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Air Travel

AIR TRAVEL

Since its inception in the 1920s, commercial air travel has steadily grown. At first available only for the discretionary exclusive use of the wealthy, air travel is now an indispensable tool of business and the world economy. Today, with the competitive marketplace dictating routes and fares, it is now possible for almost anyone in the developed world to fly almost anywhere. It is critical to remember that the airline industry is just that—a business—and the key to business success is efficiency. No matter how romantic the image of air travel may be, airlines exist only as long as they are able to provide a reliable service for a reasonably profitable price. Starting in the United States in 1978 and gradually spreading around the globe, the economic deregulation of the airline industry has profoundly changed the face of this critical enterprise by greatly expanding the market for air travel while exposing it to the vicissitudes of the free market.

In 1999 an estimated 1.5 billion people from around the world chose to fly on commercial carriers. Within the United States alone, 530 million passengers chose to fly. During that year airliners took off and landed 7.3 million times on domestic flights alone. These aircraft consumed over 13 billion gallons of jet fuel. According to the Air Transport Association the U.S. airline industry spent more than $10 billion for fuel for its members' domestic and international flights.

ORIGINS

With more than $100 billion in assets in U.S. carriers alone, the airlines have constantly sought ways to improve their ability to make money. They have searched continuously for better, more efficient aircraft in the endless search for greater yield and productivity. In Europe the airline industry was nationalized for most of its history. Consequently, the emphasis was more on service and less on profits. In the United States the experience was different. Although the early commercial airlines were completely dependent on government subsidies administered as air mail contracts, federal policy encouraged the airlines to develop passenger and freight service to offset the subsidies. In the early 1930s the airlines were given bonuses for carrying passengers and for developing faster and safer aircraft. The government's successful plan was to wean the airlines off the subsidies gradually by encouraging the development of larger, faster, and more efficient aircraft. The immediate result of this far-sighted policy was the creation of the Boeing 247, the world's first modern airliner, and the subsequent Douglas series of commercial aircraft. In fact, according to former American Airlines president C. R. Smith, the 21-passenger Douglas DC-3 was the first aircraft capable of making a profit just by carrying passengers. By 1952 the air mail subsidy was withdrawn, as it was no longer needed.

THE JET AGE

During the 1940s and 1950s, the airline industry developed a new generation of large four-engine aircraft that expanded air travel around the globe. Douglas DC-4s, 6s, and 7s, along the Boeing Stratoliners and the graceful Lockheed Constellations, became the industry standard for speed, comfort, and profitability. While these piston-engine aircraft dominated the world's air routes, a new generation of much faster aircraft powered by jet engines was poised to revolutionize air travel. First developed by de Havilland in Great Britain, the sleek Comet entered service in 1952 but experienced serious technical problems that were not overcome until a new series of aircraft built in the United States seized the market. The Boeing 707 and the Douglas DC-8 entered service in the late 1950s and found immediate success throughout the world. These aircraft offered high subsonic speeds significantly faster than their piston-engine counterparts and much larger passenger-carrying capability. The combination of the greater reliability of the jet and the use of much cheaper kerosene-based fuel instead of expensive high-octane gasoline greatly increased efficiency and productivity.

By the end of the 1960s jets had virtually replaced all piston-engine airliners on most of the world's air routes. Newer, more powerful and more efficient turbofan engines replaced the first generation of thirsty and polluting turbojet engines. In 1970 the arrival of the Boeing 747 dramatically increased aircraft productivity by greatly decreasing seat-mile costs. Equipped with four new-generation high-bypass turbofans that were much quieter, more powerful, and more efficient, the 747 and the wave of wide-bodied aircraft that followed carried twice the number of passengers previously possible, with lower operating costs.

THE DEREGULATION REVOLUTION

By the late 1970s, economists and members of the U.S. Congress realized that despite the great efficiencies now possible because of technological advancements, air fares were not decreasing. In a bipartisan effort, fifty years of regulation dating back to the days of the Post Office contract were ended with the deregulation of the U.S. airline industry in October 1978. While the federal government continued to regulate safety matters, the airlines were now free to charge whatever fares the market would allow and were now free to enter or exit any market they wished. The immediate result was a flood of discount fares as millions of people, many of whom had never flown before, took to the sky. New airlines emerged almost overnight, while numerous local and regional carriers sought to compete directly with the major airlines.

