SIC 4512
AIR TRANSPORTATION, SCHEDULED



The scheduled air transportation industry primarily has been engaged in furnishing passenger air transportation over regular routes and on regular schedules. This industry includes Alaskan carriers operating over regular or irregular routes.

NAICS Code(s)

481111 (Scheduled Passenger Air Transportation)

481112 (Scheduled Freight Air Transportation)

Industry Snapshot

The passenger air transportation industry provides air travel to both domestic and international destinations. What once began as a mode of transport for the U.S. mail has become a multibillion dollar industry. For 2001, the industry had estimated revenues of $80.9 billion. Air travel has become so commonplace that, according to an Air Transport Association (ATA) Gallup poll, nearly 75 percent of all Americans have flown on a commercial airliner at least once.

The airline industry experienced uninterrupted growth in revenues throughout the 1990s. However, a weakening global economy, coupled with the September 11, 2001, terrorist attacks, had drastically reduced airline traffic by the end of 2001. As a result, the industry posted unprecedented losses of $7.7 billion for the year, as revenues dropped 13.5 percent from a record high of $93.6 billion in 2000. The slowdown continued into 2002 and 2003, as major airlines, faced with reduced sales, continued to reduce their capacity and trim their ranks. United Airlines, the second largest airline in the world, filed for bankruptcy at the end of 2002.

The leading airport early in the twenty-first century in terms of volume was Atlanta Hartsfield International, with nearly 76 million passengers transported in 2001. Chicago O'Hare Airport transported more than 66 million passengers. Los Angeles International Airport ranked third with roughly 61,000 passengers, and Dallas/Fort Worth International held fourth place with over 55,000 passengers transported that year.

Three carriers have historically dominated the industry. American Airlines, United Airlines, and Delta Air Lines have become the best-known domestic carriers, leading the industry in terms of revenue passenger miles. In the early 2000s, all three industry leaders continued to struggle with difficult economic conditions, as well as the fallout from the September 11 terrorist attacks. In 2002, the largest airline in the world, American Airlines, announced the layoff of 7,000 employees, following a 20 percent workforce reduction in 2001. United Airlines, as part of its bankruptcy restructuring, planned to lay off roughly 9,000 workers in 2003. Delta also underwent significant downsizing in both 2002 and 2003, eliminating 13,000 and 8,000 jobs, respectively.

Organization and Structure

The U.S. Department of Transportation (DOT) has categorized airlines based on their annual revenues into three groups: major, national, and regional/commuter.

Major airlines are carriers with more than $1 billion in annual revenues. This category once included Eastern, Pan Am, Northwest Airlines, Continental, Republic, America West, and Trans World Airlines (TWA). By the early 1990s, many of these companies were in some form of bankruptcy or had shut down operations completely. The result of these and other closings was the consolidation of assets among the three strongest majors: American Airlines, Delta, and United. Also new to this category was Southwest Airlines, formerly a national airline, which offers short-haul, point-to-point service with few amenities.

Airlines with annual revenues of $100 million to $1 billion are generally categorized as national airlines. Although this category has been called "national," the name is not based on geographic boundaries, as only a small number of carriers actually have nationwide routes.

A carrier with less than $100 million in annual revenue has been classified as a regional/commuter airline, according to the DOT. By the start of the 1990s, approximately 140 carriers were in operation, but the top 50 regional/commuter carriers accounted for approximately 97 percent of the group's revenue passenger miles.

Hub-and-Spoke System. The major airlines operate under the hub-and-spoke system set up after passage of the Airline Deregulation Act of 1978. This system created central hubs across the United States, where feeder flights were directed. Passengers from the feeder flights transferred to numerous other flights provided at the hub to their final destinations. The hub-and-spoke system has been advantageous to the major airlines in creating additional service to more destinations and allowing more efficient use of planes, terminals, ground equipment, and employees.

Unlike governments in many other countries, the U.S. government has not owned or operated an airline in any form. Instead, all U.S. airlines have been either public or privately held companies. Government involvement in the industry has been in the form of regulatory agencies, congressional acts, and appointed commissions.

