views updated May 29 2018


In 1978, the airline industry, which had been heavily regulated and controlled, was liberated from government oversight and released to the vagaries of the marketplace. As a result, the industry underwent significant change during the 1980s and 1990s. At the same time, several major air disasters took place, including the 1996 Valujet and TWA 800 aircraft crashes. In response to the post-accident events, Congress passed the Aviation Disaster Family Assistance Act (ADFAA) the same year. The terrorist attacks of September 11, 2001, wrought further change on the airline industry. Just weeks after the attacks, President george w. bush signed the Air Transportation Safety and System Stabilization Act (ATSSSA). According to a statement released by President Bush on September 22, 2001, the act was intended to ensure passenger safety and to "assure the safety and immediate stability of the nation's commercial airline system." It also created financial turmoil for nearly all the major carriers. What followed was a period of evolution and metamorphosis that changed the nature of flying forever.


When the first commercial airlines appeared after world war i, fewer than six thousand passengers a year traveled by air. By the 1930s, the Big Four—Eastern Air Lines, United Air Lines, American Airlines, and Trans World Airlines (TWA)—dominated commercial air transport. These companies had garnered exclusive rights from the federal government to fly domestic airmail routes, and Pan American (Pan Am) held the rights to international routes. The hold of these four airlines on their lucrative contracts went virtually unchallenged until deregulation in 1978. Even after the formation of the Civil Aeronautics Board (CAB) in 1938, formed to license new airlines, grant new routes, approve mergers, and investigate accidents, the Big Four and Pan Am continued to be guaranteed permanent rights to these routes. In fact, no new major scheduled airline was licensed for the next four decades.

In October 1978, Congress passed the Airline Deregulation Act (49 U.S.C.A. § 334 et seq.), ending the virtual monopoly held by the Big

Four and Pan Am. The government's goal was to promote competition within the industry. The act gave airlines essentially unrestricted rights to enter new routes without CAB approval. The companies could also exit any market and raise and lower fares at will.

The immediate effect of deregulation was a drop in fares and an increase in passengers. New cut-rate, no-frills airlines, such as People Express Airlines and New York Air, offered travelers the lowest fares ever seen in the industry. Forced to compete to fill their planes, the larger companies lowered their prices as well. Then the oil-producing countries in the Middle East formed a cartel and raised the price of jet fuel 88 percent in 1979 and an additional 23 percent in 1980. Combined with tumbling fares and increased passenger loads, the higher cost of jet fuel caused airline profits to drop.

Labor strife also affected the industry in the early days following deregulation. In 1981, after years of working under stressful conditions made worse by deregulation, the Professional Air Traffic Controllers Organization (PATCO) called a strike, demanding shorter working hours and higher pay. The union expected support and cooperation from the Reagan administration because of a sympathetic letter President ronald reagan had sent to PATCO when he was campaigning for the presidency. In the letter, he pledged to do whatever was necessary to meet PATCO's needs and to ensure the public's safety. But Reagan ordered the strikers to return to work within three days or be fired. Most did not return. The federal aviation administration (FAA) ordered all carriers to temporarily reduce their number of flights by one-third. Newer and smaller carriers found themselves increasingly unable to gain access to lucrative routes. Rebuilding the air traffic controller force took years, during which landing slots at the largest airports remained restricted, and small carriers, unable to compete, simply abandoned their attempts to break into the larger markets.

To some extent, competitive pricing actually had the opposite effect of what the deregulators intended. When the small "upstart" companies offered extremely low fares, the larger companies responded aggressively. For example, in 1983, People Express announced a $99 round-trip fare between Newark, New Jersey, and Minneapolis–St. Paul. Northwest Airlines, which had always dominated the Twin Cities market, undercut People by instituting a $95 fare for the same destination and scheduling extra departures. As a result, People decided it could not compete and withdrew from the market. Passengers enjoyed the benefit of lower fares, but only for a short time before the competitive effect faded and high fares returned.

When deregulation brought competitive pricing, the large carriers began to realize that it was not profitable for them to do business the way they had in the past. The first major change they made was to abandon the practice of crisscrossing the continent with nonstop flights to many different cities. Instead, the major airlines scheduled most of their flights into and out of a central point, or hub, where passengers might need to change to a different flight to complete their journey. One airline controlled most of the reservation desks and gates at a particular hub—for instance, United in Chicago, Northwest in Minneapolis–St. Paul, American in Dallas–Fort Worth, and Delta in Atlanta. For this reason, and because passengers tend to dislike changing carriers in the middle of a trip, the dominant company in a hub had a tremendous advantage over the competition in influencing what carrier a passenger would choose. By 1990, two-thirds of all domestic passengers traveled through a hub city before arriving at their final destination. Of those passengers, eight out of ten remained on the same airline throughout their journey. By 1992, there were at least twelve "fortress hubs," or airports where one airline controlled more than 60 percent of the traffic. Passengers who flew out of these hubs paid over 20 percent more than they would have for a comparable trip out of an airport that was not a hub.

