Research Paper on "Economic Impact of Government Interaction and Laws Within the Airline Industry"

Research Paper 10 pages (2927 words) Sources: 8

[EXCERPT] . . . .

Airline Industry

Over the years the airline industry in the United States has experienced a great deal of success. However, in recent years a confluence of events has led to a decrease in profitability for companies within the airline industry. The purpose of the research was to examine the ways in which government interventions in the airline industry have led to the demise of the industry. The research found that before deregulation the Civil Aeronautics Board was responsible for the management of the routes that airlines flew and the price for airline tickets. Following deregulation all domestically owned airlines were placed under the control of the Department of Transportation (DOT). This deregulation among other factors, led to an increase in mergers and acquisitions and ultimately led to the presence of a few large airlines with very little competition. The lack of competition has led to higher fares. In addition regulations developed after September 11 has created a great deal of inconvenience for passengers, making it less likely that they will purchase airplane tickets. The research also suggests that gas prices have a negative impact on the airlines and increased fares have not been able to reduce the impact of the cost of fuel on profitability. Overall the research suggests that government interventions have often proved detrimental to the stability and profitability of the airline industry.

Introduction

In the past, the airline industry has been amongst the most profitable and successful in the nation and the world. However in recent years the airline industry has suffered a great deal as a result of government regulations and current economic conditions. In addition, the airline industry has suffered greatly in the aftermath of the terrorists attacks of September 11, 2001. These events forever changed the manner in which people viewed flights as a means of transportation. The public now understood that airplanes could also be used as weapons. The attacks led to government regulations including the reinforcement of cockpit doors, and the placement air marshals on flights in a way that was less obvious than in the past However these regulations also heightened the amount of screening and led to the development of a new government entity known as the Transportation Security Administration (TSA). Through the development of various policies the TSA has been permitted to infiltrate all airports and inconvenience passengers without much resistance. In some ways these regulations and other government intervention have led to the demise of the airline industry and the inability of certain airline companies to remain profitable. The purpose of this discussion is to examine the ways in which government interventions in the airline industry have led to the demise of the industry. The research will also explore issues related to the impact of gas prices, industry monopolies and deregulation on the airline industry.

Economic impact of Government interaction and laws within the Airline Industry

According to an article entitled "Competition and Regulation in the Airline Industry," even the terrorists attacks of September 11, 2001 had a profound effect upon the airline industry by decreasing the number of people flying and therefore increasing costs, there were also other issues that impacted profitability in the industry. Namely, deregulation is blamed for the downfall of the airline industry in recent years.

The article further explains that prior to the deregulation of the industry in 1979 the Civil Aeronautics Board was responsible for the management of the routes that airlines flew and the price for airline tickets. The purpose of this was to preserve public interests. However the introduction of deregulation meant that all domestically owned airline that the Department of Transportation (DOT) established as "fit, willing, and able") could fly on any domestic route. During this time the main regulatory purpose of the DOT was altered from being responsible for guaranteeing that an airline was operating in the public interest to determining if an airline was operating in agreement with established safety standards. The article further explains that

"While route schedules and pricing for the airline industry have been largely deregulated for over 20 years, many other aspects of the industry are still highly regulated. Perhaps the most important regulation comes from local governments, which own and manage the airports in their region and therefore control key bottlenecks to airport services: access to boarding gates and runways. Most local airport commissions allocate gates without a formal market mechanism, such as a bidding process; often they require proof that the airline would operate in the best interest of the public ("Competition and Regulation in the Airline Industry")."

The article explains that to further exacerbate this issue international routes have not been deregulated at the same pace that domestic routes have been deregulated. The deregulation that has occurred as it pertains to international airlines has taken place via bilateral open-skies agreements. Such agreements are designed to permit airline in two different countries to fly between the countries absent of limitations. However these types of agreements are not effective at developing a market that is competitive. This lack of competition is present because they do not permit foreign carriers to carry passengers within the United States or in the countries of origin.

Additionally the article reports that there are also federal regulations as it pertains to certain airports located in large cities including New York and Chicago. These particular airports have federal slot regulations ("Competition and Regulation in the Airline Industry"). This means that airlines must obtain a slot so that their flights are allowed to leave and land at these airports. The article asserts that these slot regulations were created to limit congestion at the airports in the country with the most traffic. However such regulations are not consistent with the realities of the market. . For example, "the nation's busiest airport, Atlanta's Hartsfield International, is not even covered by slot regulations. Service to some small isolated markets also is subsidized and regulated by the federal government…even though the end-consumer for airline tickets faces a market-driven menu of prices and services, key inputs into the industry are allocated using non-market mechanisms ("Competition and Regulation in the Airline Industry")."