Background and Development

The creation of the passenger airline industry was contingent on the development of the aviation industry. With the first successful flight by the Wright brothers in Kitty Hawk, North Carolina, in 1903 the aviation industry began. However, the general public did not eagerly embrace air travel, thinking that it was a dangerous mode of transportation. Thus, the development for passengers of an aircraft, which in those days was called a "heavier-than-aircraft," moved slowly.

The country's preparation and eventual entry into World War I provided the necessary stimulus for developing the aircraft industry, if only for wartime usage. But as quickly as the U.S. government supported aviation during the war, it pulled all support and funding after the war, which virtually halted the industry.

The popularity of air travel exploded, though, with the successful overseas flight of Charles Lindbergh in 1927. Various air transport holding companies were created, such as Aviation Corporation, launched by financiers W. Averill Harriman and Robert Lehman. The air transport division of this company was called American Airways. In 1928, Boeing and its air transport division created another holding company—United Aircraft and Transportation Corporation. By 1931 United Air Lines was created as the management company for United Aircraft's four transport companies.

Mail Service Spurred Industry Development. The airline industry developed in large measure because of efforts to improve the U.S. mail service. Congress appropriated monies for a trial mail run, and flights were originally made by Army planes and pilots. Soon after, the U.S. Post Office put together its own fleet of planes for mail delivery service. By 1920 flights were being made from New York to San Francisco during daytime hours.

Since the post office planes were allowed to carry only mail, political pressure mounted to turn this service over to private airline operators that could expand their cargo. In 1925, the Kelly Airmail Act gave private airlines, via a system of competitive bidding and subsidies, the opportunity to serve as mail carriers. The first national aviation policy, the Air Commerce Act of 1926, established provisions for the regulation of air traffic, the registration of aircraft, and the production of pilot licenses. Passenger volume per year grew from 6,000 to 400,000, and carriers proliferated. Air traffic across the nation grew increasingly disorganized, however. The McNary-Waters Act of 1930 gave the nation's postmaster general the authority to manage the industry. While the bidding system nominally remained in place, Postmaster General Walter Brown, who had lobbied for his expanded powers, arranged a meeting wherein the airlines negotiated territories among themselves. As a result, three primary routes were established—north, middle, and south—across the United States, with United, American, and TWA controlling one route each.

Brown's dictatorial power over the airline industry, however, came under increasing criticism. With the entrance of the Roosevelt administration in 1933, congressional hearings were held that included the investigation into the awarding of mail contracts. Under pressure from Senator Hugo Black, President Roosevelt cancelled all of the mail contracts, deeming them illegal, and turned over the mail delivery service to the Army Air Corps. This decision turned out to be a disastrous mistake because the Corps pilots were unfamiliar with the territory and had to fight treacherous winter weather. By the third week, five pilots had been killed in various crashes, and public outcry persuaded President Roosevelt to return the mail service to contractors.

Under the 1934 Air Mail Act, the postmaster general's power over the industry was diluted, and measures to ensure truly competitive bidding were established. New airlines as well as established ones made low bids in an effort to snare market share, and as a result of the fierce competition, no carrier was able to make a profit.

Civil Aeronautics Act. The desperately competitive industry seemed in danger of destroying itself. The government reacted by passing the Civil Aeronautics Act in 1938. The legislation created the Civil Aeronautics Authority (CAA), an independent regulatory bureau. This organization later was named the Civil Aeronautics Board (CAB). The CAB regulated passenger fares and airmail routes, monitored acquisitions and mergers, and distributed routes to airlines. The policies implemented by the Board in the 1930s remained intact for nearly 40 years, resulting in a sort of stagnation in the industry. No new major carriers established themselves during that time, a period in which the number of major airlines dwindled to nine.

