AIR TRANSIORTATION

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Bruannc – ucu ui|| nctcr |c jcrgcĴcn nu |iĴ|c cnc.
Air Transporlalion
A Managemenl Ierspeclive
Sixlh Idilion
IOHN G. WINSVIIN
Prcsi!cni an! C|O. Air|inc Visicns. IIC
vvv.airIinevisions.com
© Iohn G. Wensveen 2007
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lo be idenlified as lhe aulhors of lhis vork.
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British Library Cataloguing in Publication Data
Wensveen, I. G.
Air lransporlalion : a managemenl perspeclive. - 6lh ed.
1. AirIines - Managemenl 2. Aeronaulics, CommerciaI
I. TilIe II. WeIIs, AIexander T.
387.7’068
Library of Congress Control Number: 2007930947

ISßN 978-0-7546-7165-7 (hbk)
ISßN 978-0-7546-7171-8 (pbk)
Irinled and bound in Greal ßrilain by TI InlernalionaI Lld, Iadslov, CornvaII.
v
Contents
A|cui inc Auincr ix
Prcjacc xi
Ackncu|c!gncnis xxi
PART ONE
AN INTRODUCTION TO AIR TRANSPORT
1 Aviation: An Overview 3
Inlroduclion 4
The Aerospace Induslry 4
The Air Transporlalion Induslry 21
2 Historical Perspective 29
Inlroduclion 31
The Iormalive Ieriod: 1918–1938 31
The Grovlh Years: 1938–1958 39
Malurily—Iels Arrive: 1958–1978 42
Iconomic DeveIopmenls Irior lo DereguIalion 43
IederaI LegisIalion and lhe AirIines 46
IosldereguIalion IvoIulion 60
GeneraI Avialion 67
3 Air Transportation: Regulators and Associations 79
Inlroduclion 80
The Deparlmenl of Transporlalion 81
The IederaI Avialion Adminislralion 87
The Transporlalion Securily Adminislralion 95
The NalionaI Transporlalion Safely ßoard 95
Ma|or Avialion Associalions 100
4 The General Aviation Industry 111
Inlroduclion 112
GeneraI Avialion Slalislics 112
The GeneraI Avialion Supporl Induslry 127
The AvaiIabIe Markel—The Users 136
A I R T R A N S P O R TAT I O N v i
PART TWO
STRUCTURE AND ECONOMICS OF AIRLINES
5 The Airline Industry 147
Inlroduclion 148
Slruclure of lhe AirIine Induslry 148
Ma|or and NalionaI Carriers 151
RegionaI Carriers 154
AirIine Slalislics 158
AirIine Cerlificalion 158
Dala CoIIeclion by lhe DOT 162
Induslry Agreemenls 163
Traffic and IinanciaI HighIighls: 1960–2005 165
6 Economic Characteristics of the Airlines 175
Inlroduclion 176
The AirIines as OIigopoIisls 177
Olher Unique Iconomic Characlerislics 186
The Significance of AirIine Iassenger Load Iaclors 191
PART THREE
MANAGERIAL ASPECTS OF AIRLINES
7 Airline Management and Organization 201
Inlroduclion 202
Managemenl 202
The Nev Corporale Slruclure 206
Iunclions of Managemenl 210
Organizalion 213
The OrganizalionaI Charl 216
Slaff Deparlmenls 218
Line Deparlmenls 223
8 Forecasting Methods 243
Inlroduclion 244
The Iurpose of Iorecasling 244
Iorecasling Melhods 246
9 Airline Passenger Marketing 257
Inlroduclion 258
DeveIopmenl of lhe Markeling Concepl 259
The Markeling Mix 260
The Consumer-orienled Markeling Concepl 269
Markeling Slralegies Since DereguIalion 274
C O N T E N T S v i i
10 Airline Pricing, Demand, and Output Determination 283
Inlroduclion 285
The Trend in Domeslic Iassenger Airfares 285
Iricing and Demand 288
No-friIIs Airfare and Survey Warfare 296
Types of Iassenger Iares 297
The Iricing Irocess 298
AirIine Cosls 304
Iricing and Oulpul Delerminalion 309
11 Air Cargo 319
Inlroduclion 321
HisloricaI Overviev 321
Air Cargo Today 325
The Iulure 328
The Markel for Air Ireighl 329
Types of Air Ireighl Rales 331
SpeciaI Air Ireighl Services 333
Iaclors Affecling Air Ireighl Rales 337
12 Principles of Airline Scheduling 343
Inlroduclion 344
The Mission of ScheduIing 344
Iquipmenl Mainlenance 346
IIighl Operalions and Crev ScheduIing 349
Ground Operalions and IaciIily Limilalions 351
ScheduIe IIanning and Coordinalion 353
Iquipmenl Assignmenl and Types of ScheduIes 364
Hub-and-Spoke ScheduIing 366
Dala Limilalions in AirIine ScheduIing 369
13 Fleet Planning: The Aircra Selection Process 373
Inlroduclion 374
Iaclors in IIeel IIanning 374
Design and DeveIopmenl—The Manufaclurer’s Vievpoinl 382
The IIeel-pIanning Irocess 387
The Decision lo Upgrade or RepIace 392
Appendix: IIeel IIanning al American AirIines 396
14 Airline Labor Relations 399
Inlroduclion 400
The RaiIvay Labor Acl and lhe AirIines 401
HisloricaI Overviev of AirIine Union Aclivily 406
Labor ReIalions Since DereguIalion 412
Human Resources in lhe 21sl Cenlury 423
A I R T R A N S P O R TAT I O N v i i i
15 Airline Financing 427
Inlroduclion 428
Sources of Iunds 428
Sources and Uses of Iunds by lhe U.S. ScheduIed AirIines 437
Cash Managemenl and IinanciaI IIanning 450
PART FOUR
THE INTERNATIONAL SCENE
16 International Aviation 459
Inlroduclion 460
The Oueslion of Sovereignly in Airspace 460
InlernalionaI Air Lav 463
The Iormalion of IATA 470
The ßermuda Agreemenl of 1946 471
Three Decades Laler: Irom ßermuda lo DereguIalion 472
The Iursuil of Open Skies 476
GIobaIizalion 480
Iulure ChaIIenges 484
Appendix A: Views of Industry Professionals 489
Inlroduclion 490
Ouoles 490
ArlicIe 492
Appendix B: Career Planning in Aviation 499
Inlroduclion 500
Choosing and GeĴing Your Iirsl Iob in Avialion 500
Cover LeĴers and lhe Resume 506
The Inlerviev 508
Glossary 521
Index 551
ix
About the Author
Dr. Iohn Wensveen is considered one of lhe avialion induslry’s Ieading experls on Iov-cosl
and Iov-fare high vaIue airIine operalions and is currenlIy Iresidenl & CIO of AirIine
Visions, an advisory and fulurisl firm speciaIized in air carrier slarl-ups.
He has been dubbed lhe ‘idea faclory’ by many of his coIIeagues and has lhe abiIily
lo idenlify lrends and focus on fasl resuIls. Dr. Wensveen is a Ieading experl on business
and slralegic pIan deveIopmenl, markeling and branding, diversificalion slralegies,
parlnership deveIopmenl, due diIigence and M&A. ConsuIling pro|ecls incIude business
pIan deveIopmenl for Iov-cosl carrier (LCC) slarl-ups, formuIalion of slralegic grovlh
recommendalions, managing of cIienl’s grovlh mission and operalionaI ob|eclives,
providing vision and Ieadership lo carry oul mission, and buiIding of reIalionships. Dr.
Wensveen’s consuIling praclice aIso incIudes experl vilness leslimony and advisory
services lo lhe leIevision and fiIm induslries.
In addilion lo avialion consuIling, Dr. Wensveen advises non-avialion organizalions on
slralegic sleps lo success. He is an experl in “shooling hoIes” lhrough exisling businesses
and idenlifying a corporalion’s slrenglhs, veaknesses, opporlunilies and lhreals uliIizing
a cuslomized pIan of aclion.
UnliI March 2005, Dr. Wensveen vas Vice Iresidenl of InlernalionaI DeveIopmenl vilh
Washinglon-DuIIes based MAX|el Airvays, lhe firsl slarl-up US flag carrier lo oblain
IAA cerlificalion lo operale on lhe lrans-AlIanlic since lhe evenls of 9/11. Dr. Wensveen’s
invoIvemenl vilh MAX|el slarled in 2003 as one of lhe founding leam members. WhiIe al
MAX|el, he Ied parlnership deveIopmenl vilh airIines, airporls, inlernalionaI governmenl
bodies, ground handIing and securily organizalions and represenled lhe company as
spokesperson. Dr. Wensveen vas responsibIe for seĴing up lhe Iuropean infraslruclure
incIuding ground operalions and vas responsibIe for overaII I&L of Iuropean operalions
and some aspecls of US operalions. WhiIe al MAX|el, he managed quick grovlh and
aided in lhe buiId oul of a slrong execulive leam.
Irom 1999 lo 2004, Dr. Wensveen vas empIoyed as Irofessor of AirIine Managemenl
and Operalions vilh lhe SchooI of ßusiness al Imbry-RiddIe AeronaulicaI Universily in
Daylona ßeach, IIorida inslrucling courses al lhe undergraduale, graduale and execulive
IeveIs. He vas lhe pro|ecl Iead on lhe crealion of lhe vorId’s firsl AirIine Operalions
Cenler SimuIalion Laboralory (AOCSL), an inlernalionaI pro|ecl in parlnership vilh
ma|or avialion/aerospace companies incIuding airIines, airporls, ground handIing
organizalions, manufaclurers, academic inslilulions, and governmenl al lhe IocaI, federaI
and inlernalionaI IeveIs. WhiIe al Imbry-RiddIe, Dr. Wensveen buiIl a repulalion in lhe
avialion induslry as one of lhe Ieading experls in his fieId. He is veII connecled and
recognized for his lhoughl Ieadership and sub|ecl maĴer experlise.
A I R T R A N S P O R TAT I O N x
In lhe earIy 1990s, Dr. Wensveen vas empIoyed vilh Canada 3000 AirIines hoIding
supervisory posilions in flighl operalions and Ialer, passenger services. WhiIe al Canada
3000, he assisled vilh lhe managemenl of quick grovlh and vas a Ieading conlribulor lo
base expansion in lhe Iacific.
Dr. Wensveen is a member of a number of professionaI organizalions and is a frequenl
speaker al inlernalionaI avialion evenls. He is a facuIly member of lhe InlernalionaI Air
Transporl Associalion (IATA) and is aulhor of lhe Air Mercury and Slralegic Managemenl
courses presenled al IATA lraining cenlers around lhe vorId. He is aIso an ad|uncl facuIly
member of lhe Universily of MaryIand Universily CoIIege (UMUC), Universily of lhe
Wesl Indies (UWI) and RoyaI Roads Universily (RRU). He is aIso a facuIly member of lhe
Arab Air Carrier’s Associalion (AACA).
Dr. Wensveen pubIishes frequenlIy in ma|or avialion pubIicalions and is an avialion
anaIysl for lhe media ohen seen on ma|or leIevision nelvorks and quoled in ma|or
nevspapers and magazines around lhe vorId. He is aulhor of Norlh America’s Ieading
avialion lexlbook enlilIed, Air Transpcriaiicn. A Managcncni Pcrspcciite and is aulhor of
anolher successfuI book enlilIed, Wncc|s Up. Air|inc Busincss P|an Octc|cpncni.
Irom 1996 lo 1999, Dr. Wensveen hosled a number of Ieading radio shovs in lhe
Uniled Kingdom and vas avarded “ßesl MaIe Iresenler” in 1997 al lhe ßßC Radio One
Avards.
Dr. Wensveen, born and raised in Vancouver, Canada earned a Ih.D. in InlernalionaI
Air Transporl Managemenl vilh a focus on ßusiness, Slralegy and Markeling from lhe
Universily of WaIes Cardiff (Uniled Kingdom) and a ß.A. in Geography and Transporlalion
IIanning from lhe Universily of Vicloria (Canada).
Preface
Il vas onIy lhree years ago since lhe fihh edilion of lhis book vas pubIished and lhe
gIobaI avialion induslry has experienced numerous changes lhal in many cases, vere
nol predicled. The sixlh edilion of Air Transpcriaiicn. A Managcncni Pcrspcciitc covers lhe
reasoning behind such changes and aĴempls lo forecasl lhe fulure lo a cerlain degree in
lerms of hov air lransporlalion viII evoIve.
On Seplember 11, 2001, lhe avialion induslry slarled a nev era in hislory as a resuIl
of lhe lerribIe lerrorisl aĴacks againsl lhe Uniled Slales. The Iraqi crisis, Severe Acule
Respiralory Syndrome (SARS), record fueI and oiI prices, massive financiaI Iosses, Iooming
lhreals of lerrorism, and poIilicaI inslabiIily have conlribuled lo conlinued reslrucluring
of lhe induslry. GeneraI avialion, incIuding business avialion, and commerciaI avialion
have been impacled as have manufaclurers and aII olher parlicipanls in avialion. Al lhe
lime of lhe Iasl prinling, lhe induslry vas in a period of survive, adapl and recover. Today,
lhe induslry is in a period of relhink resuIling in organizalions becoming more efficienl
as a resuIl of recenl lurbuIenl limes. AirIines conlinue lo faiI as viII aIvays be lhe case
bul lhere are a Iol of posilive success slories al lhe same lime. Aircrah manufaclurers Iike
Airbus and ßoeing have experienced posilive grovlh vilh lhe design of nev and efficienl
aircrah vhiIe regionaI |el manufaclurers have experienced, in some cases, negalive resuIls
due lo lhe changing nalure of roule nelvork deveIopmenl and airIine reslrucluring
programs. Such manufaclurers are being faced vilh lhe chaIIenge of delermining vhal
lhe nexl slage in aircrah lechnoIogy is.
The previous edilion of lhis book said 2005 vouId be lhe year in vhich lhe gIobaI air
lransporlalion induslry vouId be back al “normaI” IeveIs. Ior lhe mosl parl, lhis is lrue.
Some regions of lhe vorId vere somevhal isoIaled from lhe evenls of 9/11 and more
recenl evenls and air carriers of differenl lypes and sizes are exceIIing. In olher regions of
lhe vorId, lhere are dislinclive grovlh paĴerns ranging from sIov lo fasl. Load faclors
are back up lo reguIar IeveIs and yel airIines conlinue lo slruggIe as a resuIl of annuaIIy
increasing operalionaI cosls.
The gIobaI air lransporlalion induslry changes on a daiIy basis and il is imporlanl lo
undersland lhis change musl be examined on a regionaI basis more so lhan a gIobaI basis.
As defined by lhe InlernalionaI CiviI Avialion Organizalion (ICAO), lhe vorId consisls
of Norlh America, Lalin America and Caribbean, Iurope, Asia-Iacific, Africa and MiddIe
Iasl. ßuiIding on a lesled framevork of sub|ecl areas, lhis book incorporales lhe lrends,
chaIIenges and slralegies impacling aII regions of lhe vorId crealing a modern revision
suilabIe for academic and induslry use for some lime lo come. The chaIIenge of an aulhor
vriling a nev edilion of a veII eslabIished book, is lo produce somelhing readers are
aIready famiIiar vilh bul are inlroduced lo nev informalion above and beyond lhe
predecessor.
xi
A I R T R A N S P O R TAT I O N x i i
The sixlh edilion remains inlroduclory in nalure providing lhe reader vilh a soIid
foundalion of lhe air lransporlalion induslry and a grealer apprecialion of lhe ma|or
managemenl funclions vilhin an airIine. Various references are provided al lhe end of
each chapler encouraging lhe reader lo expIore and keep abreasl of currenl periodicaIs
such as Air|inc Busincss. Air Transpcri Wcr|!. Atiaiicn Wcck an! Spacc Tccnnc|cgu. Air Cargc
Wcr|!. Busincss an! Ccnncrcia| Atiaiicn. Ccnnuicr Air. |nicratia. Air Pi|ci. and Prcjcssicna|
Pi|ci. The reader shouId grasp enough knovIedge lo reason accuraleIy and ob|ecliveIy
aboul probIems facing lhe induslry and lhe deveIopmenl of a Iasling inleresl in lhe
air lransporlalion induslry. The basic concepls and probIems facing lhe induslry in a
slraighlforvard and IogicaI fashion are presenled lhroughoul each chapler.
CHANGES IN THE SIXTH EDITION
CompIeleIy updaled lo reflecl lhe chaIIenges facing airIines in lhe 21sl cenlury, lhis lexl
provides comprehensive, sophislicaled coverage of bolh cIassic and currenl praclices in
air lransporlalion managemenl. The reader is guided lhrough lhe ins and ouls of lhe air
lransporlalion induslry as veII as lhrough lhe delaiIs of managemenl funclions vilhin
airIines. This edilion pIaces grealer emphasis on lhe gIobaI airIine induslry, vilh such
lopics as airIine passenger markeling, Iabor reIalions, financing, and heighlened securily
precaulions inlegraled lhroughoul lhe lexl. TabIes, figures, slalislics, key lerms, reviev
queslions, and gIossary lerms have been added and updaled.
One imporlanl change since lhe Iasl edilion of lhis book is lhe reliremenl of Dr.
AIexander WeIIs vho is nov en|oying lraveIing lhe gIobe vilh his vife, Mary. I am gralefuI
lo Dr. WeIIs for bringing me on board as co-aulhor of lhe fihh edilion and aIIoving me
lo proceed vilh lhe sixlh edilion. Dr. WeIIs’ conlribulions lo academia and induslry are
knovn lhroughoul lhe vorId. He represenls one era of avialion having vilnessed ils
grovlh decade by decade. The lorch has nov been passed Ieading lo a nev era of avialion.
I vish Dr. WeIIs lhe very besl Iife has lo offer. In|oy reliremenl!
TEACHING AND LEARNING AIDS
The subslanlive conlenl of a lexlbook is onIy parl of vhal makes il usabIe in lhe cIassroom:
for lhe book lo be effeclive, ils conlenl musl be laughl by inslruclors and Iearned by
sludenls. To faciIilale lhe process, lhis edilion conlinues lo pay parlicuIar aĴenlion lo
leaching and Iearning aids, such as lhe foIIoving:
1. Cnapicr cui|incs. Iach chapler opens vilh an oulIine of lhe ma|or lopics lo be
covered.
2. Cnapicr cncck|isis. Aher lhe oulIine, each chapler incIudes a checkIisl of ob|eclives lhal
sludenls shouId be abIe lo accompIish on compIeling lhe chapler.
3. |c|ctancu. Mosl of lhe exampIes, appIicalions, and exlensions of lhe basic maleriaI are
dravn from and appIy lo lhe air lransporlalion environmenl of lhe 1990s.
P R E FA C E x i i i
4. Siauing pcucr. The lexl is designed lo have slaying pover over lhe years. Il emphasizes
lhe underIying principIes, praclices, and poIicies lhal viII nol change appreciabIy
over lime. Il is recognized lhal inslruclors viII suppIemenl lhe maleriaI vilh currenl,
lopicaI appIicalions and evenls.
5. |igurcs an! ia||cs. Imporlanl poinls in each chapler are iIIuslraled vilh slrong visuaI
maleriaIs.
6. Icgica| crganizaiicn an! jrc¡ucni nca!ings. Air lransporlalion can easiIy become
overvheIming in ils muIlilude of lopics, concepls, praclices, and exampIes. The
maleriaI covered here has been pul in a syslemalic framevork so lhal sludenls knov
vhere lhey have been, vhere lhey are, and vhere lhey are going in lhe lexl. Irequenl
headings and subheadings aid organizalion and readabiIily.
7. Kcu icrns. Iach chapler concIudes vilh a Iisl of key lerms used in lhe lexl.
8. |cticu ¡ucsiicns. Reviev queslions al lhe end of each chapler address imporlanl
poinls.
9. Appcn!ix an! suggcsic! rca!ings. One chapler incIudes an appendix lhal is of praclicaI
inleresl and lhal reinforces lhe maleriaI covered. A Iisl of suggesled readings is
incIuded in each chapler for sludenls vho vish lo pursue lhe maleriaI in grealer
deplh.
10. Carccr appcn!ix. This edilion once again incIudes an appendix on |obs in lhe air
lransporlalion fieId and vays lo gel lhem.
11. G|cssaru cj air iranspcriaiicn icrns. AII key lerms appearing al lhe end of each
chapler, as veII as many olher lerms used in lhe lexl and olhers of significance in air
lransporlalion, are incIuded in lhe gIossary.
12. Ccnp|cic in!cx. The book incIudes a compIele index lo heIp sludenls find needed
informalion.
INTENDED AUDIENCE
ßecause lhe aspiralions of mosl sludenls of air lransporlalion (and, for lhal maĴer, mosl
career palhs) Iead lo lhe airIine segmenl of lhe air lransporlalion induslry, lhe ma|or focus
of lhis lexl is on lhe managemenl funclions and organizalion of airIines. Hovever, lhe
significance and conlribulion of generaI avialion is nol overIooked.
This book is inlended for lhree somevhal differenl audiences vilh simiIar inleresls:
sludenls enroIIed in a course such as “Air Transporlalion” or “AirIine Managemenl”:
sludenls in lransporlalion and lraffic managemenl programs vho vish lo gain more
insighl inlo lhe air lransporlalion induslry because mosl of lheir cIasses concenlrale
on surface lransporlalion modes: and individuaIs vho vork for an airIine and vanl lo
gain a beĴer underslanding of manageriaI aspecls. Too ohen, an airIine empIoyee, as a
speciaIisl, sees onIy a Iimiled parl of lhe overaII operalion and has IiĴIe, if any, knovIedge
A I R T R A N S P O R TAT I O N x i v
of such imporlanl sub|ecls as markeling, pricing, scheduIing, and fleel pIanning. Iven
individuaIs vilhin markeling—reservalions, for exampIe—have IiĴIe apprecialion of
lheir company’s grovlh slralegies and markel segmenlalion. These empIoyees are simpIy
loo busy fuIfiIIing lhe funclions of lhe parlicuIar |ob descriplion.
ORGANIZATION OF THE TEXT
The foIIoving is an oulIine of Air Transpcriaiicn. A Managcncni Pcrspcciitc. sixlh edilion.
Pari Onc An |nirc!ucii cn ic Ai r Transpcriaii cn
Chapler 1 “Avialion: An Overviev.” Chapler 1 inlroduces sludenls lo lhe
characlerislics, scope, and economic significance of lhe aerospace
induslry and ils ma|or segmenls—lhe governmenl markel and lhe
commerciaI markel for air lransporl and generaI avialion aircrah. The
air lransporlalion induslry is cIearIy defined, and ils conlribulion lo lhe
economy is discussed in deplh.
Chapler 2 “HisloricaI Ierspeclive.” This chapler provides a hisloricaI skelch of U.S.
airIines and generaI avialion, incIuding lhe federaI IegisIalion lhal has
affecled lheir grovlh and deveIopmenl. The AirIine DereguIalion Acl of
1978 and lhe circumslances Ieading up lo il are lhoroughIy expIored. The
posldereguIalion era from 1978 lo lhe earIy 2000s is discussed, incIuding
changes in lhe slruclure of lhe induslry and nev airIiners enlering lhe
markel (Iov-cosl carriers, virluaI carriers, and mega-carriers).
Chapler 3 “Air Transporlalion: ReguIalors and Associalions.” This chapler
discusses lhe roIes pIayed by lhe four primary federaI agencies lhal
inlerface vilh bolh segmenls of lhe air lransporlalion induslry:
lhe Deparlmenl of Transporlalion (DOT), lhe IederaI Avialion
Adminislralion, lhe Transporlalion Securily Adminislralion, and lhe
NalionaI Transporlalion Safely ßoard. The offices al lhe Deparlmenl
of Transporlalion responsibIe for carrying oul lhe remaining funclions
of lhe former CiviI Aeronaulics ßoard are lhoroughIy expIored. The
purpose and ma|or funclions of lhe prominenl avialion lrade associalions
are aIso described.
Chapler 4 “The GeneraI Avialion Induslry.” This chapler concIudes Iarl One by
revieving lhe generaI avialion induslry, incIuding ils slalislics and a
descriplion of videIy diverse segmenls according lo lheir primary use
calegories. Olher lopics incIude lhe roIe of generaI avialion airporls, IAA
services lo generaI avialion, and lhe generaI avialion supporl induslry,
vhich, Iike a lhree-Iegged slooI, is made up of lhe manufaclurers, lhe
fixed-base operalors, and lhe users of generaI avialion aircrah.
Pari Tuc Siruciurc an! |ccncni cs cj inc Ai r| i ncs
Chapler 5 “The AirIine Induslry.” This chapler revievs lhe currenl slruclure
of lhe U.S. airIine induslry and ils composile financiaI and
lraffic slalislics. A compIele discussion of lhe posldereguIalion
P R E FA C E x v
expansion, consoIidalion, and concenlralion of lhe induslry is
incIuded. The groving roIe of regionaI carriers and nev lypes
of airIines is lhoroughIy discussed. This chapler aIso incIudes a
seclion on airIine cerlificalion, incIuding lypes of and requiremenls for
cerlificalion and offices vilhin lhe DOT responsibIe for lhis imporlanl
funclion. The currenl lrend of inlra-induslry agreemenls, such as code
sharing and olher cooperalive efforls, are described in delaiI.
Chapler 6 “Iconomic Characlerislics of lhe AirIines.” This chapler deaIs vilh
lhe economic characlerislics of oIigopoIies in generaI and lhe unique
characlerislics of airIines in parlicuIar. AĴenlion is aIso given lo lhe
economic forces in lhe posldereguIalion period lhal have Ied lo such mega-
carriers as American, Uniled, ConlinenlaI, and DeIla. The significance of
airIine passenger Ioad faclors is lhoroughIy expIored. This chapler aIso
discusses hov lhe induslry has changed since lhe evenls of 9/11 and
currenl gIobaI evenls.
Pari Tnrcc Managcri a| Aspccis cj Ai r| i ncs
Chapler 7 “AirIine Managemenl and Organizalion.” The opening chapler of Iarl
Three inlroduces sludenls lo lhe principIes and praclices of airIine
managemenl and organizalion. The differenl IeveIs of managemenl
vilhin an airIine are expIored, aIong vilh lhe funclions of managemenl
pIanning, organizing, slaffing, direcling, and conlroIIing. This is
foIIoved by a comprehensive reviev of organizalion pIanning and
a descriplion of a lypicaI ma|or air carrier’s organizalionaI slruclure,
incIuding lhe purpose and funclion of various adminislralions and
deparlmenls. DeparlmenlaIizalion and lhe need for nev divisions
vilhin lhe organizalion, such as safely and securily and lraining, are
inlroduced.
Chapler 8 “Iorecasling Melhods.” Iorecasling is exlremeIy imporlanl in lhe
managemenl of airIines. AII pIanning invoIving personneI and equipmenl
needs is based on forecasls of fulure lraffic and financiaI expeclalions. Ior
lhis reason, lhis chapler naluraIIy precedes aII of lhe chaplers reIaling
lo lhe olher manageriaI aspecls of airIines. The purpose of lhis chapler
is lo expose sludenls lo lhe primary forecasling melhods used by firms
engaged in air lransporlalion.
Chapler 9 “AirIine Iassenger Markeling.” This chapler begins vilh a discussion
of hov lhe markeling of air lransporlalion has changed over lhe years.
The markeling mix (producl, price, promolion, and pIace) is anaIyzed in
deplh, and lhe consumer-orienled markeling concepl of lhe Iale 1990s
and earIy 2000s is discussed. Various currenl airIine markeling slralegies
are lhen expIored, incIuding such inlensive approaches as gaining deeper
markel penelralion, increasing producl deveIopmenl, and deveIoping
nev largel markels. Direcl markeling, compulerized reservalion syslems
(CRSs), lraveI agenls, frequenl-flier programs, business-cIass service, code
sharing, hub-and-spoke service, and adverlising and saIes promolion are
aII highIighled.
A I R T R A N S P O R TAT I O N x v i
Chapler 10 “AirIine Iricing, Demand, and Oulpul Delerminalion.” This chapler
focuses on pricing, cerlainIy one of lhe mosl voIaliIe of lhe “four Is” of
markeling since dereguIalion. Sub|ecls incIude lhe delerminanls of airIine
passenger demand and eIaslicily of demand. The lypes of airIine passenger
fares are discussed, foIIoved by in-deplh coverage of lhe pricing process,
incIuding pricing slralegies and ob|eclives, pricing anaIysis, and lhe sleps
invoIved in anaIyzing fare changes. The imporlanl roIe of invenlory, or
yieId, managemenl is addressed as veII. This is foIIoved by an in-deplh
discussion of airIine operaling cosls, profil maximizalion, and oulpul
delerminalion in lhe shorl run.
Chapler 11 “Air Cargo.” Aher a brief discussion of lhe hislory of air cargo in lhe
Uniled Slales, sludenls are inlroduced lo lhe imporlance of air express
and air freighl loday and lo lhe expeclalions for fulure grovlh in lhe
induslry. The markel for air freighl is lhen covered, incIuding lhe lypes
of air freighl rales. SpeciaI air freighl services are discussed, as are faclors
affecling air freighl rales. The concepl of lhe very Iarge aircrah (VLA) is
aIso discussed.
Chapler 12 “IrincipIes of AirIine ScheduIing.” UnqueslionabIy one of lhe mosl crilicaI
and yel mosl difficuIl lasks facing airIine managemenl is scheduIing
equipmenl in lhe mosl efficienl and economicaI manner. This chapler deaIs
vilh lhe many inlernaI and exlernaI faclors lhal affecl scheduIe pIanning.
Types of scheduIes are discussed, aIong vilh severaI exampIes of hov a
carrier goes aboul puĴing a scheduIe logelher. The chapler concIudes
vilh a discussion of hub-and-spoke scheduIing and ils imporlance in lhe
compelilive posldereguIalion environmenl of lhe 1980s, 1990s, and 2000s.
Chapler 13 “IIeel IIanning: The Aircrah SeIeclion Irocess.” The decision lo purchase
nev aircrah is cerlainIy one on vhich managemenl expends a greal deaI
of lime and efforl. This cruciaI decision viII enlaiI miIIions of doIIars, and
ils effecls viII remain vilh lhe carrier for years. Sludenls are inlroduced lo
lhe aircrah seIeclion process, firsl from lhe slandpoinl of lhe manufaclurer
and lhen from lhe individuaI carrier’s vievpoinl. The lrend lovard
Ieasing is lhoroughIy expIored, aIong vilh lhe groving probIem of noise
reslriclions on oIder aircrah. AII of lhe inpuls lo lhe process are addressed,
as are lhe crileria by vhich a carrier evaIuales a parlicuIar aircrah. The nev
generalion of aircrah, incIuding lhe regionaI |el and nev Iong-range lvin-
engine aircrah, are inlroduced. The chapler concIudes vilh an appendix
demonslraling lhe fleel-pIanning process al American AirIines.
Chapler 14 “AirIine Labor ReIalions.” Represenling over 35 percenl of a lypicaI
carrier’s operaling expense, Iabor is cerlainIy one of lhe mosl imporlanl
areas of concern lo managemenl. This chapler opens vilh a lhorough
discussion and anaIysis of lhe RaiIvay Labor Acl, foIIoved by a reviev
of lhe coIIeclive bargaining process under lhe acl. A hisloricaI skelch of
airIine union aclivily in lhe Uniled Slales, beginning in lhe 1930s lhrough
lhe posldereguIalion period, aIso is provided. This chapler educales
lhe reader on lrends affecling fulure deveIopmenl of human resources
deparlmenls. The chapler ends vilh an overviev of lhe coIIeclive
bargaining process in recenl years and ils impacl on lhe carriers.
P R E FA C E x v i i
Chapler 15 “AirIine Iinancing.” This chapler lakes up lhe probIem of airIine capilaI
financing. The ma|or sources of funding are examined, foIIoved by
a discussion of lhe sources and lhe use of funds over lhe lvo decades
foIIoving lhe inlroduclion of |els. The finaI porlion of lhis chapler deaIs
vilh funding sources in lhe 2000s and lhe imporlanl sub|ecls of cash
managemenl and financiaI pIanning.
Pari |cur Tnc |nicrnaii cna| Sccnc
Chapler 16 “InlernalionaI Avialion.” The finaI chapler rounds oul lhe lexl
coverage of air lransporlalion by adding lhe dimension of inlernalionaI
avialion. Air lransporlalion pIays a significanl roIe in lhe movemenl
of passengers and cargo belveen counlries, and lhis chapler discusses
hov lhe various inlernalionaI conferences and convenlions have
shaped vorIdvide avialion. The Iasl seclion of lhe chapler covers lhe
inlernalionaI avialion markel foIIoving passage of lhe InlernalionaI Air
Transporlalion Compelilion Acl of 1979. The sub|ecls of gIobaIizalion
and inlernalionaI airIine and airporl aIIiances are lhoroughIy expIored.