These were heady days for the consumer but chaos for the airlines. Passengers could now compare prices as the airlines drastically cut fares to attract business. Despite a national economy in recession, ridership increased from 254 million to 293 million between 1978 and 1979. But problems loomed. The airline industry is capital-intensive, with high barriers to entry, high operating costs, and thin profit margins. Ruthless competition did not produce long-term stability as most of the new and many of the old airlines fell by the wayside, unable to pay for expensive aircraft and unable to fight against dominant carriers with experience and large cash reserves and access to credit. No longer protected by the government, airlines were free to succeed or fail against the invisible hand of market forces. Many failed. Many more were consumed during a merger mania in the 1980s that sought to cut overhead costs by consolidating companies. Aviation enthusiasts lamented this logical business step as many grand old names such as Pan American, Eastern, Braniff, Piedmont, Frontier, and others disappeared. An oligopoly of larger, more efficient companies survived, ironically little different from the oligopoly of companies that dominated before 1978.

Efficiency became the watchword after deregulation. With competition opened up to all comers, the airlines fought hard to make money by cutting costs and increasing productivity. Coupled with an unexpected crisis in the supply of fuel in 1979, there was an industrywide effort to acquire the latest, most efficient equipment using the latest engine technology.

Following the success of the large high-bypass turbofan engines built for the massive wide-bodied airliners, engine manufacturers turned their attention to building a new generation of smaller engines using the same advanced technology. The result was a new series of engines that produced 20,000 to 40,000 pounds of thrust while using much less fuel than earlier engines of comparable power.

These new engines, from Pratt & Whitney, Rolls-Royce, and the international consortium of General Electric and Snecma, found wide acceptance on new and old narrow-bodied airframes. Boeing produced its 757 in 1982, while McDonnell Douglas updated its proven DC-9 series with the improved MD-80 line. First flown in 1965, the Boeing 737 had been a slow seller. With deregulation and the replacement of its low-bypass engines with two GE/Snecma CFM56 power plants, the 737 quickly became a sales leader because of its high serviceability, low operating costs, and high productivity. It became the aircraft of choice for a host of new entrant and expanding airlines, such as Southwest. The 737 in its many forms is today the most successful jet airliner in history, with well over 4,500 sold.

In Europe, the international consortium of Airbus Industrie took notice of the postderegulation environment in the United States and the changing environment in Europe as well and produced its own efficient narrow-bodied airliner, the A320, in 1988. Incorporating the latest technology, the A320 is the first commercial airliner equipped with a fully computerized "glass cockpit" and digital fly-by-wire control system that cuts weight, enhances safety, and maximizes efficiency. So successful is this revolutionary aircraft that Airbus has sold more than 2,000 A320s in just over ten years.

AIR TRAVEL TODAY

The sudden rush of growing traffic because of the resulting lower fares taxed the aviation infrastructure to its limits. Aircraft utilization soared from six hours per day to twelve hours a day as load factors increased. This led immediately to much congestion at overcrowded airports and severe air traffic problems. Airlines sought to maximize productivity by funneling passengers though centralized airports, the "hub and spokes," where traffic could be efficiently concentrated and dispersed throughout the airlines' route networks. While maximizing productivity for the airlines, the hub and spokes system strained the facilities of these airports during peak hours of very high traffic often causing serious delays and inconveniencing passengers. The sheer volume of aircraft all trying to converge on the same airport at the same time often overwhelmed the air traffic control system. The installation of flow control whereby the movement of aircraft is controlled throughout the system has alleviated some of the worst problems. By holding aircraft at the gate of the departing airport until the route and the gate of the receiving airport will be clear has cut fuel consumption by preventing the massive stacking of aircraft that used to occur at overwhelmed airports. It has also improved the flow of traffic around bad weather and helped to rationalize the system. Problems with aging equipment, the difficult introduction and integration of new technologies, and the issues of an overworked and understaffed labor force still hamper the effectiveness of the nation's air traffic control.

By the early 1990s some semblance of order had returned to the industry. After the trying period of consolidation in the late 1980s, a solid core of well-managed, stable airlines emerged despite the cyclical nature of the business caused by variations in the economy and unpredictable fluctuations in the price of fuel. A solid oligopoly of large airlines now dominates the market and, while problems remain, much improvement has been made. Airports are gradually catching up to the demand for their services by spending billions of dollars to upgrade their facilities, while gradual improvements in air traffic control and more rational scheduling are reducing the worst congestion problems. In the late 1990s the airlines spent heavily in acquiring new, efficient aircraft of all types. Boeing and Airbus, the two largest manufacturers of airliners, are building hundreds of aircraft each year to satisfy the continuous demand for ever-better transports.

