networks

• Advantages for Airlines
• Joint Marketing, Code sharing, Reservation
  systems, valuable runways Gates, etc.
• Benefits for Passengers
• Access to other continents, route networks,
  terminal gates, loyalty programs, etc.
• Four Major Alliances
• Star (21.4) United, Air Canada, Lufthansa
• Oneworld (16.2) AA, British Air, Aer Lingus
• Sky Team (10.0) Delta, Air France
• Wings (7.4) Northwest, KLM

8
9/11 and Future Directions

• Post 9/11
• Immediate, major profit losses
• Air Transport Safety Stabilization Act (2001)
• Federally subsidized (5 billion) loans (10
  billion)
• EU afraid the subsidies will give unfair
  advantage
• Future
• Continued globalization via alliances
• Asia more active ( 1 US, 1 EU, 1 Asian)
• More outsourcing (ie, baggage, food)
• Better Yield Management