The U.S. entry into World War II required the country's commercial fleet of planes to be sent overseas, along with flight personnel. The war increased the development of aircraft, not only for wartime use, but also for postwar commercial aviation. The 1950s brought both the introduction of the electronic reservations system and cross-country jet service. Advances in passenger comfort and plane capacity further aided the industry. During the 1950s and 1960s, companies continued to buy modernized planes and expanded service to both domestic and international destinations.

The Federal Aviation Act was passed in 1958 after two airplanes collided over the Grand Canyon. The Act created the Federal Aviation Agency, which was responsible for developing an air traffic control system. In 1967 the Agency was renamed the Federal Aviation Administration (FAA) and was put under the control of the U.S. Department of Transportation (DOT), which was also created that year.

Industry Deregulation. In the 1970s the industry underwent a tremendous transformation. Industry players were rocked by expensive new aircraft purchases and fuel costs that, because of oil supply concerns, amounted to as much as 30 percent of operating expenses. Labor costs soared as well, while service demand remained tepid. The airline industry was in serious trouble.

During this same period, cries calling for repeal of the 1938 legislation that froze the industry for so long grew louder. Critics contended that the airline industry had become a sluggish, ineffective entity in the regulatory environment in which it functioned. Events of the mid-1970s seemed to support this viewpoint. Thus, the Airline Deregulation Act of 1978, which removed governmental control of routes and fare pricing, was passed and signed by President Carter.

The airline industry felt the effects of deregulation almost immediately. New players in the industry proliferated, both at the national and regional level. Established regional airlines, meanwhile, viewed deregulation as an opening to expand their influence. Competition quickly grew fierce across the industry, and established giants scrambled to keep pace with new, more nimble companies armed with modern aircraft that fit their needs, and strategies that jelled with the hub network concept.

In the mid-1980s, the industry was swept by a wave of mergers, acquisitions, and bankruptcies. These mergers were approved by the Department of Transportation rather than the Justice Department (the Justice Department assumed power over airline mergers in 1988). This consolidation of the industry left eight airlines controlling more than 90 percent of U.S. air traffic. The industry boomed with increased traffic and first-time air travelers because of drastic reductions in fares and the addition of cities served by air transportation. The industry encountered significant problems as well, however. Demand for new aircraft exceeded manufacturers' supplies, creating a situation wherein, by the late 1980s, 20 percent of U.S. planes in operation were older than the 20-year standard life. Safety concerns mounted as well, after several major airplane crash disasters resulted in the loss of hundreds of lives. Critics contended that the airlines were not paying sufficient attention to maintenance needs because of cost concerns.

Perhaps the biggest threat to the domestic airline industry, however, was the most basic one: the inability to make a profit. Operating costs, especially in the realm of labor, coupled with incessant fare wars in which ticket prices were often slashed as much as 50 percent, battered the industry's major companies.

Customers have obviously benefited from deregulation. Since 1979, passenger enplanements had increased by more than 70 percent, revenue had tripled from $27 billion to more than $77 billion, and nearly 90 percent of all passengers during the 1980s traveled on discounted fares.

Daunting financial difficulties for the carriers persisted into the early 1990s. In 1993, due to financial problems that challenged the airline industry, the Clinton administration created the National Commission to Ensure Strong Competitive Airline Industry. This group produced a 90-day study of public-policy changes to be enacted in order to maintain profitability.

Staged Strong Recovery After 1992. The passenger air transportation industry made an unprecedented turnaround in profitability, traffic, and price stability in the 1990s. The industry had flourished from the late 1950s through the early 1970s, as U.S. airline passenger traffic grew at 13 percent a year. By the early 1990s, however, the industry had been hit hard by the Gulf War, rising fuel prices and other operating costs, fare wars, rising debt service costs, and the slowdown of the American economy. On average, the industry's annual growth in traffic was less than 1 percent from 1987 through 1992, and even this dismal rate was achieved by selling seats below cost.

Consolidation in the industry was forecast to pick up, as the major airlines became profitable once again. In late 1996 American and British Airways, Continental and Delta, and USAir and United toyed with the idea of joining forces. However, none of these happened in 1996, and pilots, unions, and government antitrust sentiments tended to hamper merger prospects.