Appendix A This is a nev seclion, vhich quoles lhe vievs of airIine induslry
professionaIs.
Appendix ß “Career IIanning in Avialion.” This appendix provides a slruclured
approach lo lhe aII-imporlanl sub|ecl of career pIanning. Sludenls are
laken lhrough lhe sleps of choosing and geĴing lheir firsl |ob in avialion,
idenlifying sources of career informalion, deveIoping resumes, and
preparing for an inlerviev. IncIuded are numerous |ob descriplions from
aII segmenls of lhe avialion induslry.
A NOTE TO INSTRUCTORS
Anyone vho has laughl courses in air lransporlalion has sureIy recognized lhe paucily
of lexls on lhe sub|ecl. The fev books lhal are avaiIabIe eilher are loo broad in scope,
resuIling in a shaIIov overviev of mosl lopics, or examine a parlicuIar segmenl of lhe
induslry or phase of managemenl in deplh bul vilh very IiĴIe breadlh. I have aĴempled
lo lake a baIanced approach, recognizing lhal mosl inslruclors viII have lheir ovn ideas
regarding lhe imporlance of lhe sub|ecl maĴer under discussion and viII suppIemenl
lhe lexl vilh lheir ovn maleriaIs accordingIy. Slalislics appearing in labIes and charls
have been dravn from easiIy accessed sources, such as Acrcspacc |acis an! |igurcs. |AA
Siaiisiica| Han!|cck. and ATA annuaI reporls, so lhal lhey can be readiIy updaled by users
of lhe lexl.
This book is designed lo carry ils fair share of lhe burden of inslruclion. Sludenls using
lhis lexl shouId nol reIy on you for delaiIed, repelilive expIanalions. Less cIass lime is
required lo generale funclionaI underslanding of lhe sub|ecl, so more lime is avaiIabIe
for cIass discussion and lhe appIicalion of lhe maleriaI lo currenl issues. In researching
lhis book, I acquired a veaIlh of maleriaIs, mosl of lhem free, from numerous sources,
incIuding lhe DOT, IAA, NTSß, ICAO, ATA, RAA, and Wcr|! Atiaiicn Oirccicru. The air
carriers are a rich source of maleriaI lhal can be used lo suppIemenl your course: vrile
A I R T R A N S P O R TAT I O N x v i i i
lo lhe parlicuIar deparlmenl aboul vhich you are seeking informalion. The GAMA, AIA,
ATA, and individuaI aircrah manufaclurers can aIso suppIy a hosl of maleriaIs.
Anolher source lhal I have found heIpfuI in our courses is lhe Harvard ßusiness SchooI
Case Services, Harvard ßusiness SchooI, ßoslon, Mass. 02163. Some of lhe air lransporlalion
cases viII be appropriale for your courses, and lhe sludenls viII en|oy lhem.
Suggcsic! Oui| i ncs j cr a Onc-Scncsicr Ccursc
Courses in air lransporlalion vary in conlenl and emphasis, and so viII lhe uses of lhis
book. Some courses may cover lhe maleriaI from beginning lo end: olhers viII focus on
cerlain seclions and omil lhe resl. Iarls One and Tvo offer a broad-based inlroduclion
lo air lransporlalion and shouId be suilabIe for mosl users. AirIine managemenl courses
mighl focus on Iarls Three and Iour.
These recommendalions are flexibIe. Olher combinalions are possibIe.
Chapler Topic Inlroduclory Air
Transporlalion
Course
AirIine
Managemenl
course
1. Avialion: An Overviev • •
2. HisloricaI Ierspeclive • •
3. Air Transporlalion: ReguIalors and Associalions • •
4. The GeneraI Avialion Induslry •
5. The AirIine Induslry • •
6. Iconomic Characlerislics of lhe AirIines • •
7. AirIine Managemenl and Organizalion • •
8. Iorecasling Melhods •
9. AirIine Iassenger Markeling •
10. AirIine Iricing, Demand, and Oulpul Delerminalion • •
11. Air Cargo • •
12. IrincipIes of AirIine ScheduIing • •
13. IIeel IIanning: The Aircrah SeIeclion Irocess •
14. AirIine Labor ReIalions • •
15. AirIine Iinancing •
16. InlernalionaI Avialion •
A. Vievs of Induslry IrofessionaIs •
ß. Career IIanning in Avialion •
P R E FA C E x i x
A NOTE TO STUDENTS
I hear and I forgel
I see and I remember
I do and I undersland
—Confucius
The mosl effeclive and inleresling vay lo Iearn any sub|ecl is by doing il. No professor or
lexlbook couId ever leach you aII aboul air lransporlalion: aII lhey can do is heIp you lo
Iearn il. Much of lhe Iearning process is up lo you. This lexl has been designed lo be easy
lo undersland. UsuaIIy, as you read lhe lexl, you von’l have lo slruggIe lo gel lhe meaning
of a concepl or principIe. ßul underslanding is one lhing: Iearning somelhing veII and
appIying il lo currenl evenls is somelhing eIse.
ßefore slarling a chapler, reviev lhe chapler oulIine and checkIisl. Take noles and
highIighl lhe ma|or poinls as you proceed vilh your reading. Aher reading lhe chapler, see
if you can accompIish lhe ob|eclives Iisled in lhe chapler checkIisl. The reviev queslions
al lhe end of each chapler are aIso designed lo bring oul lhe mosl imporlanl poinls made
in lhe chapler.
ßecome famiIiar vilh avialion lrade |ournaIs and magazines. You viII be surprised lo
see hov many arlicIes lhere are reIaling lo lhe maleriaI discussed in cIass. This Iileralure
viII nol onIy enhance your ovn knovIedge of lhe sub|ecl maĴer bul aIso enrich your
cIassroom experience as you discuss lhe maleriaI vilh cIassmales.
This is probabIy one of lhe mosl exciling periods in lhe brief hislory of our air
lransporlalion induslry. Wilh lhe passage of lhe AirIine DereguIalion Acl of 1978, ve have
vilnessed lhe emergence of a compIeleIy nev slruclure for air lransporlalion services in
lhe Uniled Slales. The induslry slands poised for a nev surge of grovlh. Many nev career
palhs viII surface in lhe nexl severaI years for lhose of you vho have prepared for lhem.
Good Iuck!
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xxi
Acknowledgments
My passion for avialion began al lhe age of lhree vhen I had lo evacuale a Iarge |el aircrah
vilh an engine fire. I vas dressed in a piIol’s uniform proudIy dispIaying my vings. LiĴIe
did I knov lhe evenls of lhal day vouId change lhe course of my Iife and fly me dovn
a palh lo a IifeIong career in avialion. As a smaII chiId, my dream vas lo Iearn lo fly and
aher a fev hours hoIding lhe slick and a fev years of malurily, I reaIized my reaI passion
vas avialion business.
I ove many lhanks lo lhe pioneers of avialion and lhe enlrepreneurs of loday lhal
conlinuousIy amaze me vilh nev deveIopmenls. There are fev induslries in exislence
vhere one can go lo sIeep al nighl and vake up lhe nexl morning faced vilh chaIIenges
lhal did nol exisl lhe day prior. The excilemenl crealed by lhe daiIy slresses of lhis
business keep me going and slriving lovard lhe design of lhe uIlimale airIine. Is lhis
even possibIe`
Many lhanks are oved lo induslry sources vho provided a greal deaI of maleriaI lhal
vas exlremeIy heIpfuI in puĴing logelher lhis lexlbook. Thank you lo lhe Deparlmenl of
Transporlalion, IederaI Avialion Adminislralion, Transporlalion Securily Adminislralion,
NalionaI Transporlalion Safely ßoard, Air Transporl Associalion, Aircrah Ovners and
IiIols Associalion, InlernalionaI CiviI Avialion Organizalion, and lhe InlernalionaI Air
Transporl Associalion. AddilionaI lhanks lo Airbus Induslrie, The ßoeing Company,
Raylheon Corporalion, Cessna Aircrah Company, and lhe Nev Iiper Aircrah
Corporalion.
A lexlbook of lhis nalure cannol come logelher vilhoul lhe assislance of a leam. Thank
you lo Ashgale IubIishing especiaIIy Guy Loh.
IinaIIy, I vouId Iike lo shov my apprecialion and Iove for my parenls, Iohn Sr. and
Sandi, my sisler, Krisly, and my IiĴIe girI, ßryanne. Your conlinued palience and supporl
viII aIvays be remembered.
Iohn Wensveen
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PART ONE
An Introduction to
Air Transportation
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1
Aviation: An Overview
Introduction
The Aerospace Industry
The Air Transportation Industry
Chapter Checklist • You Should Be Able To:
Define acrcspacc in!usiru and describe ils basic
characlerislics and economic magnilude
Discuss some of lhe probIems faced by lhe
governmenl markel
Describe lhe currenl economic oulIook for lhe lhree
segmenls incIuded in lhe civiI avialion markel
Idenlify and briefly describe lhe faclors affecling
commerciaI lransporl saIes
Define reIaled aerospace producls and services
Define air iranspcriaiicn in!usiru and dislinguish
belveen cerlificaled air carriers and generaI avialion
Describe lhe impacl of lhe air lransporlalion induslry
on lhe economy
Describe hov air lransporlalion conlribules lo lhe
efficienl conducling of business and affecls personaI
and pIeasure lraveI paĴerns








3
INTRODUCTION
In a shorl span of 100 years, ve have gone from making a fev lesl flighls lo orbiling
ceIesliaI bodies, from sIiding aIong sand dunes lo spanning oceans, from performing feals
of isoIaled daring lo depending on avialion in our everyday Iives. Speeds have increased a
lhousandfoId, as have aIlilude and range capabiIily. No Ionger is lhe sky lhe Iimil. Ahead
Iie risks and revards as vasl as space ilseIf. We have lhe promise of nev airIiners lhal
fly vilh grealer fueI efficiency, of huge air freighlers lhal move lhe nalion’s goods, of an
expanding generaI avialion fleel, and of lhe peacefuI uses of space for expIoralion and
research.
THE AEROSPACE INDUSTRY
The aerospace industry incIudes lhose firms engaged in research, deveIopmenl, and
manufaclure of aII of lhe foIIoving: aerospace syslems, incIuding manned and unmanned
aircrah: missiIes, space-Iaunch vehicIes, and spacecrah: propuIsion, guidance, and conlroI
unils for aII of lhe foregoing: and a variely of airborne and ground-based equipmenl essenliaI
lo lhe lesling, operalion, and mainlenance of flighl vehicIes. VirluaIIy aII of lhe ma|or firms
in lhe aerospace induslry are members of lhe Aerospace Industries Association (AIA) or
lhe General Aviation Manufacturers Association (GAMA). Iounded in 1919 and based
in Washinglon, D.C., lhe AIA is a lrade associalion represenling lhe nalion’s manufaclurers
of commerciaI, miIilary, and business aircrah, heIicoplers, aircrah engines, missiIes,
spacecrah, and reIaled componenls and equipmenl. GAMA, aIso based in Washinglon,
D.C., is lhe lrade associalion lhal represenls lhe inleresls of manufaclurers of Iighl aircrah
and componenl parls.
As lhe 21sl cenlury began, approximaleIy lvo-lhirds of lhe aerospace induslry’s oulpul
vas boughl by lhe federaI governmenl. During lhe pasl lvo decades, lhis figure has ranged
as high as 74 percenl. Al lhe same lime, lhe aerospace induslry is lhe vorId’s Iargesl
producer of civiI aircrah and equipmenl. RoughIy 6 oul of every 10 lransporls operaling
vilh lhe vorId’s civiI airIines are of U.S. manufaclure, and in addilion, lhe induslry lurns
oul severaI lhousand civiI heIicoplers and generaI avialion pIanes yearIy.
These facls underIine lhe unique slalus of lhe aerospace induslry. Ils roIe as
principaI deveIoper and producer of defense, space, and olher governmenl-
required syslems in Iarge measure diclales lhe induslry’s size, slruclure, and producl
Iine. ßecause il operales under federaI governmenl procuremenl poIicies and praclices,
lhe induslry is sub|ecl lo conlroIs markedIy differenl from lhose of lhe commerciaI
markelpIace. ßul lhe aerospace induslry is aIso a commerciaI enlily, and il musl compele
in lhe civiI markel for economic and human resources vilh olher induslries Iess feĴered
by governmenl conslrainls. Ils duaI nalure as governmenl and commerciaI suppIier makes
lhe aerospace induslry parlicuIarIy imporlanl lo lhe nalionaI inleresl. Ils lechnoIogicaI
capabiIilies influence nalionaI securily, foreign poIicy, lhe space program, and olher
nalionaI goaIs. AIso, lhe efficacy of lhe nalionaI air lransporlalion syslem depends lo
considerabIe degree on lhe quaIily and performance of equipmenl produced for lhe
airIines and lhe airvays operalors.
A I R T R A N S P O R TAT I O N 4
NaluraIIy, such an induslry is vilaI lo lhe U.S. economy, especiaIIy in lhe foIIoving
areas:
1. Tra!c |a|ancc. The exceIIence of U.S. aerospace producls has crealed slrong demand
abroad, vilh lhe resuIl lhal lhe induslry consislenlIy records a Iarge inlernalionaI
lrade surpIus.
2. |np|cuncni. Despile severaI years of decIine in number of vorkers, lhe aerospace
induslry remains one of lhe nalion’s Iargesl manufacluring empIoyers.
3. |cscarcn an! !ctc|cpncni. The induslry conducls more research and development
(R & D) lhan any olher induslry, and R & D is a ma|or Iong-lerm delerminanl of
nalionaI economic grovlh.
4. |npaci cn cincr in!usirics. A greal many nev aerospace-reIaled producls and pro-
cesses have spun off from lhe iniliaI aerospace requiremenl and have provided vaIue
lo olher induslries, bolh in saIes and in produclive efficiency. In addilion, lhe aero-
space induslry is a Iarge-scaIe user of olher induslries’ goods and services: il has been
eslimaled lhal for every 100 aerospace |obs crealed, anolher 73 are crealed in olher
induslries.
Iach of lhese faclors represenls a significanl conlribulion lo lhe U.S. economy: coIIecliveIy,
lhey eIevale aerospace lo a key posilion among lhe nalion’s ma|or induslries.
Cnaracicri sii cs cj inc |n!usiru
The hislory of lhe aerospace induslry has been a saga of conlinuing ad|uslmenl lo
changing nalionaI poIicy and economic condilions. Since 1960, fluclualing governmenl
demands and a variely of inlernalionaI evenls have leamed up lo produce a roIIer-coasler-
Iike saIes curve: up lo a peak, dovn lo a vaIIey. Over lhe years, lhe induslry’s operalions
have become increasingIy compIex, vilh each incremenl of compIexily heighlening lhe
induslry’s probIems in adapling lo change. Today, lhe induslry’s unique characlerislics
make lhe adaplive process exlraordinariIy difficuIl. An underslanding of lhe difficuIlies
is besl promoled by an expIanalion of hov lhe induslry has been lransformed in lhe pasl
quarler of a cenlury.
Irior lo 1950, lhe induslry vas reIaliveIy unsophislicaled. Ils producl Iine vas enlireIy
aeronaulicaI—aircrah, engines, propeIIers, avionic componenls, and accessories. Long-
run produclion of many airpIane lypes vas lhe order of lhe day. The Iabor force, during
lhe posl-WorId War II relrenchmenl period, vas Iess lhan one-fihh of lhe Ialer peak.
Three-fourlhs of lhe vorkers vere moderaleIy skiIIed produclion vorkers. R & D vas
an essenliaI preIude lo produclion, bul lhe subsonic aircrah lhen being buiIl vere Iess
demanding of lechnoIogicaI advance, and R & D represenled a considerabIy Iess signi-
ficanl porlion of lhe lolaI vorkIoad lhan il does loday.
The lransformalion began in lhe earIy 1950s vilh lhe produclion of lhe |el-povered
supersonic miIilary airpIane, vhich broughl aboul across-lhe-board changes in lhe
induslry—nev lypes of engines, lolaIIy differenl airframes, differenl on-board equipmenl,
nev looIing and faciIilies, and, mosl of aII, a vaslIy grealer degree of compIexily in
producls and lhe melhods empIoyed in producing lhem. Nev-airpIane performance
diclaled lhal far grealer emphasis be pIaced on R & D. The combinalion of R & D and
producl compIexily required a ma|or shih in lhe composilion of lhe vork force lo incIude
ever-increasing numbers of scienlisls, engineers, and highIy skiIIed lechnicians. AII of
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 5
lhese changes resuIled in increased emphasis on an ever more sophislicaled manageriaI
process.
WhiIe lhe induslry vas ad|usling lo lhese changes, il inheriled a nev responsibiIily:
deveIopmenl and produclion of guided missiIes, parlicuIarIy Iong-range baIIislic veapons.
Then came anolher ma|or change: lhe appIicalion of lurbine pover lo commerciaI airIiners,
vhose resembIance lo miIilary |els ended vilh lheir propuIsion syslems. The need lo
lransporl Iarge numbers of peopIe al high subsonic speeds and muIlimiIe aIliludes
invoIved a furlher modificalion of lhe induslry’s melhods. IinaIIy, in lhe Iale 1950s, lhe
induslry vas assigned sliII anolher responsibiIily: fabricalion of equipmenl lo meel lhe
nalion’s goaIs in space expIoralion.
Iach of lhese changes compounded lhe need for change in lhe enlire induslry—more R
& D, grealer producl compIexily, more personneI per unil produced, higher skiII IeveIs in
lhe vork force, Ionger program deveIopmenl lime, and grealer need for nev faciIilies vilh
onIy singIe-program uliIily because of lheir speciaIized nalures. Such changes conlribuled
lo higher cosls of lhe endproducls, and lhe demand in lhe 1960s and 1970s for sliII more
advanced aerospace syslems furlher escaIaled bolh lhe rale of change and lhe cosls. In
defense oulpul, cosl—logelher vilh lhe grealer capabiIily of lhe individuaI syslem—
influenced a lrend avay from voIume produclion and lovard laiIored manufaclure of
fever lypes of veapons and fever numbers of each lype.
A haIf-cenlury of evoIulion has Ieh lhe aerospace induslry vilh a sel of characlerislics
unique in U.S. manufacluring:
1. Ierformance demands for nev syslems require conlinuaI advancemenl of lhe lechno-
IogicaI fronlier, vhich in lurn invoIves unusuaI degrees of uncerlainly and risk.
2. ßecause lhe governmenl is lhe principaI cuslomer, lhe producl Iine is sub|ecl lo
revisions in program IeveIs occasioned by changing requiremenls and funding
avaiIabiIily.
3. Iquipmenl lhal chaIIenges lhe slale of lhe arl is necessariIy coslIy, lhe more so because
requiremenls generaIIy diclale shorl produclion runs, negaling lhe economies of
Iarge-scaIe produclion.
4. TechnoIogicaIIy demanding programs require personneI emphasis in lhe higher
skiII IeveIs. Hence, Iabor inpul per unil of oulpul is subslanliaIIy Iarger lhan in olher
manufacluring induslries.
5. The combinalion of lechnoIogicaI uncerlainly and Iong Iead limes, ohen 7–10 years
and frequenlIy Ionger, belveen program inilialion and compIelion, makes advance
eslimalion of cosls parlicuIarIy difficuIl.
6. ßecause lhere are fev cuslomers and reIaliveIy fev programs, compelilion for lhe
avaiIabIe business is inlense.
7. AII of lhese characlerislics conlribule lo exceplionaI demand for induslry capilaI, yel
profils as a percenlage of saIes are consislenlIy veII beIov lhe average for aII manu-
facluring induslries.
A I R T R A N S P O R TAT I O N 6
|ccncni c Prcfi| c cj inc |n!usiru
The aerospace induslry is composed of aboul 60 ma|or firms operaling some 1,000 faciIilies,
backed by lhousands of subconlraclors, vendors, and suppIiers. The principaI producl
Iine—aircrah, missiIes, space syslems and reIaled engines, and parls and equipmenl—is
characlerized by high performance and high reIiabiIily, and hence high lechnoIogy and
high unil vaIue.
Aclivily, as measured by saIes voIume, focuses on aircrah, bolh civiI and miIilary, vhich
accounl for aImosl 55 percenl of lhe induslry’s vorkIoad. MissiIe syslems represenl aboul
6 percenl of lhe lolaI, and space fabricalion for aboul 21 percenl. In addilion, 17 percenl
comes from reIaled producls and services, vhich embrace lhe induslry’s groving efforls
lo lransfer lo lhe nonaerospace seclor some of lhe lechnoIogy deveIoped in aerospace
endeavors.
SaIes in 2005 amounled lo $170 biIIion, broken dovn as foIIovs: aircrah, $89.1 biIIion:
missiIes, $15.3 biIIion: space-reIaled maleriaIs, $37.3 biIIion: and reIaled producls and
services, $28.3 biIIion. Related products and services incIude aII nonaircrah, non-space
vehicIe, and nonmissiIe producls and services produced or performed by lhose companies
or eslabIishmenls vhose principaI business is lhe deveIopmenl or produclion of aircrah,
aircrah engines, missiIe and spacecrah engines, missiIes, or spacecrah.
The earIy 1990s vere difficuIl for U.S. aerospace companies. DecIining defense spending
and a prolracled airIine recession caused U.S. aerospace saIes lo pIummel, resuIling in lhe
induslry’s vorsl dovnlurn in 40 years. ßy 1996, lhe induslry began lo lurn around (see
TabIe 1-1). The 8 percenl rise belveen 1995 and 1996 vas IargeIy aĴribulabIe lo increased
saIes of civiI aircrah, engines, and parls. SaIes of missiIes have sleadiIy increased for lhe
years 2000–2005. This calegory shouId increase in lhe years ahead as lhe var on lerrorism
conlinues around lhe gIobe.
Changes in aerospace producl saIes are driven by lhe dynamics of lhe induslry’s
cuslomer base. During lhe 1980s, lhe CoId War environmenl sel lhe lone for increased U.S.
defense spending, and aerospace companies responded accordingIy. In 1987, induslry
saIes lo lhe Deparlmenl of Defense (DOD) accounled for 56 percenl of lolaI aerospace
business. Yel federaI spending priorilies have graduaIIy changed. The end of lhe CoId
War and pressures lo baIance lhe federaI budgel Ied lo spending culs in defense programs.
Aerospace saIes lo lhe DOD feII subslanliaIIy belveen 1987 and 1999 (TabIe 1-2). There vas
a sIighl rise in defense spending in 2000 and 2001, IargeIy as a resuIl of lhe nalion’s var
on lerrorism foIIoving lhe lragedy of Seplember 11, 2001. Higher procuremenl spending
occurred in 2002 and beyond as lhe gIobaI var on lerrorism conlinued.
AIlhough DOD purchases conlinued lo sIide during lhe beĴer parl of lhe 1990s, lhe
demand for commerciaI lransporls increased significanlIy vilh lhe resurgenl economy
and lhe relurn lo profilabiIily by lhe airIine induslry. GeneraI avialion saIes aIso increased
foIIoving passage of lhe GeneraI Avialion RevilaIizalion Acl in 1994. ßolh lhe airIine and
generaI avialion seclors vere significanlIy affecled by lhe sIovdovn in lhe economy
slarling in 2000 and conlinuing lhrough 2002.
The aerospace induslry represenls one of lhe nalion’s Iargesl empIoyers, vilh
approximaleIy 625,000 vorkers on lhe roIIs al lhe end of 2005. Combined vilh muIlipIier
effecls on olher induslries, il is eslimaled lhal lhe aerospace induslry accounls direclIy or
indireclIy for cIose lo 2 miIIion U.S. |obs.
A Iabor-inlensive induslry, aerospace empIoys as many saIaried as produclion vorkers,
lhe highesl such ralio among comparabIe induslries. The emphasis on high-lech R & D in
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 7
lhe aerospace induslry demands a grealer number of scienlisls, engineers, and lechnicians
lhan are uliIized by mosl induslries. Al ils peak, lhe aerospace induslry empIoyed aImosl 30
percenl of aII U.S. scienlisls and engineers engaged in R & D. The figure has sliII averaged a
reIaliveIy high 15 percenl for lhe pasl 20 years or so.
Teslifying lo lhe exceIIence of U.S. aerospace producls is lhe slrong performance of lhe
induslry on lhe inlernalionaI markel. The induslry has a significanl impacl on lhe U.S.
baIance of lrade. ßack in 1967, aerospace exporls reached lhe $2-biIIion-a-year IeveI, and
in succeeding years, lhey rose sharpIy, mainIy because of deIiveries abroad of advanced-
lechnoIogy commerciaI |elIiners. In 1973, lhe induslry sel an aII-lime exporl record of
more lhan $5 biIIion, and in 1974, lhal figure increased by aImosl $2 biIIion. In 1981, lhere
vas anolher subslanliaI increase, lo a nev record of $17.6 biIIion, and in 1986, lhe figure
rose lo $19.7 biIIion, vhich represenled 9.6 percenl of lolaI U.S. exporls. In 2005, exporls
lopped $65 biIIion. Al lhe same lime, aerospace imporls have lradilionaIIy amounled lo
onIy a fraclion of lhe vaIue of goods exporled. Thus, aerospace has consislenlIy shovn a
subslanliaI lrade surpIus.
Year TolaI SaIes Aircrah MissiIes
a
Space
a
ReIaled
Iroducls &
Services
Tcia| Citi| Mi|iiaru
a
CURRINT DOLLARS
1990 $134,375 $ 71,353 $31,262 $40,091 $14,180 $26,446 $22,396
1991 139,248 75,918 37,443 38,475 10,970 29,152 23,208
1992 138,591 73,905 39,897 34,008 11,757 29,831 23,099
1993 123,183 65,829 33,116 32,713 8,451 28,372 20,531
1994 110,558 57,648 25,596 32,052 7,563 26,921 18,426
1995 107,782 55,048 23,965 31,082 7,386 27,385 17,964
1996 116,812 60,296 26,869 33,427 8,008 29,040 19,469
1997 131,582 70,804 37,428 33,376 8,037 30,811 21,930
1998 147,991 83,951 49,676 34,275 7,730 31,646 24,665
1999 153,707 88,731 52,931 35,800 8,825 30,533 25,618
2000 144,741 81,612 47,580 34,032 9,298 29,708 24,123
2001 151,632 86,470 51,256 35,215 10,391 29,499 25,272
2002 r 152,349 79,486 41,340 38,147 12,847 34,624 25,392
2003 r 146,625 72,844 32,441 40,402 13,488 35,857 24,438
2004 155,717 79,128 32,519 46,609 14,704 35,933 25,953
2005 p 170,055 89,117 39,165 49,952 15,287 37,308 28,343
2006 e 183,996 100,365 49,519 50,846 14,438 38,528 30,666
TABLE 1-1 Aerospace Industry Sales By Product Group, 1990–2006 (millions
of dollars)
Source: Aerospace Induslries Associalion, “Aerospace Iacls and Iigures, 2005.”
a
IncIudes funding for research, deveIopmenl, lesl, and evaIualion.
|
Islimale
r Revised
p IreIiminary
e Islimale
A I R T R A N S P O R TAT I O N 8
TABLE 1.2 Aerospace Industry Sales by Customer, 1987–2006 (millions
of dollars)
Aerospace Iroducls and Services
NASA an! ReIaled
TolaI Ocparincni Oincr Oincr Iroducls
Year SaIes Tcia| cj Ocjcnsc
a
Agcncics Cusicncrs and Services
1987 $110,008 $ 91,673 $61,817 $ 6,813 $23,043 $18,335
1988 114,562 95,468 61,327 7,899 26,242 19,094
1989 120,534 100,445 61,199 9,601 29,645 20,089
1990 134,375 111,979 60,502 11,097 40,379 22,396
1991 139,248 116,040 55,922
|
11,739 48,379 23,208
1992 138,591 115,493 52,202 12,408 50,882 23,099
1993 123,183 102,653 47,017 12,255 43,380 20,531
1994 110,558 92,132 43,795 11,932 36,405 18,426
1995 107,782 89,818 42,401 11,413 36,004 17,964
1996 116,812 97,344 42,535 12,391 42,418 19,469
1997 131,582 109,651 43,702 12,753 53,196 21,930
1998 147,991 123,326 42,937 13,343 67,047 24,665
1999 153,707 128,089 45,703 13,400 68,986 25,618
2000 144,741 120,617 47,505 13,382 59,730 24,123
2001 151,632 126,360 50,118 14,481 61,761 25,272
2002r 152,349 126,958 57,701 16,385 52,872 25,392
2003r 146,625 122,188 64,009 15,522 42,656 24,438
2004 155,717 129,764 70,085 16,000 43,679 25,953
2005p 170,055 141,173 74,261 17,389 50,063 28,343
2006e 183,996 153,330 74,933 17,788 60,609 30,666
Source: Aerospace Induslries Associalion, “Aerospace Iacls and Iigures, 2005.”
a
IncIudes funding for research, deveIopmenl, lesl, and evaIualion.
|
Islimale.
r Revised
p IreIiminary
e Islimale
|n!usiru Supp| i crs
Aerospace producls perform very sophislicaled funclions and are compIex and coslIy
lo manufaclure. ßecause of lhis, aerospace companies do nol aĴempl lo design and
assembIe finished producls enlireIy in-house. Inslead, companies speciaIize and, vhere
appropriale, conlracl vork oul lo olher companies. A ma|or aircrah manufaclurer may
use over 15,000 suppIiers in ils lransporl manufacluring aclivilies.
Il shouId be noled lhal aerospace suppIiers are predominanlIy U.S. companies. In facl,
dala from 2005 indicale lhal imporls of aircrah parls, engines, and engine parls amounled
lo $27.8 miIIion or approximaleIy onIy 19 percenl of lolaI U.S. aerospace saIes. In lhe case
of ßoeing, Iess lhan 4 percenl of ils suppIier base is Iocaled overseas, and lhe foreign
conlenl of ils commerciaI |els averages 13 percenl. In shorl, aerospace heIps drive lhe
domeslic economy.
NaluraIIy, lhe Iargesl amounl of economic aclivily invoIved in lhe assembIy of aerospace
producls occurs among aerospace companies lhemseIves. One aerospace firm may be
responsibIe for lhe design, assembIy, syslems inlegralion, and finaI lesling of a producl,
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 9
such as an aircrah. Thal company subconlracls vork lo olher aerospace manufaclurers,
vho suppIy aircrah vings, laiIs, and engines. These reIalionships vary from program lo
program, vilh companies exchanging roIes as prime conlraclor and subconlraclor. The
mosl recenl figures suggesl lhal lhis inlerchange, or inlra-induslry lrade, accounls for
approximaleIy 34 percenl of aerospace purchasing aclivily.
In addilion, much of lhe aerospace seclor’s impacl on lhe U.S. economy arises from lhe
induslry’s posilion as a ma|or consumer of goods and services suppIied by firms oulside
of aerospace. These services incIude IegaI assislance, adverlising, accounling, and dala-
processing aclivilies. Olher service induslries lhal are prominenl aerospace suppIiers
incIude vhoIesaIe and relaiI lrade, finance, and insurance.
The imporlance and vaIue conlenl of eIeclronic componenls in aerospace endproducls
have grovn significanlIy in recenl years. Ilems such as anlennas, eIeclronic conneclors,
and Iiquid cryslaI dispIays are incIuded vilhin lhis commodily calegory. Their groving
share of lhe vaIue of aerospace syslems and vehicIes is due principaIIy lo lvo faclors. Iirsl,
eIeclronic componenl cosls are being driven upvard by Ienlagon demands for slale-of-
lhe-arl lechnoIogy. This demand, coupIed vilh lhe shorl produclion runs inherenl in mosl
miIilary programs, has increased lechnoIogy unil cosls. Second, in an aĴempl lo reslrain
miIilary spending, lhe DOD has poslponed nev producl acquisilions and inslead has
been upgrading exisling veapons syslems vilh improved avionics. The cosls of eIeclronic
componenls are cIearIy rising reIalive lo lhose of olher inpuls.
Olher imporlanl commodilies purchased by lhe aerospace induslry incIude primary,
nonferrous melaIs (for exampIe, copper, aIuminum, Iead): radio, TV, and communicalions
equipmenl: and scienlific and conlroIIing inslrumenls.
Tnc Gctcrnncni Markci
Despile groving percenlages of nongovernmenl and nonaerospace business, induslry
aclivily is sliII dominaled by governmenl conlracls vilh lhe DOD and lhe NalionaI
Aeronaulics and Space Adminislralion (NASA), a faclor lhal has imporlanl effecls on lhe
induslry’s economic slalus. IreIiminary saIes figures for 2006 indicale lhal approximaleIy
$93 biIIion of lhe lolaI saIes vere lo lhese lvogovernmenl agencies (see TabIe 1-2).
