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Cooperative Intelligence

World events definitely have an impact on travel, particularly the airline industry. During the early 1990s, people found it very hard to find good flight deals priced reasonably; then came the beginning of the 1st Persian Gulf War. A lot of people canceled their flights, while those who re-booked were not charged any extra fee. In 1978, the industry went through deregulation resulting in accelerated industry consolidation and competition, and market trends incorporated code-sharing and acquisitions among airlines.

Aside from airline companies, only some businesses are constantly at risk of losing money because of events that are beyond their control, such as war, calamities and bad weather, and terrorist activities. For the airline industry to make money, so many things have to work right. The Macro Environment of the Airline Industry When a plane crash takes place, the immediate impact is that a lot fewer people will book flights. Gradually, however, traffic would build up again. Financial analysts of an airline company employ models to help them predict the effects of a plane crash, but every case was always a little different (Naylor, 2007).

High fixed costs are involved in the airline industry, including capital expenses for purchasing and retrofitting airplanes. The

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prices of fuel are a huge and fluctuating ongoing expenditure. Airlines shell out $14 billion per year on a new aircraft just to maintain the age of their fleet at the present average of twelve years (CreditSights). The airline industry is still regulated, to some extent—in order for landing and takeoff slots to be set, and for routes to new locations to be enforced, airlines must acquire approval from the United States Department of Transportation.

When airline carriers in the US request foreign airline carriers to fly into the US and new routes to foreign destinations, they compete with each other to obtain this approval from the government. The Airline Industry’s Complex Scheduling Scheduling in the airline industry is complicated and highly mechanical. First, if you are a network carrier, you want to have good hub locations and be in the right markets. The following are the major airline network carriers in the United States as of June 2007 according to the Bureau of Transportation Statistics: Alaska, Northwest, US Airways, Continental, Delta, United, and American.

Note that US Airways and Continental are merging. The low-cost carriers include JetBlue, Spirit, Southwest, AirTran, Frontier, ATA, and America West, while the regional carriers include Pinnacle, Mesa, Express Jet, Atlantic Southeast, American Eagle, and Comair. For instance, the major hub locations of Northwest Airlines are in Memphis, Detroit and Minneapolis. Second, the airline schedulers are continually studying city pairs in order to expand profit and revenue for every flight by optimizing every airplane’s routes with the right mix of customers.

For domestic flights, an airplane flies to a number of locations and ends each day at a maintenance location that is also optimal for take-off on the next day. Third, airlines have to fly the right size airplane full of passengers, but preferably with only some seats left empty. This permits last-minute passengers to have space, and bigger revenue per seat. Planes and Passengers Aside from complicated scheduling, airlines also have to deal with issues regarding fleet availability and composition.

Aircrafts go through maintenance every night and are taken out of use periodically by a standard schedule of extensive maintenance. Furthermore, some airplanes go through retrofitting. The weather affects scheduling continuously. Also, the competition drives airlines to optimize their fleets and take extra efforts to boost their market share. Many employees are required by an airline for operations and safety. The most visible employees to passengers are the ticketing agents, flight attendants, and the pilots.

However, a lot of employees work “behind the scene” and are responsible for keeping the airline operating, such as engineers, fueling staff, air traffic controllers, baggage handlers, traffic technicians on the ground, and maintenance staff, to optimize flight operations. Other than aircraft pilots and high-level management staff, majority of airline employees are not paid highly, and most commonly, they have been enhancing their wealth through stock options. After 9/11, practically all major airlines worldwide lost money. The airlines in the United States alone cumulatively lost a total of $35 billion.

Employees of airlines dropped to their lowest level since 1995 during 2005. Simultaneously, the quantity of passengers increased dramatically by 170 million as flight tickets became a lot cheaper. Since the deregulation in 1978, airline travel fares have decreased by 50% in real terms. Southwest Airlines Southwest Airlines has concentrated on being the cheapest among the low-cost carriers in the United States since its inception, and in recent times, has the most successful track record among all US carriers. After being in business for 36 years, however, the low-cost and efficient model of Southwest Airlines is being severely challenged.

The major airline carriers aggressively cut down their costs to continue being in low margin and numerous airlines gained from bankruptcy reorganization. Now, the difference of price between the US carriers and Southwest have become very small, narrowing what was traditionally a low-price advantage of the latter. Due to increased labor costs and greater prices of fuel, the unit costs of Southwest have increased by almost 20% over the past seven years. Currently, Southwest is competing with American Airlines for leadership in the domestic market of the United States.

However, to look and feel like a traditional airline carrier while still keeping down its costs, Southwest may need to take more steps including charging for in-flight services, limited or no salary increases, higher prices, in-flight entertainment systems, re-vamping of the frequent flyer program, assigned seating, and cooperative intelligence. The trends encouraging Southwest to carry out the aforementioned steps signify that the airline industry of the United States is almost too competitive, as the tactics and strategies of the major carriers and low-cost carriers are converging.

While this might maintain low prices for passengers, one can expect disruptive amalgamations among the airlines in the future in their struggle to stay profitable. Peak Season The load factor in the airlines in United States increased by 80% and by 76% globally. While having “full” flights may be good for the bottom lines of airlines, it is not necessarily good for the passengers. A full plane requires longer time for boarding, and during peak season, all plane seats are either sold or oversold, making last-minute flights very difficult at any price.

This also makes it hard for the airlines to deal with displaced customers or cancellations due to bad weather. June 2007 proved to be one of the worst months for flight delays in the history of the United States (FlightStats): 1) Over 30% of the flights of 40 carriers that were scheduled to land in the United States arrived late. 2) 62 minutes was the average delay for late flights. 3) From June 2006, the number of canceled flights increased by more than 100%.

4) Northwest Airlines, struggling with labor unions, had 352 flight cancellations over one weekend, a greater number than its flight cancellations during the entire month of June 2006. There were more than two billion global flights in 2006, a number higher than 2005 by 4% (International Civil Organization). By 2010, the number of flights will go up by another 500 million as predicted by the International Air Transport Association (IATA). Furthermore, the domestic market of air travel of the United States—currently 750 million passengers a year—will be surpassed by those of Asia and Europe.

This does not imply, however, that the US will get any less busy. According to Marion Blakey, head of the Federal Aviation Administration (FAA), the congestion delays are starting to cost the US airlines enormous amounts of money. (The Economist, 2007) Wherever you look, the airline industry of the United States is faced with increasing hurdles. The US consumer population expects flights to remain inexpensive, and the airline companies have kept their prices low, maybe artificially low, in their quest for full flights and profitability.

While the airlines say that the FAA is not managing sufficient traffic to satisfy the mounting traffic demand in the United States, the FAA asserts that the airlines have created trouble for themselves by overflowing major airports with more flights. References Bureau of Transportation Statistics (2007) Form 41: April 2007 and 1Q2007. Retrieved August 18, 2010 from www. bts. gov CreditSights. www. creditsights. com FlightStats. com. www. FlightStats. com International Air Transport Association. www. iata. org Naylor, Ellen. (2007). Has America’s Airline Industry Become Too Competitive?

Cooperative Intelligence, 10, 34-37. The Economist. (2007). Special Report – Air Travel: “Fear of Flying,” “In the Land of Free Flight,” “Time to Land. ” Retrieved August 18, 2010 from www. economist. com My Dear Client, Here is your finished work. If you find it pleasing, I do hope you can leave a Very Satisfied rating for me in the survey that the Support team will ask you to complete. It would mean a lot to me as well as to my reputation and credibility. Thank you so much and take care. If there is still anything you need, I would be glad to help you again in the future. Regards, Paulina Alexis Gueco (Writer 68594)

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