Successful nationals provided service to a niche market, did not interfere with the majors, and operated from airports with minimal competition. Examples included Southwest Airlines at Dallas Love Field, Midway Airlines at Midway Airport in Chicago, and America West in Phoenix. Alaska Airlines has remained the only large, successful national airline in operation, with more than 50 percent market share of the Pacific Northwest/Alaska market.

Regional airlines have continued to flourish for two reasons. First, in an effort to cut costs, the majors have "handed over" to affiliated regional airline routes that were not profitable for them. Customers were attracted to fly on the regional line with the enticement of gaining frequent flyer miles. With this arrangement, the major airline maintained its name recognition without having to run an unprofitable route.

The majors' withdrawal of jet service to certain markets also presented opportunities for nonaffiliated regional airlines. Defying negative trends, several small airlines, such as Reno Air Inc., Skybus Corp., and Kiwi International Air Lines Inc., started operations during the early 1990s. Tapping into the glut of planes and unemployed workers created by the industry shakeout of the late 1980s, 17 airlines had applied to become certified for chartered service by the end of 1991.

During the early 1990s, carriers put forth a serious effort to control operating costs by cutting personnel, reducing salaries, trimming flight schedules, and retiring older aircraft. The industry benefited from 1994 through 1996, as the capacity glut diminished.

At the beginning of 1996, profits and traffic in the airline industry were affected by the expiration and reinstatement of a 10 percent federal excise tax on domestic airline tickets. Congress let the tax expire at the end of 1995 but reinstated it on August 17, 1996. The airlines lowered prices during this time and traffic increased—as did profits. However, the tax expired again at the end of 1996 and was reinstated in March 1997. This time, most airlines (except Southwest) raised prices after the reinstatement. Wall Street analysts predicted that strong airline traffic and lower fuel costs would have a more positive effect on the industry, despite the reinstatement of the federal excise tax and any threat of future price wars.

Fuel prices were at 30-year lows by the end of 1998, helping to support profits in the airline industry, even as the industry was hit by several one-time events that served to drive down profits compared to 1997. For example, a lengthy pilot strike against Northwest Airlines drove the company into the red for 1998. While the industry reported an increase in overall revenues from $88 billion in 1997 to $90.5 billion in 1998, the top nine airlines reported a 15 percent decline in earnings for the year. Cost-cutting measures, including lowering commissions paid to travel agents, helped improve profits in some cases.

While America West, the ninth-ranked airline in terms of passengers and revenue passenger miles in 1997, was courted by United Airlines and Delta Air Lines in early 1999, nothing came of it by the end of the year. In fact, following about a dozen airline mergers in 1986 and 1987, there was no major airline merger during the 1990s, although Northwest took a majority stake in Continental Airlines in 1998.

Rather, airlines have joined forces through alliances with other domestic and international carriers. Code sharing, whereby one carrier's flight schedules are coded under an affiliated carrier's symbol on airline reservation systems, has become a popular way of forming alliances. The top five airlines have formed clusters of code-sharing alliances with international carriers, making it easier for customers to book connecting flights. United Airlines leads the Star Alliance with Lufthansa, Scandinavian Air System, All Nippon Airways, and Air Canada. American's One World Alliance includes British Airways, Qantas, TACT, and other Latin American carriers. Delta is seeking to join Air France's Atlantic Excellence partners, which includes Swissair and Sabena.

Current Conditions

Merger negotiations heated up among the major airlines in the late 1990s. American Airlines courted US Airways in 1999, a combination that would have resulted in the nation's largest airline. However, those negotiations eventually stalled. In 2000, United Airlines announced its intent to acquire US Airways for $4.3 million in cash, as well as the assumption of $7.3 billion in debt. The following year, however, the U.S. Justice Department raised antitrust concerns that eventually undermined the deal. One major consolidation effort did come to fruition in 2001, when American Airlines paid $740 million for the assets of TWA.