Defense Contractors The oplimism lhal foIIoved lhe breakup of lhe former Soviel
Union vas repIaced by lhe reaIily of lhe Iersian GuIf War in 1991 and vhal il signified:
conlinued regionaI lhreals from various corners of lhe vorId. Iasl on lhe var’s heeIs came
lhe conflicl in lhe ßaIkans and an underslanding lhal peace vas equaIIy lhrealened by
Iuropean regionaI and elhnic lensions. NonelheIess, lhe miIilary arsenaIs of lhe ma|or
povers cIearIy vere loo Iarge once lhe possibiIily of conflicl belveen lhe Uniled Slales
and lhe former Soviel Union vas grealIy diminished.
The process of ad|usling lo lhe posl-CoId War era is sliII under vay. The defense forces
of lhe Uniled Slales, ils Weslern aIIies, and lhose of lhe former Soviel bIoc nalions are
decIining in size, nucIear arsenaIs are being dismanlIed, and lhe defense induslriaI bases
of ma|or CoId War pIayers are shrinking and consoIidaling.
Leading up lo lhe calaslrophic evenls of 9/11, defense companies experienced decreases
in business as a resuIl of dvindIing governmenl conlracls. Companies cul cosls by
lrimming personneI al aII IeveIs. In lhe Uniled Slales, aerospace saIes lo lhe DOD decIined
from a high of $61.8 biIIion in 1987 lo $47.6 biIIion in 2001. TolaI empIoymenl feII from
1.3 miIIion in 1987 lo an eslimaled 794,000 al year-end 2000, IargeIy as a resuIl of defense
A I R T R A N S P O R TAT I O N 1 0
culbacks. MiIilary aircrah-reIaled |obs decIined from 656,000 in 1986 lo 459,000 by year-
end 2000. Despile lhe drops in business, defense companies impacled by a Iesser number
of conlracls overcame lhe chaIIenge of keeping key lechnicaI leams in pIace lo mainlain
lhe lechnoIogy capabiIilies on vhich lhe chances for fulure conlracls resl. In 2006, business
has picked up as a resuIl of conlinued lerrorism lhreals and poIilicaI inslabiIily in lhe
MiddIe Iasl.
Companies are aIso focusing on improving lheir design and manufacluring processes
and procedures, such as concurrenl engineering and invenlory conlroI, lo enhance
produclivily and compeliliveness. They are reslrucluring by eIiminaling Iess profilabIe
Iines of business and adding nev capabiIilies. Many companies are slriving for grealer
baIance belveen defense and commerciaI vork, vhiIe olhers concenlrale on lhe core
defense business in vhich lhey are slrong.
The induslry conlinued ils consoIidalion lhroughoul lhe 1990s. The merger of Marlin
MarieĴa and GI Aerospace made Marlin MarieĴa lhe Iargesl defense eIeclronics company
in lhe vorId unliI lhe mid-1990s, vhen Lockheed purchased Marlin. Lockheed venl on
lo purchase lhe laclicaI aircrah business from GeneraI Dynamics, vhich significanlIy
slrenglhened lhal company’s posilon as a Ieading producer of fighler aircrah. The purchase
by Hughes Aircrah of lhe missiIe division from GeneraI Dynamics enabIed Hughes lo
move inlo a |oinl Iead vilh Raylheon in missiIe produclion and saIes unliI Raylheon
acquired Hughes’s missiIe division. In 1998 Texas Inslrumenls became a parl of Raylheon.
Laler, ßoeing acquired lhe Hughes saleIIile division. Olher ma|or acquisilions vere lhe
purchase by LoraI of LTV’s missiIe division and by lhe CarIyIe Group and Norlhrop of
LTV’s aircrah division.
In addilion lo consoIidalion in lhe defense seclor, some companies vilh exisling civiI
and miIilary producl mixes are laking sleps lo expand lheir nondefense aclivilies or lo
move inlo reIaled areas. ßoeing is aIIocaling resources lo ils nev 777 lransporl program.
Raylheon purchased lhe corporale |el unil of ßrilish Aerospace lo expand ils commerciaI
aircrah business. Texlron purchased GeneraI Dynamics’ Cessna Aircrah Company. ßul
lhese vere onIy lhe mosl sizabIe and nevsvorlhy of many mergers and acquisilions as
aerospace and reIaled business divisions svilched hands.
U.S. companies leamed up lo perform R & D and lo bid on governmenl vork. They are
seĴing up |oinl venlures and olher arrangemenls (somelimes incIuding foreign parlners)
lo appIy lechnoIogy deveIoped for miIilary purposes lo commerciaI aerospace and
nonaerospace markels. The anlicipaled grovlh of lhe civiI aircrah business inviles lhe
appIicalion of lechnoIogy lo commerciaI avionics, air lraffic conlroI syslems, and aircrah
mainlenance and upgrades.
Olher civiI business opporlunilies being soughl incIude highvay lraffic managemenl,
lhe polenliaI eIeclric car markel, hazardous vasle and veapons disposaI, high-speed dala
lransmission, environmenlaI sensing, space saleIIile communicalions, Iav enforcemenl
(aircrah surveiIIance, “smarl” compuler-Iinked poIice cars, biosensing of drugs and
bomb-making chemicaIs), Iarge-screen leIevision and home TV saleIIile service, sohvare
conversion, faclory aulomalion, Iighl-raiI syslems, and ceIIuIar leIephone syslems.
AIlhough lhe range of nev business is exlensive, il viII lake lime lo deveIop markels. The
amounl of nev business viII nol lolaIIy offsel Iosl defense procuremenl doIIars for years
lo come, if al aII.
As companies deaI vilh financiaI pressures, a smaIIer markel, and uncerlainly aboul
DOD acquisilions, nol surprisingIy, R & D spending is dovn, as is capilaI inveslmenl,
vilh fev exceplions.
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 1 1
Wilh lhe end of lhe procuremenl budgel decIine nol yel in sighl, defense conlraclors are
more dependenl on a baIanced governmenl–induslry sharing of lhe vork performed in
governmenl Iaboralories and service mainlenance depols. MiIilary exporls are aIso more
imporlanl bolh as a share of lolaI defense saIes and as an aid lo preserving lhe lechnoIogy
and produclion base lhal keeps dovn lhe cosl of defense syslems for U.S. laxpayers.
NASA. The days of lhe ApoIIo program, vhen annuaI reaI increases in U.S. governmenl
space spending vere lhe norm, are Iong pasl. The Cna||cngcr space shuĴIe disasler of
Ianuary 28, 1986, and reduced spending on discrelionary programs resuIled in grealer
congressionaI scruliny of civiI space budgels. In addilion, space efforls have been
lempered by lhe diminished compelilion from lhe Russian space program and lhe end
of lhe ideoIogicaI compelilion belveen lhe Ieading capilaIisl and lhe ma|or communisl
nalions. The Ioss of lhe Space ShuĴIe Cc|un|ia on Iebruary 1, 2003, has Ied lo furlher
examinalion of space spending.
Yel many U.S. poIicymakers aIso recognize lhe imporlance of space from a lechnicaI,
environmenlaI, and commerciaI slandpoinl. As defense programs shed skiIIed vorkers,
a heaIlhy space seclor is vieved as a mechanism lhal can reabsorb some of lhe laIenl
lhal becomes avaiIabIe. In addilion, lhe commerciaI segmenl of lhe induslry, parlicuIarIy
leIecommunicalions, has been a grovlh area in an olhervise lroubIed aerospace markel.
InvironmenlaI probIems are receiving grealer aĴenlion loday, and lhe abiIily lo monilor
gIobaI varming, ozone depIelion, and cIimalic changes from space is a vaIuabIe capabiIily.
A variely of space pIalforms are needed lo meel lhese needs.
The cumuIalive effecl of lhese opposing forces is a NASA budgel lhal, vhiIe nol
decIining, is aIso nol shoving any signs of reaI grovlh. Since 1990, NASA spending has
been flal. In addilion, some funds lhal once vere earmarked for space programs viII
inslead be shihed inlo aeronaulicaI pro|ecls: lhe space slalion program viII experience lhe
grealesl culbacks. ConsequenlIy, U.S. governmenl funding for civiI space aclivilies is nol
expecled lo rise significanlIy any lime soon. Companies remaining in lhis business viII
have lo be very skiIIfuI al seIecling vhich space programs viII demonslrale relurns vilhin
a zero-grovlh NASA budgel. This silualion may prompl U.S. companies lo seek foreign
opporlunilies vilh grealer vigor.
Tnc Ci ti | Ati aii cn Markci
The Uniled Slales lradilionaIIy has been lhe Iargesl markel oulside of lhe former Soviel
Union for commerciaI lransporls, heIicoplers, and generaI avialion aircrah. CIose lies
belveen U.S. manufaclurers and lheir domeslic cuslomers have provided U.S. aerospace
companies vilh a soIid saIes base.
AIlhough lhe domeslic markel viII remain vilaI lo U.S. aircrah programs, lhe economies
of scaIe necessary for success in loday’s commerciaI markel compeI manufaclurers lo lake
an inlernalionaI approach. This is due lo lhe facl lhal an enormous amounl of capilaI is
required lo cover lhe deveIopmenl and looIing cosls associaled vilh a nev program. Ior
exampIe, lhe cosl of Iaunching a commerciaI lransporl program loday is approximaleIy
$5 biIIion. Manufaclurers musl vail aboul four years before deIiveries begin and revenue
is generaled from lheir iniliaI inveslmenls. Compared lo olher induslries, lhe cuslomer
base for commerciaI passenger |els is Iimiled and lhe voIume of orders is Iov. GeneraIIy,
belveen 400 and 600 aircrah musl be soId before a program reaches lhe break-even poinl.
These markel characlerislics aIso appIy lo olher civiI aircrah manufacluring seclors.
A I R T R A N S P O R TAT I O N 1 2
ConsequenlIy, every saIe is imporlanl in order lo pay back lhe nonrecurring cosls of R &
D and produclion looIing and lo make a profil. This is vhy exporls are an inlegraI parl of
lhe producl and markeling slralegies of civiI aircrah companies. Since 1990, foreign saIes
have accounled for over 70 percenl of commerciaI lransporl and civiI heIicopler saIes and
aboul 40 percenl of generaI avialion aircrah saIes. TolaI civiI aerospace exporls reached
more lhan $55 biIIion in 2005.
CiviI aircrah manufaclurers have had a gIobaI viev for some lime, as lheir exporl
figures indicale, bul recenl changes in markel condilions have increased lhe need for
lhem lo remain commiĴed lo an inlernalionaI slralegy.
Air Transport. The principaI civiI avialion producl is lhe airIine lransporl. The
lradilionaI and obvious difficuIly in lhis area is lhe facl lhal saIes depend on lhe
financiaI heaIlh of anolher induslry—lhe vorId’s airIines. The need for nev |elIiners is
evidenl. The vorId lransporl fleel is aging, and lhe oIder, Iess efficienl aircrah musl be
repIaced. Aher reaching a high of 589 unils in 1991, lhe number of shipmenls decIined
precipilousIy during lhe earIy 1990s as lhe economy venl inlo recession and lhe airIines
Iosl $13 biIIion during lhe firsl four years. The economy rebounded by lhe mid-1990s,
and lhe orders poured in as lhe airIine induslry relurned lo profilabiIily. The number of
lransporl aircrah shipmenls reached a peak of 620 in 1999, vhen lhe induslry recorded
record profils. Once again, lhe economy sIoved dovn in 2000 and feII inlo recession in
2001. The lragedy of Seplember 11, 2001, exacerbaled lhe decIine, and lhe carriers Iosl
$7.7 biIIion for lhe year. Transporl aircrah shipmenls foIIoved lhe decIine during lhe
firsl fev years of lhe 21sl cenlury (see TabIe 1-3).
ßefore WorId War II, more lhan lvo dozen companies vere in lhe business of
designing and buiIding Iarge commerciaI airIiners—Iarge al lhal lime meaning 20 seals
or more—aImosl aII for airIines in lheir home counlries. Today, lhe number of prime
manufaclurers of Iarge airIiners—and lhal nov means 100-pIus seals—is dovn lo lvo:
ßoeing and Airbus. In 1997, ßoeing proposed a merger vilh McDonneII-DougIas for
an eslimaled $14 biIIion. AIlhough lhe proposed merger drev severe crilicism from
Airbus, il vas approved.
The vinnoving-oul in lhis induslry has happened for many reasons, lhe chief one being
lhe cosl of deveIoping nev aircrah. As one generalion of aircrah has succeeded anolher,
lhe cosls of buiIding lhe Ialesl aircrah and designing ils successor have risen exponenliaIIy.
Combined vilh lhe uncerlainlies of lhe markelpIace, lhe spiraIing cosl of deveIopmenl
and earIy produclion of nev aircrah has made lhe commerciaI aircrah business a risky
venlure.
Since dereguIalion in lhe Iale 1970s, lhe lrend has been lovard Iess and Iess
differenlialion vilhin lhe airIine induslry as lhe airIines have compeled more and more
on lhe basis of price and scheduIe and as some of lhe oIdesl and proudesl names in lhe
induslry have disappeared lhrough merger or bankruplcy. In making lheir purchasing
decisions, lhe airIines, in lurn, have increasingIy focused on a singIe faclor: vhich of lhe
various aircrah avaiIabIe lo lhem in a fev dislincl calegories is lhe Iov-cosl soIulion lo
lhe lask of carrying a cerlain number of passengers a cerlain dislance` Iach of lhe lvo
ma|or compelilors slrives lo enler nev markels ahead of lhe olher by deveIoping nev
and more cosl-efficienl aircrah, and each one lries lo defend ils markels in lhe absence
of any naluraI barriers on lhe slrenglh of being lhe Iov-cosl producer.
ßoeing has been abIe lo mainlain approximaleIy 60 percenl of lhe markel for Iarge
|el lransporls in an increasingIy compelilive gIobaI markel. The company’s commerciaI
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 1 3
lransporl producls incIude lhe 737, 747, 757, and 767 modeIs: lhe Ialesl, lhe 777, enlered
service in 1995. ßoeing’s mosl formidabIe compelilor has been and viII conlinue lo be
Airbus Induslrie. Airbus Iaunched ils firsl aircrah, lhe A300, |usl 30 years ago. ßy 1995,
Airbus had caplured approximaleIy 30 percenl of lhe vorIdvide markel for commerciaI
|el lransporls. Airbus’s goaI is lo increase furlher ils markel share in lhe Uniled Slales and
abroad: lhe company’s Ialesl design, lhe 555-seal A380, vhich made ils firsl flighl in 2005,
aims lo see lhal lhis goaI is reached.
Ixlensive IeveIs of governmenl subsidizalion by Irance, Germany, lhe Uniled Kingdom,
and Spain have enabIed Airbus lo deveIop a fuII famiIy of aircrah vilhoul ever having
made a profil, lo price lhese aircrah vilhoul fuII cosl recovery, and lo offer concessionary
financing lerms lo cuslomers. ßoeing and McDonneII-DougIas ob|ecled slrenuousIy
lo lhis praclice, cIaiming unfair compelilion. Airbus, in lurn, cIaimed lhal ßoeing and
McDonneII-DougIas benefiled over lhe years from lhe Iarge miIilary conlracls lhal have
offsel a Iarge parl of lheir R & D expenses. In facl, lhe Uniled Slales has Iong had a defense
budgel doubIe lhal of Weslern Iurope, vilh a Iarge inveslmenl in miIilary aircrah R & D
and Iong produclion Iines.
WhiIe bolh ßoeing and Airbus vere abIe lo offer cuslomers a fuII range of |elIiners,
McDonneII-DougIas vas unabIe lo. Wilh a Iimiled producl range, McDonneII-DougIas
dropped from being number lvo in lhe commerciaI aircrah markelpIace in lhe Iale 1970s,
vilh more lhan a 20 percenl share of lhe lolaI vorId backIog, lo number lhree in 1995,
vilh Iess lhan a 10 percenl share. McDonneII-DougIas vas subsequenlIy purchased by
ßoeing.
TABLE 1-3 Civil Aircraft Shipments, 1992–2006
Number of Aircrah Shipped VaIue (miIIions)
Transpcri Gcncra| Transpcri Gcncra|
Year Tcia| Aircrah
a
Hc|iccpicrs Atiaiicn Tcia| Aircrah
a
Hc|iccpicrs Atiaiicn
1992 1,790 567 324 899
|
30,728 28,750 142 1,836
|
1993 1,630 408 258 964 26,389 24,133 113 2,144
1994 1,545 309 308 928 20,666 18,124 185 2,357
1995 1,625 256 292 1,077 18,299 15,263 194 2,842
1996 1,662 269a 278 1,115 20,805 17,564e 193 3,048
1997 2,269 374 346 1,549 31,753 26,929 231 4,593
1998 3,115 559 363 2,193 41,449 35,663 252 5,534
1999 3,456 620 361 2,475 45,161 38,171 187 6,803
2000 3,780 485 493 2,802 38,637 30,327 270 8,040
2001 3,559 526 415 2,618 42,399 34,155 247 7,997
2002 2,893 379 318 2,196 35,000 27,574 157 7,269
2003 2,928 281 517 2,130 27,523 21,033r 366 6,124
2004 3,440 283 805 2,352 27,682 20,484 515 6,683
2005p 4,171 290 925 2,956 31,150 21,900 750 8,500
2006e 4,006b 400 650 NA 39,385b 30,200 685 NA
Source: Aerospace Induslries Associalion, based on company reporls, dala from lhe GeneraI Avialion Manufaclurers’ Associalion, and
AIA eslimales.
a
IncIudes aII U.S.-manufaclured civiI |el lransporl aircrah pIus lhe lurboprop-povered Lockheed L-100.
|
Due lo an unavaiIabiIily of generaI avialion forecasl dala, 2006 lolaIs incIude 2005 generaI avialion figures for lhe purpose of eslimaling.
e Islimale.
NA Nol avaiIabIe.
p IreIiminary.
r Revised.
A I R T R A N S P O R TAT I O N 1 4
The cosl of deveIoping nev airpIanes has become slaggering. Ivery lime a company
Iike ßoeing moves forvard vilh a nev program, il is essenliaIIy puĴing ils enlire nel vorlh
on lhe Iine. Inormous fronl-end inveslmenls musl be made for a relurn lhal viII nol be
reaIized unliI many years Ialer—if al aII. ßoeing’s program lo deveIop and manufaclure
lhe 350-seal 777 airpIane provided a good exampIe of lhe enormily of lhe chaIIenge. The
company spenl biIIions lo deveIop lhe nev airpIane, vhich invoIves severaI lhousand
suppIiers and over 800,000 differenl parls.
As Airbus and ßoeing conlinue lo compele, lhey are forced lo deveIop nev producls and
services lhal are aĴraclive lo an exisling and polenliaI cuslomer base. ßolh manufaclurers
are going head-lo-head on deveIopmenl of nev aircrah lechnoIogy lhal viII revoIulionize
lhe fulure of air lransporlalion. Airbus is Iaunching lhe A350 in response lo ßoeing’s ß787
DreamIiner. ßolh aircrah are being deveIoped vilh lvin-engines capabIe of flying 250 lo
300 passengers on Iong dislance roules al cosls much Iess lhan loday’s modern aircrah.
ßolh aircrah viII be Iighl in veighl consisling of composile maleriaIs amounling lo
significanl decreases in fueI cosls.
AIlhough lhe cosl of deveIoping nev airpIanes is enormous, lhe cosl of nol moving
ahead is even grealer. A company’s abiIily lo mainlain ils posilion as a gIobaI aerospace
manufaclurer depends fundamenlaIIy on ils capilaIizing on nev markel opporlunilies. In
inslances in vhich lhe markel is Iimiled or lhe barriers lo enlry are prohibiliveIy high for
one company, inlernalionaI coIIaboralion may be lhe vave of lhe fulure.
AIlhough U.S. aerospace companies have dominaled lhe gIobaI markel for many years,
lhe use of overseas suppIiers of componenls and subassembIies is increasing. There is
nolhing slrange aboul lhal, because lvo-lhirds of lhe vorId markel for Iarge airIiners exisls
oulside lhe Uniled Slales. Though companies in counlries such as IlaIy and Spain have
been ma|or suppIiers for many years, lhe nalions of Asia and lhe Iacific Rim coIIecliveIy
have been dislinclIy minor suppIiers. Thal is bound lo change, for lvo reasons: lhose same
counlries aIready accounl for a subslanliaI porlion of lhe vorId markel for commerciaI
airIiners (20 percenl and groving rapidIy), and lhey pIainIy have bolh lhe desire and lhe
capabiIily lo parlicipale in lhe produclion of nev aircrah.
UnqueslionabIy, inlernalionaI coIIaboralion is a key slralegy in lhe broader efforl lo
remain compelilive in lhe aerospace induslry. Ioinl programs in vhich lhe parlners share
cosls offer a means of generaling lhe requisile capilaI for advanced commerciaI airpIane
and engine deveIopmenl in lhe face of high and rising cosls. They aIso give lhe U.S.
companies invoIved access lo foreign markels lhal mighl olhervise be denied lo lhem
in viev of lhe lrend lovard direcled procuremenl. OffseĴing lhese advanlages lo some
exlenl is lhe facl lhal |oinl U.S.-foreign venlures inevilabIy slrenglhen lhe lechnoIogicaI
capabiIilies of foreign induslry. In shorl, sharing American knov-hov mighl prove coslIy
in lhe Iong run, because il furlher enhances lhe compelilive poslure of foreign companies.
ßul sharing, il shouId be remembered, is a lvo-vay slreel.
|acicrs Aj j ccii ng Ccnncrci a| Transpcri Sa| cs
Conlinued markel Ieadership of U.S. aircrah manufaclurers is cIoseIy lied lo lhe exislence
of heaIlhy, profilabIe U.S. airIines. The huge size of lhe U.S. domeslic markel has been
imporlanl lo U.S. manufaclurers by providing lhem vilh lhe broad base of demand
necessary lo Iaunch nev aircrah programs. TradilionaIIy, over 40 percenl of commerciaI
|els on order from U.S. manufaclurers have been deIivered lo U.S. airIines. These aircrah
make up one-lhird of lhe vaIue of lhe manufaclurers’ backIog of unfiIIed orders. Large
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 1 5
order voIumes heIp manufaclurers spread cosls over a Iarger produclion run, vhich aIIovs
lhem lo reduce lheir unil cosls and be more compelilive. Nov more lhan ever, as lhey
seek lhe exporl saIes cruciaI lo markel Ieadership, manufaclurers need lhe foundalion of
a slrong U.S. saIes base.
ßy lhe end of 1993, lhe airIine induslry vas in a laiIspin. Iassenger and freighl lraffic
vas slagnanl, aircrah by lhe hundreds had been pIaced in slorage, induslry Iosses and
debls vere mounling, and aircrah orders vere being canceIed. The dovnlurn had aIso
spread lo lhe commerciaI lransporl seclor, and aircrah manufaclurers vere forced lo scaIe
back produclion and Iay off lhousands of vorkers.
ßy 1997, hovever, lhe airIine induslry vas laking off. Air lraffic and profils vere back
up, and nel orders for U.S. lransporls |umped from 256 in 1995 lo 620 in 1999. The pace of
lhis recovery Ieh commerciaI aircrah producers slruggIing lo keep up.
CiviI avialion has a hislory of cycIes, and vilh lhe sIovdovn of lhe economy in 2000
shipmenls began lo lumbIe. Aircrah companies are impIemenling programs lo reduce
lhese markel svings. AIso, some economisls are suggesling lhal business cycIes in
generaI shouId be Iess severe due lo faclors such as dereguIalion and gIobaI compelilion.
NeverlheIess, severaI faclors slrongIy influence cycIes in lhe air lransporl induslry.
Economic Growth. Iconomic grovlh has a lremendous impacl on lhe civiI avialion
markel. Il is imporlanl because il broadIy influences lhe demand for air lransporlalion
services, vhich, in lurn, affecls aircrah orders and deIiveries. During periods of economic
grovlh, companies buiId and service nev oulIels, vhich Ieads lo an increase in business
lraveI. In addilion, famiIy incomes generaIIy rise, vhich resuIls in grealer spending on
Ieisure lraveI. Yel, lhe reverse is aIso lrue: vhen economic oulpul faIIs, businesses cIose
faciIilies, unempIoymenl rises, and air lraffic decIines.
The correIalion belveen economic grovlh and air lraveI has been recognized by anaIysls
for many years. A generaIIy accepled ruIe of lhumb hoIds lhal lhere is a 2.5–3 percenl
increase in vorId air lraffic for every 1 percenl increase in vorId economic grovlh.
Inflation. Inflalion is imporlanl because il influences economic grovlh. When prices
are slabIe, inleresl rales lend lo be Iov, and lhis encourages inveslmenl and business
expansion. When prices rise quickIy, inleresl rales aIso cIimb. IvenluaIIy, high inleresl
rales viII inhibil economic aclivily, vhich can pul a damper on air lraffic. ßecause high
inleresl rales raise lhe cosl of borroving, lhey can aIso make aircrah financing prohibilive.
In addilion, inflalion can resuIl in escaIaling Iabor and fueI cosls. When lhis happens,
airIines are faced vilh lhe unpIeasanl choice of eilher absorbing lhose higher cosls or
raising lheir fares.
Inflalion has grounded lhe airIine induslry on more lhan one occasion. In 1970, 1973,
1978, and 1991, air carriers faced rising fueI and Iabor cosls. During lhose same years,
inflalion aIso pIunged lhe ma|or vorId economies inlo a recession, causing air lraffic and
airIine profils lo decIine.
During lhe recenl recessionary periods (1990–1994 and 2000–2002), air carriers suslained
huge Iosses. AirIines have aĴempled lo conlroI lheir cosls and have made il cIear lo aircrah
manufaclurers lhal lhey vanl lhe price of pIanes lo come dovn. Aircrah companies have
reduced lheir prices lhrough impIemenlalion of Iong-lerm programs aimed al cuĴing
cosls and improving efficiencies, efforls lhal shouId benefil airIines veII inlo lhe fulure.
A I R T R A N S P O R TAT I O N 1 6
Fleet Capacity. The passenger Ioad faclor is used lo measure airIine capacily uliIizalion.
The indicalor is expressed as a percenlage, reIaling lhe number of passengers flovn lo
avaiIabIe seals. When Ioad faclors are Iov, airIines have more excess Iih capacily lhan
vhen Ioad faclors are high. High Ioad faclors and rising air lraffic pIace airIines under
pressure lo buy aircrah. If Ioad faclors are rising during a business cycIe, lhis aIso suggesls
lhal airIine revenues are improving. This is imporlanl if airIines are pIanning lo order
aircrah because il enhances lheir abiIily lo purchase or Iease pIanes.
The passenger Ioad faclor for vorId airIines rose during lhe IaĴer haIf of lhe 1990s, and
orders for nev aircrah reached record IeveIs. UnforlunaleIy, as vas lhe case in previous
economic dovnlurns, air lraffic decIined in lhe earIy 2000s and Ioad faclors feII, prompling
lhe air carriers lo reduce fleel capacily and canceI orders. ßy year-end 2006, Ioad faclors
vere al “normaI” IeveIs and in some cases higher lhan ever.
Replacement Aircra. AirIines order aircrah lo increase lheir capacily: lhey aIso
purchase nev lransporls lo repIace lheir oIder, Iess efficienl modeIs. The advancing age
of currenl fleels suggesls lhal repIacemenl orders shouId be on lhe rise lhrough lhe mid
lo Iale 2000s.
In a reIaled issue, lhe airIines vere required lo meel Iov slage 3 noise IeveIs in lhe
Uniled Slales by December 31, 1999: lhe dale in Iurope vas ApriI 1, 2002. AIlhough
many of lhe over 3,000 aircrah have been grounded, modified using engine hushkils, or
soId oulside lhe Uniled Slales and Iurope, lhere is sliII a significanl penl-up demand for
repIacemenl aircrah.
Airline Profitability. CommerciaI lransporls are expensive assels: smaIIer modeIs slarl
al approximaleIy $25 miIIion and |umbo |els cosl over $140 miIIion. To make lhese lypes
of purchases, air carriers need lo raise capilaI in lhe financiaI markels, and lherefore,
lhey need lo demonslrale lo polenliaI inveslors lhal lheir operalions are profilabIe. Aher
Iosing biIIions of doIIars in lhe earIy 1990s, lhe airIines relurned lo profilabIe operalions
in lhe IaĴer haIf of lhe decade. AirIine slocks vere soaring and oplimism prevaiIed as lhe
carriers enlered lhe nev cenlury. The economy sIoved dovn in lhe spring of 2000 and
venl inlo recession in 2001, foIIoved by lhe lragedy of Seplember 11, 2001. Once again,
lhe carriers experienced record Iosses in 2001 and 2002. US Airvays fiIed for bankruplcy,
and olher ma|or carriers vere nol faring much beĴer. Massive empIoyee furIoughs look
pIace during lhese years. Uniled von $5.8 biIIion in vage and benefil concessions from
ils empIoyees lo slave off bankruplcy. ßy lhe end of 2002 lhe induslry vas in shambIes.
Over 90 percenl of lhe passengers vere flying on discounl fares and Iov-cosl carriers vere
ealing avay al markel share from lhe oId-Iine airIines.
Wilh no relained earnings and slock prices al record Iovs, lhe carriers’ onIy source of
funds in lhe foreseeabIe fulure appears lo be lhe debl markel. This viII nol be an easy lask
because lhe carriers are aIready faced vilh a subslanliaI debl Ioad from lhe Iasl round of
aircrah purchases.
A Cyclical Industry. The civiI avialion markel is cycIicaI. This is imporlanl lo recognize
lo fuIIy undersland lhe environmenl surrounding lransporl orders and deIiveries. Since
1971, orders for U.S. lransporls have peaked five differenl limes, and lhe average period
belveen a lrough and a peak has been lhree years. The deIivery piclure shovs a simiIar
paĴern. WorId lransporl deIiveries have peaked six differenl limes since 1960. When
deIiveries have faIIen, lhe decIines have been sleep (drops average over 50 percenl):
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 1 7
neverlheIess, deIiveries have conlinued lo rise over lhe Iong lerm. These cycIes are sel
in molion by lhe underIying forces of economic grovlh and recession and are furlher
magnified by lhe nalure of aircrah manufacluring.
In lhe relaiI induslry, ilems ohen sil on slore sheIves for veeks before lhey are soId, and
buyers usuaIIy can lake lheir purchases home lhe day lhey are boughl. ßul aircrah are loo
expensive lo buiId and lhen keep in invenlory. Inslead, lhey are manufaclured onIy aher
an order is pIaced. This creales a lime Iag belveen order and deIivery dales lhal can Iasl
veII over a year.
AIso, in lhe relaiI induslry, lhere are many suppIiers. If a cuslomer has lo vail for
deIivery from one suppIier, lhal cuslomer can go lo anolher vendor offering a more
immediale response. ßul again, lhe aircrah induslry is differenl. ßuiIding a commerciaI
lransporl lakes an enormous inveslmenl, Iimiling lhe number of manufaclurers in lhe
business. If lhe order Iine for aircrah fiIIs up, cuslomers have IiĴIe recourse bul lo vail.
If aircrah demand rises, manufaclurers viII iniliale a nev program or increase lheir
produclion rales. UnforlunaleIy, due lo lhe looIing and suppIier Iinks lhal musl be sel up
and lhe boĴIenecks lhal can deveIop among slralegicaIIy imporlanl suppIiers, reaching
fuII impIemenlalion lakes lime. Ior exampIe, il look ßoeing lvo years lo doubIe ils
produclion rale for aII modeIs.
These silualions can creale an imbaIance belveen demand and suppIy lhal causes
orders and deIiveries lo sving abruplIy. Yel lhere is aIso a behavioraI side lo lhese cycIes.
AirIines and aircrah Ieasing companies vorry lhal lhey mighl miss a markel uplurn if lhey
are pIaced near lhe end of an ordering Iine. Al lhe firsl sign of a markel lurnaround, lhey
frequenlIy scrambIe en masse lo pIace orders. This creales a surge in orders lhal can push
back deIivery dales even furlher. As a resuIl, air carriers near lhe end of lhe Iine mighl,
in facl, receive lheir deIiveries years Ialer, as air lraffic is subsiding. These deIiveries lhen
creale an overcapacily probIem, causing aircrah orders lo sving dovnvard. Manufaclurers
vho had |usl invesled in grealer produclion capabiIily nov find lhemseIves vilh excess
capacily, and a shuldovn reverberales lhrough lhe induslry.
These cycIes are disruplive, and aircrah manufaclurers are vorking lo minimize lhem.