After deregulation, the airlines also came to realize that they needed a more efficient way to book reservations and issue tickets. It is difficult to imagine, in these days of highly sophisticated computers and split-second communications, that until the late 1970s and early 1980s, airline schedules were contained in large printed volumes, reservations were taken over the telephone and tallied manually at the end of each day, and tickets were written by hand. To streamline this process the large companies initially proposed a joint computer system, listing schedules and fares. The justice department objected on the grounds that such a system would be anticompetitive and would violate the sherman anti-trust act (15 U.S.C.A. § 1 et seq. [1890]). Instead, each airline developed its own computer system and entered data in a manner that unfairly biased travel agents' choices in favor of the carrier that owned the system. Through skillful manipulation of the data, the airlines were able to put competitors at a disadvantage. For example, the airline that owned the system might enter the data so that all its flights to a particular destination appear on the screen before any flights of a competitor.

In a further attempt to win loyalty from passengers, the large airlines instituted frequent-flyer programs, which awarded free tickets to travelers after they logged a certain number of miles flown with the company. The combination of hubs, central computer reservation systems, and frequent-flier programs made the major airlines almost invulnerable in large markets.

Deregulation also brought a period of financial upheaval and an epidemic of "merger fever." A number of companies ceased doing business between 1989 and 1992, and still others merged with stronger, more aggressive companies. Among the companies that disappeared from the skies were Eastern, Pan Am, Piedmont, and Midway Airlines. Continental and TWA sought the shelter of Chapter Eleven bankruptcy reorganization. USAir and Northwest required cash infusions through cooperative arrangements with foreign airlines. Even financially strong carriers such as United and American laid off employees and abandoned plans to purchase new aircraft, which added to the woes of the depressed aerospace industry.

The mergers and buyouts of the 1980s were often accomplished in an atmosphere of hostility and distrust. Charges of predatory pricing and other unfair business practices were leveled by one carrier against another. During the 1980s, the Justice Department's Antitrust Division made a number of grand jury investigations into alleged anticompetitive activity by the major airlines, but no indictments were handed down. However, the companies that survived did not emerge unscathed. Many of the acquisitions were highly leveraged buyouts that left the reconstituted companies heavily in debt. With profits insufficient to cover their enormous debt loads, the companies frantically competed for business, engaging in fare wars that produced a dizzying array of pricing plans with equally numerous and confusing restrictions. Some of the tactics were questionable, but, again, not clearly illegal. In 1993, American Airlines was sued by Continental and Northwest for alleged predatory pricing during a 1992 fare war. The jury took just over two hours to return a verdict in favor of American.

By 1993, the industry began to rebound. Continental Airlines and TWA emerged from bankruptcy, and a few small carriers, such as Kiwi International, formed by former Eastern pilots, responded to the public's demand for low

fares and began to make incursions into the established markets, although they generally shied away from directly challenging the giants. Older carriers for the most part chose to stay with their hub-and-spoke systems, while several, including Northwest and United, came up with a creative new solution to their financial woes.

Northwest avoided bankruptcy when its unions agreed to wage concessions in return for part ownership of the airline. Then, in 1994, after seven years of negotiating, employees of United gained majority control of their company in return for deep pay and benefits cuts. Secretary of Labor Robert B. Reich commented that other financially troubled companies would undoubtedly follow suit: "From here on in, it will be impossible for a board of directors to not consider employee ownership as one potential business strategy." However, some industry analysts doubted that employee ownership would be effective in the long run because of inherent conflicts between labor and management, or between different labor groups. "It can't work," declared former Chrysler chairman Lee A. Iacocca. "What do you think will happen when it's a choice between employee benefits and capital investment?"


One troubling criticism of deregulation is that aggressive competition has forced airlines to cut corners, resulting in safety lapses. In 1990, Eastern Airlines was handed a 60-count federal indictment charging it with shoddy and dishonest maintenance practices. The indictments came after years of complaints by the financially troubled airlines' mechanics, who claimed that pressures to cut costs led to maintenance shortcuts and falsification of maintenance records. In January 1991, Eastern ceased operation.