The airline industry experienced a devastating blow in 2001, when terrorists used hijacked planes to destroy the World Trade Center towers in New York City and severely damage the Pentagon in Washington, D.C. Air traffic ground to a halt for several days. Revenue passenger miles dropped 5.9 percent, the largest decline in industry history, to 652 billion in 2001, while passenger enplanements fell 6.6 percent to 622 million. When air traffic did resume, it was at a severely reduced pace, and most major airlines announced stringent cutbacks that included substantial layoffs and reduced capacity, in terms of both fleet size and route offerings. Scheduled flights fell from 9 million to 8.8 million between 2000 and 2001, reflecting a reduction in the number of daily flights by about 600. Despite the prompt passage of legislation that awarded governmental assistance to airlines, the industry experienced a loss of $7.7 billion in 2001, its largest loss ever.

Undermining the industry's efforts to recover from the terrorist attacks in 2002 was the economic downturn affecting both the United States and the rest of the world as well. Consumer fears regarding the safety of flying and recessionary economic conditions continued to take their toll on airline revenues in 2003.

Industry Leaders

The U.S. air transportation industry has been dominated by the strength and size of three domestic carriers: American, United, and Delta. The industry also has been greatly affected by the emergence of national airlines that provide service to niche markets. One company that has served as a model for this type of operation has been Southwest Airlines.

American Airlines. American Airlines has long been the main subsidiary of AMR Corporation, with headquarters in Fort Worth, Texas. American Airlines is the largest carrier in the world, serving more than 160 cities worldwide. With more than 128,000 employees, American operates from hubs in Chicago, Dallas/Fort Worth, Miami, and San Juan, Puerto Rico. In 2001 revenue passenger miles totaled nearly 127 billion, and operating revenues reached $18.9 billion.

In 1999 American's parent company spun off its 83 percent interest in Sabre Holdings by distributing its Sabre shares to AMR shareholders, subject to a favorable ruling from the U.S. Internal Revenue Service. Once a part of American Airlines, Sabre had been reorganized in 1996 as a separate subsidiary through an initial public offering. Sabre provides American with essentially all of its information technology, including reservations, flight operations, and other real-time services.

American Airlines, previously named American Airways, started as the air transport division of the holding company Aviation Corporation. In 1934, the company was renamed, and C.R. Smith was appointed president. Smith continued to serve in this position until 1968, when he was named secretary of commerce by President Lyndon B. Johnson.

United Airlines. With corporate headquarters near Chicago O'Hare International Airport, United Airlines claims to be the second-largest air carrier in the world and the largest majority employee-owned company. It offers service to 130 destinations in 28 countries and one U.S. territory. In addition to its main Chicago hub, the airline has four other U.S. hubs: Denver, Los Angeles, San Francisco, and Washington, D.C. In 2001 revenue passenger miles totaled roughly 116 billion, while operating revenues reached $16 billion.

The company began with Varney Airlines, which later became a part of Pacific Air Transport and National Air Transport. This company merged into Boeing Air Transport, part of Boeing Airplane Company and Pratt & Whitney. In 1931, United Airlines was organized as a management company for the airline division and became a separate business entity three years later. In 1961 United Airlines acquired Capital Airlines, added 7,000 employees, and increased the route system; thus, it established its claim to the title of the world's largest privately owned airline.

Following tough negotiations with its unions in the mid-1990s, the pilot and machinist unions and the nonunion ground support groups along with management agreed to an employee stock ownership plan (ESOP) that placed 55 percent of the company stock in employee hands. United became the largest employee-owned company in the United States. All parties participated in the employee stock ownership plan except United's flight attendants. By 2000, settlements with its pilots and mechanics had been signed to restore the wage levels that preceded the buyout. To reach this agreement, some profit-sharing rights were given up by the workers.

Delta Air Lines. Delta Air Lines, with headquarters at the Hartsfield Atlanta International Airport in Atlanta, Georgia, once offered the most extensive transatlantic service of any carrier in the world. The company operates 2,800 flights daily to more than 220 cities in 34 countries. Delta has more than 60,000 employees and a fleet of 815 jet aircraft. In 2001 Delta ranked third in the industry in terms of revenue passenger miles, which exceeded 97 billion, and operating revenues of $13.2 billion.