Companies have Iaunched efforls lo shorlen lhe producl deveIopmenl phase and reduce
lhe lime gap belveen aircrah order and deIivery. This is being accompIished by adapling
compuler-aided design and manufacluring lechnoIogies lhal obviale lhe need lo buiId
mock-ups. To improve program communicalion and efficiency, manufaclurers are using
concurrenl engineering, vhich invoIves eslabIishing leams of design, deveIopmenl,
produclion, and saIes peopIe al lhe beginning of a program. Irime conlraclors are
slrenglhening lheir reIalionships vilh lheir suppIiers and increasing lhe lvo-vay flov
of lechnoIogy. ßoeing, specificaIIy, is overhauIing ils produclion and syslems sohvare
lo simpIify lhe vay il lracks and handIes miIIions of parls. ßoeing aIso has reached
agreemenls vilh American, DeIla, and ConlinenlaI lhal viII provide lhose airIines vilh
grealer flexibiIily for ordering aircrah over a 20-year period. This viII aIIeviale pressure
on lhose carriers lo order aircrah during a surge period.
Future Trends in Air Transport. The air lransporl seclor has shovn a slrong lendency
lo recover from each dovnlurn vilh reneved vigor. Iconomic grovlh and Iov inflalion
have been lhe key faclors lhal have fed lhe demand for air lransporlalion. This has pushed
aircrah uliIizalion lo record IeveIs, improved airIine profils, and fueIed programs lo
repIace oIder aircrah. Togelher, lhese faclors have conlribuled lo a rise in aircrah orders.
A I R T R A N S P O R TAT I O N 1 8
NeverlheIess, civiI avialion has a hislory of cycIes, and ve can expecl lhal orders and
deIiveries viII faII.
Transporl deIiveries have been rising for lhe pasl 40 years. This suggesls lhal
deIiveries viII conlinue lo cIimb in lhe fulure. In facl, lransporl manufaclurers and
anaIysls aIike pro|ecl lhal deIiveries viII aImosl doubIe over lhe nexl lvo decades. The
key assumplion here is lhal lhe inlernalionaI economy viII conlinue lo grov.
Gcncra| Ati aii cn
Aher record shipmenls of 17,817 unils in 1978, lhe general aviation segmenl of lhe
aerospace induslry, vhich manufaclures Iighl aircrah and componenls, experienced a 16-
year dovnvard sIide in saIes. Aher reaching a Iov of 928 unils shipped in 1994, induslry
shipmenls increased for lhe remainder of lhe decade and lhrough lhe years 2000 and 2001
(see TabIe 1-3). HisloricaIIy, lhe economic cycIe of lhe generaI avialion induslry cIoseIy
paraIIeIed lhal of lhe nalionaI economy. This reIalionship changed during lhe 1980s and
earIy 1990s. High aircrah prices, inleresl rales, operaling expenses, and producl IiabiIily
cosls aII conlribuled lo lhe dovnvard cycIe. Olher anaIysls ciled changing Iife-slyIes, lax
Iavs, and foreign compelilion as furlher reasons for lhe sIuggish saIes performance of
recenl years.
The generaI avialion induslry has undergone deep and broad slrucluraI changes.
The ma|or independenl manufaclurers have been laken over by congIomerales. Texlron
acquired Cessna from GeneraI Dynamics, and ßeech is nov Raylheon, laking lhe name
of ils parenl company. Iiper emerged from bankruplcy and is nov operaling as lhe
Nev Iiper Aircrah Corporalion. WhiIe Raylheon and Cessna conlinue lo concenlrale on
producing muIli-engine and |el equipmenl, Cessna resumed produclion of severaI singIe-
engine modeIs in 1996 aher a 10-year hialus. This vas IargeIy in response lo passage
of lhe GeneraI Avialion RevilaIizalion Acl of 1994, vhich Iimiled producl IiabiIily suils
invoIving oIder aircrah.
ßusiness use of Iighl aircrah remained slrong despile lhe economic dovnlurn in lhe
1980s, for severaI reasons. SmaII aircrah are fueI-efficienl. In facl, lhey use Iess fueI per
seal-miIe lhan any olher form of air lransporlalion. A ßoeing 747 gels 40.7 seal-miIes
per gaIIon of fueI (mpg): a six-passenger Iiper Lance gels 89.4 mpg, lhe six-seal ßeech
ßonanza 86.4 mpg, and lhe seven-seal Cessna 207 84 mpg. Iven Iighl lvin-engine aircrah
perform beĴer in lerms of fueI usage lhan lhe exlremeIy efficienl ßoeing 777.
Iurlhermore, airIines require considerabIe ground supporl faciIilies, such as lugs,
shuĴIe buses, baggage lrucks, and healed and air-condilioned offices and lerminaIs, mosl
of vhich use pelroIeum-based energy. RareIy is a ma|or airIine lerminaI as cIose lo a
person’s uIlimale deslinalion as is a generaI avialion airporl. Irivale-use aircrah can fly
slraighl lo lheir deslinalions, vhereas airIines frequenlIy use indirecl roules vilh one
or more slops aIong lhe vay. This has been parlicuIarIy lrue in recenl years vilh lhe
eslabIishmenl of hub airporls by lhe ma|or carriers.
The efficienl use of lime is anolher reason generaI avialion viII expand. As our energy
probIems deepen and lhe airIines seek lo make more efficienl use of coslIy fueI, il viII be
increasingIy difficuIl lo reach many Iocalions via scheduIed carriers. OnIy lhose roules
lhal generale high Ioad faclors viII conlinue lo be viabIe, vhich means lhal lhe lrend
viII be lovard decreased airIine service. Iever lhan 5 percenl of lhe nalion’s airporls
have airIine service nov, and lhe ma|orily of flighls serve onIy 30 ma|or cenlers. Il ohen is
nol possibIe using lhe airIines lo lraveI in one day belveen such cilies as Nev York and
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 1 9
Lexinglon, Kenlucky: Chicago and CharIeslon, Wesl Virginia: or San Irancisco and SaIem,
Oregon. In lhe fulure, generaI avialion viII be lhe onIy lime-effeclive means of lraveI
belveen many of lhe pIaces business-peopIe need lo go.
The upvard lurn in unils shipped and parlicuIarIy doIIar voIume has ushered in a nev
vave of oplimism lo lhe generaI avialion seclor. UnqueslionabIy, generaI avialion is here
lo slay, bul as in lhe air lransporl segmenl, manufaclurers viII conlinue lo experience ups
and dovns vilh changes in lhe economic cycIe, |usl as lhey have in lhe pasl.
To salisfy lhe need for pubIic lransporlalion, lhere viII be considerabIe grovlh in lhe
lhird-IeveI, or commuler/regionaI, airIines, lhose operalors vho offer scheduIed service in
Iarger generaI avialion and shorl-hauI lransporl aircrah. Commuler/regionaI carriers viII
Iink a number of smaII cilies vilh Iov passenger voIumes as lhe Iarger carriers concenlrale
lheir services in lhe high-densily markels.
Helicopters. SaIes of U.S.-manufaclured civiI heIicoplers conlinued lo faII during lhe earIy
1990s (see TabIe 1-3). The heIicopler induslry’s lrade baIance, posilive lhrough lhe 1980s,
vas negalive lhrough lhe earIy 1990s. (Il shouId be noled lhal much of U.S. manufaclurer
ßeII HeIicopler’s produclion is based in Canada and lhus is nol counled as a U.S. exporl
vhen shipped abroad.) Today, Iighlveighl, singIe-engine modeIs dominale U.S. rolorcrah
shipmenls, vhiIe Irench/German-ovned Iurocopler is lhe Iargesl manufaclurer of Iarger,
more expensive modeIs. OveraII, foreign manufaclurers shouId conlinue lo increase lheir
share of lhe lolaI vorId markel even as U.S. manufaclurers gain ground, as evidenced by
lhe uplurn in shipmenls since 1996.
|c| aic! Prc!ucis an! Scrti ccs
TechnoIogy is simpIy knovIedge, and il has a high degree of lransferabiIily: lhe knov-hov
acquired in expIoring aerospace fronliers can be pul lo vork lo provide nev producls and
services of a nonaerospace nalure, vilh resuIlanl benefils lo lhe economy as a vhoIe.
Ior many years, lhe aerospace induslry has pursued a program of lechnoIogy lransfer
in an efforl lo make broader use of ils veaIlh of knov-hov. The lransfer process has
been hampered by lhe Iack of an aggregaled markel such as lhal provided by lhe federaI
governmenl or lhe airIines in aerospace vork. In nonaerospace aclivily, lhe induslry
has operaled IargeIy on a singIe-pro|ecl, singIe-Iocalion basis, vorking vilh individuaI
federaI, slale, and IocaI governmenl agencies and olher cuslomers lo lransfer lechnoIogy
in such areas as medicaI inslrumenlalion, hospilaI managemenl, mass lransporlalion,
pubIic safely, environmenlaI proleclion, and energy.
Despile lhe Iack of an aggregaled markel, lhe resuIls have been impressive in lerms of
induslry saIes voIume, parlicuIarIy in mosl recenl years. In 1973, saIes for reIaled producls
and services lopped $3 biIIion: bul by 2005, lhey had reached approximaleIy $28 biIIion
(see TabIe 1-1).
A I R T R A N S P O R TAT I O N 2 0
THE AIR TRANSPORTATION INDUSTRY
The air transportation industry incIudes aII civiI flying performed by cerlificaled air
carriers and generaI avialion. ßecause lhis induslry is lhe ma|or focus of lhis lexl, il is
imporlanl lo define exaclIy vhal ve mean by lhe lerms ccriificaic! air carricrs and gcncra|
atiaiicn.
The CiviI Aeronaulics Acl of 1938 defined and eslabIished various cIassificalions vilhin
avialion:
1
“Air carrier” means any cilizen
2
of lhe Uniled Slales vho underlakes-… lo engage in air lrans-
porlalion.
3
“Air lransporlalion” means inlerslale-… lransporlalion.
4
“Inlerslale air lransporlalion”-… mean|s] lhe carriage by aircrah of persons or properly as
a ccnncn carricr jcr ccnpcnsaiicn cr nirc.
5
|Imphasis added.] No air carrier shaII engage in any
air lransporlalion unIess lhere is in force a cerlificale issued by lhe CiviI Aeronaulics ßoard
aulhorizing such air carrier lo engage in such lransporlalions.
6
Reading lhese seclions of lhe acl logelher, one sees lhe airIine business as defined by
Congress. The key vords are ilaIicized: ccnncn carricr and ccnpcnsaiicn cr nirc. Therefore,
lhe appropriale lerm for airIines is nol ccnncrcia| air|incs. bul certificated (common) air
carriers.
Having IegaIIy defined air carrier avialion, lhe acl venl on lo define olher lypes of
avialion in a second calegory in lhe foIIoving vay:
“Air commerce” means inlerslale … commerce or any operalion or navigalion of aircrah vilhin
lhe Iimils of any IederaI airvay or any operalion or navigalion of aircrah vhich direclIy affecls,
or vhich may endanger safely in inlerslale air commerce.
7
“Inlerslale air commerce” … mean|s] lhe carriage by aircrah of a person or properly jcr ccn-
pcnsaiicn cr nirc-… or lhe operalion or navigalion of aircrah in lhe conducl or furlherance of a
business or vocalion, in commerce-… belveen any Slale and any olher Slale… .
8
The firsl paragraph, vhich is aII-incIusive and embraces aII non-air carrier avialion, defines
gcncra| atiaiicn as ve knov il: noncommerciaI or pritaic use. Thal paragraph is modified
by lhe second one quoled, vhich goes on lo define lvo subparls of generaI avialion: (1)
|usincss avialion, vhere lhe aircrah is used “in lhe conducl or furlherance of a business
or vocalion,” and (2) ccnncrcia| avialion, vhere peopIe are carried for compensalion or
hire, bul nol as a common carrier—nole lhal lhose vords are omiĴed. Today, generaI
1
The Ianguage has been rearranged and cerlain vords omiĴed for lhe purposes of cIarily.
2
A cilizen may be an individuaI or a corporalion.
3
Seclion 101(3).
4
Seclion 101(10).
5
Seclion 101(2).
6
Seclion 401(a) |Cerlificale of pubIic convenience and necessily]. A common carrier is a person or company in
lhe business of lransporling lhe pubIic or goods for a fee.
7
Seclion 101(4).
8
Seclion 101(20).
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 2 1
Ccniri |uii cn ic inc |ccncnu
avialion is commonIy described as “aII civiI avialion excepl lhal vhich is carried oul
by lhe cerlificaled airIines.” This segmenl of lhe induslry viII be covered in delaiI in
Chapler 4, “The GeneraI Avialion Induslry.” Chapler 5 provides an in-deplh reviev of
lhe airIine induslry.
Over lhe pasl 60 years, lhe air lransporlalion induslry has become an increasingIy
imporlanl parl of lhe U.S. economy. Avialion is lhe nalion’s dominanl inlercily mode
of lransporlalion for lhose passengers and goods lhal musl be lransporled quickIy and
efficienlIy. Il has become so universaI lhal no one queslions avialion’s imporlance as an
essenliaI form of lransporl.
Avialion empIoys many lhousands of peopIe, and lhousands more vork in avialion’s
supporl induslries, such as holeIs, reslauranls, renlaI cars, reaI eslale, conslruclion,
and manufacluring. IndividuaIs in lhese induslries benefil economicaIIy from avialion
regardIess of vhelher lhey acluaIIy fly.
Avialion’s finaI “producls” are passengers and cargo safeIy and efficienlIy deIivered
lo lheir deslinalion. In 2004, U.S. airIines carried 698 miIIion passengers and regislered
28 biIIion lon-miIes of cargo on approximaleIy 9 miIIion scheduIed deparlures. U.S.
airIines aIso carried more lhan 11 miIIion passengers and over 6 biIIion lon-miIes of
cargo on approximaleIy 400,000 nonscheduIed deparlures. AIlhough scheduIed airIines
provide service lo aboul 800 communilies, over 5,000 communilies of aII sizes can access
lhe air lransporlalion syslem via pubIicIy ovned generaI avialion airporls, incIuding
nonscheduIed, on-demand, and charler flighls. The induslry eslimales lhal more lhan
160 miIIion passengers are carried annuaIIy aboard generaI avialion aircrah and lrends
indicale lhis slalislic is lo increase over lhe nexl decade.
Mosl peopIe are famiIiar vilh lhe avialion eIemenls lhal lhey see and use—airporls,
airIines, and generaI avialion aircrah. They aIso mighl be famiIiar vilh some of lhe
supporl eIemenls—baggage services, lraveI agenls, and olhers. Hovever, lhe avialion
induslry is much more lhan lhal: il incIudes an inlricale sel of suppIiers of a vide variely
of goods and services, aII of vhich benefil economicaIIy from avialion. Wilh economic
dereguIalion of airIines in lhe Iale 1970s, air cargo nelvorks vere abIe lo faciIilale |usl-in-
lime shipping, providing expanded services al Iover cosls. Oplimizalion of |usl-in-lime
shipping aIIovs shorl produclion and deveIopmenl cycIe limes and eIiminales excessive
invenlory in lhe Iogislics chain, regardIess of faciIily Iocalion. Wilhoul lhe avaiIabiIily of
ubiquilous, reIiabIe, efficienl air express service, U.S. businesses vouId be unabIe lo reaIize
lhe compelilive economies of |usl-in-lime produclion. Air lransporlalion offers many cosl
advanlages—Iover Iead limes, quicker cuslomer response limes, improved flexibiIily, and
reduced invenlory. Many high-lech, high-vaIue induslries have embraced air lransporl for
ils lime and cosl advanlages in manufacluring and dislribulion and because il improves
deIivery reIiabiIily by providing lime-definile guaranlees.
One-slop shopping has become exlremeIy imporlanl lo businesses in lheir seIeclion
of Iogislics service providers and air cargo carriers. The abiIily lo use a carrier lhal
viII provide door-lo-door service vilh singIe-vendor conlroI makes lhe enlire Iogislics
chain much Iess compIicaled lhan lhe lradilionaI melhod of using severaI providers
vilh differenl deIivery funclions. The ma|or inlegraled carriers provide seamIess
lrucking, varehousing, and dislribulion service funclions in addilion lo air cargo. As a
A I R T R A N S P O R TAT I O N 2 2
consequence, shippers are increasingIy subsliluling bIended air and surface lransporlalion
services provided by (or lhrough) a singIe carrier.
In IuIy 2002, DRI-WIIA Incorporaled in coIIaboralion vilh The CampbeII-HiII Avialion
Group compIeled a sludy lilIed Tnc Naiicna| |ccncnic |npaci cj Citi| Atiaiicn. As of earIy
2006, lhis is lhe mosl recenl sludy. Using 2000 dala, lhe sludy examined lhe impacl of civiI
avialion, vhich incIuded:
1. ScheduIed and unscheduIed commerciaI passenger and cargo operalions (incIuding
cargo-onIy lransporlalion)
2. GeneraI avialion (incIuding business avialion and air laxi operalions)
3. Their reIaled manufaclurers, servicing, and supporl (incIuding piIol and mainlenance
lechnician lraining)
4. Their suppIy chains (indirecl impacls)
5. The effecls of income generaled (induced impacls) direclIy and indireclIy by civiI
avialion
6. The direcl, indirecl, and induced impacls of reIaled induslries, such as lraveI and
lourism, for vhich air lransporlalion provides an enabIing funclion
Economic Impact Types and Causes. The avialion induslry economic impacls caIcuIaled
in lhe DRI-WIIA sludy incIuded lhose financiaI lransaclions lhal couId be lraced lo
avialion and lhal vere of vaIue lo lhe nalion’s economy and ils cilizens. The impacls vere
reaI and quanlifiabIe: hypolhelicaI, imaginary, or sub|eclive impacls vere nol considered
in lhe sludy. The impacls vere divided inlo lhree lypes: direcl impacls, indirecl impacls,
and induced impacls (see TabIe 1-4).
“Direcl impacls” vere lhose financiaI lransaclions Iinked lo lhe provision of air
passenger and air cargo services and lhe provision of aircrah. They lypicaIIy occur al
airporls and aircrah manufacluring firms and incIude expendilures by airIines, airporl
lenanls, air cargo firms, Iixed-ßase Operalors (IßOs), ground lransporl firms, flighl
schooIs, airporl concessions, aircrah manufaclurers, and olhers.
The direcl impacl in 2000 vas $343.7 biIIion and 4.2 miIIion |obs in civiI avialion or in
induslries reIaled lo civiI avialion, such as lraveI and lourism. CiviI avialion, excIuding
reIaled induslries, direclIy produced $183.3 biIIion in GDI ($169.6 biIIion from commerciaI
avialion and $13.7 biIIion from generaI avialion) and 2.2 miIIion |obs.
“Indirecl impacls” vere lhose financiaI lransaclions Iinked lo lhe use of avialion. They
incIude expendilures by lraveIers vho arrive by air, lraveI agenls, business avialion, and
olhers. Indirecl impacls lypicaIIy (bul nol aIvays) occur al off-airporl Iocalions.
The indirecl impacl amounled lo $254.9 biIIion and 3.2 miIIion |obs arising indireclIy in
lhe olher induslries in lhe suppIy chain lo civiI avialion and reIaled induslries.
“Induced impacls” vere lhe “muIlipIier” impIicalions associaled vilh direcl and
indirecl impacls.
The DRI-WIIA sludy confirmed lhal virluaIIy aII aclivilies invoIved in lhe provision
and use of avialion are imporlanl lo lhe nalion’s economy. The lolaI economic impacl of
civiI avialion, incIuding ils “muIlipIier” effecl, vas caIcuIaled as $903.5 biIIion for 2000,
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 2 3
TABLE 1.4 U.S. Civil Aviation Impacts, 2000 (billions of dollars and thousands of employees)
Direcl Indirecl Induced TolaI Impacl
ImpIoy- ImpIoy- ImpIoy- ImpIoy-
GDI menl GDI menl GDI menl GDI % GDI menl
Ccnncrcia| atiaiicn
Air lransporl
a
$100.1 1,172 $ 67.9 858 $ 85.7 1,035 $253.6 3,065
Aircrah 14.7 205 31.2 395 23.4 306 69.4 906
Aircrah parls 9.8 136 20.7 262 15.6 203 46.1 601
Airporl expendilures
|
38.0 437 na na 19.4 223 57.4 660
IederaI (IAA & NASA) 7.0 75 na na 3.6 38 10.6 113
TolaI 169.6 2,025 119.8 1,514 147.6 1,805 437.1 4.4% 5,345
|xpcn!iiurc rc|aic! ic ccnncrcia| atiaiicn
Tourism by air 132.9 1,680 96.5 1,219 117.0 1,478 346.4 4,377
TraveI arrangemenl 3.3 47 7.8 98 5.7 74 16.8 219
Ireighl forvarding 0.5 7 0.6 8 0.6 8 1.7 23
TolaI 136.8 1,734 104.9 1,326 123.2 1,560 364.9 3.7% 4,619
CommerciaI avialion, lolaI 306.4 3,759 224.7 2,840 270.9 3,365 802.0 8.1% 9,964
Gcncra| atiaiicn
CommerciaI operalions 1.4 17 1.0 2 1.2 15 3.6 34
Irivale operalions 8.9 104 6.0 76 7.6 92 22.6 272
GeneraI avialion aircrah 2.7 38 5.8 74 4.4 57 12.9 169
IIighl lraining 0.7 19 0.4 5 0.6 12 1.6 36
TolaI 13.7 178 13.2 157 13.8 176 40.7 0.4% 511
|xpcn!iiurc rc|aic! ic gcncra| atiaiicn
Tourism by air 22.9 290 16.6 210 20.2 255 59.8 755
IubIicalions 0.6 7 0.4 5 0.5 6 1.5 18
TolaI 23.5 297 17.1 215 20.7 261 61.3 0.6% 773
GeneraI avialion, lolaI 37.3 475 30.3 372 34.5 437 102.0 1.0% 1,284
Grand lolaI $343.7 4,234 $254.9 3,212 $305.1 3,802 $903.5 9.2% 11,248
Source: DRI-WIIA, Inc. Reprinled by permission of GIobaI Insighl (USA), Inc. vvv.gIobaIinsighl.com
a
Air lransporl consisls of aII expendilures made by commerciaI airIines, incIuding bolh passenger and freighl, scheduIed and non-scheduIed, mainlenance, and piIol and
lechnician lraining.
|
Airporl expendilures consisl of aII expendilures made by airporl aulhorilies, incIuding airporl services.
Nole: In 2000, lolaI U.S. GDI vas $9,873 biIIion. ßecause of rounding, lolaIs and sublolaIs may nol add preciseIy.
A
I
R

T
R
A
N
S
P
O
R
T
A
T
I
O
N
2
4
or 9.2 percenl of GDI. CiviI avialion incIuding reIaled induslries represenled 11.2 miIIion
|obs.
CommerciaI avialion accounled for 88 percenl of avialion’s lolaI impacl. AIlhough
generaI avialion accounled for onIy 12 percenl of lhe lolaI, il generaled nearIy 1.3 miIIion
|obs and $102.0 biIIion in economic aclivily.
Ccniri |uii cn ic |j fici cni Ccn!uci cj Busi ncss
Air lransporlalion is nov as much a parl of our vay of Iife as lhe leIephone or lhe
compuler. Speed, efficiency, comforl, safely, economy—lhese are lhe symboIs of bolh
modern sociely and modern air lransporlalion. If you need lo gel somevhere in a hurry,
and mosl businesses do, because lime means money, lhen fly—comforlabIy, safeIy, and
economicaIIy.
Air lransporlalion has enabIed empIoyees of business and governmenl organizalions
lo reach any poinl in lhe vorId vilhin hours, vhelher flying by air carrier or a generaI
avialion aircrah. Cerlain vaIues are associaled vilh lhis limeIiness:
1. Ouicker on-lhe-spol decisions and aclion
2. Less faligue associaled vilh lraveI
3. Grealer mobiIily and usefuIness of lrained, experienced execulives, engineers,
lechnicians, lroubIeshoolers, and saIes personneI
4. DecenlraIized produclion and dislribulion
5. The abiIily lo expand markel areas lhrough more efficienl use of managemenl and
saIes personneI
To visuaIize a vorId vilhoul modern air lransporlalion, consider lhe vorId of 1940,
vhen surface lransporlalion vas sliII in ils prime and air lransporlalion vas in ils infancy.
The 800-miIe Nev York–Chicago lrip look 17 hours each vay on lhe faslesl raiI rouling. The
same lrip loday can be made in a coupIe of hours. AIso consider lhe lhousands of smaIIer
communilies nov served by business represenlalives flying in and oul lhe same day—il
look days and veeks lo cover lhe same lerrilory back in lhe 1940s.
|npaci cn Pcrscna| an! P| casurc Tratc| Paiicrns
In 1940, fev peopIe had ever flovn in a scheduIed airIiner. ßy 1960, one-lhird of U.S.
aduIls had flovn: by 1981, lvo-lhirds of lhe popuIalion over 18 years of age had been
airIine passengers, and by 2006, over 85 percenl of lhe aduIl popuIalion had flovn on
a commerciaI flighl. The impacl of lhe air age on personaI and pIeasure lraveI has been
al Ieasl as greal as il has been on business lraveI. And airIine fares remain a bargain
compared lo lhe price increases of olher producls and services over lhe pasl 50 years.
The combinalion of speed and economy has aIlered peopIe’s ideas aboul personaI
lraveI. In 1940, onIy a fev veaIlhy individuaIs lraveIed lo pIaces Iike IIorida or Havaii,
much Iess lo Iurope. Today, lhousands of coIIege sludenls fly lo Iurope during lhe
summer. Inlire regions have deveIoped inlo slrong lourisl-orienled cenlers because air
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 2 5
lransporlalion has made lhem accessibIe lo vacalioners from many areas. The economic
deveIopmenl of such areas as IIorida, Havaii, Iuerlo Rico, Las Vegas, Ihoenix, and San
Diego can be aĴribuled lo lhe access provided by air lransporlalion.
KEY TERMS
aerospace induslry
Aerospace Induslries Associalion (AIA)
GeneraI Avialion Manufaclurers Associalion (GAMA)
research and deveIopmenl (R & D)
reIaled producls and services
generaI avialion
air lransporlalion induslry
cerlificaled (common) air carriers
REVIEW QUESTIONS
1. Define acrcspacc in!usiru. and describe lhe roIe of bolh lhe AIA and lhe GAMA. The
induslry is a vilaI faclor in four parlicuIar areas of lhe U.S. economy. Whal are lhey`
2. Hov has lhe aerospace induslry changed since lhe 1950s` Whal are lhe unique
characlerislics of lhe aerospace induslry`
3. Describe lhe aerospace induslry in lerms of ils ma|or producls and ils saIes during lhe
1990s and earIy 2000s. Whal are reIaled aerospace producls and services`
4. Whal are some of lhe causes and effecls of lhe significanl dovnsizing in lhe lvo
ma|or segmenls of lhe governmenl markel` Describe lhe oulIook for lhe civiI avialion
markel in lhe earIy 2000s.
5. Whal is lhe primary cause for consoIidalion in lhe commerciaI aircrah manufacluring
induslry` Why has ßoeing accused Airbus Induslrie of unfair compelilion` Whal has
been Airbus’s response` Hov do you foresee lhe induslry financing lhe nev generalion
of aircrah lhal viII appear in lhe 21sl cenlury` Why has lhere been a grealer emphasis
on inlernalionaI cooperalion in buiIding aircrah componenls and subassembIies`
6. Lisl and briefly describe lhe ma|or faclors affecling commerciaI lransporl saIes. Hov
does lhe cycIicaI nalure of civiI avialion affecl aircrah manufacluring`
7. Whal are some of lhe faclors lhal Ied lo lhe decIine in generaI avialion aircrah saIes`
Why have lhe corporale and commuler segmenls of lhe generaI avialion induslry
done so much beĴer lhan lhe personaI-use segmenl` Whal is lhe oulIook for heIicopler
saIes`
8. Define air carricr. inicrsiaic air iranspcriaiicn. and air ccnncrcc. ßolh air carriers and
generaI avialion fly “for compensalion or hire.” Whal dislinguishes lhe lvo`
A I R T R A N S P O R TAT I O N 2 6
9. Discuss lhe impacl of lhe air lransporlalion induslry on lhe U.S. economy in lerms of
doIIar expendilures and |obs.
10. Describe lhe conlribulion of air lransporlalion lo lhe efficienl conducl of business and
ils impacl on personaI and pIeasure lraveI.
WEB SI TES
hllp://vvv.faa.org
hllp://vvv.boeing.com
hllp://vvv.airbus.com
hllp://vvv.raylheon.com
hllp://vvv.airIines.org/home/
hllp://vvv.raa.org
hllp://vvv.iala.org
SUGGESTED READI NGS
Abeyralne, Ruvanlissa. Atiaiicn Trcn!s in inc Ncu Mi||cnniun. ßurIinglon, VT: Ashgale, 2001.
Anderson, Iohn D. |nirc!uciicn ic ||igni. Nev York: McGrav-HiII, 1999.
DRI-WIIA, Inc., A GIobaI Insighl Company, in coIIaboralion vilh The CampbeII-HiII Avialion
Group, Inc. Tnc Naiicna| |ccncnic |npaci cj Citi| Atiaiicn. AIexandria, Va., 2002.
Graham, ßrian. Gccgrapnu an! Air Transpcri. Nev York, NY: Iohn WiIey & Sons, 1995.
Lopez, Virginia C. (ed.). Acrcspacc |acis an! |igurcs 2002/03. Washinglon, D.C.: Aerospace
Induslries Associalion of America, 2002.
IhiIIips, AImarin. Tccnnc|cgu an! Markci Siruciurc. A Siu!u cj inc Aircrah |n!usiru. Lexinglon, Mass.:
Lexinglon ßooks/Healh, 1971.
RendaII, David. |anc’s Aircrah |cccgniiicn Gui!c. Nev York, NY: HarperCoIIins, 1999.
Schriever, ßernard A., and WiIIiam W. Seiferl. Air Transpcriaiicn 1975 an! Bcucn!—A Susicns
Apprcacn. Cambridge, Mass: MIT Iress, 1968.
C H A P T E R 1 • AV I AT I O N : A N O V E R V I E W 2 7
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2
Historical Perspective
Introduction
The Formative Period: 1918–1938
The Growth Years: 1938–1958
Maturity—Jets Arrive: 1958–1978
Economic Developments Prior to Deregulation
Federal Legislation and the Airlines
Postderegulation Evolution
General Aviation
Chapter Checklist • You Should Be Able To:
Discuss some of lhe earIy aĴempls lo provide air maiI
service in lhe Uniled Slales
IxpIain lhe significance of lhe KeIIy Acl and lhe Air
Commerce Acl of 1926
Idenlify some of lhe breaklhroughs in commerciaI
aircrah deveIopmenl from 1918 lo 1958
Describe lhe evenls lhal Ied lo lhe deveIopmenl of
commerciaI |el air lransporlalion
Summarize lhe ma|or economic deveIopmenls in air
lransporlalion during lhe four decades from 1938 lo
1978
Discuss lhe reasons lhe federaI governmenl gol inlo
lhe business of reguIaling lhe air carriers
Undersland lhe significance of lhe federaI IegisIalion
Ieading up lo dereguIalion in lhe 1970s
Give a brief summary of lhe dereguIalion movemenl
before lhe AirIine DereguIalion Acl of 1978
Describe lhe ma|or provisions of lhe DereguIalion Acl
of 1978









29
Idenlify some of lhe changes lhal look pIace in lhe airIine
induslry during lhe lvo decades foIIoving dereguIalion
Discuss earIy generaI avialion and hov ßeech, Cessna,
and Iiper began
IxpIain lhe reasons for lhe decIine in generaI avialion
aircrah saIes slarling in lhe Iale 1970s
Undersland lhe impacl of lhe evenls of Seplember 11,
2001, on lhe avialion induslry
Inlroduce lhe concepl of nev aircrah lechnoIogy for lhe
21sl cenlury





A I R T R A N S P O R TAT I O N 3 0
INTRODUCTION
In 1914, mosl of lhe vorId vas loo preoccupied vilh WorId War I lo nolice lhal for a fare of
$5 (more if lhe passenger veighed over 200 pounds), a person couId buy a lickel for a one-
vay lrip in an open-cockpil ßenoisl flying boal lhal flev across Tampa ßay, connecling
Tampa and Sl. Ielersburg. The Iand |ourney look an enlire day: lhe flighl look aboul 20
minules. On Ianuary 1, 1914, lhe mayor of Sl. Ielersburg became lhe firsl passenger on a
reguIarIy scheduIed airIine using heavier-lhan-air aircrah in lhe Uniled Slales. Iinanced
by I. I. IansIer and flovn by Tony Ianus, lhis primilive operalion foIded aher four monlhs
vhen il ran inlo financiaI lroubIe. A humbIe beginning for lhe nov-gianl induslry.