Critics contend that Eastern was hardly alone in its cavalier approach to safety. They charge that the FAA is understaffed and poorly managed and that money shortages have caused all the airlines to relax safety standards. They point not only to increased pressures on the labor force but also to companies' reluctance to replace their aging fleets, the congestion of airspace caused by increased air travel, crowded hub airports that create security risks, and over-worked and sometimes poorly trained air traffic controllers. Yet, statistically, passengers are no more likely to die in a plane crash since deregulation than they were before it. Still, critics maintain that, despite the airlines' and the government's efforts to assure the traveling public to the contrary, air safety is in need of substantial improvements.

Many critics feel that at least part of the problem lies in the dual role of the FAA. Charged simultaneously with promoting the economic health of the aviation industry and fostering safety, the agency is often at odds with itself. In addition, the FAA's budget was cut and the number of inspectors reduced in the 1980s, the same period during which the number of passengers multiplied and the number of air traffic controllers was reduced. Furthermore, unions, which stand to benefit from the increased scrutiny and higher standards imposed by the FAA, continue to be major instigators for change. However, even neutral commentators have suggested that it is time to impose some degree of regulation, in the form of stronger FAA oversight, on the industry. In fact, the FAA has been accused of suffering from a "tombstone mentality" that causes the agency to delay acting on safety concerns until negative publicity generated by a crash forces the issue. Even after safety measures are recommended by the national transportation safety board (NTSB), the agency charged with investigating accidents, the FAA has been criticized for not always following through.

Aging aircraft became a major concern during the late 1980s and early 1990s. In 1988, an Aloha Airgroup Boeing 737-200, purchased in 1969, lost the top of its fuselage while flying at 24,000 feet. A flight attendant was immediately sucked out of the plane. The plane made a harrowing emergency landing, but not before 65 passengers suffered injuries, some serious. Congress responded in 1991 by passing the Aging Aircraft Safety Act (49 App. U.S.C.A. 1421 note), which requires airlines to demonstrate that their older planes are airworthy. Critics claim that enforcement of the law has been lax and that it ignores other compelling reasons to replace aging aircraft, such as the availability of newer fire-retardant seat materials and of updated seats designed to be more resistant to the impact of a crash.

Concerns over airline safety became even more acute in the early 1990s with a series of fatal crashes. The Boeing Company, a major producer of aircraft, predicts that the number of jet crashes worldwide could double by 2010 if accident rates of the early 1990s continue. Such a projection strikes fear into the hearts of the flying public. However, according to David R. Hinson, former FAA administrator, flight safety "is not a simplistic science that lends itself to easy solutions." Flight safety experts point out that all the most obvious causes of crashes have been addressed with technological advances that include such safeguards as early warning systems for wind shear.

Many experts feel that not enough research has been devoted to the study of the human elements that contribute to crashes. Boeing reports that flight crews have been the primary cause in more than 73 percent of jet crashes since 1959. In 1990, a federal jury in Minneapolis convicted three Northwest Airlines crewmen—a flight captain, a copilot, and a flight engineer—of flying a jet aircraft while under the influence of alcohol. Although this was the first flying-while-intoxicated conviction involving professional pilots, many claim that the problem of alcohol and drug abuse among flight crews is widespread and well hidden. Yet it is difficult to convince companies to focus on the issue of human elements that contribute to accidents. According to airline industry expert Clay Foushee, "It's a lot easier to convince someone to fund a fancy new piece of technology than research into social sciences."

In 1994, five fatal crashes, three involving commuter airlines, brought safety concerns to light once again. After the fifth crash, Secretary of Transportation Federico Peña ordered a safety audit of the entire airline industry. As a result, commuter airlines, which had previously been held to a lower standard of safety than major carriers, were placed under new operating rules that required them to bring their safety standards up to those of the other companies by the end of 1996. Industry experts said the elimination of the two-tier safety standards was "the most important decision affecting the industry since it was deregulated in 1978."

Several other safety and health issues have been publicized. The quality of air aboard an airplane has been questioned by some. As a result of intense lobbying by passenger groups and flight attendants, federal law now prohibits smoking on all domestic flights and on many international flights as well. Air quality was again questioned in 1993 when it was revealed that, as a cost-saving measure, many airlines were circulating fresh air into their aircraft less frequently than they had in the past. This led to complaints by passengers and crew of headaches, nausea, and the transmission of respiratory illnesses. Although the FAA conceded that circulating more fresh air would be beneficial, it backed off from requiring airlines to do so, because of the cost involved.

