AirlineIndustryDraft.docx

AIRLINE INDUSTRY 1

AIRLINE INDUSTRY 9

Airline Industry

Embry-Riddle Aeronautical University
ECON 210
5/30/2021

Introduction

“The century of airplanes has a right to its own music.” How often do you fly? This might give you an insight into the situation of the airplane industry. The industry provides air transportation of people and cargo through aircraft. The industry also includes maintenance of airlines, marketing, and financing. The airline industry is categorized into three components; the commercial component, which are the national carriers, the general component, which includes personal, business and executive flights, and the military component. Air transportations are either scheduled or non-schedule. Most commercial airplanes have scheduled routines and plie specific routes regardless of whether they are full or not. Non-scheduled airplanes fly during off-peak hours to avoid air traffic congestion. Airline Industry consists of various activities where passengers and goods are transported from one destination to another.
Literature review
Deregulation of Airplane Industry
Introduction of airplane industry and its evolution
The origin of the airline industry can be traced back to the early centuries. In the United States, the first airline service was offered in 1914 but lasted only a few months. The failure of the service was accrued to the efficiency offered by the road transport during that time (Schultz &Fuchte, 2020). The cost of air transport was relatively high, which discouraged customers from using it. The industry was under the private sector, which made it challenging to obtain profits. This called for government interventions that helped to regulate the industry. The government formulated legislation that would be used to regulate the industry. The first legislation to be formulated was the Kelly Act of 1925(Macilree& Duval, 2020). Under this Act, the government encouraged private airplane services by offering contracts and funding to private investors. The airmails that were initially undertaken by the military were given to the airplane services. McNary-Water Act was enacted in 1930. It made entry into the industry very difficult.
The decline in the industry that followed McNary-Water Act caused the industry to seek interventions from the federal government. The industry cited excessive competition, which led to the implementation the Civil Aeronautics Act of 1938 (Macilree& Duval, 2020). This saw a transfer of regulatory responsibility from the postal office to the Civil Aeronautics Board. This Act was in place regulating the airplane industry un till deregulation.
Deregulatory period
The CAB did not allow price competition, so the industry utilized non-price competition, making normalized profits. The industry started to experience extensive growth in labor and expenditure (Macilree& Duval, 2020). A series of experiences led to the signing of the Deregulation Act in 1978. Consumer groups accused CAB of favoritism and poor price policies. Such policies led to unnecessary improvement in quality offered by the airplane industry since they could not change the prices. For instance, high-quality food and an increased number of attendants in a plane were considered by consumer groups as unnecessarily exaggerated. More frequent trips were made with few passengers was termed uneconomical (Macilree& Duval, 2020). Deregulation of the airplane industry caused the cessation of CAB as the regulatory body in the industry, and better competition was introduced in the airplane economy. Deregulation was received with different opinions. Overcapitalization was observed since airplanes were offered a fixed profit margin depending on the capital they invested. There was the fear of losing jobs while, on the other hand, consumers supported the deregulation.
Transportation of people and goods from one destination to another
Airline involves traveling by airplanes to various points. It is the fastest means of transport known globally (Schultz &Fuchte, 2020). Anyone who would want to be in a distant place or country within the shortest time possible would prefer using an airline. The airplane industry has numerous benefits. Although it is initially expensive to build or planes, it does not require building more than just airports for landing and off-take since the planes use air cost-free (Park & Almanza, 2020). It is a fast means of transport that offers high reliability for both goods and human transport. The industry is convenient in the transportation of light products that are of high value. It is the most effective to offer strategic importance because it can also be used for internal and external security. Unlike other modes of transport, air transport is not affected by physical barriers.

The airline has accommodation for all passengers with different financial or economic statuses. Within passenger airplanes in the airline industry, there are partitions of special treatment of the passengers (Park & Almanza, 2020). Passengers have options of traveling using various classes according to their financial abilities. Depending on the passenger’s cabin, airplanes offer several classes that provide social and economic classes. For instance, there are first-class services, business class, and economy class. Currently, there is the emergence of premium classes (Park & Almanza, 2020). The first-class offer the most comfortable accommodation and are significantly the most expensive. Business-class offers high-quality accommodation to business members and is also called executive classes. The economy class is the primary accommodation that ordinary travelers mainly utilize.
Economic Analysis
Competition in services rendered.
Just like any other transport sector, the airline industry has competition. The competition in the airline industry is based on fares and services offered while the passengers are on board (Tahanisaz, 2020). The primary form of competition is through pricing. The passenger can choose the airplane that offers the most favorable fare price. There is a wide range of different services that different airplane companies utilize to cope or win market share in terms of services offered. Some airplane companies are crucial in offering timely services and avoiding delays. For instance, delays caused by a mechanical problem of the plane are solved by providing another plane to ensure the flight is not canceled or delayed. This high reliability by some plane leads to higher customer satisfaction and retention.
Attendance to customers in planes is essential in the competition among airplane companies. Companies offering more attention to customer preferences receive better customer flows than those that offer poor service qualities (Tahanisaz, 2020). For instance, most airplanes offer food while in transit. The quality of food and food delivery services would encourage or discourage customers. Other airplane companies offer reading materials and other recreational services such as the internet and media to offer luxury and comfort to customers.
Other plane companies are investing in state-of-the-art planes that are fast, more comfortable, and with spectacular architecture that attracts and pleases the customers. Some airplane services offer better seats that would accommodate the legs more comfortably than others. The seats are, in some planes, adjustable to the comfort of the passenger. Such services have proved to encourage passengers, which increases retention of customers. The spacing of the seats also offers a competitive aspect in that most customers prefer well-spaced seats to congested ones.