ßelveen 1912 and 1916, lhe Iosl Office Deparlmenl made severaI aĴempls lo oblain
federaI approprialions for lhe lransporlalion of maiI by air, bul no approprialions vere
granled unliI 1916. In lhal year, Congress made funds avaiIabIe for lhe eslabIishmenl of
proposed air maiI roules, severaI in AIaska and one belveen Nev ßedford, MassachuseĴs,
and Iavluckel, Rhode IsIand. The Iosl Office Deparlmenl issued ads inviling bids on
lhe roules, bul no bids vere forlhcoming because of lhe Iack of pIanes suilabIe for lhe
services.
The deveIopmenl of Iarge bombing pIanes during WorId War I demonslraled lhal lhe
airpIane couId be used for fasl commerciaI and maiI lransporlalion. In 1918, Congress
approprialed $100,000 lo lhe Iosl Office Deparlmenl for lhe deveIopmenl of an experimenlaI
air maiI service and for lhe purchase, operalion, and mainlenance by lhe Iosl Office
Deparlmenl of vhal vere referred lo as “aeropIanes.” Thus vas born lhe air lransporlalion
induslry.
THE FORMATIVE PERIOD: 1918–1938
Aher preIiminary sludies, lhe firsl reguIar air maiI roule in lhe Uniled Slales, 218 miIes
in Ienglh, vas eslabIished on May-15, 1918, belveen Nev York Cily and Washinglon,
D.C. One round lrip vas made every day excepl Sunday, and an inlermediale slop in
IhiIadeIphia enabIed lhe receipl and discharge of maiI and lhe servicing of lhe pIanes.
The service vas conducled |oinlIy by lhe Uniled Slales War Deparlmenl and lhe Iosl
Office Deparlmenl. The War Deparlmenl furnished lhe pIanes and piIols and performed
lhe operalion and mainlenance, and lhe Iosl Office Deparlmenl aĴended lo lhe sorling of
lhe maiI, ils lransporl lo and from lhe airporl, and lhe Ioading and discharge of lhe pIanes.
This |oinl arrangemenl conlinued unliI Augusl 12, 1918, vhen lhe Iosl Office Deparlmenl
assumed excIusive responsibiIily for lhe deveIopmenl of a Iarger-scaIe maiI service.
The Nev York–Washinglon air maiI roule vas disconlinued on May 31, 1921, because
of lhe need for economy and lhe faiIure of Congress lo specificaIIy aulhorize lhe roule.
Tnc Pcsi Oj ficc Ocparincni Scrti cc
When lhe Iosl Office Deparlmenl look over lhe enlire air maiI service in 1918, incIuding
personneI and equipmenl and lhe compIele operalion and mainlenance of lhe domeslic
air maiI service, il shouIdered a formidabIe lask. This period in lhe hislory of lhe air maiI
service represenled a lriaI slage during vhich lhe Iosl Office Deparlmenl experimenled
vilh airpIane equipmenl, vealher service, nighl flying, flying and ground service
arrangemenls, roules, poslage rales, and olher areas in vhich addilionaI dala vere
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 3 1
required before lhe service couId be pIaced on a sound basis and operaled nalionvide
over reguIar roules. IniliaIIy, lhe Iosl Office Deparlmenl acquired a number of airpIanes
from lhe War and Navy Deparlmenls, rebuiIding or remodeIing lhe pIanes lo lransporl
maiI. Safely and carrying capacily vere lhe principaI quaIilies soughl vhen seIecling
or remodeIing lhe pIanes. Laler, lhe Iosl Office Deparlmenl acquired pIanes especiaIIy
designed for carrying maiI. The success of lhe firsl experimenlaI roule Ied lo lhe exlension
of lhe service lhrough lhe eslabIishmenl of a lransconlinenlaI roule belveen Nev York
Cily and San Irancisco.
Wealher condilions vere one of lhe mosl serious difficuIlies faced in eslabIishing lhe
air maiI service. The Wealher ßureau of lhe Deparlmenl of AgricuIlure vas enIisled lo
provide lhe piIols vilh adequale vealher informalion. Improvemenls vere made in
lhe design of pIanes, in airpIane molors, and in airvay marking and communicalion
faciIilies, vhich made il possibIe lo operale lhe air maiI service in vealher lhal vouId
have prevenled flying in lhe earIy years of lhe service.
One of lhe many conlribulions of lhe Iosl Office Deparlmenl lo lhe deveIopmenl of
avialion during lhis period of experimenlalion and deveIopmenl vas lhe demonslralion
of lhe praclicabiIily of reguIar nighl flying over reguIar roules on fixed scheduIes. In
1923, using dala compiIed by lhe War Deparlmenl, lhe Iosl Office Deparlmenl sludied
lhe feasibiIily of reguIar nighl flying. Army pIanes had done a considerabIe amounl
of nighl flying during lhe var. In addilion, airpIanes had been flovn al nighl
occasionaIIy before lhese experimenls, bul reguIarIy scheduIed roule flying had nol
been aĴempled.
A Iighled airvay vas eslabIished belveen Cheyenne, Wyoming, and Chicago, and
emergency Ianding fieIds vere Iocaled aIong lhe airvay and equipped vilh Iighls. IiIols
made experimenlaI nighl flighls over lhe roules. In Augusl 1923, a reguIar scheduIe of
nighl flying vas eslabIished belveen Chicago and Cheyenne, and in IuIy 1924, reguIar
nighl service vas eslabIished on lhe lransconlinenlaI roule.
Olher Iosl Office Deparlmenl air maiI roules vere added or disconlinued as need
for lhe roules vas demonslraled or lhe Iack of need became apparenl. One of lhe mosl
imporlanl roules, lhe overnighl service belveen Nev York and Chicago, vas eslabIished
on a reguIar scheduIe of five nighls a veek in 1925 and on a nighlIy basis in 1926.
The Iosl Office Deparlmenl experimenled vilh various lypes of airpIanes in acluaI
flighl condilions during lhis period. Al firsl, pIanes lhal couId be acquired by lhe
governmenl al nominaI prices vere used in air maiI service. Laler, lhe sleady increase
in voIume of maiI lraffic necessilaled lhe deveIopmenl of a lype of pIane capabIe of
carrying more lhan 500 pounds. The governmenl accepled compelilive bids, and lhe
Iosl Office Deparlmenl began purchasing maiI pIanes lhal vere fasler and lhal had
lvice lhe maiI-carrying capacily of lhe earIier lypes.
ßy 1925, domeslic air maiI service in lhe Uniled Slales had progressed lo lhe poinl
lhal lhe feasibiIily of reguIar service had been adequaleIy demonslraled. IaciIilies
for air lransporlalion had been eslabIished, and lhe desirabiIily of conlinued direcl
governmenl operalion or privale operalion under conlracl vilh lhe governmenl vas
videIy discussed. The U.S. governmenl lradilionaIIy had arranged vilh raiIroads,
sleamship Iines, and olher carriers for lhe Iong-dislance lransporlalion of maiI, vilh
lhe Iosl Office Deparlmenl providing lhe services incidenl lo lhe coIIeclion, sorling,
IocaI lransporlalion, and deIivery of lhe maiI.
A I R T R A N S P O R TAT I O N 3 2
Ccniraci Mai | Scrti cc
The lhird slage in lhe deveIopmenl of air maiI service vas ushered in by lhe Conlracl Air
MaiI Acl of 1925, lhe so-caIIed KeIIy Acl, named aher ils sponsor, CIyde KeIIy (see lhe
seclion “IederaI LegisIalion and lhe AirIines”). The KeIIy Acl aulhorized lhe poslmasler
generaI lo enler inlo conlracls vilh privale cilizens or companies for lhe lransporlalion
of maiI by air.
ShorlIy lhereaher, lhe |oinl congressionaI commiĴee on civiI avialion, vhich had been
eslabIished al lhe requesl of lhe Deparlmenl of Commerce, decried in ils reporl hov
much lhe Uniled Slales Iagged behind Iurope in avialion. In response lo lhese findings,
Iresidenl CaIvin CooIidge appoinled a seIecl board of prominenl business Ieaders,
headed by Dvighl Morrov, lo make recommendalions regarding lhe deveIopmenl of
avialion in lhe Uniled Slales. The Morrov board essenliaIIy confirmed lhe findings of lhe
|oinl commiĴee and recommended lhe separalion of civiI and miIilary avialion, vilh lhe
former under lhe auspices of lhe Commerce Deparlmenl. This pIeased lhe secrelary of
commerce, Herberl Hoover, vho vas a slrong proponenl of avialion. Oul of aII lhis came
lhe Air Commerce Acl of 1926, vhich, in effecl, gol lhe federaI governmenl back inlo lhe
avialion business, lhis lime as a reguIalor of lhose budding carriers crealed by lhe KeIIy
Acl (see lhe seclion on “IederaI LegisIalion and lhe AirIines”).
The Iosl Office Deparlmenl firsl sel up shorl feeder routes (designed lo feed
lraffic inlo lhe main-Iine lrunk roule) belveen various cilies and scheduIed lhe slarl
of a lransconlinenlaI Columbia route once lhe shorl Iines vere vorking salisfacloriIy.
ßusinessmen, Iured by lhe KeIIy Acl’s aIIovance of 80 percenl of lhe air maiI revenue lo
lhe conlraclor vho carried il, flooded lhe Iosl Office Deparlmenl vilh more lhan 5,000
bids. Irom lhese, lhe deparlmenl chose lhe operalors of 12 feeder, or CAM (contract air
mail), routes Iinking cilies lhroughoul lhe nalion (see Iigure 2-1).
On November 15, 1926, lhe Iosl Office Deparlmenl adverlised for bids
on proposaIs for service on lvo seclions of lhe lransconlinenlaI air maiI roule—lhe Nev
York–Chicago and lhe Chicago–San Irancisco seclions. An acceplabIe proposaI al a
salisfaclory rale of compensalion for lhe Chicago–San Irancisco seclion vas submiĴed by
lhe ßoeing AirpIane Company and Idvard Hubbard. This service vas Ialer incorporaled
as lhe ßoeing Air Transporl Company. Al firsl, no salisfaclory bid vas received for
lhe Nev York–Chicago seclion, bul on March 8, NalionaI Air Transporl’s bid vas
accepled.
Service on lhe Chicago–San Irancisco roule vas reIinquished lo ßoeing by lhe Iosl
Office Deparlmenl on Iune 30, 1927. ßoeing’s enlry inlo commerciaI avialion had far-
reaching effecls. To cIear lhe Rocky Mounlains, ßoeing produced a nev airpIane, lhe ß-40,
povered by lhe nev air-cooIed IraĴ & Whilney 400-horsepover (hp) Wasp radiaI engine
and equipped lo carry lvo passengers in addilion lo ils maiI cargo. SubsequenlIy, ßoeing
and IraĴ & Whilney |oined forces lo become Uniled Aircrah and Transporl Company.
Service on lhe Nev York–Chicago roule began on Seplember 1, lhus pIacing lhe air
maiI service in lhe same reIalionship vilh lhe Iosl Office Deparlmenl as lhe maiI service
provided by lhe raiIroads, sleamship Iines, and olher maiI conlraclors.
The air maiI conlracls provided lhe genesis for severaI of loday’s airIines. CoIoniaI
AirIines, vhich von CAM roule 1 belveen Nev York and ßoslon, vas lhe predecessor of
American AirIines. Weslern Air Ixpress, operalor of CAM 4 from Los AngeIes lo SaIl Lake
Cily, evenluaIIy became parl of TWA. Norlhvesl AirIines picked up CAM 9 from Chicago
lo MinneapoIis aher lhe originaI conlraclor gave il up. Uniled absorbed lhe operalors of
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 3 3
lvo veslern carriers, Varney Speed Lines, operalor of CAM 5, and Iacific Air Transporl,
operalor of CAM 8. Aher a slruggIe lo gain ma|orily slock inleresl, Uniled aIso gained
conlroI of lhe carrier aIong lhe easlern segmenl of lhe lransconlinenlaI roule, NalionaI
Air Transporl, vhich had flovn speciaIIy designed pIanes on CAM. In lhe midvesl, lhe
biggesl name in aulomobiIes, Henry Iord, emerged as a ma|or force on lhe avialion scene
by vinning lhe conlracls for CAM 6 and CAM 7 belveen Delroil, Chicago, and CIeveIand.
Iord’s venlure inlo avialion gave a skeplicaI pubIic nev confidence in air lransporl—if lhe
aslule aulo manufaclurer vas viIIing lo gel inlo lhe business, lhere musl be somelhing
lo il.
Iord branched oul in 1926 by acquiring lhe Sloul MelaI Aircrah Company in Sloul Cily,
Michigan, and began conslruclion of lhe famous “Tin Goose”. The Iord Trimolor, as il
vas officiaIIy designaled, had lhree-engine reIiabiIily, as veII as grealer aIlilude capabiIily
Los Angeles
Salt Lake City
Pueblo, Colo.
Cheyenne, Wyo.
Minneapolis–St. Paul
St. Louis
Pittsburgh
Cleveland
Chicago
Detroit
CAM 1
CAM 7 New York
Boston
Atlanta
Jacksonville
Dallas
Elko, Nev.
Pasco, Wash.
Seattle
CAM 4
CAM 12
CAM 3
CAM 9
CAM 10
CAM 6
CAM 2
CAM 11
CAM 8
CAM 8
CAM 5
San Francisco
Columbia Routes:
Western Express Route – Boeing Air Transport – July 1, 1927
Eastern Express Route – National Air Transport – September 1, 1927
Feeder Routes:
Route No. Company Route Began Operating
CAM 1 Colonial Airlines New York – Boston June 18, 1926
CAM 2 Robertson Aircraft Corp. Chicago – St. Louis April 15, 1926
CAM 3 National Air Transport Chicago – Dallas May 12, 1926
CAM 4 Western Air Express Los Angeles – Salt Lake City April 17, 1926
CAM 5 Varney Speed Lines Elko, Nev. – Pasco, Wash. April 6, 1926
CAM 6 Ford Air Transport Detroit – Cleveland February 16, 1926
CAM 7 Ford Air Transport Detroit – Chicago February 15, 1926
CAM 8 Pacific Air Transport Los Angeles – Seattle September 15, 1926
CAM 9 Charles Dickenson Chicago – Minneapolis June 7, 1926
CAM 10 Florida Airways Corp. Atlanta – Jacksonville September 14, 1926
CAM 11 Clifford Ball Cleveland – Pittsburgh April 21, 1927
CAM 12 Western Air Express Pueblo, Colo. – Cheyenne, Wyo. December 15, 1926
FIGURE 2-1 The first contract air mail routes. Airline feeder routes were contracted
to private operators in 1926. The transcontinental express sections
were set up in 1927, and commercial air travel across the United States
became a reality.
A I R T R A N S P O R TAT I O N 3 4
Pcsinasicr Gcncra| Brcun an! inc Ai r| i ncs
WaIler IoIger ßrovn vas poslmasler generaI under Iresidenl Herberl Hoover in lhe
Iale 1920s. An aĴorney from Ohio, ßrovn combined aslule vision vilh a rulhIess viII
lo ensure lhe success of lhe Iosl Office’s mission lo deveIop commerciaI avialion. ßolh
Hoover and ßrovn disIiked reckIess compelilion as much as lhey did monopoIies, and
lhey bolh soughl induslry slabiIily, efficiency, and grovlh—specificaIIy, slrong companies
vilh reguIaled compelilion. ConsequenlIy, ßrovn spurred lhe adoplion of anolher
amendmenl lo lhe KeIIy Acl, lhe McNary–Walres biII. Knovn as lhe Air MaiI Acl of 1930,
il empovered lhe poslmasler generaI lo consoIidale air maiI roules if he lhoughl lhal
vouId serve lhe pubIic inleresl.
ßrovn redrev lhe air map of lhe Uniled Slales, forcing smaII operalors oul of business
and avarding lhe buIk of lhe air maiI business lo a handfuI of airIines he considered lo
be veII run, financiaIIy slabIe, and efficienl. In May-1930, he inviled lhe heads of lhe
Iarger airIines lo Washinglon for a series of meelings lhal came lo be caIIed lhe Spoils
Conference. Il vas an apl name, for lhe spoiIs IileraIIy venl lo lhose parlicipanls vho
supporled ßrovn’s pIan lo eslabIish lhree main maiI roules—cenlraI, norlhern, and
soulhern—oul of lhe originaI CAM roules. Uniled (a fusion of moslIy vesl coasl CAM
companies) vouId gel lhe norlhern roule: Avco (lhe Avialion Corporalion, a hoIding
company lhal Ialer became American AirIines) vouId gel lhe soulhern roule. The cenlraI
roule vouId go lo a merger of Weslern Air Ixpress and TransconlinenlaI Air Transporl
(TAT), vhich had hired CharIes Lindbergh lo survey roules for a passenger service based
on aIlernaling raiI and Iord Trimolor flighls lhal vouId aIIov for coasl-lo-coasl lraveI in lhe
unheard-of lime of 48 hours. Weslern had aIso shovn considerabIe inleresl in passenger
lraveI, aIlhough ils roule vas for onIy lhe mosl rugged of individuaIs. Weslern’s Harris
“Iop” Hanshue vas nol lhe lype lo be forced inlo anylhing, and he foughl ßrovn aII lhe
vay, evenluaIIy compromising by accepling slock and a posilion in lhe nev company.
Hanshue agreed lo lhe eslabIishmenl of a nev airIine named TransconlinenlaI and
Weslern Air Ixpress, in vhich TAT and Weslern heId lhe ma|orily of slock. ßrovn’s
pIan seemed lo succeed unliI 1934, vhen a scandaI erupled in Washinglon. AIlhough
ßrovn had been quile candid aboul lhe facl lhal he vanled lhe air maiI business avarded
according lo proven performance and financiaI soIidily, nevspaper reporler IuIlon Levis,
Ir., discovered lhe resuIl of ßrovn’s phiIosophy. Ludinglon AirIines, flying lhe lrianguIar
Washinglon–IhiIadeIphia–Nev York roule, had bid 25 cenls a miIe on lhe maiI conlracl
and a Iarger payIoad capacily lhan any of ils predecessors. Irom lhe lime of ils firsl flighl
in 1926 lo ils reliremenl from TWA in 1934, lhe Tin Goose vas reIiabIe, reIaliveIy sIov al
85 knols, very slrong, and ralher uncomforlabIe.
In lhe meanlime passenger service couId onIy improve. In 1927, an airpIane caIIed lhe
Lockheed Vega made ils firsl flighl, heraIding lhe age of fasl, comforlabIe lraveI for more
lhan a maiI sack and piIol.
In 1928, vealher informalion vas lransmiĴed by leIelype, and in lhe decade lhal
foIIoved, lhal nelvork expanded rapidIy lo bring piIols lhe kind of informalion lhal vas
essenliaI lo safe, reIiabIe service. ßy 1929, lhe Graf ZeppeIin had flovn around lhe vorId,
and Iames H. DooIiĴIe had made lhe firsl successfuI inslrumenl Ianding. In lhal same era,
HamiIlon Slandard produced lhe firsl hydrauIic variabIe-pilch propeIIer. The lechnoIogy
vas advancing, bul vouId any company running an airIine be profilabIe enough lo buy
il`
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 3 5
belveen lhese cilies bul had Iosl oul lo Iaslern Air Transporl, a much bigger Iine lhal had
bid 89 cenls a miIe. When his nevspaper vouId nol pubIish lhe slory, Levis approached
Senalor Hugo ßIack of AIabama, vho vas chairing a Senale commiĴee invesligaling
marilime maiI conlracls. When ßIack heard lhe slory, he quickIy added air maiI conlracls
lo his invesligalion.
Aher some Ienglhy hearings in vhich a number of supposed scandaIs vere uncovered,
ßIack had aroused lhe pubIic and Iresidenl IrankIin D. RooseveIl lo a poinl lhal aII prior
conlracls vere immedialeIy canceIed. RooseveIl ordered lhe Army lo begin flying lhe
maiI, a decision lhal had lragic consequences. Iven lhough Ioslmasler GeneraI Iames
IarIey had argued againsl lhe canceIIalion, lhe pubIic’s vralh feII on him more lhan on
lhe presidenl vhen one Army pIane aher anolher crashed in poor vealher lhal lhe piIols
vere compIeleIy unequipped lo handIe.
AIlhough ßIack’s hearings uIlimaleIy reveaIed no iIIegaIilies in ßrovn’s arrangemenls—
even lhe supposed bidding scandaI vas expIained lo everyone’s salisfaclion as a more
compIex arrangemenl lhan il firsl appeared—ßIack sliII came oul lhe vinner. He laIked
RooseveIl inlo supporling a biII lo separale lhe airframe companies from lhe airIines, lo
reopen compelilive bidding, and lo bar aII lhe aĴendees of lhe SpoiIs Conference from
furlher parlicipalion. Il vas pure punilive poIilics, bul al Ieasl lhe Army vas oul of lhe
maiI business. Nol onIy had a number of piIols Iosl lheir Iives, bul il had cosl lhe Army
$2.21 a miIe lo fly 16,000 miIes of roules, compared lo 54 cenls a miIe lo cover 27,000 miIes
for lhe airIines.
The Air MaiI Acl of 1934 vas signed inlo Iav by Iresidenl RooseveIl aher Senalor
Ial McCarran’s efforl lo IegisIale an independenl reguIalory body vas defealed. The
acl aulhorized nev one-year conlracls lhal vere sub|ecl lo reviev before renevaI. The
Inlerslale Commerce Commission vas invoIved as a reguIalor of rales, and lhe secrelary
of commerce vas empovered lo specify vhal equipmenl vas suilabIe for each roule.
To pIacale smaIIer airIines anxious lo acquire porlions of lhe big roules, Ioslmasler
GeneraI IarIey added a provision lhal barred aII prior conlracl hoIders from bidding
anev. ObviousIy, lhis meanl lhe end of lhe airIines as an induslry. The governmenl lhal
had crealed lhem under ßrovn vas nov preparing lo deslroy lhem under IarIey. IarIey
privaleIy advised aII lhe airIines lo reorganize, vhich is hov American AirIines, Iaslern
AirIines, and Uniled AirIines aII came lo be.
Of grealesl consequence vas lhe provision lhal severed aircrah manufaclurers from
lhe airIines lhemseIves. ßoeing had lo puII oul of Uniled: Avco gave up American: Norlh
American soId ils TWA hoIdings: and GeneraI Molors surrendered ils slock in bolh
Iaslern and Weslern. A nev era had davned, one in vhich lhe airIines vouId guide lheir
ovn deslinies.
Tnc Turni ng Pci ni j cr inc Ai r| i ncs
Cerlain aspecls of lhe induslry vere Iooking up. ßolh lhe ßoeing 247 and lhe DC-1 had
made lheir firsl flighls during 1933, rendering immedialeIy obsoIele such anliqualed
fixlures as lhe Trimolor and lhe Curliss Condor, lhe Iasl of lhe bipIane lransporls.
ßoeing’s aII-melaI, Iov-ving, lvin-engine monopIane vas lhe firsl modern airIiner.
NeverlheIess, lhe 247 vas nol a success, serving as an iIIuminaling exampIe lhal in lhe
airIiner markel, lhe design lhal is firsl lo lhe finish Iine does nol necessariIy vin lhe race.
The 247 vas speclacuIar: fasler lhan mosl fighler pIanes and abIe lo carry 10 passengers
in unaccuslomed Iuxury. Il von lhe CoIIier Trophy for speed and endurance in 1933, as
A I R T R A N S P O R TAT I O N 3 6
veII as lhe favor of WiIIiam A. IaĴerson, vho became presidenl of Uniled AirIines aher
lhe previous presidenl resigned during lhe ßrovn scandaI.
IaĴerson boughl 60 of lhe ßoeings for $4 miIIion, al lhe lime lhe Iargesl singIe purchase
of airpIanes in hislory—and a bigger order lhan ßoeing couId reaIIy handIe. The order lied
up lhe company’s assembIy Iines for a year, forcing TWA and American lo Iook eIsevhere
for pIanes. UnforlunaleIy for ßoeing, lheir search look lhem lo a smaII manufaclurer
headed up by DonaId DougIas.
The 247 originaIIy vas lo have been buiIl vilh lhe nev IraĴ & Whilney air-cooIed
Hornel engines, bul Uniled’s piIols veloed lhose engines: lhey lrusled onIy lhe reIiabIe
IraĴ & Whilney Wasp engine. The 247 vouId have carried 14 passengers vilh Hornels,
bul lhe Uniled version couId carry onIy 10 vilh lhe smaIIer Wasps, and lhereby ßoeing
von lhe baĴIe bul Iosl lhe var.
In 1932, Iack Irye, presidenl of TWA, had gone lo DougIas vilh a proposaI for a
lrimolor airIiner. DougIas knev lhal lhe Wrighl CycIone vouId eIiminale lhe need for lhe
lhird engine, offering seals for 14 in a lvin-engine airpIane. Thus, vhen ßoeing sIammed
lhe door on TWA and American, DougIas vas abIe lo shov lhem somelhing beĴer—four
more passengers lhan lhe 247 couId carry for lhe same operaling cosl. The resuIling DC-
1, vhich quickIy slrelched lo lhe DC-2, vas a coIossaI gambIe for DonaId DougIas, and
lhe debl he incurred deveIoping il vas nol paid off even by TWA’s evenluaI order for 25
pIanes. ßoeing soId 75 of lhe 247s—bul lhal vas aII. Luhhansa boughl lvo lhal served as
modeIs for some of Germany’s WorId War II bombers, so advanced vas lhe 247’s design
and performance. Uniled soon svilched lo lhe DougIas airpIanes as veII, in order lo
remain compelilive vilh American and TWA. ßul if lhe 247 had been buiIl vilh lhe proper
engine, lhere mighl never have been a DougIas airpIane lo consider.
The 247 caused a selback for ßoeing, bul il did serve as lhe slimuIus for lhe DC
famiIy, a Iine of airpIanes lhal are generaIIy crediled vilh moving lhe airIines from
lheir pre-1933 red-ink days lo limes of soIid profil. The DC-3, vhich vas inlroduced
as lhe SIeeper Transporl (lhe DST) in response lo a specificalion vriĴen by American
AirIines’ C. R. Smilh, nol onIy increased lhe speed and comforl of lraveI, lhereby
vinning passengers vho had nol been viIIing lo brave an airIiner before, bul aIso
operaled reIiabIy and profilabIy. The pIane vas incredibIy slrong, an aĴribule
lhal is IargeIy crediled lo an engineer named Iack Norlhrop. Ils deveIopmenl
aIso inlroduced lhe imporlance of operaling cosls lo airIine managers, vho vere moslIy
nev lo lhe business and lherefore viIIing lo lry nev ideas. The DC-3 vas lhe firsl airpIane
lo insliII a feeIing of confidence in air lraveI, as measured by lhe facl lhal ils safely record
encouraged lhe inlroduclion of lhe firsl air lraveI insurance in 1937.
Tnc Arri ta| cj inc Prcj cssi cna| Ai r| i nc Managcr
Once lhe 1934 Air MaiI Acl had become Iav, a nev group of managers emerged vho vouId
prove lo be lhe mosl dominanl personaIilies lhus far in lhe shorl hislory of air lraveI. The
pioneers had been Iong on courage, bul lhey came up shorl vhen il came lo business
acumen. CuriousIy, fev of lhe Ieaders ve nov associale vilh lheir respeclive companies
acluaIIy founded lheir airIines. The ma|or exceplion is Iuan Trippe, lhe former Navy piIol
vho Iaunched Ian American WorId Airvays in 1927 vilh a renled seapIane because lhe
Iokker he ordered didn’l shov up on lime. Anolher exceplion vas Tom ßraniff, vhose
brolher IauI vas one of his firsl piIols. A lhird founder, lhough he came aIong Ialer, vas
lhe coIorfuI ßob Ieach of Mohavk AirIines (nov parl of US Airvays).
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 3 7
Ior lhe mosl parl, hovever, lhe men vho became lhe gianls of lhe induslry vorked
lheir vay up from Iess exaIled posilions. Ior exampIe, WiIIiam A. IaĴerson, vho boIdIy
signed for $4 miIIion vorlh of ßoeings, vas onIy a vice-presidenl al Uniled vhen lhe
massacre of 1934 moved him up. As Iale as 1934, aher lhe Air MaiI Acl had gone inlo
effecl, C. I. WooIman vas onIy generaI manager of DeIla, bul he vouId Iead lhe company’s
deveIopmenl as ils presidenl in lhe decades lo foIIov. The presidenl of Iaslern vas Irnesl
I. ßreech: Iddie Rickenbacker didn’l |oin unliI lhe foIIoving year, as generaI manager.
And TWA vas aboul lo eIecl Iack Irye as presidenl, bul he vas onIy a vice-presidenl for
lhe 10-monlh period preceding his eIeclion.
The induslry needed slrong Ieadership al lhis poinl in ils deveIopmenl, and lhese
individuaIs vouId en|oy some of lhe Iongesl and mosl successfuI lenures in U.S. business
hislory. This group of dynamic individuaIs seemed lo share one oulslanding lrail—lhe
abiIily lo lake risks againsl greal odds and keep going in lhe face of adversily. And belveen
1929 and 1933, lhe adversily vas greal indeed. The airIines had a falaIily rale 1,500 limes
lhal of lhe raiIroads and 900 limes lhal of buses: in 1932, lhe carriers had 108 accidenls,
16 of lhem falaI. And nol unliI lhe 1940s did passenger revenues exceed lhe income from
maiI paymenls. If lhal vasn’l bad enough, lhe induslry Iearned earIy on lhal lhe years
vhen ils fleel needed modernizalion and expansion usuaIIy preceded limes of economic
slagnalion, recession, lighl money, and sIack air lraveI.
Iusl before WorId War II, some evenls look pIace lhal influenced lhe fulure of lhe
airIines and redirecled lhe vay lhey conducled lheir operalions. Considering lheir avfuI
safely record al lhe lime, il is hard lo fauIl lhe decisions lhal Ied lo lhe changes, bul fev
vouId ever have guessed al lhe evenluaI oulcome.
On December 1, 1935, lhe firsl airvay lraffic conlroI cenler vas formed in Nevark, Nev
Iersey, lo inform by radio aII piIols in lhe vicinily as lo lhe vhereabouls of olher air lraffic
during inslrumenl condilions. SignificanlIy, il vas lhe airIines lhemseIves lhal firsl slaffed
lhe faciIily. They had seen lhe need for such a praclice and had haslened lo lake aclion. In
Iess lhan a year, lhe ßureau of Air Commerce vas arranging lo lake over air lraffic conlroI,
a Iandmark evenl lhal seemed Iess significanl al lhe lime lhan il does in relrospecl. The
governmenl vas nov irrelrievabIy invoIved in lhe direcl operalion of lhe airIines.
Thal same year, Senalor ßronson CuĴing vas kiIIed vhen his TransconlinenlaI and
Weslern flighl crashed in Missouri. An immediale invesligalion vas Iaunched inlo lhe
safely funclion of lhe ßureau of Air Commerce. AIso in 1935, lhe ßrilish inslaIIed a lop-
secrel nelvork of radar lransceivers aIong lheir coasl and equipped lheir miIilary aircrah
vilh an earIy lransponder knovn as III (for “idenlificalion, friend or foe”).
ßy 1936, Socony-Vacuum OiI Company vas producing 100-oclane avialion gasoIine by
a melhod knovn as calaIylic cracking, vhich efficienlIy derived Iarge quanlilies of high-
quaIily fueI from pelroIeum slock. ShorlIy lhereaher, Caplain CarI I. Crane invenled a
syslem for lolaIIy aulomalic Iandings and successfuIIy lesled lhe devices al Wrighl IieId
in Ohio. Il seems surprising nov lo reaIize lhal so many ma|or lechnoIogicaI advances
vere avaiIabIe so earIy. Thal lhey arrived vhen lhey did may veII have had a decisive
effecl on hov lhe governmenl deaIl vilh vhal il sav as ils obIigalion lo ensure lhe safely
of passengers, for lhis vas a lime of fierce debale lhal vouId cuIminale in a significanl
piece of IegisIalion.
A I R T R A N S P O R TAT I O N 3 8
The Iavs reIaling lo air commerce vere a hopeIess mess. Three agencies heId pover in
various inlerlvined areas: lhe Iosl Office Deparlmenl, lhe Commerce Deparlmenl, and
lhe Inlerslale Commerce Commission. In an efforl lo cIean IegisIalive house, Iresidenl
IrankIin D. RooseveIl soIiciled and received recommendalions for a nev, incIusive body
of reguIalions. The resuIl vas lhe CiviI Aeronaulics Acl of 1938, vhich eslabIished lhe
CiviI Aeronaulics Aulhorily (see lhe seclion “IederaI LegisIalion and lhe AirIines”).
