Deregulation Of The Airline Industry

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Term Paper Title	Deregulation Of The Airline Industry
# of Words	1671
# of Pages (250 words per page double spaced)	6.68

Deregulation of the Airline Industry

Deregulation of the Airline Industry

        The airline industry has been subject of intense price competition since
it was deregulated, and the result has been a number of new carriers which
specialize in regional service and no-frills operations.  These carriers
typically purchase older aircraft and often operate outside the industry-wide
computerized reservations system.  In exchange for these inconveniences,
passengers receive low fares relative to the industry as a whole.  This research
examines two low fare air carriers, ValuJet and Southwest Airlines.  By
investigating these air carriers, we can better understand the economic impacts
of price versus service in the airline industry as a whole, as well as, the
impacts on passenger and investor confidence.
        Until 1978, air transport rates were approved by the government, which
meant that price was not a primary competitive factor.  Instead, airlines would
compete on service and image.  The airline industry was dominated by giants
(American, United, TWA) which offered nationwide and some international service,
and by regional carriers, such as Southwest, which offered short trips between
airports not served by the nationals.
     Deregulation of the airline industry brought about in 1978 introduced a
situation in which the national and regional carriers were suddenly able to
compete in an environment that resembled a free market.  Rate schedules were
lifted, price fixing was eliminated and route management was removed.  The main
factors that affected whether an airline could serve a particular city was
whether or not that city had enough gates for the new carrier, and whether the
carrier was able to afford to purchase them.  Companies such as Southwest
recognized potential for low fares, and began building a niche for themselves by
offering low fares with equivalent low levels of service.  Southwest's success
gave rise to a new generation of low fare airlines, with ValuJet entering the
market in the early 1990's.  Unfortunately, ValuJet suffered a string of
accidents which brought the future of this air carrier into question.
        ValuJet is a low-priced airline that offers inexpensive tickets for
regional travel.  Based in Atlanta, the airline serves the Southeastern United
States and competes with Continental Airlines as well as with other small
regional carriers.  It serves 31 cities primarily in the southeastern United
States. The airline began its serv...

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