Who Benefits from the Airline Industry Consolidation
Introduction
The purpose of this report is to understand and evaluate who benefits more from the airline industry consolidation. It will do so by examining the general environment, history and recent background of the airline industry and it will continue by analysing the market’s demand and supply distinguishing between leisure and business. Afterwards it will examine the market structure of the airline industry and how the past regulations and deregulations affected the industry and whether those had a positive or a negative effect. It will then conclude by stating whether the consolidation is beneficial to consumers or not and how.
General Environment and Background
Beginning in 1903 with the Wright brothers ' first successful flight and over the past century the airline industry has grown from an exploratory type of transportation to a significant part of the world 's transportation system which services more than 1.6 billion passengers annually. In the beginning most consumers did not see airplane travel as an option due to the lack of safety. World War I contributed a lot in the familiarization of the public with the aircraft but it was not until the first transatlantic flight that the commercial possibilities of this type of transportation were recognized.
The deregulation of the airline industry by the U.S. government in 1978 and Europe’s deregulation in 1997 allowed airline companies to fly in other markets that used to be off-limits. That deregulation aroused a fierce competition between airline companies which resulted in many mergers and failures of large carriers but in the growth of other small carriers as well.
The economic boom of the 1980s signaled many difficulties for some airlines during the 1990s due to excess orders of airplanes which exceeded the demand of international passengers. Increasing losses were calculated roughly at more than 20 billion dollars from 1990 to 1994. There was also a substantial increase in the number of
The purpose of this report is to understand and evaluate who benefits more from the airline industry consolidation. It will do so by examining the general environment, history and recent background of the airline industry and it will continue by analysing the market’s demand and supply distinguishing between leisure and business. Afterwards it will examine the market structure of the airline industry and how the past regulations and deregulations affected the industry and whether those had a positive or a negative effect. It will then conclude by stating whether the consolidation is beneficial to consumers or not and how.
General Environment and Background
Beginning in 1903 with the Wright brothers ' first successful flight and over the past century the airline industry has grown from an exploratory type of transportation to a significant part of the world 's transportation system which services more than 1.6 billion passengers annually. In the beginning most consumers did not see airplane travel as an option due to the lack of safety. World War I contributed a lot in the familiarization of the public with the aircraft but it was not until the first transatlantic flight that the commercial possibilities of this type of transportation were recognized.
The deregulation of the airline industry by the U.S. government in 1978 and Europe’s deregulation in 1997 allowed airline companies to fly in other markets that used to be off-limits. That deregulation aroused a fierce competition between airline companies which resulted in many mergers and failures of large carriers but in the growth of other small carriers as well.
The economic boom of the 1980s signaled many difficulties for some airlines during the 1990s due to excess orders of airplanes which exceeded the demand of international passengers. Increasing losses were calculated roughly at more than 20 billion dollars from 1990 to 1994. There was also a substantial increase in the number of
References: and Bibliography Demand for Outbound Leisure Air Travel and its Key Drivers, CIVIL AVIATION AUTHORITY, December 2005 (http://www.caa.co.uk/docs/5/ERG_Elasticity_Study.pdf) (last accessed 14-03-12) Star Alliance: http://www.staralliance.com (last accessed 14-03-12) Strauss, Michael (2010): Value Creation in Travel Distribution