The safety of babies and toddlers on airplanes was investigated after it was shown that a number of them suffered injuries, some serious or fatal, during incidents that did not injure their parents. Unlike adults and their luggage, children under age two are not required to be secured on an airplane but rather may be held on an adult's lap. These "lap babies" are often ripped from the adult's grasp during turbulence or crashes. In 1994, Representatives Jolene Unsoeld (D-Wash.) and Jim Ross Lightfoot (R-Iowa) introduced a bill that would have required the use of child safety restraints on commercial flights. However, the measure, which was supported by the Association of Flight Attendants, NTSB, Air Transport Association, Aviation Consumer Action Project, and Air Line Pilots Association, was opposed by the FAA and eventually defeated. An FAA spokesperson, testifying in opposition to the bill, said the FAA's research indicated that if all children who needed them were placed in child safety seats, the airlines would save approximately one life over a ten-year period, and families would save $2.5 billion in added fares and costs over the same timespan. In contrast to the FAA's findings, a study conducted at Harvard Medical School estimated that one infant a year could be saved through the use of safety seats. The sponsors of the bill vowed to continue to press for more stringent safety standards for babies.

Safety concerns will continue to plague the airline industry, even though the FAA assures the flying public that, statistically, at least, flying a major airline in the United States is far safer than driving on an interstate highway. Questions persist about the FAA's effectiveness in overseeing air safety. And financially strapped airlines, which posted $12.8 billion in losses from 1990 to 1994, must make difficult risk-benefit analyses when contemplating new safety measures.

Some critics such as ralph nader, who initially supported deregulation, are now calling for limited government intervention to ensure safety. However, experts warn that the U.S. airline system, which is already extremely safe, probably can never be completely without risk. According to Stuart Matthews, president of the Flight Safety Foundation, "If the public absolutely demands that flying be totally safe, you are going to have to ban flying." Given the choice between taking a calculated risk and not flying at all, Americans, who take their lives into their hands each time they drive, will probably continue to trust the statistics and take their chances.

The ADFAA and September 11

In 1996, to address concerns that the families of airline crash victims were not receiving timely information, Congress passed the Aviation Disaster Family Assistance Act (ADFAA) (49 USCA § 1136; 49 USCA § 41113). The act requires airlines to submit a plan to the National Transportation Safety Board that would address the needs of the families of passengers who are involved in any aircraft accident that results in a major loss of life. Once approved, the carrier must make a good faith effort to carry out the plan.

Plans approved under the ADFAA have some minimum requirements for notification and care of families affected by an airline crash. Among them are that the airline carrier must set up, publicize, and staff a toll-free telephone line that passengers' families can call for information. The carrier must also cooperate with the independent, NTSB-appointed nonprofit (i.e, the Red Cross) to provide an appropriate level of aid and support. In addition, the carrier must assist a passenger's family in traveling to the crash site, as well as provide for their physical needs while at the accident location. Finally, the carrier must respect a family's wishes for burial, a memorial, or a religious ceremony, and get the input of all families before any memorial is erected in memory of the passengers.

The ADFAA provides limitations on the liability of airline carriers for passenger lists. The act states that a carrier may not be liable for damages in preparing or providing a passenger list, unless the conduct of the air carrier was grossly negligent or constituted intentional misconduct. Further limiting airline liability, the ADFAA provides that no unsolicited communication concerning a potential action for personal injury or wrongful death may be made by an attorney or any potential party to the litigation to an individual injured in an airplane accident, or to a relative of an individual involved in the accident, before the 45th day following the date of the accident.

The provisions of the ADFAA became crucial on September 11, 2001—the day that four domestic airplanes were hijacked by terrorists and crashed into the World Trade Center in New York City, the Pentagon in Washington, D.C., and a field in Pennsylvania. In the aftermath of that tragedy, the government built on the ADFAA by passing the Air Transportation Safety and System Stabilization Act (ATSSSA) (Pub.L. 107-42, Sept. 22, 2001, 115 Stat. 230). This act took into consideration the devastation wrought on U.S. airlines on September 11 and enacted measures to try to ensure their survival.

In addition to compensating airlines for direct losses incurred as a result of September 11, the ATSSSA established a framework for computing the maximum grant that an airline could claim as compensation. To streamline efforts, it set up the Air Transportation Stabilization Board to review the prospective loan applications. The act attempted to protect the insurance industry, as well as the aviation industry, by limiting the claims that could be made upon them.