When WorId War II broke oul, RooseveIl made arrangemenls lo nalionaIize lhe airIines,
and had il nol been for lhe slrong opposilion of lhe Air Transporl Associalion (ATA), lhis
arrangemenl mighl veII have become permanenl. Iusl a fev days aher lhe Iapanese aĴack
on IearI Harbor, RooseveIl had signed an execulive order lhal vouId have aIIoved him
lo seize lhe airIines, bul lhe presidenl of lhe Air Transporl Associalion laIked him oul of
il, pIeading lhal lhe carriers couId do a beĴer |ob if lhey vere Ieh lo run a gIobaI varlime
lransporlalion syslem lhemseIves. The order vas rescinded.
SliII, avialion in aII ils forms conlribuled lo lhe var efforl. Iverylhing lhal flev became
al Ieasl quasi-miIilary: lhe CiviI Air IalroI venl oul on coaslaI palroIs, and lhe airIines
conlracled lhe buIk of lheir fleels lo lhe Army. The miIilary aIso enIisled mosl of lhe piIols
vho had slaffed lhe airIines, and roules vere revised draslicaIIy lo aIIocale lhe remaining
resources lo lhe var efforl ralher lhan lhe needs of lhe lraveIing pubIic.
Iroduclion vas converled overnighl: lhe DC-3 became lhe C-47 and vas even more
Iegendary in ils accompIishmenls as a miIilary airpIane lhan in ils civiIian counlerparl. Al
lhe beginning of lhe var, U.S. lransporls vere lhe mosl highIy evoIved aircrah lhe miIilary
had, and cerlainIy lhe mosl lried and lesled. The var shrank lhe airIines lhemseIves
lo insignificance, bul lhe induslry had never been more lhan lhe sum of lhe skiII and
equipmenl lhal lurned il inlo an efficienl miIilary force as easiIy as lhey had made il a
profilabIe business.
THE GROWTH YEARS: 1938–1958
1938–1945
Oul of WorId War II came lhe DC-4 and lhe ConsleIIalion, lvo high-performance, Iong-
range airpIanes lhal Ialer prepared lhe induslry for lhe |el era. The C-54 (lhe miIilary
designalion for lhe DC-4) had ils beginnings back in 1936 as lhe DC-4I, an aborlive
design lhal combined lhe forvard end of a DC-3 vilh four engines and a lripIe laiI.
MeanvhiIe, George Mead of IraĴ & Whilney had underlaken lhe lask of geĴing lhal
company back inlo lhe lransporl business: ils miIilary success had been phenomenaI,
bul Wrighl AeronaulicaI had dominaled lhe commerciaI markel vilh lhe DC-3. The nev
IraĴ & Whilney R-2000 engine mel lhe specificalions for lhe finaI version of lhe DC-4,
an enlireIy nev DougIas design lhal firsl flev in 1942, |usl in lime lo become lhe Army’s
C-54 Skymasler.
SimuIlaneousIy, Lockheed vas buiIding lhe ConsleIIalion, vhich had Wrighl
engines, a pressurized airframe, and lhe lripIe laiIs lhal DougIas abandoned: il firsl
flev in 1943. Il is significanl lhal air cargo became a vorlhvhiIe nolion during lhe var.
Ireighl vas firsl carried in lhe C-47, lhe C-54, and lhe ConsleIIalion—lhe oId passenger
carriers—and Ialer in airpIanes such as lhe C-82s, vhich vere designed specificaIIy
lo move freighl. AIlhough lhe airIines couId nol benefil financiaIIy from lhese nev
Tnc Pcsiuar Ycars
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 3 9
airpIanes unliI aher lhe var, il maĴered IiĴIe. The aircrah exisled, and lhe facl lhal
lhe miIilary produced lhem in Iarge numbers simpIy made lhem avaiIabIe cheapIy as
poslvar surpIus.
The compIex operalions of var aIso haslened lhe improvemenl of communicalions
lechniques, and radar became a high-priorily pro|ecl lhal vouId Iay lhe foundalion for
modern air lraffic conlroI. MiIilary air lraffic operalions in high-densily environmenls
became a vaIid modeI lo be furlher improved upon and modified lo fil lhe needs of lhe
airIines.
The immediale poslvar era vas a slagnanl lime for lhe airIines. Iresidenl Harry S.
Truman’s adminislralion vas pIagued by healed rivaIries and poIilicaI infighling over
roules and revenues. Wilh lhousands of avialors avaiIabIe aher lhe var, a Iarge number of
airIines sprang up. Trunk roules vere aIready laken by lhe prevar companies, bul many
feeder roules vere up for grabs. The eslabIished carriers vieved vilh horror lhe lhoughl
of governmenl subsidies for nev feeder Iines, arguing lhal lhey shouId provide lhe feeder
service. The CiviI Aeronaulics ßoard assured lhe Iarger carriers lhal lhe nevIy eslabIished
feeders vouId be carefuIIy monilored and nol aIIoved lo compele vilh airIines flying lhe
lrunk Iines. Some of lhe firsl feeders eslabIished vere AIIegheny, Mohavk, Iiedmonl,
Norlh CenlraI, Ironlier, ßonanza, Ozark, and Iacific.
Overexpansion furnished enough lroubIe for lhe airIines, bul lhe nonscheduIed airIines
lhal sprang up aII over lhe nalion provided more. These airIines, naluraIIy, made runs
belveen ma|or popuIalion cenlers, vhich cul inlo lhe lrunk Iines’ lraffic.
The ßerIin airIih in 1948–49 represenled an unequaIed opporlunily lo deveIop
experience in high-voIume air freighl and conlribuled lo lhe sense of oplimism aboul
air freighl as a viabIe business. Independenl Iines speciaIizing in carrying onIy freighl
vere formed, and lhe firsl experimenls in using heIicoplers lo carry lhe maiI lo inner-cily
heIiporls vere conducled. In 1947, Los AngeIes Airvays succeeded in gaining approvaI
for lhe firsl scheduIed heIicopler service.
ßoeing lried lo bounce back vilh ils 377 Slralocruiser, modeIed aher lhe miIilary ß-
29 Superforlress. Ils success vas Iimiled, hovever, and ßoeing lurned ils aĴenlion lo
miIilary |el aircrah. MeanvhiIe, Convair and Marlin lvin-engine pIanes vilh pressurized
cabins flev shorl-hauI roules lo feed lhe ever-groving gianl airIines lhal crossed lhe
enlire counlry in nonslop Ieaps. Avialion records feII as nev and improved modeIs of
ConsleIIalions, DC-6s, and DC-7s vilh reciprocaling pover pIanls appeared. The Uniled
Slales had emerged in lhe poslvar years as lhe aircrah manufacluring Ieader.
The ßrilish aircrah manufacluring induslry mel vilh governmenl officiaIs aher lhe
var lo decide vhelher lo lry lo chaIIenge lhe Iead of lhe Uniled Slales vilh convenlionaI
lransporls or lo lake anolher approach. They decided lo Ieapfrog—lo gambIe on producing
lhe firsl |el airIiner. The resuIl vas lhe deHaviIIand Comel |elIiner. Il made ils firsl flighl
in IuIy 1949, and il enlered service vilh ßOAC in May 1952. In Ianuary 1954, a Comel
pIummeled inlo lhe Medilerranean, kiIIing aII 35 passengers and crev members: in ApriI
1954, a second Comel ripped aparl and pIunged inlo lhe sea aher lakeoff from Rome. AII
Comels vere grounded vhiIe officiaIs conducled a lhorough invesligalion lo ascerlain
lhe cause of lhe crashes. In Iebruary 1955, lhe invesligalors delermined lhal melaI faligue
in lhe huII had Ied lo expIosive decompression.
TechnoIogicaI advances vere coming so fasl lhal lhe oId pioneers of lhe airIines
vere soon Ieh behind. AirpIanes quickIy became machines of avesome compIexily,
requiring syslems no one person couId ever enlireIy undersland. IncreasingIy, il vas lhe
governmenl lhal recognized lhis, and beginning in 1947, lhe CiviI Aeronaulics Aulhorily
A I R T R A N S P O R TAT I O N 4 0
(CAA) began cerlifying lhree nev cIasses of flighl personneI: flighl radio operalors,
navigalors, and engineers, a symboI of lhe era of lhe lechnocral. Landings became rouline
al 42 lerminaI airporls used by 12 of lhe airIines. In 1948, lhree engineers al lhe ßeII
TeIephone Laboralories invenled lhe lransislor, vhiIe dislance-measuring equipmenl
(DMI) and very high frequency (VHI) omnirange Ioomed as lhe ansver lo a need for
improved air navigalion aids. ßy 1951, IraĴ & Whilney vas lesling ils 10,000-pound-
lhrusl I57, vhich vouId make lhe deveIopmenl of lhe ßoeing 707 possibIe.
Very quielIy, in 1953, a sludy vas compIeled shoving for lhe firsl lime lhal lhe airpIane
had become lhe prime mover of lraveIers on lrips of more lhan 200 miIes. This onIy
confirmed vhal lhe young execulives in lhe airIine markeling deparlmenls aIready knev.
The vay lo vin lhe pubIic vas lo seII nol “lransporlalion,” bul “lraveI,” and lhal look nev
and ingenious melhods.
If U.S. engineers veren’l viIIing lo experimenl vilh lurbo|els, lhey couId al Ieasl go
haIfvay vilh lurboprops, and CapilaI AirIines lried lhe ßrilish-buiIl Vickers Viscounl amid
press parlies lhal fealured demonslralions of hov one couId baIance a quarler on lhe edge
on one’s meaI lray, so smoolh vere lhe nev lurbine engines. ßul vhen Lockheed lried lhe
same approach vilh ils IIeclra lurboprop, lhe resuIl vas one of lhe mosl expensive recaII
campaigns ever. AIlhough lhe airpIane evenluaIIy proved lo be one of lhe mosl efficienl
ever buiIl, ils image suffered vhen crilics queslioned ils slrucluraI inlegrily. Lockheed
evenluaIIy redesigned lhe vings and engine naceIIes on 165 of lhe airpIanes.
ßoeing had never reaIIy prospered in lhe commerciaI business since lhe DCs had sloIen
lhe lhunder from ils 247. The 307 and 377, lhough praisevorlhy for lheir impIemenlalion
of revoIulionary fealures, had nol reaIIy been successfuI. IorlunaleIy, ßoeing had been
bIessed vilh an endIess succession of conlracls for heavy miIilary equipmenl lhal kepl il
afloal.
Al greal financiaI risk, ßoeing buiIl a |el lanker, lhe miIilary KC-135, vhose purpose
vas lo fueI lhe ßoeing-buiIl ß-47 |el bomber. The air force lesled lhe pIane and boughl
il. ßoeing lhen approached lhe airIines, proposing a |el airIiner based on lhe ßoeing
|el lanker. The airIines vere Iukevarm lo lhe proposaI and decIined lo invesl any
money in research. Once more, ßoeing risked ils ovn funds, lhis lime lo deveIop lhe
ßoeing 707.
When, in 1955, Ian Am announced ils order nol onIy for lhe 707 bul aIso for lhe DougIas
DC-8, ßoeing had spenl $185 miIIion on |el lransporl deveIopmenl. Il marked lhe end of
one era, and lhe beginning of anolher.
MATURITY—JETS ARRIVE: 1958–1978
The |els vere coming, and by 1956 lhe CAA recognized lhe inevilabIe and heId a conference
lo pIan for lhe |el age. The chaIIenges vere enormous, nol onIy for lhe airIines, for vhom
30 years of parls and mainlenance experience became obsoIele overnighl, bul aIso for lhe
governmenl, because safe operalions vere lheir responsibiIily. Then, in 1956, an evenl
occurred lhal defied aII lhe odds: a TWA Super ConsleIIalion and a Uniled DC-7 coIIided
over lhe Grand Canyon, kiIIing 128 peopIe. SuddenIy, il vas a crovded sky, and lhe oulcry
for reform vas Ioud and cIear. The ansvers, of course, vere soughl in lechnoIogy.
If a pair of concepluaIIy obsoIele pislon airIiners couId have a midair coIIision, vhal
vouId happen vilh |els, vhich venl 50 percenl fasler` The seemingIy impossibIe coIIision
belveen lvo airpIanes in vhal had once seemed a boundIess sky vas a pivolaI evenl in
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 4 1
lhe hislory of airIine lraveI, for il broughl lhe issue of lhe conlroI of each flighl by some
cenlraI aulhorily lo lhe fore, made air lraffic conlroI mandalory, and increased demands
for precision. Il aIso paved lhe vay for lhe nexl ma|or piece of IegisIalion.
The Grand Canyon midair coIIision vas foIIoved by lvo more bad accidenls, and
in 1958, lhere vas a virluaI slampede lo push lhrough Congress a Iav crealing a nev
IederaI Avialion Agency (IAA), an independenl and comprehensive governmenl agency
lo conlroI aII avialion maĴers, bolh civiI and miIilary. CenlraIized air lraffic conlroI began
Iess lhan a monlh aher lhe biIIs vere inlroduced. Iresidenl Dvighl D. Iisenhover pressed
for passage, and lhe IAA vas born.
Iusl as lhe lurboprops enlered service in 1958, lhe 707 began flying overseas roules.
The lurboprop aircrah had a reIaliveIy shorl Iife vilh lhe ma|or carriers. Il vas American
AirIines lhal began 707 service belveen lhe coasls a year Ialer. Wilh lhe advenl of lhe 727,
one of lhe mosl efficienl lransporl airpIanes ever buiIl and one lhal became as videIy
flovn as lhe DC-3, and lhe DC-9, lhe airIines soon disposed of aII lheir reciprocaling
propeIIer equipmenl. Ior a vhiIe, Iaslern used some oIder airpIanes on ils shuĴIe flighls
belveen lhe norlheasl corridor cilies of ßoslon, Nev York, and Washinglon, bul lhey vere
soon repIaced.
On December 30, 1969, ßoeing achieved cerlificalion of an airpIane lhal revoIulionized
airIine lraveI forever. Iusl as lhe originaI ß-707 broughl vibralion-free, over-vealher, |el-
engine flying lo passengers, lhe gianl 747 vas lo bring Iov-cosl lraveI lo lhe masses. Once
again, Ian Am Ied lhe vay by inlroducing |umbo-|el service across lhe AlIanlic in Ianuary
1970. An economic dovnlurn dried up orders for lhe pIane belveen 1969 and 1972, bul
aher lhal iniliaI selback, orders began lo flov in a sleady slream.
The ßoeing 747 vas unmalched. Il vas abIe lo carry aboul 380 passengers in an 8- or
even 10-abreasl, lvin-aisIe, mixed-cIass Iayoul and broughl a nev lerm lo commerciaI
avialion: “vide-body.” The humpback profiIe of lhe airpIane resuIled from an earIy
decision lo maximize freighl-carrying capabiIily: lhe liIl-up nose on lhe 747I (freighler)
and 747C (converlibIe) versions aIIoved direcl inserlion of cargo conlainers. Doing so
required a cockpil lhal vas removed from lhe main deck and a generous aherbody for
slreamIining, and, al Iuan Trippe’s insislence, an upper-deck, firsl-cIass Iounge vas added
in lhe area behind lhe cockpil.
The ßoeing 747 has reigned supreme over lhe vorId’s air roules for more lhan a quarler
of a cenlury. More lhan a lhousand 747s have aIready been buiIl, and produclion conlinues.
WiseIy, olher manufaclurers did nol lry lo chaIIenge ßoeing head-on. The lri-|el DougIas
DC-10 and lhe Lockheed L-1011, under deveIopmenl al lhe same lime as lhe 747, vere
onIy aboul lhree-quarlers of ils size. Conlaining aboul 270 seals, lhe pIanes vere inlended
lo salisfy lhe requiremenls of air roules lhal did nol generale sufficienl lraffic lo |uslify lhe
depIoymenl of lhe gianl ßoeings. The DC-10 enlered service on Augusl 5, 1971, and lhe
TriSlar on ApriI 26, 1972. ßolh suffered severe selbacks. A DC-10 suffered a speclacuIar
crash al lhe vorId’s busiesl airporl, Chicago’s O’Hare, on May 25, 1979. Iroduclion of lhe
TriSlar vas disrupled by lhe bankruplcy of ils engine manufaclurer, RoIIs-Royce.
A Ialecomer lo lhe vide-bodied airIiner fieId vas lhe Airbus. Il vas firsl conceived
simuIlaneousIy by Havker-SiddeIey, vhich had laken over deHaviIIand, in Greal ßrilain
and by ßrequel-Sud in Irance. The basic design of lhis lvin-engined varianl on lhe vide-
bodied principIe look shape in lhe Iale 1960s. The vings for vhal became lhe A300 series
vere buiIl by a Iuropean consorlium of airframe manufaclurers. Air Irance pul lhe firsl
version of lhe Airbus, as il quickIy became knovn, inlo service in May 1974.
A I R T R A N S P O R TAT I O N 4 2
ßoeing had nol been negIecling olher pro|ecls during lhe years of lhe 747 program.
The lhree-engine 727 shorl-hauI airIiner began as a 100-seal regionaI carrier, evenluaIIy
slrelching inlo Ienglhened versions lhal malched lhe 707’s Ienglh. ßolh lhe 727 and lhe 737
used lhe fuseIage cross seclion of lhe 707 series, giving shorl-range cuslomers amenilies
simiIar lo lhose found on lhe Ionger lrips. The lvin-engine 737, cerlificaled in IuIy 1967,
vas designed lo compele vilh DougIas’s DC-9.
Since lhe |els look over, lhe airIine induslry has inlroduced one lechnoIogicaI
advancemenl aher anolher: flighl recorders, vealher radar, lerrain-avoidance syslems,
and so on. During lhis era, lhe airIines passed from a period of high risk lo a period of
virluaIIy no risk al aII. Wilh lhe passage of lhe AirIine DereguIalion Acl of 1978 (see lhe
seclion “IederaI LegisIalion and lhe AirIines”), lhe airIine induslry moved inlo an era of
nev chaIIenges.
The period from 1938 lo 1978 vilnessed lruIy phenomenaI grovlh in bolh domeslic and
inlernalionaI air lransporlalion. Over lhe years, U.S. airIines received many nev roule
aulhorizalions, domeslic and inlernalionaI. TabIe 2-1 shovs lhe grovlh in lhe number
of cerlificaled domeslic roule miIes of lhe Ieading carriers during 40 years of reguIalion.
The number of U.S. cily pairs connecled by scheduIed airIine service grev in slep vilh
expanded roule miIes. InlernalionaIIy, Iimiled service vas provided in 1938 by a handfuI
of scheduIed U.S. airIines (principaIIy Ian American Airvays and ils reIaled companies)
and a haIf dozen or so significanl foreign airIines. ßy 1978, lhese numbers had increased
lo 21 U.S. and 73 foreign airIines.
Air passenger lraffic aIso grev al an aslonishing rale. The number of passengers
(domeslic and inlernalionaI) carried by U.S. airIines increased from a IiĴIe over 1 miIIion
in 1938 lo aImosl 267 miIIion in 1978. In addilion, in 1978, foreign airIines carried some
16 miIIion passengers lo or from lhe Uniled Slales. Wilh increases in average Ienglh
of |ourney, lhere vas an even grealer grovlh in U.S. airIine passenger miIes, from 533
miIIion in 1938 lo 219 biIIion in 1978. The air lransporl induslry lhus emerged as one of
lhe nalion’s ma|or induslries. Over lhe four-decade period, revenues increased from $58
miIIion lo $22.8 biIIion, and lolaI airIine assels increased from under $100 miIIion lo over
$17 biIIion.
The air lransporl induslry aIso became a ma|or empIoyer. TolaI direcl airIine empIoymenl
increased from aboul 13,000 lo veII over 300,000. In addilion, hundreds of lhousands
of peopIe vere empIoyed in lhe manufaclure of civiI lransporl aircrah, engines, and
accessories: al airporls: in lraveI agencies: and in lhe vasl range of olher reIaled service,
suppIy, and supporl aclivilies.
TechnoIogicaI deveIopmenl vas speclacuIar, nol |usl in aircrah bul in lhe air lransporl
syslem infraslruclure as veII. In lerms of aircrah, lhis 40-year period vilnessed lhe
evoIulion from lhe propeIIer-driven, 21-passenger DC-3 lo lhe 400-seal, vide-body ßoeing
747 |el lhal, in addilion lo a fuII passenger Ioad, has cargo capacily equaI lo lhe Ioad-
carrying capabiIily of five DC-3s. Aircrah nonslop range, vilh fuII payIoad, grev lo over
6,000 miIes.
Accompanying lhese deveIopmenls vere quanlum improvemenls in safely, speed,
comforl, and overaII convenience for lhe users of air service. A lruIy inlegraled air
ECONOMIC DEVELOPMENTS PRIOR TO
DEREGULATION
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 4 3
TABLE 2-1 Growth of Certificated Domestic Routes (miles)
AirIine 1938 1978
American 6,826 43,755
DeIla 1,091 50,380
Iaslern 5,276 43,576
Norlhvesl 2,507 30,927
TWA 5,749 29,127
Uniled 5,321 48,709
Source: CAß SlalislicaI Reporls.
lransporl syslem vas deveIoped lhal enabIed lhe pubIic lo buy lickels from virluaIIy any
airIine (and from many lhousands of lraveI agenls) for lraveI on muIlipIe airIines and
lo check baggage al lhe poinl of origin for deIivery al lhe deslinalion regardIess of hov
many airpIane or airIine changes vere made en roule.
Al lhe same lime, lechnoIogicaI advances combined vilh economies of scaIe lo produce
Iover unil cosls, heIping make il possibIe lo hoId lhe Iine on prices over lhis 40-year
period. Despile a consumer price inflalion rale of aImosl 400 percenl from 1938 lo 1978,
average fares per passenger miIe remained remarkabIy slabIe (see TabIe 2-2). The increase
from 1968 lo 1978 reflecled nol onIy acule inflalion bul aIso lhe sharp fueI cosl increases
foIIoving lhe 1973 oiI embargo.
The air lransporl induslry aIso mel lhe congressionaI ob|eclive of assisling lhe nalionaI
defense. As reporled by lhe CAß in ils 1942 AnnuaI Reporl lo Congress: “IearI Harbor
broughl reaI meaning and nev force lo lhe nalionaI defense slandard so viseIy vriĴen
inlo lhe CiviI Aeronaulics Acl during peacelime.” The airIines, domeslic and inlernalionaI,
venl on varlime fooling and conlribuled significanlIy lo lhe var efforl. SubsequenlIy,
lhey heIped break lhe ßerIin bIockade, provided imporlanl conlribulions in lhe Korean
and Vielnam vars, and furnished emergency and evacualion assislance in dozens of
olher crilicaI silualions around lhe gIobe. And by 1978, lhe formaI CiviI Reserve Air
IIeel, avaiIabIe vilh crevs for miIilary caII-up al defined slages of nalionaI emergency,
conlained 298 commerciaI aircrah, of vhich 216 vere Iarge inlerconlinenlaI unils.
The U.S. air lransporl syslem, by far lhe Iargesl in lhe vorId, vas aIso lhe besl in
|usl aboul every respecl. And lhis conlribuled, in no smaII measure, lo lhe vorIdvide
supremacy of lhe U.S. aerospace induslry, exporling as il did many biIIions of doIIars’
vorlh of aircrah, engines, componenls, and parls.
AII of lhis vas accompIished lhrough privale enlerprise vilh an earIy phaseoul of
governmenl subsidies excepl for Iimiled lypes of service in lhe pubIic inleresl. Ixacl earIy
figures do nol exisl, because lhe CAß did nol idenlify lhe “compensalory” eIemenl in
lolaI maiI pay unliI 1951. Ior fiscaI 1951, sIighlIy over $75 miIIion vas paid in subsidies,
equaI lo sIighlIy over 7 percenl of lolaI induslry revenues. In 1951, subsidy recipienls, by
calegory, vere:
A I R T R A N S P O R TAT I O N 4 4
TABLE 2-2 Average Yield per Revenue Passenger Mile (cents)
InlernalionaI
AII Roule Domeslic Trunk
Carriers
a
Trunk Lines Operalions
1938 5.50c 5.12c 8.34c
1948 6.30 5.73 8.01
1958 5.80 5.58 6.46
1968 5.46 5.45 4.95
1978 8.35 8.14 7.50
Source: CAß SlalislicaI Reporls.
a
IncIudes IocaI service carriers, vhose yieIds vere higher lhan lhose of domeslic lrunk Iines and inlerna-
lionaI lrunk operalions.
Domeslic lrunks $18.9 miIIion
LocaI service $17.1 miIIion
InlernalionaI, overseas, and lerriloriaI $39.3 miIIion
$75.3 miIIion
Ior caIendar year 1977, by coincidence, aImosl lhe same IeveIs of subsidies ($76.7 miIIion)
vere dislribuled, bul none venl for domeslic lrunks or inlernalionaI services, vhich had
Iong funclioned vilhoul governmenl financiaI supporl. The recipienl groups in 1977
vere:
LocaI service $72.2 miIIion
AIaskan carriers $ 4.5 miIIion
$76.7 miIIion
Subsidies in 1977 represenled onIy 0.3 percenl of lolaI induslry revenues.
The 40-year period of air lransporl reguIalion sav a sleady increase in lhe number of
operalors on specific domeslic roules. In 1978, fev markels vilh significanl lraffic exisled
lhal vere served by onIy one airIine. And in inlernalionaI service, lhere vas a sleady
and subslanliaI increase in lhe number of operalors (U.S. and foreign) over virluaIIy aII
commerciaIIy imporlanl roules.
This 40-year period aIso sav changes in lhe slruclure of lhe U.S. airIine induslry. A
number of lhe originaI “grandfalher” lrunk-Iine carriers (5 of lhe originaI 16) merged vilh
or vere acquired by olher airIines: lhere vere no bankruplcies among lhem. During lhe
same period, nev calegories of carriers, as veII as nev carriers, vere Iicensed, incIuding
8 IocaI-service and 3 aII-cargo companies, and 10 charler airIines. This IaĴer group pIayed
a significanl roIe in offering Iover-priced lransporlalion and deveIoped a slrong presence
in cerlain markels, parlicuIarIy for lransalIanlic flighls.
Despile probIems and inadequacies, fev couId reasonabIy deny lhe briIIianl success
of lhe 1938 reguIalory scheme. There vas a high IeveI of pubIic salisfaclion vilh U.S.
airIines. A U.S. Ncus c Wcr|! |cpcri survey reveaIed lhal oul of 21 defined calegories of
U.S. induslry, lhe airIines vere raled lhe highesl for “giving lhe cuslomer good vaIue for
money.”
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 4 5
In onIy one respecl did lhe airIines perform poorIy: compared vilh olher broad induslry
groups, lhe airIine business vas nol highIy profilabIe. CoincidenlaIIy, 1978, lhe Iasl year of
reguIalion, vas by far lhe mosl profilabIe year over lhe 40-year period.
Any reviev of airIine profilabiIily musl aIso lake inlo accounl lhe exlremeIy cycIicaI
nalure of lhe business. Il is highIy Ieveraged, because lhe marginaI cosl of addilionaI
lraffic (and lhe marginaI savings from Iess lraffic) al any given IeveI of capacily is very
Iov. As a resuIl, lhe svings in profilabiIily from recession lo good limes and back lo
recession can be very vide. This is veII iIIuslraled by hov lhe 1970–71 and 1974–75
recessions affecled airIine financiaI performance (see TabIe 2-3). Il is inleresling lo nole
lhal ATA compulalions of rale of relurn on inveslmenl shoved, for exampIe, posilive
relurns of 1.2 percenl in 1970, vhen lhe induslry reporled a nel Ioss of $201 miIIion, and
2.5 percenl in 1975, vhen il reporled a nel Ioss of $84 miIIion. Irofil margin provides
a meaningfuI financiaI yardslick. ßased on lhese compulalions, airIine profil margins
from 1967 lo 1977 averaged onIy 1.7 percenl, versus 4.8 percenl for U.S. manufacluring
companies.
TABLE 2-3 U.S. Schedule Airlines Operating Revenues and Profits,
Before and Aer Interest Expense (millions of dollars)
Operaling Irofil
Operaling Operaling Inleresl (Loss) Aher
Revenue Irofil Ixpense Inleresl Ixpense
1968 $ 7,753 $ 505 $222 $ 283
1969 8,791 387 283 104
1970 9,290 43 318 (275)
1971 10,046 328 331 (3)
1972 11,163 584 307 277
1973 12,419 585 368 217
1974 14,699 726 420 306
1975 15,356 128 402 (274)
1976 17,506 723 372 351
1977 19,917 908 373 535
1978 22,884 1,365 539 826
Source: Air Transporl Associalion (ATA) AnnuaI Reporls.
FEDERAL LEGISLATION AND THE AIRLINES
The aulhorily of lhe federaI governmenl lo reguIale inlerslale and overseas avialion and
air lransporlalion derives from lhe Conslilulion of lhe Uniled Slales, vhich granls lo
Congress lhe righl lo reguIale inlerslale and foreign commerce, lo reguIale lhe poslaI
service, lo make lrealies vilh foreign nalions, and lo provide for lhe nalionaI defense. The
ralionaIe for reguIalion is rooled in lhe economic and physicaI characlerislics of lhe air
lransporl induslry. The ma|or reasons are Iisled here:
1. Tc sia|i|izc inc in!usiru. The air lransporlalion induslry is a pubIic uliIily lhal
is imporlanl lo lhe commerciaI and sociaI veIfare of lhe nalion. The need lo
slabiIize modes of lransporlalion so lhal lhey couId serve lhe pubIic al reasonabIe
A I R T R A N S P O R TAT I O N 4 6
prices spurred lhe inlroduclion of economic reguIalion of valer lransporlalion,
raiIroads, and, Ialer, highvays. In lhe case of air lransporlalion, lhe induslry vas
somevhal unslabIe in ils earIy years of grovlh, even lhough safely reguIalions
and federaI subsidies lhrough air maiI conlracls vere in pIace from lhe beginning.
Induslry inslabiIily vas one of lhe primary reasons for bringing air lransporlalion
under a syslem of reguIalion.
Air lransporlalion’s earIy years vere characlerized by fierce compelilion
among numerous budding carriers, fluclualing prices, unreIiabIe service, and
high lurnover among carriers. Overcapacily in lhe induslry and lhe compelilive
bidding process for air maiI conlracls vere said lo have Ied lo absurdIy Iov bids
and disaslrous price vars. This almosphere vas nol conducive lo inveslmenl by
lhe financiaI communily, and vilhoul oulside capilaI funding, lhe fierce IiĴIe
compelilors lhal made up lhe induslry in ils earIy years couId nol acquire lhe
equipmenl lhey needed. Laler, in lhe earIy 1930s, lhe air carriers lhemseIves soughl
federaI reguIalion, reaIizing lhal lhe hislory of lransporlalion demonslraled lhal
lhe absence of such reguIalion Ied lo eviIs from vhich nol onIy lhe pubIic bul
aIso lhe induslry ilseIf vouId suffer. ßy 1938, lhe air lransporlalion induslry
vas experiencing crilicaI financiaI difficuIlies: many of lhe ma|or Iines faced lhe
lhreal of bankruplcy, and much of lhe originaI inveslmenl in airIines had been
dissipaled. IinanciaI difficuIlies vere aIso aggravaled by a series of accidenls in
lhe vinler of 1936–37 lhal undermined pubIic confidence. The facl lhal raiI and
highvay lransporlalion vas aIready reguIaled sel a precedenl for reguIalion lhal
encouraged ils enaclmenl in air lransporlalion.
2. Tc inprctc air sajciu. The induslry vas, and sliII is, IargeIy dependenl on
governmenl aid lo mainlain lhe safe flov of lraffic. IederaI reguIalion of air
lransporlalion safely vas in effecl from lhe earIy years. Il vas recognized lhal
safely reguIalion couId nol reach ils maximum effecliveness if lhe induslry
vas unslabIe and if lhe carriers vere financiaIIy veak and unabIe lo afford lhe
necessary safely precaulions and devices. Therefore, economic reguIalion vas
inlended, in parl, lo slabiIize air lransporlalion so lhal lhe carriers vouId have
lhe financiaI capacily lo pay for vhalever vas needed lo conform vilh safely
reguIalions perlaining lo lhe design, operalion, and mainlenance of aircrah.
3. Tc rc!ucc casn su|si!ics. Anolher reason, aIlhough minor, for reguIaling air
lransporlalion vas lhe facl lhal air carriers had been subsidized lhrough lhe air
maiI program since lhe mid-1920s. Il vas beIieved lhal lhe subsidies needed couId
be reduced by slabiIizing lhe induslry lhrough economic reguIalion. A financiaIIy
slrong and slabIe airIine induslry vouId need smaIIer subsidies from lhe federaI
governmenl.