The threat of new entrants

There are always threats of entry into the plane market. When other organizations want to enter the market, they would consider very many things to have customers. Governments also control who enters the markets and with which aircraft (Dean et al., 2020). New entrants have better services than existing ones. For instance, most new entrants have better speeds and consume fewer fuels. Such improvement led to high-quality services at relatively better prices. This attracts more customers and poses more competition to existing airplanes.
Some new entrants are providing planes with large carrying capacities. A plane taking up to 500 passengers in a multi-class layout poses more threat to a plane that only takes a hundred passengers (Dean et al., 2020). Due to the large sizes of the new planes, some have modifications such as folding wings to fit into the docking structures of airports. Other planes have modifications in their fuel structures, such as additional fuel tanks. Such modifications help the planes to travel long hours without the need to refuel. This, in return, may prove to be more reliable to many customers.
Supersonic models introduced are super-fast, with the ability to travel the longest routes in less than eight hours. This means a lot to most business people who have to meet time and have several trips in a single day (Dean et al., 2020). Such new models are pounding pressure on older models that exist in the market. Additionally, new entrants have more oversized windows, with some having the ability to be dimmed. Such windows allow better viewing of features while on a plane. LED lightings in new entrants that prevent eye fatigue and increase eye comfort are added advantages to customers. Other planes offer compatible appliance support such as phone charging terminals and computer holding devices. This ensures that customers are not inconvenienced while using their electrical hand gadgets.
Empirical evidence on economies of traffic density.
Services in the airline industry cost different even when the destinations are the same. Also, the airline industry has economies of scale, which are enjoyed by the business persons in the industry (IATA., 2020). An examination of the economies of traffic density would reveal more about the sectors. Differences in design and comfort preferences have shown increase costs in both manufacturing and airline prices compared to regular planes.

Boeing 777-300ER

Seat size

6’66”

34”

31”

Pitch width

23”

17.05”

17.05”

Recline

180 degree

4”

3”

price

$5769

$1487

$804

From the table above, the prices are different in the same plane due to the comfort provided by each component. An increase in comfort features led to increased travel costs (Jasmine et al., 2020). Similarly, different companies will offer different costs for traveling depending on the plane models and routes. Some airplanes are modified only to provide luxurious services. They thus, cost more than airplanes that provide regular transport services. Planes may have the same destinations but different routes. The routes may lead to differences in the prices offered by the planes. Some airplane companies invest in highly designed crafts that are expensive to and maintain. This may encourage them to charge more than other planes.
Offtakes and landing have been cited as the most critical moments of planes since most accidents occur at that moment. New entrants have brought crafts with more efficient off-takes and comfortable landing that reduces phobia. Customers affected by fear of landing or off-takes would prefer such planes over ordinary ones. Better boarding equipment such as escalators in some new planes also provides state-of-the-art boarding, which offers significant competition to older planes. Automated destination announcements have also improved the quality of services and reduced challenges faced by customers in identifying destinations.
Conclusion
In conclusion, the airplane industry provides air transportation of people and cargo through aircraft. The industry also includes maintenance of airlines, marketing, and financing. The airline industry is categorized into three components; the commercial component, which are the national carriers, the general component, which includes personal, business and executive flights, and the military component. Air transportations are either scheduled or non-schedule. The industry, just like any other industry, has competition and is affected by economies of cost.

References
Dean, E., Elardo, J., Green, M., Wilson, B., & Berger, S. (2020). How Monopolies Form: Barriers to Entry. Principles of Economics: Scarcity and Social Provisioning (2nd Ed.).
IATA. (2020). https://www.iata.org/en/iata-repository/publications/economic-reports/airline-industry-economic-performance-june-2020-report#:~:text=2020%20will%20be%20the%20worst,albeit%20to%20a%20lesser%20extent.&text=Airlines%20in%20all%20regions%20are,negative%20opera

Macilree, J., & Duval, D. T. (2020). Aeropolitics in a post-COVID-19 world. Journal of Air Transport Management, 88, 101864. https://doi.org/10.1016/j.jairtraman.2020.101864

Park, H., & Almanza, B. (2020). What Do Airplane Travelers Think about the Cleanliness of Airplanes and How Do They Try to Prevent Themselves from Getting Sick?. Journal of Quality Assurance in Hospitality & Tourism, 21(6), 738-757. https://doi.org/10.1080/1528008X.2020.1746222

Schultz, M., &Fuchte, J. (2020). Evaluation of aircraft boarding scenarios considering reduced transmission risks. Sustainability, 12(13), 5329. https://doi.org/10.3390/su12135329

Tahanisaz, S. (2020). Evaluation of passenger satisfaction with service quality: A consecutive method applied to the airline industry. Journal of Air Transport Management, 83, 101764. https://doi.org/10.1016/j.jairtraman.2020.101764