The act also established the September 11th Victim Compensation Fund of 2001 to deal directly with the needs of families who were victims of the september 11th attacks. The fund provided direct financial assistance to families so they would not have to endure lengthy court battles. Liability for all third-party losses was transferred from the airlines to the U.S. government and a waiver system was established so that families could not sue the airlines for damages as a result of the terrorist attack at any future date.

Security measures for airlines have also been upgraded since September 11. The government took over security at airports from private companies through the creation of the Transportation Security Administration. In addition, cockpit doors were reinforced, passengers were limited in what they could bring on to flights, luggage screening was upgraded, and pilots were allowed to carry guns to protect themselves on flights.

Despite the ATSSSA and the increased security measures, however, the September 11 attacks had a disastrous effect on U.S. airlines. A little over a year later, two major airlines, U.S. Airways and United Airlines were in bankruptcy, with a good chance that others would follow. And the threat of low-cost airlines, such as Southwest, combined with a widespread decline in flying, made the business plans of most major airlines insupportable. All major airlines except Southwest saw huge losses in 2001 and 2002. As of 2003, it was not clear who would survive this latest shakeout or what the future of the airline industry would be.

further readings

Dempsey, Paul Stephen. 2003. "Aviation Security: The Role of Law in the War Against Terrorism." Columbia Journal of Transnational Law (spring).

Schroeder, Kristin Buja. 2002. "Failing to Prevent the Tragedy, but Facing the Trauma: The Aviation Disaster Family Assistance Act of 1996 and the Air Transportation Safety and System Stabilization Act of 2001." Journal of Air Law and Commerce 67 (winter).

Schwieterman, Joseph. 2002. "From Consolidation to Crisis: The Airline Industry in Transition." DePaul Business Law Journal 14 (spring).

Stempel, Jeffrey W. 2002. "The Insurance Aftermath of September 11: Myriad Claims, Multiple Lines, Arguments Over Occurrence Counting, War Risk Exclusions, the Future of Terrorism Coverage, and New Issues of Government Role." Tort and Insurance Law Journal 37 (spring).


Aeronautics; Carriers; Labor Union; National Transportation Safety Board; Sherman Anti-Trust Act; Unfair Competition.

Aviation Industry

views updated May 23 2018

Aviation Industry


The aviation industry is defined as the design, manufacture, use, or operation of aircraft; the term aircraft refers to any vehicle capable of flight. Aircraft can either be heavier than air or lighter than air. Lighter than air craft include balloons and airships, and heavier than air craft include airplanes, autogiros, gliders, helicopters, and ornithopters.

As early as 400 bce the Greek scholar Archytas built a wooden pigeon that moved through the air, which is the earliest aviation experiment. The Americans Orville Wright and Wilbur Wright are generally credited with making the first controlled, powered, heavier than air human flight on December 17, 1903. In 1905 Charles and Gabriel Voisin, two French fliers, started the worlds first aircraft company. The military value of aircraft was quickly recognized during World War I (1914-1918), and production increased significantly to meet the rising demand. More powerful motors, enabling aircraft to reach speeds of up to 130 miles per hour, were developed. After World War I, thousands of military planes were converted to civilian use. By 1917 the U.S. government adopted something totally new: airmail. The Contract Air Mail Act of 1925 was the first major legislative step toward the creation of the private U.S. airline industry. Henry Ford, the automobile manufacturer, jumped into aircraft manufacturing and produced one of the first all-metal planes. On May 21, 1927, the pilot Charles Lindbergh flew across the Atlantic Ocean. This event made aviation an established industry by attracting millions of private investment dollars. For the airlines to attract more passengers away from the railroads, larger, faster, and safer airplanes were needed, and aircraft manufacturers responded to the challenge. There were so many improvements to aircraft in the 1930s that many believe it was the most innovative period in aviation history. Newtons Third Law theorizes that a rearward-channeled explosion can propel a machine forward at a great rate of speed. The British pilot Frank Whittle applied this law to the first jet engine in 1930. During World War II, aircraft production became the worlds leading manufacturing industry.

Aviation is broadly grouped into three categories: general aviation, air transport aviation, and military aviation. By 1947 all the basic technology needed for aviation had been developed, including jet propulsion, aerodynamics, and radar. Civilian aircraft orders drastically increased from 6,844 in 1941 to 40,000 by the end of 1945. Among the minor military contractors was the Boeing Company, which later became the largest aircraft manufacturer in the world. With all the new technologies developed by this time, airliners were larger and faster and featured pressurized cabins. New aerodynamic designs, metals, and power plants resulted in high-speed turbojet airplanes. By 1950 the airliner was well on the way to replacing the railroad and the ocean liner as the primary means of long-distance travel. The economic, social, and political consequences included the creation of global markets, opportunities for global travel undreamed of a generation before, and increasing cultural homogeneity.

