Term Paper on "Industry Analysis Since the Passage"

Term Paper 3 pages (1117 words) Sources: 1

[EXCERPT] . . . .

Industry Analysis

Since the passage of the Airline Deregulation Act of 1978, the commercial air transportation industry has been going through a tremendous transformation. Where, the increased amounts of deregulation are helping consumers to see: lower fares and more choices among the different carriers. However, to understand the true effects of deregulation on the industry requires: that you examine those forces that will be impacting the industry over the next three years. To determine this you would need to examine: the general environment and task environment of the industry. Together, these two elements will provide the greatest insights, as to what issues will be affecting the airlines within the next three years.

General Environment

Over the last 100 years, the airline industry would undergo tremendous change, as the improvement in technology and economic factors would transform the industry. What happened was: prior to the passage of the Airline Deregulation Act of 1978, the industry was strictly regulated by the government. The idea was that allowing large amounts of deregulation would help select individuals, to create cartels or monopolies that will determine the prevailing market prices for air transportation services. This would lead to the passage of the Civil Aviation Act of 1938, where the government would play a major role in setting fares and determining which airlines could fly select routes. This model would provide stability to the industry, as earnings would remain stable because: the fares and any kind of merger or new route had to be approved by the Civil Aeronautics Board. (Morrison, 1995) However, under this model, competition was limited and fares were higher. This was problematic for the industry, as the government bureaucracy would make it difficult for new airlines to enter the market and fly new routes. At which point, the calls would grow for deregulating the industry, resulting the passage of the Airline Deregulation Act. (Cento, 2009)

In the next three years, the increasing amounts of global competition on a number of different routes will continue to grow. This is because throughout the world there have been efforts to deregulate the airline industry. An example of this change can be seen in Europe prior to the late 1990's. Where, each airline would have specific agreements with the government to fly certain routes in a particular country. This was problematic, because it increased costs and reduce competition. As a result, this would force the EU to deregulate the industry. Where, it would have dramatic effect on competition, as these deregulated markets would allow new carriers to emerge such as: Ryanair and Easy Jet. These were no frills, low cost carriers that would fly the same routes as the major airlines. In the U.S., the increased amounts of deregulation led to the creation of low cost carriers such as: Southwest and Jet Blue. At which point, it would only be a matter of time until a change would take place for international routes. This would lead to the open skies agreement between the U.S. And the EU in 2008. Where, there were several key provisions that this would allow to both European as well as American carriers, to determine what routes they wanted fly between the U.S. / Europe. To include: the recognition of European carriers as community airlines, airlines can fly any point between the U.S. / EU and U.S. airports can be… READ MORE

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