FUTURE DEVELOPMENTS

As the new century unfolds, Airbus and Boeing are heavily engaged in market studies to determine the scale and scope of the next generation of airliners. Air travel is steadily growing domestically and internationally, though the rate of growth is slowing. Through 2020, the U.S. Department of Energy projects that the growth in jet fuel consumption should outpace that of all other liquid fuels. The Annual Energy Outlook for 1999 foresees that by 2020 the consumption of gasoline will drop from 65 to 61 percent, diesel from 18 to 14 percent, while jet fuel use will rise from 13 to 17 percent.

It is estimated that more than 80 percent of the American population has flown at least once; if that is true, it is effectively a fully mature market. Outside the United States, the demand for air travel is expanding as well, although it has been tempered by economic downturns, particularly in the Asian market. These factors are leading Airbus and Boeing to the conclusion that there will exist a need for an aircraft larger than any now flying. They differ, however, on the question of when that aircraft will be needed and what form it should take.

Airbus Industries is staking its plans on the assumption that the market now exists for 1,300 aircraft that can each seat 550 to 650 passengers. Their marketing experts point to the heavily traveled North Atlantic route, particularly that between New York and London, as well as several high-density routes in the Asia-Pacific region as evidence for this new market and are assuming a steady 5 percent growth in traffic. This aircraft will be needed to handle the increased traffic expected between major population centers and will be necessary to help overburdened airports and air traffic control systems to handle more people, but with a manageable number of aircraft. The large airliner, bigger than the current 747-400 series that carries 416 and 524 passengers, will also enjoy the lowest seat-mile costs of any aircraft, thereby addressing the airlines' ever-present need to improve revenue yield.

Similarly, Boeing predicts a 4.7 percent growth in between 2000 and 2020 but anticipates market fragmentation instead of consolidation as airlines choose to expand service away from the traditional population centers and begin serving many more city pairs not previously served. The competitive marketplace will dictate an increased number of flights from many more cities; therefore the demand will be for more frequency of smaller aircraft. Boeing argues that this is already happening over the North Atlantic, where in 1980 the large four-engine 747 dominated travel. Today smaller, twin-aisle aircraft such as the 767, 777, and A330, dominate as airlines seek to bypass congested hubs. Boeing believes that governments will keep pace with the rise in traffic by building new airports, improving existing facilities, and investing in improved air traffic control.

Boeing does concede that the market for a very large aircraft will exist, particularly along the Pacific Rim, but that that will not occur until the second decade of the twenty-first century, ten years after Airbus's forecast. Boeing believes that there will be a market for 1,030 large aircraft between 2000 and 2020. Of this number, only 425 will be for aircraft with more than 500 seats, one-third that of Airbus's prediction. Boeing argues that in the future, market fragmentation will occur in the United States as well because of increased competition and the availability of existing long-range, large-capacity airliners such as the 777, which can seat up to 394 passengers.

Only time and the marketplace will determine which manufacturer is correct. One thing that both manufacturers agree on is that the airlines will always demand more efficient aircraft in their constant struggle to maintain profitability. The competition between the two manufacturers will help ensure that the best products will be available to the customer and the passengers.

F. Robert van der Linden

See also: Aircraft; Aviation Fuel; Efficiency of Energy Use, Economic Concerns and; Engines; Kerosene; Subsidies and Energy Costs; Supply and Demand and Energy Prices; Transportation, Evolution of Energy Use and.

BIBLIOGRAPHY

Air Transport Association Home Page. <http://www.airtransport.org/default.htm>.

Airbus Industrie Home Page. <http://www.airbus.com>.

Davies, R.E.G. (1982). Airlines of the United States Since 1914. Washington, DC: Smithsonian Institution Press.

Dienel, H.-L., and Lyth, P., eds. (1998). Flying the Flag: European Commercial Air Transport Since 1945. New York: St. Martin's Press.

Energy Information Administration Home Page. Department of Energy. <www.eia.doe.gov>.

FAA Statistical Handbook of Aviation. Department of Transportation, Federal Aviation Administration. <http://www.bts.gov/NTL/data/tables>.

Heppenheimer, T. A. (1995). Turbulent Skies: The History of Commercial Aviation. New York: John Wiley and Sons.

Lynn, M. (1997). Birds of Prey: Boeing vs Airbus—A Battle for the Skies. New York: Four Walls Eight Windows.

Morrison, S., and Winston, C. (1995). The Evolution of the Airline Industry. Washington, DC: The Brookings Institution.

Ott, J., and Neidl, R. E. (1995). Airline Odyssey: The Airline Industry's Turbulent Flight into the Future. New York: McGraw-Hill.

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