In 1938 the Civil Aeronautics Authority, an independent regulatory bureau, was developed. The airline industry resembled a public utility, with a government agency determining the routes each airline flew and overseeing the prices charged. On October 24, 1978, the Airline Deregulation Act was approved, and the industry became market driven, with customer demand determining the levels of service and price. A major development that followed deregulation was the widespread development of hub-and-spoke networks, which enable the airlines to serve far more markets than they could with the same size fleet if they offered only direct, point-to-point service. Another important development following deregulation was the advent of computer reservation systems. These systems help airlines and travel agents keep track of fare and service changes, which occur rapidly. The systems also enable airlines and travel agents to efficiently process the millions of passengers who fly each day. In manufacturing, several mergers in the 1990s led to the disappearance of several historic U.S. airplane builders, such as McDonnell Douglas, which merged into Boeing. International partnerships became increasingly significant, with Airbus capturing one-third of the world market in jet airliner sales in the 1990s.

A number of researchers examined the impact of the 1978 Deregulation Act on the productivity of U.S. carriers and the demand for their services as well as how the international deregulation of the industry that accelerated in the ensuing years impacted the supply and demand for airline service worldwide. The studies pointed to an increase in efficiency of airline carriers due to increased competition, a provision of more service at lower prices, and an eroding of service quality as carriers competed on the basis of price instead of on the basis of in-flight amenities and flight frequency with relative low load factors.

On September 11, 2001, terrorists hijacked four commercial airplanes and deliberately crashed two into the towers of the World Trade Center in New York City and one into the Pentagon building in Washington, D.C. The fourth hijacked plane crashed in Somerset County, Pennsylvania. After the hijackings, U.S. airports and airlines sought new ways to protect against terrorist attacks. Congress passed legislation requiring federal employees to handle all passenger and baggage inspection in U.S. airports by the end of 2002.

Fears of terrorism and a sluggish world economy contributed to a decline in air travel in the early 2000s. In 2003 British Airways and Air France discontinued all Concorde flights because the flights were no longer profitable.

Although many countries continue to operate state-owned airlines, most large airlines in the early twenty-first century are privately owned and therefore governed by microeconomic principles to maximize shareholder profits. The airline industry as a whole has a cumulative loss during its history, once subsidies for aircraft development and airport construction are included in the cost. The lack of profitability and continuing government subsidies are justified with the argument that positive externalities, such as higher growth due to global mobility, outweigh microeconomic losses. A historically high level of government intervention in the airline industry can be seen as part of a wider political consensus on strategic forms of transport, such as highways and railways, both of which are also publicly funded in most parts of the world.

U.S. airlines face substantial upheavals in the forms of mergers, failures, bankruptcy filings, reorganizations, and operating loss reports. This situation has raised concern that the future is bleak in terms of the number of carriers that will survive and prosper. Profitability is likely to improve as carriers find ways to be more cost-efficient and more competitive low-cost carriers proliferate.

SEE ALSO Automobile Industry; Externality; Military; Railway Industry; September 11, 2001; Shipping Industry; Space Exploration; Terrorism; Transportation Industry; World War I; World War II


Ahn, Seun, David H. Good, and Robin C. Sickles. 1998. Assessing the Relative Efficiency of Asian and North American Airline Firms. In Economic Efficiency and Productivity Growth in the Asia-Pacific Region, ed. Tsu-Tan Fu, Cliff J. Huang, and C. A. Knox Lovell, 65-89. Northamptom, MA: Elgar.

Captain, Purvez, and Robin C. Sickles. 1997. Competition and Market Power in the European Airline Industry: 1976-1990. Managerial and Decision Economics 18: 209-225.

Färe, Rolf, Shawna Grosskopf, and Robin C. Sickles. 2007. Productivity? of U.S. Airlines after Deregulation. Journal of Transport Economics and Policy 41: 93-112.

Good, David H., M. Ishaq Nadiri, and Robin C. Sickles. 1993. Efficiency and Productivity Growth Comparisons of European and U.S. Air Carriers: A First Look at the Data. Journal of Productivity Analysis 4: 115-125.

Good, David H., Lars-Hendrik Röller, and Robin C. Sickles. 1993. U.S. Airline Deregulation: Implications for European Transport. Economic Journal, Royal Economic Society 103: 1028-1041. Reprinted in Recent Developments in Transport Economics, ed. Kenneth Button. Northhampton, MA: Elgar, 2003.