Delta was founded in 1925 in Monroe, Louisiana, as Delta Air Service, a crop dusting company. Passenger service began in 1925 with flights to Dallas, Texas, and Jackson, Mississippi. The company merged with Northeast Airlines in 1972. Delta announced 1992 revenues of $10.84 billion but was unable to post a profit for the year. Instead, the company lost more than $500 million. However, revenues and profits increased substantially during the 1995 and 1996 time period. Revenues reached $12.5 billion, and profits reached $156 million in 1996.

Southwest Airlines. Once a regional airline, Southwest Airlines is a short-haul, low-fare, high frequency, point-to-point carrier. By avoiding hub-and-spoke service, it is able to provide more direct nonstop routings, thus minimizing connections, delays, and flight times. Based in Dallas, Southwest Airlines initiated service in 1971 with flights to Houston, Dallas, and San Antonio. In 1991, the company moved into the major category due to its increased revenue. By 1999, the company was serving 52 cities in 26 states. The airline has been noted for its consistent profitability, and it was the only major carrier from 1990 through 1997 to make a profit. In 2001, it reported net income of $511 million. That year it ranked seventh in revenue passenger miles, with approximately 44 billion, and eighth in operating revenues, with $5.5 billion.

Other top ten airlines included Northwest Airlines, US Airways, Continental Airlines, Trans World Airlines, and America West. Of these companies, Continental, Trans World, and America West went through and survived bankruptcy proceedings in the early 1990s.

Workforce

Following deregulation in 1978, employment in the airline industry increased from 340,000 jobs to more than 530,000 jobs in the early 1990s. In 1997, total employment by the 10 major carriers was 450,753 workers. A popular way to reduce wages in 1995 and 1996 was the use of employee stock payments. TWA, United, Northwest, and Southwest all reached agreements with their labor unions to exchange equity for wage increases.

Deregulation, though, also created differences between the airlines and various unions, which at the end of the 1970s filled 90 percent of all industry jobs. New airlines were able to operate with much lower labor costs than established outfits, and the industry giants soon decided that they had to reduce their labor costs in order to compete. While at some airlines, unions and management were able to reach agreements (equity for wage concessions, etc.), other companies resorted to measures that brought turmoil across the industry. Brain Airlines and Continental Airlines both used Chapter 11 bankruptcy regulations in the early 1980s to nullify existing labor contracts. Chapter 11 regulations enabled the companies to return to business without union employees, if they so desired. In Continental's case, the company fired their employees after filing for bankruptcy then rehired them as nonunion employees at wages that were in some cases more than 50 percent lower than prior to Chapter 11. This maneuvering galvanized unions across the industry, spurring them to protect themselves legally.

With the exception of American Airlines, company relationships with labor unions significantly improved in 1995 and 1996 from earlier years. Management of major carriers such as United Airlines and American Airlines demanded concessions from unions to cut costs. While unions dug in their heels, both airlines resolved the issues, United with an employee buyout and American with the flight attendants—but only after a costly strike. Northwest Airlines was able to reach an agreement with labor in July 1993 with wage reductions and other concessions in exchange for 30 percent of the airline's preferred stock and an increased voice in operations. United's successful employee stock ownership plan (ESOP) was touted as a model of employer-employee relationships by the Clinton administration.

Differences between labor unions and the airlines are sometimes exacerbated by the airlines' practice of taking two to three years to negotiate a labor contract. Labor costs as a percentage of the airlines' operating expenses increased steadily during the 1990s, from 31.6 percent in 1990 to 35.5 percent in 1998. As the airlines slowed contract negotiations, groups of employees were often left working without a contract. Short of striking, unions have resorted to tactics such as informational pickets at airports, thus presenting their cases to the general public. Northwest Airlines was hit by a costly airline pilots' strike in 1998, and pilots at American Airlines staged a sickout in early 1999. Although the airlines' profitability in the late 1990s was in part the result of earlier wage and benefits concessions on the part of unionized workers, the airlines appeared reluctant to make suitable offers to unions representing their pilots, flight attendants, and machinists.