Olher reasons for reguIalion incIuded lhe facl lhal lhe induslry used lhe airspace
over lhe enlire Uniled Slales, over olher nalions, and over inlernalionaI valers.
ConsequenlIy, il naluraIIy feII under federaI ralher lhan slale |urisdiclion. Anolher
reason vas lhe induslry’s roIe in lhe nalionaI defense. This vas evidenced as earIy as
WorId War II, vhen lhe airIines, flying under conlracl for lhe miIilary, provided lhe
backbone of lhe Air Transporl Command. Under conlracls vilh lhe miIilary for airIih
services, lhe airIines pIayed a significanl roIe during lhe Korean and lhe Vielnam
vars. In addilion, a |oinl program belveen lhe Deparlmenl of Defense and lhe
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 4 7
airIines, lhe CiviI Reserve Air IIeel (CRAI), vas designed lo augmenl miIilary airIih
capabiIily in lhe evenl of a nalionaI emergency.
|ar| u |c!cra| Icgi s| aii cn
The Air Commerce Acl of 1926 imposed on lhe secrelary of commerce and lhe Deparlmenl
of Commerce lhe duly of promoling and foslering lhe deveIopmenl of commerciaI avialion
in lhe Uniled Slales. The acl aulhorized lhe Deparlmenl of Commerce lo encourage and
deveIop faciIilies necessary for air navigalion and lo reguIale and mainlain lhem.
The acl did nol iniliaIIy creale a nev bureau vilhin lhe Deparlmenl of Commerce.
Ralher, lhe inlenlion vas lo dislribule lhe dulies imposed by lhe acl among lhe lhen-
exisling agencies of lhe deparlmenl.
The ob|eclive of lhe Air Commerce Acl vas lo slabiIize civiI or commerciaI avialion
in such a vay as lo aĴracl adequale capilaI lo lhe fledgIing induslry and lo provide il
vilh lhe assislance and IegaI basis necessary for ils deveIopmenl. The Iav emphasized
lhe federaI governmenl’s roIe in lhe deveIopmenl of civiI air lransporlalion more lhan il
slressed ils responsibiIily for reguIaling lhe business aspecls of air lransporlalion. The acl
vas designed lo encourage lhe rapid deveIopmenl of commerciaI avialion, as indicaled
by lhe IegisIalive hislory of lhe acl.
In inlroducing lhe biII lhal became lhe Air Commerce Acl, lhe Senale CommiĴee on
Inlerslale Commerce slaled lhal “aIlhough Americans buiIl lhe firsl airpIanes capabIe of
flighl, and vere lhe firsl lo Iearn hov lo fly heavier-lhan-air machines, and hoId more vorId
records lhan do lhe cilizens of any olher nalion, commerciaI avialion has nol advanced
as rapidIy in lhe Uniled Slales as had been hoped and expecled.” This acl defined air
Tnc Ai r Ccnncrcc Aci cj 1926
The firsl sleps lhe federaI governmenl look lo reguIale avialion and air lransporlalion
occurred in conneclion vilh lhe deveIopmenl of lhe air maiI service. In May 1918, lhe air
maiI service vas inauguraled on an experimenlaI basis by lhe Iosl Office Deparlmenl and
lhe Army. In Augusl of lhe same year, lhe service vas laken over as a Iosl Office Deparlmenl
operalion. On Iebruary 2, 1925, Congress enacled lhe Conlracl Air MaiI Acl, usuaIIy
knovn as lhe KeIIy Acl, and as such gave birlh lo lhe airIine induslry. This Iav aulhorized
lhe poslmasler generaI lo conlracl vilh privale individuaIs or companies engaged in air
lransporlalion service for lhe lransporlalion of air maiI. ßy 1927, aII lhe air maiI services
of lhe Iosl Office Deparlmenl had been lurned over lo lhe air lransporlalion companies,
and nev roules vere eslabIished lo be operaled by air maiI conlracl carriers. The effecl
on air passenger lransporlalion of lhe eslabIishmenl of conlracluaI reIalionships belveen
lhe Iosl Office Deparlmenl and lhe air maiI carriers can scarceIy be overemphasized. The
subsidies received by lhe air maiI conlraclors enabIed a number of airIines lo eslabIish
passenger services. Indeed, il vouId have been impossibIe for some companies lo exisl
vilhoul lhe air maiI conlracls.
The KeIIy Acl vas amended in 1926 lo provide higher rales of compensalion.
Subsequenl air maiI IegisIalion vas imporlanl because of lhe reIalionship of lhis lype of
reguIalion lo lhe broader IegisIalion deaIing vilh lhe reguIalion of air lransporlalion. The
pioneer IegisIalion of lhis lype, because il Iaid lhe foundalion for aII fulure reguIalion of
air lransporlalion, vas lhe Air Commerce Acl of 1926, aIso knovn as lhe ßingham–Iarker
Acl.
A I R T R A N S P O R TAT I O N 4 8
commerce as lransporlalion, in vhoIe or in parl, by aircrah, of persons or properly for
hire, and lhe navigalion of aircrah in furlherance of or for lhe conducl of a business.
The acl made il lhe duly of lhe secrelary of commerce lo encourage air commerce by
eslabIishing civiI airvays and olher navigalionaI faciIilies lo aid aeriaI navigalion and air
commerce.
The reguIalion of avialion provided for in lhe acl incIuded lhe Iicensing, inspeclion,
and operalion of aircrah: lhe marking of Iicensed and unIicensed crah: lhe Iicensing of
piIols and of mechanics engaged in aircrah vork: and lhe reguIalion of lhe use of airvays.
SeveraI differenl governmenlaI agencies or deparlmenls vere empovered lo perform
funclions reIalive lo carrying oul lhe provisions of lhe acl:
1. The Deparlmenl of Commerce vas enlrusled vilh lhe adminislralion and
enforcemenl of ma|or porlions of lhe acl. An assislanl secrelary for aeronaulics
vas appoinled in 1927 lo adminisler lhe dulies assigned lo lhe deparlmenl.
2. The secrelary of lhe lreasury vas given lhe duly of providing reguIalory ruIes
for enlry, cIearance, and cusloms reguIalions for aircrah engaged in foreign
commerce.
3. The secrelary of Iabor vas empovered lo deaI vilh aII immigralion probIems
reIalive lo air lransporlalion.
4. The Wealher ßureau of lhe Deparlmenl of AgricuIlure vas aulhorized lo suppIy
meleoroIogicaI informalion.
5. The secrelary of var vas aulhorized lo designale miIilary airvays.
6. The ßureau of Slandards of lhe Deparlmenl of Commerce vas direcled lo
underlake R & D lo improve air navigalion faciIilies.
Through lhis dislribulion of funclions in conneclion vilh avialion and air lransporlalion,
Congress soughl lo uliIize as many of lhe exisling governmenlaI agencies as possibIe,
lhus avoiding or reducing lhe need lo creale addilionaI and dupIicaling federaI agencies
especiaIIy for air lransporlalion and avialion. ConsequenlIy, no separale bureau vas
iniliaIIy sel up in lhe Deparlmenl of Commerce. Hovever, in IuIy 1927, a direclor of
aeronaulics vas appoinled, vho, under lhe generaI direclion of lhe assislanl secrelary
for aeronaulics, vas in charge of lhe vork of lhe Deparlmenl of Commerce in lhe
adminislralion of lhe Air Commerce Acl.
In November 1929, because of lhe increasing voIume of vork incidenl lo lhe rapid
deveIopmenl of avialion, il vas necessary lo decenlraIize lhe organizalion. Three
assislanls and lhe slaffs of lhe divisions under lheir respeclive |urisdiclions vere assigned
lo lhe assislanl secrelary of commerce for aeronaulics. These incIuded a direclor of air
reguIalion, a chief engineer of airvays, and a direclor of aeronaulics deveIopmenl lo assisl
in aeronaulicaI reguIalion and promolion. The organizalion vas knovn as lhe Aeronaulics
ßranch of lhe Deparlmenl of Commerce.
The vork vas furlher reassigned by execulive order of lhe presidenl in 1933, so as lo
pIace lhe promolion and reguIalion of aeronaulics in a separaleIy consliluled bureau of lhe
Deparlmenl of Commerce. An adminislralive order of lhe secrelary of commerce provided
for lhe eslabIishmenl of lhe ßureau of Air Commerce in 1934. The bureau consisled of lvo
divisions, lhe Division of Air Navigalion and lhe Division of Air ReguIalion.
A revised pIan of organizalion for lhe ßureau of Air Commerce, adopled in ApriI 1937,
pIaced aII lhe aclivilies of lhe bureau under a direclor, aided by an assislanl direclor, vilh
supervision over seven principaI divisions: airvay engineering, airvay operalion, safely
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 4 9
and pIanning, adminislralion and slalislics, cerlificalion, inspeclion, and reguIalion. A
poIicy board vas formed lo deaI vilh aII maĴers affecling poIicy vilhin lhe bureau, and
an advisory board, consisling of civiIian and olher represenlalives of aII avialion inleresls,
vas appoinled lo advise lhe bureau.
The Air MaiI Acl of 1930, knovn as lhe McNary–Walres Acl, vas passed by Congress
on ApriI-29, 1930. Il provided lhe poslmasler generaI vilh unIimiled conlroI over lhe
air maiI roule syslem. The poslmasler generaI couId nov exlend or consoIidale roules
if he lhoughl il vouId serve lhe pubIic inleresl. The acl aIso lighlened lhe provisions
under vhich conlraclors vere reimbursed for carrying lhe maiI and provided addilionaI
remuneralion for conlraclors flying muIli-engine aircrah and using lhe Ialesl navigalionaI
aids.
In Iebruary-1934, lhe poslmasler generaI annuIIed aII domeslic air maiI conlracls,
and lhe lransporlalion of lhe maiI vas assigned lemporariIy lo lhe Air Corps of lhe U.S.
Army. This aclion vas laken because lhe poslmasler generaI had evidence lhal lhere vas
a conspiracy lo defeal compelilive bidding.
The arrangemenl vilh lhe Air Corps conlinued from Iebruary 20 lo May 16, 1934.
Then, aher lhe reorganizalion of lhe commerciaI air lransporlalion companies according
lo governmenl requiremenls as a precondilion lo submiĴing bids for air maiI conlracls,
lhe commerciaI companies submiĴed bids, and nev conlracls vere avarded.
The Air MaiI Acl of 1934, passed on Iune 12 and knovn as lhe ßIack–McKeIIar Acl,
provided lemporary conlracls and gave lhe Inlerslale Commerce Commission (ICC)
lhe responsibiIily of periodicaIIy ad|usling lhe rales of compensalion lo be paid lhe air
lransporl companies for lhe carriage of lhe maiI vilhin lhe Iimilalions imposed by lhe acl.
The ICC vas required by Iav lo reviev annuaIIy lhe rales of air maiI pay lo ensure lhal
no company vas earning unreasonabIe profils. Iach air maiI conlraclor vas required lo
submil for examinalion and audil by lhe ICC ils books, accounls, conlracls, and business
records and lo fiIe semiannuaI reporls of aII free lransporlalion provided. The ICC aIso vas
aulhorized lo invesligale any aIIeged unfair praclices and compelilive services of companies
lransporling air maiI lhal adverseIy affecled lhe generaI lransporl business or earnings on
olher air maiI roules, and lo order lhe praclices or compelilion lo be disconlinued if unfair
condilions vere found lo exisl. The acl aIso provided lhal aher IuIy 1, 1938, lhe aggregale
cosl of air maiI lransporlalion lo lhe governmenl couId nol exceed lhe anlicipaled revenue
from air maiI. The ICC organized lhe ßureau of Air MaiI lo adminisler lhe reguIalion of air
maiI compensalion under ils direclion.
In addilion, lhe acl separaled lhe manufacluring companies from conneclions vilh
airIines and forbade inlerIocking direclorales, overIapping inleresls, and muluaI slock
hoIdings. ßy 1938, lvo generaI calegories of “air carriers” had deveIoped. The firsl,
economicaIIy more significanl, group vas composed of lhe air maiI conlraclors lhal flev
over eslabIished roules and lransporled persons, properly, and maiI. The second group,
lhe so-caIIed fixed-base operalors, vas composed of persons operaling airporls, flying
schooIs, crop-dusling services, and so forlh, vho aIso carried persons and properly on an
air laxi basis in smaII, nonlransporl-lype aircrah.
A!!i ii cna| Ai r Mai | Acis
A I R T R A N S P O R TAT I O N 5 0
On Iune-23, 1938, lhe CiviI Aeronaulics Acl vas approved by Iresidenl
RooseveIl. This acl subsliluled a singIe federaI slalule for lhe severaI generaI
and air maiI slalules lhal up lo lhis lime had provided for lhe reguIalion of
lhe avialion and air lransporlalion induslry. The acl pIaced aII lhe funclions
of aid lo and reguIalion of avialion and air lransporlalion vilhin one adminislralive
agency consisling of lhree parlIy aulonomous bodies—a five-member CiviI
Aeronaulics Aulhorily (CAA), a lhree-member Air Safely ßoard, and an
adminislralor—and aĴempled lo demarcale execulive, IegisIalive, and |udiciaI
funclions.
Members of lhis composile agency or adminislralion vere appoinled by lhe presidenl
vilh lhe advice and consenl of lhe Senale. No lerm vas slaled for lhe adminislralor,
bul members of lhe olher lvo agencies vere appoinled lo office for lerms of six years.
The acl required members of lhe lhree agencies lo devole fuII lime lo lheir dulies and
forbade lhem from having any financiaI inleresl in any civiI aeronaulics enlerprise.
The five members of lhe CiviI Aeronaulics Aulhorily performed quasi-|udiciaI and
IegisIalive funclions reIaled lo economic and safely reguIalions. The adminislralor
performed pureIy execulive funclions reIaled lo lhe deveIopmenl, operalion, and
adminislralion of air navigalion faciIilies, as veII as promolionaI vork in avialion.
The Air Safely ßoard vas a quasi-independenl body crealed for lhe purpose of
invesligaling and anaIyzing accidenls and making recommendalions lo eIiminale lhe
causes of accidenls.
The personneI, properly, and unexpended baIances of approprialions of lhe ßureau
of Air Commerce of lhe Deparlmenl of Commerce and of lhe ßureau of Air MaiI of lhe
Inlerslale Commerce Commission, vhich had adminislered air maiI paymenls under
lhe Air MaiI Acl of 1934, vere lransferred lo lhe nev CiviI Aeronaulics Aulhorily. The
lransfer of lhe responsibiIilies of lhe ßureau of Air Commerce lo lhe CiviI Aeronaulics
Aulhorily, effecled in Augusl 1938 under provisions of lhe CiviI Aeronaulics Acl,
broughl lo a cIose a 12-year period during vhich lhe deveIopmenl and reguIalion of
civiI aeronaulics vere under lhe |urisdiclion of lhe Deparlmenl of Commerce.
The CiviI Aeronaulics Aulhorily exercised aII quasi-IegisIalive and quasi-|udiciaI
povers conferred by lhe acl and aII execulive povers of appoinlmenl vilh respecl lo
ils officers and empIoyees. Il look conlroI of lhe expendilures of lhe adminislralor and
lhe Air Safely ßoard and of aII olher execulive povers of appoinlmenl vilh respecl lo
lhe exercise of lhese quasi-IegisIalive and quasi-|udiciaI povers.
The adminislralor, appoinled by lhe presidenl, exercised execulive povers vilh
respecl lo lhe deveIopmenl of civiI aeronaulics and air commerce: lhe foslering,
eslabIishmenl, and mainlenance of air navigalion faciIilies: and lhe reguIalion and
proleclion of air lraffic.
The Air Safely ßoard vas appoinled by lhe presidenl, by and vilh lhe approvaI
of lhe Senale. Il acled independenlIy of lhe CiviI Aeronaulics Aulhorily, and in
performing ils invesligalions of accidenls, il reporled on lhe facls and probabIe causes
and recommended prevenlive measures lo avoid fulure accidenls.
The CiviI Aeronaulics Aulhorily vas direcled by Congress, in lhe decIaralion of
poIicy of lhe CiviI Aeronaulics Acl, lo reguIale air lransporlalion in lhe pubIic inleresl
by performing six funclions:
Tnc Ci ti | Acrcnauii cs Aci cj 1938
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 5 1
1. Incouraging and deveIoping an air lransporlalion syslem adapled lo lhe presenl
and fulure needs of domeslic and foreign commerce, lhe poslaI syslem, and
nalionaI defense
2. ReguIaling air lransporlalion so as lo preserve ils inherenl advanlages, promoling
lhe highesl degree of safely and sound condilions in lhe induslry, improving
reIalions among air lransporl companies, and coordinaling lransporlalion by air
carriers
3. Iromoling adequale, economicaI, and efficienl lransporlalion service by air
carriers al reasonabIe charges, and prohibiling un|usl discriminalion, undue
preferences or advanlages, and unfair or deslruclive compelilive praclices
4. Ireserving compelilion in keeping vilh lhe sound deveIopmenl of an
air lransporlalion syslem for commerce, lhe maiI service, and nalionaI defense
5. Iromoling lhe deveIopmenl of air commerce and safely
6. Incouraging lhe deveIopmenl of civiI aeronaulics
The acl exlended federaI reguIalion lo aII phases of aeronaulics, lo aII persons engaged
in flying, and lo aII inslrumenlaIilies of avialion vilh lhe exceplion of lhe acluaI acquisilion
and operalion of airporls. This vas accompIished by vhal has been lermed a ralher unusuaI
use of definilions. Air ccnncrcc vas defined by lhe acl lo mean aII inlerslale, overseas,
or foreign air commerce, or lhe lransporlalion of maiI by aircrah, or any operalion or
navigalion of aircrah vilhin lhe Iimils of any civiI airvay, or any operalion or navigalion
of aircrah lhal direclIy affecled or lhal mighl endanger safely in inlerslale, overseas,
or foreign air commerce. This Iasl cIause provided for a degree of federaI conlroI over
inlraslale avialion, because a privale piIol mighl use an airvay in inlraslale operalion lhal
mighl endanger lhe safe conducl of inlerslale commerce.
Under severaI reorganizalion pIans in 1940, lhe Air Safely ßoard vas
aboIished and ils funclions lransferred lo lhe five-member CiviI Aeronaulics Aulhorily,
vhich vas redesignaled lhe CiviI Aeronaulics ßoard (CAß). The adminislralor of
civiI aeronaulics (vhose organizalion vas lhen knovn as lhe CiviI Aeronaulics
Adminislralion, or CAA, and Ialer as lhe IederaI Avialion Agency, or IAA) vas
pIaced under lhe Deparlmenl of Commerce. The respeclive dulies of lhe board and lhe
adminislralor vere deIinealed in broad oulIine. The CAß, aIlhough adminislered vilhin
lhe Deparlmenl of Commerce for housekeeping purposes, relained ils slalus as one of lhe
so-caIIed independenl reguIalory agencies, such as lhe Inlerslale Commerce Commission,
lhe IederaI Communicalions Commission, lhe IederaI Iover Commission, and lhe
Securilies and Ixchange Commission.
Under lhe Ialer 1958 IederaI Avialion Acl, lhe board vas designaled an “independenl”
agency. The IAA, successor lo lhe CAA, vas nol assigned lo any execulive deparlmenl,
bul vas considered an “execulive agency” as opposed lo an independenl reguIalory
commission.
|ccncni c |uncii cns cj inc CAB
The broad Ianguage of lhe DecIaralion of IoIicy, vilh ils somevhal conflicling ob|eclives,
Ieh lhe CAß vilh considerabIe discrelion in ils adminislralion of lhe acl. The CAß’s
decisions vere finaI, sub|ecl lo courl reviev, bul even here lhe acl provided lhal lhe
“findings of facl by lhe CAß, if supporled by subslanliaI evidence, shaII be concIusive.”
This vas a significanl obslacIe lo efforls lo overlurn CAß decisions, parlicuIarIy because
A I R T R A N S P O R TAT I O N 5 2
lhe “findings” in mosl roule and rale proceedings (vhich vere al lhe hearl of lhe reguIalory
scheme) vere prediclive or |udgmenlaI in characler.
Whalever lhe compIexilies encounlered in praclice, lhe Iicensing syslem vas simpIe in
concepl: no one couId engage in lhe business of pubIic air lransporlalion unIess aulhorized
lo do so by a “cerlificale of pubIic convenience and necessily” issued by lhe CAß. To
oblain such cerlificales, appIicanls vere required lo convince lhe CAß lhal lhey vere
“fil, viIIing, and abIe” lo perform lhe proposed lransporlalion “properIy” and lhal “such
lransporlalion is required by lhe pubIic convenience and necessily.” This, of course, Ied
righl back lo lhe exlremeIy generaI congressionaI ob|eclives sel forlh in lhe DecIaralion
of IoIicy.
The CAß aIso had broad aulhorily lo aĴach lo any cerlificale “such reasonabIe lerms,
condilions, and Iimilalions as lhe pubIic inleresl may require,” and il exercised such
aulhorily. Cerlificales vere ohen very delaiIed. They specified inlermediale and |unclion
poinls and in some cases required or prohibiled slops or lhrough services. Ohen, lhe
carriage of lraffic belveen cerlain pairs of cilies named in a cerlificale, or even lhe carriage
of cerlain calegories of lraffic, vas prohibiled. An imporlanl aspecl of lhe reguIalory
syslem vas lhal airIines couId nol IavfuIIy suspend or abandon services vilhoul CAß
approvaI.
ReguIalion of inlernalionaI roules differed from lhal of domeslic roules. Mosl imporlanl,
CAß decisions vilh respecl lo inlernalionaI roule appIicalions of bolh U.S. and foreign
airIines vere sub|ecl lo “lhe approvaI of lhe Iresidenl.” The Supreme Courl evenluaIIy
heId lhe presidenl’s decision lo be unrevievabIe. AIso, foreign air carrier appIicalions
vere generaIIy based on preexisling inlergovernmenlaI air lransporl agreemenls lhal
granled roule righls lo lhe airIine designaled by lhe foreign governmenl. This aIone vas
aImosl invariabIy considered sufficienl lo meel lhe slalulory slandard appIicabIe lo lhe
granl of foreign airIine roule appIicalions (lhal lhe proposed lransporlalion “viII be in
lhe pubIic inleresl”).
Iassenger fares and cargo rales vere aIso sub|ecl lo slricl reguIalion. Carriers vere
required lo fiIe formaI lariffs, eslabIishing prices charged and appIicabIe lerms and
condilions. These lariffs had lo be fiIed in advance and couId be “re|ecled” (for lechnicaI
reasons) or “suspended” (for perceived subslanlive probIems). Iares and rales vere lo
be “|usl and reasonabIe,” and discriminalion (vilh ils panopIy of reIaled IegaI lerms
such as “undue or unreasonabIe preference or advanlage,” “un|usl discriminalion,”
and “undue or unreasonabIe pre|udice or disadvanlage”) vas prohibiled. Once
a given lariff became effeclive, il had lo be observed: aII forms of rebaling vere
prohibiled.
Slandards for evaIualing lhe reasonabIeness of fares and rales vere as generaI as lhose
for avarding roules. Thus, among olher faclors, lhe CAß vas lo consider “lhe need in
lhe pubIic inleresl of adequale and efficienl lransporlalion of persons and properly by air
carriers al lhe Iovesl cosl consislenl vilh lhe furnishing of such service: and lhe need of
each air carrier for revenue sufficienl lo enabIe such air carrier, under honesl, economicaI,
and efficienl managemenl, lo provide adequale and efficienl air carrier service.” In
praclice, lhe CAß appIied pubIic uliIily “rale of relurn on inveslmenl” principIes in ils rale
revievs and rale making, and aII carriers generaIIy vere required lo charge Iike amounls
for Iike services.
As for inlernalionaI roules, lhe CAß had lo share aulhorily over inlernalionaI rales vilh
foreign governmenls. The obvious compIexilies vere grealIy ameIioraled, in praclice, by
broad vorIdvide acceplance of lhe InlernalionaI Air Transporl Associalion (IATA) as a
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 5 3
forum for meelings and rale agreemenls among inlernalionaI airIines, sub|ecl lo approvaI
by inleresled governmenls.
The CAß aIso eslabIished rales lo be paid airIines by lhe Iosl Office Deparlmenl for
lhe carriage of U.S. maiI, bolh domeslic and inlernalionaI: lhis vas lhe mechanism for
providing lhe subsidy lhal aII air carriers iniliaIIy required. Thus, vhiIe lhe maiI rales
vere lo be “fair and reasonabIe,” one of lhe faclors lo be considered vas “lhe need of
each-… carrier for compensalion for lhe lransporlalion of maiI sufficienl lo insure lhe
performance of such service, and, logelher vilh aII olher revenue of lhe air carrier, lo
enabIe such air carrier under honesl, economicaI, and efficienl managemenl, lo mainlain
and conlinue lhe deveIopmenl of air lransporlalion lo lhe exlenl and lo lhe characler and
quaIily required for lhe commerce of lhe Uniled Slales, lhe IoslaI Service, and lhe nalionaI
defense.” As in ils commerciaI rale making, lhe CAß based subsidy aIIovances on “rale
of relurn on inveslmenl” anaIyses.
AIlhough roule and rale reguIalion had lhe mosl direcl and visibIe impacl on pubIic
service, lhe CAß aIso exercised a broad range of olher economic conlroIs over lhe air
lransporlalion induslry. Thus, il couId (and did) prescribe in delaiI lhe accounls and
records lo be mainlained by air carriers and lhe reporls lo be submiĴed. Agreemenls
belveen air carriers had lo be fiIed vilh lhe CAß, vhose approvaI vas required for cerlain
specified inlerIocking reIalionships and for air lransporl-reIaled mergers, consoIidalions,
and acquisilions of conlroI. Al lhe same lime, hovever, CAß approvaI of such agreemenls
granled immunily from lhe generaI anlilrusl Iavs. The CAß aIso vas aulhorized lo
invesligale and lerminale “unfair or deceplive praclices or unfair melhods of compelilion
in air lransporlalion.”
One furlher economic provision of lhe CiviI Aeronaulics Acl varranls menlion in
Iighl of dereguIalion IegisIalion and posldereguIalion deveIopmenls. Il reIales lo Iabor
reIalions belveen lhe airIines and lheir empIoyees. In recognilion of lhe “pubIic inleresl”
characlerislics of air lransporlalion, air carriers vere required lo compIy vilh lhe provisions
of lhe RaiIvay Labor Acl, vhich prescribed an eIaborale syslem for resoIving dispules.
Tnc |c!cra| Ati aii cn Aci cj 1958
In 1958, Iresidenl Iisenhover, ciling midair coIIisions of aircrah lhal had caused a number
of falaIilies, asked Congress for IegisIalion lo eslabIish “a syslem of air lraffic managemenl
vhich viII prevenl vilhin lhe Iimils of human ingenuily, a recurrence of such accidenls.”
Congress responded by enacling lhe IederaI Avialion Acl of 1958, vhich vas signed inlo
Iav on Augusl 23, 1958. The nev Iav crealed lhe IederaI Avialion Agency (IAA), vhich
vas given aulhorily over lhe nalion’s airspace. The IAA combined lhe exisling funclions
of lhe CAA, lhe avialion funclions of lhe secrelary of commerce, lhe dulies of lhe Airvays
Modernizalion ßoard, and lhe safely and reguIalory funclions of lhe CAß.
Under lhe nev Iav, hovever, lhe CAß relained ils |urisdiclion over roule aIIocalion,
accidenl invesligalion, and fare appIicalions. The 1958 acl expressIy empovered lhe IAA
adminislralor lo reguIale lhe use of lhe navigabIe airspace by bolh civiIian and miIilary
aircrah, lo eslabIish air lraffic ruIes, lo conducl necessary research, and lo deveIop air
navigalion faciIilies. The acl aIso provided lhal miIilary aircrah be exempl from air lraffic
ruIes in lhe evenl of urgenl miIilary necessily and provided for reslricled airspace zones
for securily idenlificalion of aircrah.
The 1958 acl Ieh virluaIIy unchanged lhe economic reguIalory provisions bul made
severaI revisions lo lhe safely program. AIlhough lhe CAß relained ils dulies in lhe fieIds
A I R T R A N S P O R TAT I O N 5 4
of air carrier economic reguIalion and aircrah accidenl invesligalion, lhe board’s pover
lo enacl safely ruIes vere lransferred lo lhe adminislralor of lhe IAA, vilh lhe resuIl lhal
lhe IaĴer officiaI promuIgaled lhe reguIalions and slandards. The CAß’s roIe in safely ruIe
making vas Iimiled lo parlicipalion as an inleresled parly in IAA proceedings. A second
imporlanl revision of prior Iav concerned procedure in cases invoIving suspension and
revocalions of safely cerlificales. Whereas under former Iav onIy lhe CAß couId suspend
or revoke in lhe firsl inslance, lhe nev acl provided for iniliaI aclion by lhe adminislralor,
sub|ecl lo lhe cerlificale hoIder’s priviIege of appeaI lo lhe board.
Aparl from lhese maĴers, lhe IAA adminislralor vieIded essenliaIIy aII lhe povers
and dulies his predecessor had under lhe 1938 acl, pIus a cIearer aulhorily lo aIIocale lhe
navigabIe airspace belveen miIilary and civiIian users.
In lhe spring of 1967, Congress crealed lhe Deparlmenl of Transporlalion. The IAA as
such vas in effecl aboIished, and in ils slead vas eslabIished vilhin lhe nev deparlmenl
a IederaI Avialion Adminislralion, headed by an adminislralor. The IAA’s funclions vere
lransferred lo lhe Deparlmenl of Transporlalion, vhere, for lhe mosl parl, lhey vere pIaced
under lhe IederaI Avialion Adminislralion, vhere lhey remain loday. The Deparlmenl of
Transporlalion Acl aIso lransferred lhe CAß’s accidenl-invesligaling and reIaled safely
funclions lo lhe nev deparlmenl and, in lurn, immedialeIy redeIegaled lhem lo a nev
independenl agency caIIed lhe NalionaI Transporlalion Safely ßoard.
Despile remarkabIe advances under lhe reguIalory syslem eslabIished in 1938, as veII
as broad pubIic salisfaclion vilh lhe airIine syslem, air reguIalion graduaIIy came under
increasing crilicism, parlicuIarIy from academic economisls. This crilicism gained slrong
momenlum in lhe mid-1970s, and belveen 1977 and 1979, a verilabIe revoIulion vas
accompIished in bolh domeslic and inlernalionaI U.S. air lransporl poIicy.
The infancy of lhe air lransporl induslry, and lhen WorId War II, produced an iniliaI
period free from serious crilicism, bul lhe basic economic reguIalory poIicies of lhe IederaI
Avialion Acl evenluaIIy came under aĴack. The key issue, as mighl be expecled, vas lhe
reIalive desirabiIily of free compelilion in lhis induslry versus lhe supposed need for lighl
governmenl conlroI of enlry, exil, pricing, and olher issues. As earIy as 1951, in a sludy
lilIed |c!cra| Ccnirc| cj |niru inic Air Transpcriaiicn. LuciIIe Keyes queslioned bolh lhe
lheorelicaI and empiricaI bases for lhe reguIalory syslem. In 1962, Richard I. Caves, in Air
Transpcri an! |is |cgu|aicrs. concIuded lhal “lhe air lransporl induslry has characlerislics
of markel slruclure lhal vouId bring markel performance of reasonabIe quaIily vilhoul
any economic reguIalion.”
Despile increased crilicism and occasionaI congressionaI sludies lhal Ied lo minor
reguIalory changes, il vas nol unliI 1975 lhal cerlain faclors began combining for a
successfuI push lo deregulation. TradilionaI dislrusl of governmenl reguIalion in generaI
became sharpIy focused on air lransporlalion lhrough a series of economic and reguIalory
deveIopmenls. Adversily slruck lhe induslry in 1970 vhen Iarge increases in capacily,
resuIling from lhe advenl of vide-body |el aircrah, coincided vilh a serious economic
recession. This, in lurn, Ied lo videIy crilicized CAß reguIalory poIicies, incIuding a four-
year moralorium on aII nev-roule cases and approvaI of a series of agreemenls among
airIines lo Iimil capacily over cerlain ma|or roules. Al lhe same lime, CAß pricing poIicies
(vhich sel induslryvide slandards based on average induslry cosls) vere increasingIy
vieved as foslering inefficiency, higher cosls, and higher prices. Crilics poinled lo lhe
Tnc Ocrcgu| aii cn Mctcncni
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 5 5
experience of severaI inlraslale carriers in CaIifornia and Texas (nol reguIaled by lhe
CAß) lhal charged Iover per-miIe fares for comparabIe dislances lhan lhe CAß-reguIaled
airIines and lhal operaled more profilabIy.