Good, David H., Lars-Hendrik Röller, and Robin C. Sickles. 1994. Integration and the Structure of the Franco-American Airline Industries: Implications for Efficiency and Welfare. In Models and Measurement of Welfare and Inequity, ed. Wolfgang Eichhorn, 643-665. Heidelberg, Germany:Springer-Verlag.

Good, David H., Lars-Hendrik Röller, and Robin C. Sickles. 1995. Airline Efficiency Differences between Europe and the U.S.: Implications for the Pace of EC Integration and Domestic Regulation. European Journal of Operations Research 80: 508-518.

Longyard, William H. 1994. Whos Who in Aviation History: 500 Biographies. Shrewsbury, MA: Airlife.

McAllister, Bruce, and Jesse Davidson. 2004. Wings across America: A Photographic History of the U.S. Air Mail. Boulder, CO: Roundup.

Morrison, Stephen, and Clifford Winston. 1986. The Economic Effects of Airline Deregulation. Washington, DC: Brookings Institution.

Morrison, Stephen, and Clifford Winston. 1995. The Evolution of the Airline Industry. Washington, DC: Brookings Institution.

Perloff, Jeffrey, Robin C. Sickles, and Jesse Weiher. 2002. An Analysis of Market Power in the U.S. Airline Industry. In Measuring Market Power, ed. Daniel J. Slottje, 309-323. Amsterdam: Elsevier.

Postert, Anthony, and Robin C. Sickles. 1999. Air Liberalization: The Record in Europe. In Taking Stock of Air Liberalization, ed. Marc Gaudry and Robert Mayes, 39-59. Boston: Kluwer Academic.

Sickles, Robin C. 1987. Allocative Inefficiency in the U.S. Airlines: A Case for Deregulation. In Studies in Productivity Analysis, vol. 7, ed. by Ali Dogramaci, 149-162. Boston: Kluwer-Nijhoff.

Sickles, Robin C., David H. Good, and Richard L. Johnson. 1986. Allocative Distortions and the Regulatory Transition of the U.S. Airline Industry. Journal of Econometrics 33: 143-163.

Williams, James W. 2005. A History of Army Aviation: From Its Beginnings to the War on Terror. IUNIVERSE.

Robin Sickles

Ying Fang

Airline Industry

views updated May 21 2018


On December 17, 1913, in St. Petersburg, Florida, the first airline contract in United States history was signed. Salesman and motorboat racer Percival E. Fansler knew that the city of St. Petersburg was dependent upon the winter tourist trade for its economic survival. In order to reach St. Petersburg from Tampa, tourists had a choice of travelling two hours across Tampa Bay by steamer, a 12-hour train ride, or a day trip by automobile over rough terrain. Fansler believed that by air, the trip from Tampa to St. Petersburg would only take 20 minutes. Fansler shared his idea with a pioneer aircraft manufacturer, Thomas W. Benoist. Enthusiastic St. Petersburg business and civil leaders signed a contract with Benoist to operate an air travel business with two flying "boats" and pilots. On January 1, 1914, the first day of operation, thousands of people turned out for a downtown parade. In a short speech Fansler boldly stated, "What was impossible yesterday is an accomplishment today, while tomorrow heralds the unbelievable." Pilot Anthony H. Jannus then pushed the aircraft throttle to full and lifted off from the water, soaring into history.

On May 15, 1918, the nation's first scheduled air mail service began between Washington, DC, and New York, using military pilots as part of the armed forces' wartime training program. By August a civilian-operated U.S. Air Mail Service was initiated by Otto Praeger, second assistant postmaster general in charge of all mail transportation. In 1919 the Post Office took on the monumental task of supplying an overnight airmail service by flying 755 miles from New York to Chicago. The government's expert body on aviation, the National Advisory Committee for Aeronautics (NACA), stated in its annual report that the Post Office was making "a substantial contribution in the practical development of commercial aviation."

The best coast-to-coast mail record of 72 hours was shattered on February 2223, 1921, when airmail pilots made the transcontinental crossing in 33 hours and 20 minutes. The push for faster airmail service with aircraft not as technologically advanced came with a human price tagtwelve postal airmen were killed in 1920. The New York Times, however, observed in 1921: "There are critics who think that the Post Office Department's air mail service is dangerous and costly, but nothing ventured, nothing gained. The modern world demands efficiency and speed; aviation is international and competitive. The United States has distanced all countries in transportation of mails through the air."

