Airline Deregulation

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competitive.

After deregulation, a hub and spoke model was implemented. Legacy carriers did point to point flights. New LCC’s implemented the hub. One selected city is a main destination from several smaller cities. Capacity, or load factors, increased as fares decreased. Hub and spoke systems decreased cost, the problem was that it created higher fixed cost such as larger terminal needs, extended runways and IT systems (Smith and Cox).

Recommendations

In order to increase profits, airlines should all conform to the hub and spoke model as well as point to point flights. Airlines will need to work with partner airports and cities to expand terminals and runways, etc. The barriers to entry now require a large amount of capital, and the competition is very fierce.

Alternative Recommendations

It is important that airlines continue price discrimination overhaul. Business travelers are often willing to pay 60% more in order for the convenience of a non-stop flight. The business traveler class often has little options or substitutions when trying to avoid the price discriminating techniques. Emphasis must be placed in this area to reach profitability (Schwieterman).

Conclusion

Its evident that deregulation has harmed the airline industry and prevents them from maintaining profitability. It faced tough new issues after 50 years of regulation. Practices such as price discrimination combined with stiff competition due to low entrance barriers drove down profits. After deregulation, operation practices like the wheel and hub decreased cost, but fixed costs remained. These issues have caused the airline industry to remain unprofitable.

References

Grant, R. (2010). Contemporary strategy analysis (6th ed.). Malden, MA: Blackwell Pub.