Future trends in hiring airline industry employees will always be contingent on the strength and pace of the industry's economic outlook. While airlines are making good money, job security will probably always be tenuous, especially at the less-profitable carriers. The prospect of future airline mergers may also have a negative effect on industry employment. The emergence of new regional airlines has provided some opportunity for employment, but wages have been lower than the industry standard due to the large number of experienced unemployed airline workers. Computer-related jobs, such as systems analysts and reservations and keyboard operators, will continue to be in demand, as companies become increasingly automated.

America and the World

The U.S. Department of Transportation's Office of International Aviation reported that 48.7 million passengers traveled by air between the United States and the rest of the world during the first half of 1995. This was a 6 percent increase in passenger traffic compared to the first half of 1994. In June 1995 approximately 9.3 million passengers traveled by air in U.S. international markets, which was about 7 percent greater than the same period in 1994. In the first half of 1995, New York, Miami, Los Angeles, Chicago, and Honolulu were the top five U.S. international gateways. Miami recorded an 11 percent increase, with 674,000 passengers. The greatest passenger loss was felt in Boston, where a drop of 6 percent, or 88,000 passengers, occurred in the first half of 1995. The top five country markets for U.S. international travel were Canada, Japan, the United Kingdom, Mexico, and Germany.

More than 1.25 billion passengers per year rely on the world's airlines for business and vacation travel. The world's airline industry transports approximately a quarter of the manufactured exports by value. In the early 1900s, approximately 22 million jobs were in the world airline industry, producing approximately $1 trillion in annual gross output.

Between 1994 and 2010, passenger and freight traffic were expected to increase at an average annual rate of 5 to 6 percent, which is significantly greater than the growth in global gross domestic product (GDP). Estimates are that by the year 2005, there could be in excess of 2.5 billion air travelers per year. By the year 2010, the world airline industry could exceed $1.7 trillion, with more than 30 million jobs provided.

Growth in international travel will be contingent on the successful application of Open Skies legislation and other agreements with foreign governments and carriers. Open Skies agreements have offered airlines from foreign countries almost unlimited access to the U.S. market and freedom to set prices. The first-ever Open Skies aviation agreement was signed on September 4, 1992, between the United States and the Netherlands. The agreement allowed the integration of the operations of KLM Royal Dutch Airlines, the Netherlands flag carrier, and Northwest Airlines, in which KLM would own a major interest.

The European Community (EC) has been working on its own version of Open Skies deregulation. The initial resolution, effective January 1993, abolished the web of government-to-government agreements, which allocated routes within the EC and fixed fares. The 12 EC community nations and their seven partners in the European Free Trade Area (EFTA) have been trying to create a common market within Europe and to develop a cohesive group in order to gain access in the U.S. market.

The impact that the EC liberation policy will have on U.S. carriers has yet to be determined. But as Air Transport World noted, "Whether they view competition from U.S. carriers as threat or potential opportunity, all are adamant that Washington open up the U.S. market before Europe makes a move. And none appear to feel particularly hampered by having to continue bilateral negotiations with the United States, for lack of a united position."

International markets in 1999 appeared to be on the eve of deregulation. The United States continued to push for open international aviation markets. International carriers were preparing for deregulation by building international hub systems and forming strategic alliances. Two leading international alliances involving U.S. carriers were the Star Alliance, led by United Airlines, and including Lufthansa, Scandinavian Air System, All Nippon Airways, and Air Canada. American's One World Alliance included British Airways, Qantas, TACT, and other Latin American carriers. Air France was the lead airline in the European alliance, Atlantic Excellence, which included Swissair and Sabena.