When Congress passed the Air Mail (Kelly) Act of 1925, it helped give private airlines the opportunity, through competitive bidding, to serve as mail carriers. The Air Commerce Act of 1926 would designate and establish airways, license pilots and aircraft, investigate accidents, and maintain aids to air navigation. These acts drew businessmen and financiers into aviation, which led to the creation of new air transportation companies. The U.S. government's involvement in the industry came in the form of regulatory agencies, congressional acts, and appointed commissions.

The dramatic transatlantic solo flight of Charles A. Lindbergh (19021974) on May 2021, 1927, captured the fascination of the American people. Amid new public enthusiasm there was a frenzy to get in on the ground floor of the aviation industry. Early airplane manufacturers such as William Boeing (18811956), Claud Ryan, and Donald Douglas (18921981), began manufacturing airplanes designed specifically for passenger travel. Air transportation continued to develop, and by 1930, there were 43 scheduled airlines in the United States. Better radio communications, revolving beacon lights, and more accurate weather services improved airway facilities and safety records. Air traffic and profits increased during the early 1950s. The American economy flourished as passenger sales rose dramatically from $17.3 million in 1950 to $38 million in 1955. The airliner was well on its way to replacing the train and the ocean liner in long distance travel.

Thirty years after the end of World War II (19391945), the American airframe and engine industry enjoyed a prosperous period with the jet-propelled airliners of Boeing, McDonnell-Douglas, Lockheed, and other U.S. firms. Passenger transportation became the largest source of airline revenue, followed by freight and mail. Intense competition arose from the cost-per-seat-per-mile afforded to each passenger. The giant carriers, United, American, TWA, and Eastern Airlines continued their domination of the industry and accounted for more than half the seat-mile productivity of the entire industry. Jumbo jets were introduced in the 1970s, and seated 400 to 500 tourist-class passengers. The wide-bodied jets also contributed to the chronic congestion at many airports. By the mid-1970s the airline industry was plagued by shifts in regulatory procedure, labor unrest, high fuel costs, corporate mismanagement, airport congestion, crowded skies, and public concerns ranging from safety and service to air and noise pollution. The Airline Deregulation Act of 1978 removed governmental control of routes and fare pricing with the intention of encouraging competition and increasing efficiency. Some effects of deregulation were felt immediately, as heavy competition led to lower ticket prices.

Unprepared for the effects of an inflation-ridden world economy and the lowest boarding rate in 50 years, airlines throughout the world suffered financial losses in the early 1980s. Scrambling to increase passenger numbers, airlines began to overbook flights in an attempt to fill every seat. Budgets were cut in the quality and quantity of passenger food, as well. Although these tactics did cut airline costs, customer satisfaction reached an all-time low. This trend continued into the late 1990s, as many airlines struggled to find a solution to financial difficulties, and some failed. The number of people traveling by air, however, continued to increase, and for those airlines that can survive the competition the future looks bright.

As aerospace technology develops, significant changes and advances in design, safety, electronics, and computer science evolve. The airline industry also benefits in all aspects from high-tech communication technology. More than eight decades ago, salesman and motorboat racer Percival E. Fansler's novel idea of "a real commercial line, running from somewhere to somewhere else" took flight, and despite its difficulties, became what is perhaps the most important technological innovation in history.

See also: Air Traffic Controllers Strike, Airline Deregulation, Boeing


Leary, William M., ed. Encyclopedia of American Business History and Biography. New York: Facts On File, s.v. "The Airline Industry."

Foner, Eric and John A. Garraty, eds. The Reader's Companion to American History. Boston: Houghton Mifflin Co., 1991.

Morrison, Steven. The Evolution of the Airline Industry. Washington, DC: Brookings Institution, 1995.

Heppenheimer, T.A. Turbulent Skies: The History of Commercial Aviation. New York: J. Wiley & Sons, 1995.

Meyer, John Robert. Airline Deregulation: The Early Experience. Boston, MA: Auburn House Publishing Co., 1981.

Hillstrom, Kevin, and Mary K. Ruby, eds. Encyclopedia of American Industries. Farmington Hills, MI: The Gale Group, vol. 2, s.v. "Service and Non-Manufacturing Industries."


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air·line / ˈe(ə)rˌlīn/ • n. 1. an organization providing a regular public service of air transportation on one or more routes. ∎  (usu. air line) a route that forms part of a system regularly used by aircraft.2. (usu. air line) a pipe supplying air: use an air line to inflate those tires.


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Airline Industry

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AIRLINE INDUSTRY. SeeAir Transportation and Travel .