The Air Transport Industry
The United States and European air transportation industries are one of the key sectors that boost their economy. In US about forty two percent of all passenger trips with roundtrip distances of between 1000 and 1999 miles are taken by plane. This percentage increases rapidly to seventy five percent. If the round trip distance is at least 2000 miles. Due to some advances in technology in the year 1978, the Airline Deregulation act was enacted by congress, which allowed US airline industry to become the primary intercity mass transportation system in the country.
Eve though air transport system plays a bigger role in boosting the US, and European Economies, there are a number of challenges it faces. For instance the economic down turn was realized in early 2001 and the terrorist attacks of September 11, 2001 that led to reduced demand for air travel thereby resulting in decreased profitability or losses for many companies (Delfmann, 2005). An industry is a segment of the economy that is concerned with the production of goods and services. In the airline industry, production is mostly of the aircrafts and the related spare parts.
Producers of the aircrafts must first understand the customer’s who will be using the planes being produced. For instance, the customers of the commercial aircrafts of this industry are the airlines companies. The airline companies provide transportation services to its different customers. There are various airlines competing in this transportation industry. For instance, Southwest Airlines, Jet blue, Northwest, Southwest, and United Airlines, among others. The airline industry is either public owned or private owned. NAISC code system provides a common industry definition for the US, Mexico and Canada industry.
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This system contains codes that are replacing the SIC system and vise versa. Some of the codes in the airline industry are; 336411- Aircraft manufacturing, 336412-Aircraft Engine and Engine Parts manufacturing, 488111-Air Traffic Control, 611512-Flight training, (Lyle, 2007). For many years, the Bureau of labor statistics has published a measure of labor production for air transportation under the North American Industry Classification System, (NAICS), the air transport industry has been classified or coded 4921. Air Transport Overview
The year 2004 was a year of growth for the European Community and for its air transport industry. During this period the community itself was enlarged giving access to its often skies to the populations of ten accession states. As a result of this the lost cost carriers were quick to respond to the opportunities of the increased market size and quick to take the advantage of lower costs operating in the new number states. This was the first year after the September 2001, 11 terrorist attack that the air transport industry realized a good growth.
The positive recovery was also led by the Asia- Pacific region that was badly hit by the SARS outbreak in 2003. Of late the industry is forming alliances making it to grow positively with the major movement here being the merger between Air France and KLM. Role of Government and environmental issues in air transport industry. There has been a lot of crisis faced in the air transport industry especially those in Europe and North America. The government has been paying keen attention in dealing with the second and economic consequences of the spectacular down turn the industry is facing.
Among the challenges that the industry has faced are terrorist threats of September 11, 2001, the SARS epidemic and threats from Iraq. Globally the industry has lost almost twenty five billion dollars in 2001 and 2002 just as a result of the decline in the number of travelers after the 9/11 episodes. Total International traffic dropped the following year. Europe has decided to move beyond the bilateral system even though the rest of the world is still operating with the principles established in the Chicago Convention. This indicates that it has been difficult to set a single sky.
The civil Aviation Authority has played a key role in ensuring that safety and security is provided. (Lewinsohn, 2005). In order to enable governments to maintain essential air services, article 4 of regulation (EEC) No. 2408/92 defines a system of public service obligation (PSO), which can be imposed in carrier operating on designated routes. The obligation mainly concern capacity, frequency and fare as well as continuity of service Competition/ Regulatory Major competitors In all business sectors, it is a dream of every businessman to become number one in that sector.
Airline industry is one of the most competitive business sectors in the world. In the United States, most of the airline companies are privately owned. Many successful airline companies have different factors that have made them to succeed. For instance, company culture, management decision, technology, as well as level of operation. Airline travel has also seen a lot of increase because of customers being able to access information easily, due to technological changes. Many customers are able to check flights, book and make reservations of airlines through the Internet.
They can also easily compare the costs of various airlines before deciding on which to use. This of course has increased a lot of competition among airline industries. Those with a better technological development stands out to be on the competitive advantage. Due to high competition, it is not possible for an airline to put ticket prices just exorbitantly. This is because price is one determinant that has made airlines like the Southwest to continue making profits, as many customers prefer it because of its low price.
According to Lyle, (2007) “Pricing in the airline industry has become more and more complex due to deregulation; however, pricing follows a standardized ‘follow the leader’ structure because of competition”, (Ferugia, D’Elia & Fransisco 2003). Therefore, for an airline to survive in the industry, it must put the price at the same level or even below as the other airlines. Several airlines have up certain measures to counter the competition. For instance, United Airlines (the largest carrier) has been experiencing many financial and management problems, and has thus undertaken Alliances with other airlines so as to remain in the market.
Inc. “In 2002, the company’s revenue passenger miles were over 109 billion … which is approximately 18. 4% of the market … In 2002 the total revenue was down by 11. 4% and since 2001 the company has experienced economic losses”, (Ferugia, D’Elia & Fransisco 2003). In the whole world there was a significant rise in the number of ‘open skies’ deals with eleven such bilateral agreement being concluded in 2004, increasing the total number to one hundred. By the end of 2004 there were eleven regional multilateral agreements established of which the most liberal is that involving European Union member states.
Following the November 2002 ECS ruling, a council regulation 847/2004 (OJ list of 30. 04. 2004) was established that laid down procedures to be followed in respect of future bilateral regulations (Lewinsohn, 2005). The main reason for regulation is to bring the air service agreements in line with the community law. Common rules have also been passed on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, which are tabled under a new council regulation (OJ l46 of 17. 02. 2004)