Research and Technology

From improved reservations computer systems to high-tech amenities for business travelers to advances in aircraft design, computer software technology is expected to have a tremendous impact on the future of the airline industry. Most airlines have had home pages on the World Wide Web since 1995. Those sites began by simply displaying flight information, but soon the airlines were using the Internet to book flights and offer special discounts. By registering at an airline's Web site, consumers could benefit from unannounced specials and receive weekly briefings on discounts via e-mail. Booking flights via the Internet has the potential of saving airlines a percentage of the $5.6 billion they paid in commissions to travel agents in 1998, an expense that accounted for nearly 7 percent of total airline costs. Online booking and ticketless travel enable the airlines to realize additional savings in the cost of processing tickets by being able to reduce the number of customer service operators and reservation clerks they employ. It was estimated that Internet purchases of airline tickets amounted to $2 billion in 1998, up sharply from $827 million in 1997 but still only 2.5 percent of passenger revenues.

High-tech amenities for the business traveler may be the next battleground for customer service among the major domestic carriers. Satellite-based telephone systems capable of handling calls to and from anywhere in the world have been placed on board planes, and in-flight faxes, computer, and data transmission services are commonplace.

The most significant advances in communications technology continue to be in the design, development, and operation of the airplane itself. Hands-off piloting, navigation, and landing, and the guidance of satellites in the process of landing have become routine.

Computer technology will continue to refine the cockpit. By 1980 instrumentation and control systems had created the autopilot and "blind flying" instruments, which allowed a plane to fly straight and level even if the pilots removed their hands from the controls. By 1988 aircraft automation took a further step with the introduction of the Airbus A320. The flight-control computers on board actually told the pilot how to fly the plane and could prevent the pilot from exceeding the aircraft's structural limitations.

Modern aircraft have become so automated that some pilots and even some aircraft manufacturers have grown concerned about excessive reliance on the automated systems. New training programs have been established to combat this fear of over-reliance. Although advances in technology will continue to assist in the creation of safer and more fuel-efficient planes, the captain of a plane cannot be eliminated or automated out of the cockpit.

Additionally, according to an Airports Council International survey, "The new generation of large aircraft currently on the drawing boards of aircraft manufacturers could reduce airport capacity and have considerable cost implications for the world's airports." Approximately $105 million in infrastructure modifications may be needed to accommodate these new planes. The 600-plus passenger aircraft lower the unit operating costs and increase capacity for the airlines, but the modifications to runways, taxiways, and aprons could cost an average of $62 million per airport. Changes to passenger terminals and operational facilities could add another $43 million in costs.

Further Reading

Air Transport Association. "Industry Information: Leading U.S. Airports." February 2003. Available from http://www.airtransport.org .

——. "2002 Annual Report." February 2003. Available from http://www.airlines.org .

——. "Welcome to the Air Transport Association: Airline Customer Service Commitment." February 2003. Available from http://www.air-transport.org .

AMR Corporation. "AMR Corp. Announces Plan to Spin Off Sabre into Fully Independent Technology Company." Company news release, 14 December 1999. Available from http://www.amrcorp.com .

Feldman, Joan M. "To Phase or Not to Phase." Air Transport World, April 1999.

Flint, Perry. "A Tough End to a Good Year." Air Transport World, March 1999.

Hall, Thomas C. "AA, US Airways to Merge?" Dallas Business Journal, 2 April 1999.

Hoovers Online. Austin, TX: Hoovers Inc., January 2003. Available from http://www.hoovers.com .

"Nosedive." Business Week, 8 March 1999.

Schmeltzer, John. "American Airlines' Parent to Spin Off Shares in Reservations Firm." Knight-Ridder/Tribune Business News, 14 December 1999.

Southwest Airlines. "Southwest Airlines Fact Sheet—November 1999." Available from http://www.southwest.com .

Standard & Poor's Industry Surveys: Airlines. New York: Standard & Poor's, 4 November 1999.

United Airlines. "United Airlines Overview." February 2003. Available from htpp://www.corporate-ir.net .

U.S. Department of Transportation. Federal Aviation Administration Forecasts, Fiscal Years 1991-2002. Washington, D.C.: GPO.



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA