The airline industry is an exciting, dynamic and progressive, engaging with technological innovation but despite the glamour, its profitability is both marginal and cyclical particularly in the United States of America.Over the past decades, the industry had been highly profitable, gaining at least “an annual growth rate of about 15%” (Dekkers 22) until it faced series of external events that turned intense crisis the airline industry. Early in the new millennium, “falling yields and rising costs indicated the worsening climate for airlines” (“The Airline” 5) due to the effects of economic downfall, war, epidemic diseases and mostly terrorism, that traumatized passengers to travel especially in the US territory.
Airlines in America concentrated to uplift their air markets with the subsidization of the government sector through advanced technology of security system and e-marketing strategies that preferred by customers consequential to the emergence of low cost airlines.According to Hirschey and Pappas, the greater the number of market participants, the more vigorous the price and product quality competition and more likely that the competitive process will yield maximum benefits (525).Yet, recent issues from televisions and newspapers announced that there are so many US airlines loss millions of dollars every year, lay-off or freeze hiring of employees and coping distress of or already bankrupt. Gross of Newsweek wrote that “American Airlines crowed about the largest quarterly profit [$317 million] in four years” (4) and despite his statement, why isn't the American airline industry doing well?This paper aims to analyze the problems affecting the development of US airline industry. Specifically, this is able to explain the evolution and downturn and to gain insight on the changing market environment of the industry.
AMERICAN AIRLINE INDUSRTYAir travel industry aids in world trade and globalization, economic growth, international investment and tourism, both leisure and business grew strongly worldwide. US airlines industry most likely is considered as the leader in commercial aviation owed to the historic flight of Wright brothers in 1903 since invention turn into an innovation.At the end of the World War I, it turned into a profitable industry when USA built five hundreds airports and dominated in airplane building and operating practices and in 1945, the major airlines flew 3.3 billion revenue passenger miles (RPMs).By the mid 1970s, regulations were developed, containing a network of rules and agreements where both Europe and USA benefited from the market options by not permitting each other to service domestic destinations.
Further innovations were created that increased passengers rapidly, major carriers flew 130 billions RPMs and after a decade of deregulation, it doubled into 330 billion domestic RPMs.The industry as a whole is both cyclical in nature and very marginal in terms of profitability yet it is one in which a handful of airlines do successfully consistent in profit over many years. It is justified by the low cost airlines that offer low ticket prices and have seen varied levels of success like Southwest with more than 500 aircraft, known so well because it has an established and well-perceived brand of service and always on the top list of profitable airline companies.Low cost airlines targets business class rather than leisure travelers with similar amenities at up to 60% discount than traditional airlines.Airlines have the advanced technological system such as the e-marketing system through the use of internet or telephone where customer can book, cancel and inquire details of flights, can reserve hotel accommodations and provide prompt tickets or refunds.
Security measures are enhanced and tighten due to that attack of terrorism and other mischievous using video cameras, high-tech computer systems and updated scanning devices for effective and efficient services.In spite the modern development, there is no secret that the American airline industry has been struggling to restrict costs and unable to acquire financial assistance to keep their vigorous operations. The operating income and interest expense exceeded more than the revenue obtain. According to Air Transportation Association, most airlines spent more than $1 billion operating revenues by 2006 but net profit estimated less than $600 million.