Overall the research indicates that deregulation had a profound effect on the airline industry because it shifted responsibilities from one government agency to another. The research also explains the ways in which the industry has changed over the years and the policies related to slot regulations and the impact of such regulations on international carriers. The research demonstrates that some of the regulations adapted are not consistent with what is needed in the market to ensure the profitability of airlines.

TSA Regulations and the Travels Promotions Act

Following the attacks of September 11 and subsequent attempts to take down aircraft, the TSA has developed new regulations related to safety in the airline industry. These new regulations have resulted in much extensive security measures which include metal detectors, the removal of shoes, bomb sniffing dogs, and even full body scan machines in certain airports. In addition TSA has severely restricted what items can be carried onto airplanes.

Since the development of the TSA in 2001 the agency has been accused of violating Americans civil rights through "unreasonable" search and seizures of passengers and goods. The regulations have led to customers being inconvenienced because they have to arrive at the airport a significant amount of time before their flights take off. This inconvenience led to decreases in travel by airplane. This decrease in travel has led to signing of the "Travel Promotion Act" in 2009. This act is also designed to encourage international travel to America through the development of a national tourism board (Fletcher, 2010). This board is responsible for the development of marketing and various other schemas to encourage foreigners to visit the United States (Fletcher, 2010). Additionally this act is designed to reverse the 10% decrease in foreign visitors to the United States over the past ten years. The article further explains that,

"The board created by the new law would develop advertising and educational campaigns to help potential travelers navigate United States visa requirements and security procedures. The effort is to be paid for by private sector contributions matched by a $10 fee on foreign visitors from countries who do not need a visa to enter the United States.Advocates of the law say it would help attract 1.6 million new international visitors, $4 billion in new spending and more than $300 million in tax revenue each year (Fletcher, 2010)."

This particular act was just signed recently so the full impact of the act is yet to be seen. However it may be a step in the right direction. At least politicians at the federal level understand that the airline industry is suffering and has devised a strategy to encourage travelers to fly and vacation in the United States. Hopefully in the future the number of foreigners coming into America on airplanes will increase.

The current regulations established by TSA have affected the desire people have to travel because of all the… READ MORE

How to Reference "Economic Impact of Government Interaction and Laws Within the Airline Industry" Research Paper in a Bibliography

Related Research Papers:

Role of Private Investment on Economic Development in Iraq Literature Review

Role of Private Investment on Economic Development in Iraq

Private investment in developing countries

An overview on early Empirical studies

In 1980s, the developing countries encountered some increment in their… read more

Literature Review 40 pages (14411 words) Sources: 45 Topic: Economics / Finance / Banking

---

Westjet vs. Air Canada Why Westjet Will Win Dissertation

airline industry has become increasingly competitive in recent years due in part to the horsewhipping it experienced following the terrorist attacks of September 11, 2001. The ongoing global economic downturn… read more

Dissertation 50 pages (17068 words) Sources: 75 Topic: Transportation / Mass Transit

---

Problems With Cockpit Automation the Impact of Very Light Jets on Fbo Term Paper

cockpit automation / the impact of very light jets on FBOs

Cockpit-FBO's

Problems with cockpit automation / the impact of very light jets on FBOs

Paper-1 Problems with cockpit automation… read more

Term Paper 20 pages (8023 words) Sources: 10 Style: APA Topic: Transportation / Mass Transit

---

Economic Model for Monopoly Analysis in Telecommunication Term Paper

Economic Model for Monopoly Analysis in Telecommunication:

Proposal to demonstrate Uniqueness. Mathematical Economic Model.

The Telecommunications Act of 1996 sought to end the monopoly that once existed in the telecommunications… read more

Term Paper 30 pages (14390 words) Sources: 1+ Topic: Business / Corporations / E-commerce

---

Designing a New Regulatory Framework for Telecommunications Interception and Access in Jordan Multiple Chapters

Telecommunications - Jordan

The impact of telecommunications interception and access on privacy rights and costs as presenting an obstacle to the implementations of telecommunications interception and access law.

Technology today… read more

Multiple Chapters 34 pages (11320 words) Sources: 40 Topic: Government / Politics

---

View 100+ more related papers  >>