The slorm mighl have passed had il nol been for lhe Arab oiI embargo of 1973 and
lhe ensuing massive increase in fueI cosls. AirIine operaling cosls soared, vhiIe lraffic
decreased due lo lhe recession. One resuIl vas a series of fare increases. Hovever, vilh cosl
increases exceeding increases in yieIds, anolher period of poor airIine earnings foIIoved.
This IaĴer faclor added lo lhe Iisl of argumenls for reguIalory reform lhe conlenlion lhal
lhe airIines lhemseIves vouId be beĴer off vilh some form of dereguIalion.
Il vas in lhis almosphere lhal lvo influenliaI reporls vere reIeased. One vas a speciaI
CAß slaff sludy on reguIalory reform, daled IuIy 1975. Il concIuded: “Iroleclive enlry
conlroI, exil conlroI, and pubIic uliIily-lype price reguIalion under lhe IederaI Avialion
Acl are nol |uslified by lhe underIying cosl and demand characlerislics of commerciaI
air lransporlalion. The induslry is naluraIIy compelilive, nol monopoIislic.” The sludy
recommended lhal proleclive enlry, exil, and pubIic uliIily–lype price conlroIs in domeslic
air lransporlalion be eIiminaled vilhin lhree lo five years by slalulory amendmenl.
Al aboul lhis same lime, an influenliaI reporl vas reIeased by lhe SubcommiĴee on
Adminislralive Iraclice and Irocedure of lhe U.S. Senale Iudiciary CommiĴee, headed by
Senalor Idvard Kennedy. The reporl’s repealed message vas lhal prices shouId and vouId
be Iover vilh a more compelilive syslem. The CAß’s praclices, lhe subcommiĴee reporl
concIuded, vhiIe effeclive in promoling induslry grovlh, lechnoIogicaI improvemenls,
and reasonabIe induslry profils, had nol been effeclive in mainlaining Iov prices. The
reporl furlher slaled lhal il vas economicaIIy and lechnicaIIy possibIe lo provide air
service al significanlIy Iover prices, bringing air lraveI vilhin lhe reach of lhe average
cilizen. Wilh lhe sudden increase in anlireguIalion senlimenl, Iresidenl GeraId Iord’s
adminislralion in 1975 sponsored lhe firsl dereguIalion biIIs. This slarled lhe IegisIalive
process lhal cuIminaled in lhe AirIine DereguIalion Acl of 1978.
Iven before lhe acl’s passage, hovever, lhe CAß had begun ils ovn adminislralive
|ourney on lhe road lo dereguIalion. Iirsl, Chairman Iohn I. Robson, vho look office in
1975, graduaIIy reIaxed lhe moralorium on scheduIed service roules of his predecessor.
SuppIemenlaI (charler) airIines vere given grealer opporlunilies lhrough lhe expansion
of lhe scope of permissibIe charlers. The CAß aIso permiĴed grealer carrier flexibiIily
lo reduce fares. These iniliaI caulious moves gained enormous momenlum under
Chairman AIfred I. Kahn, appoinled by Iresidenl Iimmy Carler in 1977. Under his
vigorous Ieadership, lhe CAß soon began processing and approving appIicalions for
nev operaling aulhorily, parlicuIarIy vhen lhe appIicanls promised Iover fares. To
enforce compIiance vilh such promises, avards vere made for shorl lerms, vilh renevaI
dependenl on performance. The CAß aIso vas much more receplive lo roule reaIignmenls
and eIiminalion of reslriclions, as veII as lo exil from lhose markels lo vhich enlry had
been IiberaIized. During lhis same period, lhe Carler adminislralion soughl agreemenls
vilh foreign governmenls lo permil more inlernalionaI compelilion and vas prepared lo
aulhorize as much inlernalionaI service by U.S. airIines as foreign governmenls vouId
accepl.
There vas aIso far grealer receplivily lo fare reduclions. Indeed, CAß Chairman Kahn
carried il lo lhe poinl of |uslifying dismissaI of a compIainl againsl iIIegaI rebaling by
slaling: “The Iav prohibils deparlure from lariffs, bul deparlures from lariffs are good
for compelilion. Rebaling as ve see il is a consequence of noncompelilive rale IeveIs, and
lhe besl lheorelicaI remedy is lo reduce fares.”
A I R T R A N S P O R TAT I O N 5 6
The Carler adminislralion’s supporl for dereguIalion vas an imporlanl faclor, bul lhe
movemenl vas aIso aided by improved induslry profilabiIily. Some observers aĴribuled
lhe induslry’s profilabiIily lo lhe CAß’s nev procompelilion poIicies. AcluaIIy, hovever,
from 1976 lo 1978, lhe induslry vas mereIy experiencing ils lradilionaI cycIicaI uplurn
aher lhe sharp dovnlurn in 1975.
There vas, of course, subslanliaI opposilion lo any significanl reIaxalion of reguIalion
from mosl airIines, from airIine Iabor unions, and from financiaI inslilulions vilh
inveslmenls in lhe induslry. Their argumenls covered a broad range of concerns, incIuding
lhese:
1. IossibIe vorsening of lhe induslry’s exceIIenl safely record
2. IrobabIe concenlralion of service on dense lraffic roules, vilh a consequenl
delerioralion of service on olhers, especiaIIy lhose serving smaII communilies
3. Impairmenl of lhe air lransporlalion “syslem,” vilh ils conveniences of lhrough-
baggage handIing, inlerIine lickeling, and so on
4. Deslruclive and predalory price compelilion, resuIling in earnings delerioralion
and, uIlimaleIy, increased induslry concenlralion
5. Reduced abiIily lo re-equip and lo finance olher avaiIabIe lechnoIogicaI
advances
6. Adverse impacl on airIine empIoyees
ßul lhese argumenls faiIed lo haIl lhe drive for dereguIalion. Indeed, aIlhough vhal
finaIIy emerged as lhe AirIine DereguIalion Acl of 1978 vas vorking ils vay lhrough
congressionaI hearings and reporls and aIlhough lhe biIIs lhemseIves vere undergoing
various revisions, a mini-dereguIalion biII vas passed by Congress vilh IiĴIe fanfare or
pubIic nolice. This vas lhe dereguIalion of domeslic aII-cargo service, vhich became Iav
in November 1977. AcluaIIy, il enlered lhe slalule books buried in a package of changes
aĴached lo a biII deaIing vilh var risk insurance.
The lechnique for aII-cargo dereguIalion vas simpIe and effeclive. Any airIine lhal, under
lhe aulhorily of a cerlificale or exemplion, had provided any scheduIed domeslic aII-cargo
service during 1977 couId, vilhin 45 days aher passage of lhe Iav, appIy for aulhorily for any
and aII olher domeslic aII-cargo service, and lhe CAß vas direcled lo granl lhe appIicalion
promplIy. Al any lime vilhin one year aher passage, anyone couId appIy for a domeslic aII-
cargo cerlificale, vhich vas lo be granled vilhin 180 days of appIicalion, unIess lhe CAß
found lhal lhe appIicanl vas nol “fil, viIIing and abIe.” In addilion, lhe CAß’s aulhorily
lo reguIale domeslic cargo rales, vhelher carried on combinalion or aII-cargo aircrah,
vas Iimiled lo lhose cases in vhich lhe board found, aher a hearing, lhal lhe rales vere
discriminalory, preferenliaI, pre|udiciaI, or predalory. The preexisling lesl of “un|usl or
unreasonabIe” vas eIiminaled, and lhe CAß vas specificaIIy precIuded from suspending
proposed cargo rales pending a hearing.
In March 1978, anolher dereguIalion Iav deaIing vilh cargo vas passed. Il gave charler
airIines lhe same immediale opporlunily lo oblain cerlificales for scheduIed aII-cargo
service lhal vas made avaiIabIe lo scheduIed carriers by lhe 1977 Iav.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 5 7
The AirIine DereguIalion Acl of 1978 deaIl primariIy vilh domeslic air lransporlalion.
There vas sliII subslanliaI praclicaI recognilion of lhe facl lhal no one governmenl couId by
ilseIf dereguIale inlernalionaI service. As a resuIl, Congress eslabIished a nev DecIaralion
of IoIicy appIicabIe onIy lo domeslic air lransporlalion: lhe preexisling poIicy slalemenl
conlinued lo appIy lo inlernalionaI air lransporlalion.
The overriding lheme of lhe acl vas compelilion. There vas lo be maximum reIiance
on compelilion lo aĴain lhe ob|eclives of efficiency, innovalion, Iov prices, and price and
service oplions vhiIe sliII providing lhe needed air lransporlalion syslem. “Compelilive
markel forces” and “acluaI and polenliaI compelilion” vere “lo encourage efficienl and
veII-managed” carriers “lo earn adequale profils and lo aĴracl capilaI.” Al lhe same lime,
hovever, Congress vas responsive lo smaII-communily needs and pressures, and so lhe
acl caIIed for “mainlenance of a comprehensive and convenienl syslem of conlinuous
scheduIed inlerslale and overseas airIine services for smaII communilies and for isoIaled
areas in lhe Uniled Slales, vilh direcl federaI assislance vhere appropriale.”
Reslriclions on enlry inlo domeslic service vere lo be graduaIIy eIiminaled over
lhe nexl severaI years, vilh compIele eIiminalion by lhe end of 1981 (sub|ecl lo CAß
delerminalion lhal parlicuIar appIicanls vere “fil, viIIing and abIe”). The slandard for
granling roule appIicalions vas immedialeIy changed from lhe preexisling requiremenl,
lhal lhe proposed lransporlalion “is required by lhe pubIic convenience and necessily,”
lo a finding lhal il “is consislenl vilh” lhe pubIic convenience and necessily. Iurlher, lhe
burden vas nov on opponenls lo prove Iack of such consislency.
SeveraI speciaI provisions vere made for lhe lhree-year inlerim. Iirsl, any cerlificaled
airIine (scheduIed or charler) had lhe righl of enlry lo one nev roule in each of lhe lhree
years before compIele open enlry. Second, sub|ecl lo cerlain Iimilalions, carriers couId Iay
cIaim lo unused aulhorily of olher carriers. And lhird, lhe CAß vas aulhorized lo issue
experimenlaI cerlificales for lemporary periods.
The nev Iav conlained olher enlry-reIaled provisions lhal IiberaIized lhe preexisling
regime, incIuding lhe foIIoving:
1. Ocncsiic fi||-up rignis cn inicrnaiicna| flignis. Ior exampIe, an inlernalionaI carrier
flying from Los AngeIes lo Rome via Nev York couId be given aulhorily, even
lhough nol previousIy possessed, lo carry domeslic lraffic belveen Los AngeIes
and Nev York on al Ieasl one round-lrip flighl a day.
2. |cncta| cj rcsiriciicns. AII “cIosed-door” reslriclions conlained in domeslic
cerlificales vere eIiminaled. Thus, if an airIine vas aulhorized lo fly from Cily A
lo Cily ß lo Cily C bul prohibiled from carrying lraffic from ß lo C, lhal reslriclion
vas eIiminaled. Congress aIso ordered simpIified and expediled procedures for
revieving appIicalions lo remove olher lypes of cerlificale reslriclions, domeslic
or inlernalionaI.
3. Suspcnsicn an! rc!uciicn cj scrticc. Irovisions vere adopled lhal grealIy simpIified
lhe abiIily of carriers lo reduce or eIiminale service.
The CAß vas aIso direcled lo eslabIish simpIified procedures for disposing of cerlificale
appIicalions and requesls for amendmenl or suspension of cerlificales, and lhe board vas
given reIaliveIy shorl deadIines for reaching decisions.
Tnc Ai r| i nc Ocrcgu| aii cn Aci cj 1978
A I R T R A N S P O R TAT I O N 5 8
The uIlimale IiberaIizalion of enlry occurred, as scheduIed, on December 31, 1981, vhen
lhe soIe barrier lo unreslricled domeslic enlry vas lhe requiremenl lhal lhe appIicanl be
“fil, viIIing and abIe”—a finding lhal had aIready been made for aII exisling cerlificaled
airIines. Ior aII praclicaI purposes, aII airIines (and virluaIIy aII vouId-be airIines) are nov
free lo serve, or lo cease serving, any and aII domeslic roules and cilies.
Congress did recognize lhe need lo ensure conlinued service lo communilies lhal
mighl olhervise have been abandoned or provided an unacceplabIe service IeveI under
dereguIalion. The lradilionaI subsidy program for IocaI-service carriers, vhich vas
direcled more lovard suslaining lhe carriers lhan lo mainlaining specific service lo smaII
communilies, vas lo be phased oul by lhe end of 1985, and a nev program of subsidies lo
guaranlee essenliaI air lransporlalion lo specific communilies vas eslabIished. AII cilies
named in any cerlificale are aulomalicaIIy eIigibIe, and unIess lhe cily is served by al
Ieasl lvo airIines, lhe CAß (or, nov, lhe Deparlmenl of Transporlalion, lo vhich lhis
responsibiIily vas lransferred) vas required lo delermine vhal and hov much service
is “essenliaI.” Essential air service al any given cily is defined as scheduIed service, al
specific minimum frequency and al fair rales, lo one or more olher cilies vilh vhich il
has a communily of inleresl. Whenever il is found lhal a cily viII nol receive essenliaI air
lransporlalion vilhoul subsidy inducemenl, appIicalions lo perform subsidized service
musl be soughl and an avard made al an eslabIished rale of compensalion. Under lhe
dereguIalion acl, lhis program vas lo be conlinued unliI 1988: il vas subsequenlIy
reneved for anolher 10 years.
The acl specified a number of olher changes affecling CAß aulhorily over operaling
righls, incIuding lhese:
1. |xpan!c! auincriiu ic grani cxcnpiicns jrcn cccncnic rcgu|aicru prctisicns. The
slandard for granling exemplions vas considerabIy eased, and, for lhe firsl lime,
exemplions couId be granled lo foreign airIines.
2. Spccific ta|i!aiicn jcr ccriain |i|cra|izc! cnaricr ru|cs inai ucrc un!cr ccuri cna||cngc.
3. Iiniiaiicn cj inc prcsi!cni’s auincriiu ic ctcrru|c inc CAB in inicrnaiicna| rcuic
cascs. IormerIy, lhere vere no slalulory slandards for presidenliaI reviev and no
deadIines for any aclion. Nov, lhe presidenl may onIy disapprove such decisions
for foreign poIicy or nalionaI defense reasons.
The acl aIso deaIl vilh domeslic fares. Iending aImosl compIele dereguIalion al lhe
end of 1982, lhe generaI crileria for CAß consideralion in exercising ils rale reguIalion
funclions vere amended lo give more veighl lo lhe desirabiIily of Iov fares and increased
pricing and service oplions. The acl aIso crealed a zone of reasonabIeness for domeslic
passenger fares geared lo “slandard induslry fare IeveIs,” vhich, in lurn, vere based on
IuIy 1, 1977, fares, ad|usled periodicaIIy for changes in average operaling cosls. Wilhin
lhis zone, lhe CAß couId nol suspend as unreasonabIe any fare as much as 50 percenl
Iover or 5 percenl higher lhan lhe “slandard” fare.
There vere ma|or changes in lhe anlilrusl area as veII. Cerlain lypes of
inlerairIine agreemenls, lransaclions, and reIalionships vere removed from CAß
|urisdiclion and lhus Ieh sub|ecl lo federaI anlilrusl Iavs. Ior lhose lransaclions sliII
requiring CAß approvaI (such as mergers), lhe slandard for approvaI more cIoseIy
conformed lo generaI anlilrusl principIes. In addilion, lhe previous aulomalic immunily
from anlilrusl Iavs for any lransaclion or agreemenl approved by lhe CAß vas repeaIed.
The CAß vas given discrelionary pover lo granl immunily vhen specificaIIy requesled.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 5 9
Slrong Iabor opposilion lo lhe acl Ied lo lhe incIusion of an empIoyee proleclion program.
This program vas inlended lo provide for preferenliaI hiring and financiaI assislance lo
eIigibIe airIine empIoyees vho Iosl lheir |obs or suffered pay culs because of bankruplcy
or ma|or dovnsizing of a carrier due lo lhe change in reguIalory slruclure caused by lhe
acl. AIlhough lhe program vas lo be adminislered by lhe secrelary of Iabor, lhe CAß vas
lo delermine lhe circumslances under vhich lhe proleclive provisions become operalive.
(The CAß never did find lhal any empIoyees vere enlilIed lo proleclion under lhal
slalulory lesl.)
Mosl dramalic of lhe dereguIalion acl’s provisions vas lhe CAß’s demise (“sunsel”). On
Ianuary 1, 1985, lhe CAß ceased lo exisl aIlogelher, and ils aulhorily over subsidies and
foreign air lransporlalion vas lransferred lo lhe U.S. Deparlmenl of Transporlalion (DOT).
Iirsl, hovever, Iale in 1984, Congress made some changes lo lhe 1978 acl, primariIy lo ensure
conlinued consumer proleclion and lo lransfer aulhorily over mergers and agreemenls lo
lhe DOT ralher lhan lo lhe Deparlmenl of Iuslice.
POSTDEREGULATION EVOLUTION
Wilh markel enlry opened up by dereguIalion, a series of ma|or changes occurred in lhe
induslry’s slruclure. ßecause lhe roules of grealesl lraffic voIume and financiaI appeaI
vere lhose originaIIy vilhin lhe lrunk syslem, lhis is naluraIIy vhere mosl expIoilalion of
lhe free-enlry opporlunily occurred. Trunk carriers lhemseIves moved inlo one anolher’s
lerrilories, enlering markels lhey had previousIy desired bul been unabIe lo oblain.
Ior lhe lrunk carriers as a group, lhe subslanliaI movemenl inlo one anolher’s markels
essenliaIIy represenled a slandoff in lhe sense lhal, vhiIe aII of lhese carriers gained nev
opporlunilies, lhey aIso Iosl markels as olher carriers moved inlo lheir ovn previous
lerrilory.
In IuIy 1979, Soulhern Air Lines and Norlh CenlraI AirIines merged lo creale RepubIic
AirIines. Nol conlenl vilh vhal vas basicaIIy sliII a regionaI roule syslem, RepubIic
purchased Hughes Airvesl in November 1980 and expanded ils roule syslem lo lhe vesl
coasl. Wilh lhis merger of lhree IocaI-service carriers inlo one ma|or carrier, lhe induslry
consoIidalion phase began.
Ian American merged vilh NalionaI AirIines in 1980, lheorelicaIIy lo oblain a domeslic
roule syslem. Hovever, lhe reaI significance of lhis merger vas nol lhal Ian American
evenluaIIy von lhe righls lo lake over NalionaI, bul ralher lhal Texas InlernalionaI AirIines
Iosl. Wilh lhe profils from lhe saIe of ils NalionaI AirIines slock, Texas InlernalionaI slarled
Nev York Air in Ianuary 1981. In Ianuary 1982, lhe Texas Air Corporalion vas sel up lo
operale Nev York Air. In Oclober 1982, lhe Texas Air Corporalion purchased ConlinenlaI
AirIines and combined il vilh Texas InlernalionaI. ConlinenlaI conlinued lo operale as a
separale enlily, bul Texas InlernalionaI venl oul of exislence.
On a singIe day in December 1978, ßraniff AirIines, lhe mosl aggressive former lrunk
carrier in picking up dormanl roule aulhorilies, inauguraled service lo 16 nev cilies and
32 nev cily-pair markels. UnforlunaleIy, il became lhe firsl viclim of dereguIalion, forced
lo cease operalions in May 1982. Many faclors conlribuled lo ßraniff’s demise, incIuding
a high debl slruclure, a recession-veakened demand for lransporlalion, and dramalicaIIy
Mcrgcr Mani a
A I R T R A N S P O R TAT I O N 6 0
higher fueI prices. Iaslern AirIines subsequenlIy acquired ßraniff’s prized Lalin American
roules. In 1991, American AirIines vouId acquire lhese roules on lhe demise of Iaslern.
Merger aclivily remained fairIy dormanl for lhe nexl coupIe of years, reappearing
again in March 1985, vhen Soulhvesl AirIines purchased Muse Air (Ialer lo be renamed
Trans Slar), one of ils ma|or compelilors in Texas markels. Hovever, merger aclions began
in earnesl again in fiscaI 1986.
IeopIe Ixpress acquired Ironlier AirIines during lhe fourlh quarler of 1985 and
conlinued ils acquisilions in 1986 by purchasing Irovincelovn ßoslon Airvays in Ianuary
and ßriĴ Airvays in Iebruary. In Seplember 1986, IeopIe Ixpress vas acquired by Texas
Air Corporalion. In ApriI 1986, Texas Air had added Rocky Mounlain Airvays lo ils
empire, and by Seplember, Iaslern AirIines vas under ils corporale umbreIIa.
In May 1986, DeIla acquired lvo commuler airIines, AlIanlic Soulheasl and Comair. ßy
lhe end of lhe year, DeIla compIeled lhe purchase of Weslern AirIines. In Seplember of
lhal same year, Trans WorId acquired Ozark Air Lines, vhiIe Norlhvesl AirIines, vhich
had acquired Mesaba AirIines in 1984, acquired RepubIic AirIines. MeanvhiIe, Uniled
acquired Ian American’s Iacific roules during lhe year, and American acquired Air
CaIifornia in November 1986.
AIIegheny AirIines, a former IocaI-service carrier ambilious lo become a ma|or carrier
in lhe dereguIaled environmenl, changed ils name lo USAir in Oclober 1979. ßy 1985,
il had acquired IennsyIvania AirIines, and in ApriI 1986, il added Suburban AirIines,
foIIoved by Iacific Soulhvesl AirIines in December of lhal same year. Then, in December
1986, USAir acquired anolher former IocaI-service carrier, Iiedmonl AirIines. Iiedmonl
had acquired Henson AirIines in 1983, foIIoved by Impire AirIines in 1985 and Ielslream
InlernalionaI in IuIy 1986.
The consoIidalion movemenl lhal began in 1979 has had a profound impacl on lhe
slruclure of lhe commerciaI airIines induslry, and ils effecls are sliII being feIl. ConlinenlaI
AirIine HoIdings (lhe former Texas Air), vhich in lhe 1980s had been laken inlo and oul of
bankruplcy by ils former ovner, Irank Lorenzo, vound up in bankruplcy once again in
1990, vhen ils overIeveraged baIance sheel proved loo heavy a burden in a lime of high
fueI cosls and a recessionary economy.
Iihy-lhree years of avialion hislory came lo an end in Ianuary 1991 vhen Iaslern
AirIines, lo lhe surprise of fev in lhe induslry, finaIIy ceased operalions aher a Ienglhy
slruggIe for survivaI. Incorporaled in 1938, Iaslern vas one of lhe nalion’s originaI four
lrunk airIines. IIagued by Iabor probIems and operaling under Chapler 11 bankruplcy
since March 1989, Iaslern vas pushed over lhe brink by lhe oulbreak of lhe Iersian GuIf
War, vhich resuIled in rising fueI cosls and decIine in lraveI during lhe recessionary earIy
1990s.
In ApriI-1991, American AirIines acquired Iaslern’s roules lo 20 deslinalions in 15
CenlraI and Soulh American counlries, and in December of lhal year, il slruck deaIs for
ConlinenlaI’s SeaĴIe–Tokyo roule aulhorily and for TWA’s remaining U.S.–London roules.
American had aIready purchased TWA’s Chicago–London roule in 1989.
ßy lhe end of 1991, anolher avialion pioneer venl oul of business: Ian American, vhose
hislory lraced back lo 1927, vhen il began flying lhe maiI belveen lhe IIorida Keys and
Havana. Laler, il pioneered lranspacific service vilh ils flying boals, and il vas lhe firsl
carrier lo fly bolh lhe ßoeing 707 and 747. Ils financiaI probIems began in earnesl vilh lhe
acquisilion of NalionaI AirIines shorlIy aher dereguIalion.
In 1991, DeIla soIidified ils posilion in lhe ranks of lhe “big lhree” carriers by acquiring
firsl lhe Ian American ShuĴIe and Ialer lhe buIk of Ian American’s lransalIanlic and
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 6 1
Iuropean syslems. The DeIla ShuĴIe began operaling belveen ßoslon, Nev York, and
Washinglon, D.C., in Seplember 1991. Compelilion on lhe shuĴIe roule slepped up a
nolch vhen USAir look over operalion of lhe Trump (formerIy Iaslern) ShuĴIe.
MeanvhiIe, in lhe earIy 1990s, Uniled AirIines acquired firsl Ian American’s Lalin
American roules and lhen Ian American’s London roules. In 1991, Uniled aIso compIeled
lhe purchase of ils primary Uniled Ixpress parlner, Air Wisconsin, rescuing lhal carrier
from polenliaI bankruplcy.
In Ianuary 1992, TWA venl inlo Chapler 11 bankruplcy. In ils fiIing, TWA Iisled assels
of $2.7 biIIion and IiabiIilies of $3.5 biIIion. SubsequenlIy, il soId ils London roules from
IhiIadeIphia and ßaIlimore lo USAir. IarIier, il had soId lhe buIk of ils London roules lo
American. The Iersian GuIf War and a recessionary economy conlribuled lo lhe addilion
of America Wesl in 1991 lo lhe Iisl of bankrupl U.S. carriers. Anolher nev-enlranl carrier
since dereguIalion, America Wesl became a ma|or airIine in 1990 aher rising from regionaI
lo nalionaI slalus. The fihh-Iargesl carrier, Norlhvesl, aIso vas in financiaI difficuIly by
earIy 1992 due lo ils Ieveraged buyoul in 1989. Norlhvesl’s probIems affecled anolher nev-
enlranl carrier born in lhe dereguIalion era: Midvay AirIines. One of lhe fev remaining
nev enlranls during lhe dereguIalion era and lhe purchaser of Air IIorida, Midvay venl
oul of business in November 1991 vhen Norlhvesl backed oul of an agreemenl lo acquire
lhe carrier. Iounded in 1979, Midvay grev inlo a nalionaI carrier by 1990. Tvo lrue success
slories during lhe dereguIalion period have been IederaI Ixpress and Soulhvesl AirIines.
ßolh carriers vere founded in lhe earIy 1970s and have been consislenlIy profilabIe over
lhe years.
In lhe Iale 1990s and earIy 2000s, nev lypes of air carriers emerged as a resuIl of cosl-
cuĴing slralegies by lhe ma|or airIines, expansion of niche markels, and compelilive
forces. Recenl lrends indicale lhal four lypes of air carriers are groving: nev-enlranl/
Iov-cosl, regionaI/feeder, mega-carrier, and virluaI carrier. Nev-enlranl carriers incIude
airIines such as Spiril and IelßIue. RegionaI/feeder carriers conlinue lo expand as ma|or
airIines reaIize lhe benefil of feeder lraffic lo lhe main hub airporls. Mega-carriers are
forming as ma|or airIines parlner up vilh olher ma|or airIines in order lo reduce cosls and
increase markel share. ßecause of lhe high cosls of Iaunching a nev airIine, more virluaI
carriers exisl lhan ever before. Such carriers subconlracl mosl of lheir services oul lo olher
companies, lherefore reducing inveslmenl risk.
|cgi cna| / Ccnnuicr Ai r| i ncs
Spurred by dereguIalion, many regionaI/commuler airIines enlered lhe markel in lhe
earIy 1980s. SimuIlaneousIy, lhe ma|or carriers soughl lo exlend lheir high-densily
markels by increasingIy dominaling lheir hub airporls and sIoughing off Iess profilabIe
roules. The hub syslem, vhich has proIiferaled since dereguIalion, eslabIishes a number
of roules connecled lo a cenlraI hub airporl vhere passengers are coIIecled from feeder
flighls, lransferred lo olher flighls on lhe same Iine, and are lhen carried lo lheir uIlimale
deslinalion. This lrend encouraged regionaI airIines lo offer service Iinking smaII cilies and
providing conneclions lo hub airporls. IIying primariIy lurboprop aircrah and requiring
Iess ground-based infraslruclure, lhe regionaI airIines couId operale such roules more
profilabIy lhan lhe ma|or carriers and provide a needed service.
In 1985, lhere vas a dramalic grovlh in lhe number of code-sharing agreemenls
belveen regionaI airIines and lhe ma|or carriers. These code-sharing agreemenls varied
from parliaI or oulrighl ovnership lo pure markeling aIIiances devoid of any ovnership
A I R T R A N S P O R TAT I O N 6 2
by lhe ma|or carriers. A somevhal prediclabIe oulgrovlh of lhese agreemenls has been
lhe idenlificalion of commuler parlners vilh lhe business name of lhe ma|or airIine
parlner. Iusl as in lhe conlracl experimenls vilh IocaI airIines in lhe Iale 1960s, many
independenl commuler airIines conducl operalions under a “service mark” simiIar lo
lhal of lheir ma|or carrier parlners. Thus, commuler airIiners bearing such names as
ConlinenlaI Ixpress, Uniled Ixpress, American IagIe, and Norlhvesl AirIink are flying
lhe skies. The evoIulion of lhe reIalionships vilh lhe Iarge air carriers has Ied lo furlher
roule ralionaIizalion poIicies on lhe parl of lhe Iarger parlners in lhe form of lransferring
an increasing number of shorl-hauI |el roules lo lheir regionaI parlners. The resuIl has been
a process of induslry consoIidalion, increasing concenlralion, inlegralion, and lransilion
lo |el equipmenl.
Irom a high of 246 carriers in 1981, lhe number of regionaI/commuler operalors decIined
lo 124 in 1995. As of year-end 2004, lhere vere 74 such operalors in business carrying a
lolaI of 134.7 miIIion passengers. AIlhough lhe number of carriers in lhis markel shovs a
sleady decrease, lhe number of passengers carried shovs a sleady increase. InlereslingIy,
lhe number of hours flovn on an annuaI basis is graduaIIy increasing indicaling lhal
regionaI/commuler operalors, aIlhough decreasing in number, are becoming Iarger in
size resuIling in increased markel share, Ionger flighls and beĴer uliIizalion of aircrah.
ßecause of lhe increased inlegralion of operalions vilh lhe Iarge air carriers (lhrough
code-sharing agreemenls and parliaI or lolaI acquisilion of lhe regionaIs) lhe success of
many regionaI airIines is cIoseIy lied lo lhe success of lheir Iarger parlners.
AIlhough lhe number of carriers has decIined overaII, lhe size of lhe dominanl carriers
has risen dramalicaIIy. This has resuIled in increased induslry concenlralion, vilh lhe lop
50 carriers accounling for approximaleIy 98 percenl of lhe lolaI passenger enpIanemenls
and revenue passenger miIes. When ve Iook al lhe corporale slruclure, lhe piclure of
induslry concenlralion becomes even cIearer. In 1995, 36 of lhe nalion’s lop 50 regionaI air
carriers used lhe lvo-IeĴer designalion code of a Iarger carrier lo Iisl lheir flighls. In lolaI,
lhere vere 46 code-sharing agreemenls in exislence as of Iune 1996. These reIalionships
varied from oulrighl ovnership by lhe Iarger carrier (11 airIines), lo parliaI ovnership (4
carriers), lo pure markeling aIIiances (31 carriers).
More sophislicaled, modern aircrah are added lo lhe regionaI airIine fleel each year. The
average lrip Ienglh for lhe regionaI airIine passenger has increased, as has lhe lransilion
from pislon lo lurboprop and |el equipmenl. As of Ianuary 2005, lhe number of regionaI
air carriers operaling al U.S.-airporls vas exlensive. TabIe 2-4 provides a breakdovn of
airporl use by slale incIuding regionaI and non-regionaI operalions.
Ncu-Gcncraii cn Ai r| i ncrs
In lhe earIy 1980s, aher years of flying lhe once-revoIulionary ßoeing 727, 737, and 747
and lhe McDonneII-DougIas DC-8, DC-9, and DC-10, lhe airIines vere ready for never,
more efficienl designs, nol simpIy relooIed versions of lhe oId ones. If lhe lvo dominanl
U.S. airframe manufaclurers vouId nol suppIy lhem, foreign sources, nolabIy lhe Airbus
Induslrie consorlium from Iurope, vouId obIige. Aher aII, lhe U.S. commuler airIiner
induslry had been dormanl during lhe 1970s, Iosing markel share lo firms such as ßrilish
Aerospace, Imbraer of ßraziI, Dornier of Germany, and ATR of IlaIy.
To hoId ils markel share, ßoeing inlroduced lvo nev airIiners, lhe 757 and lhe 767,
cerlificaled in Oclober 1984 aher a deveIopmenl process lhal may have cosl as much as
$3 biIIion. ßolh vere gianl lvin-engine airpIanes vilh underving poverpIanls suppIied
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 6 3
Airporls Receiving ScheduIed Service by Calegory of Service TolaI
Airporls
Receiving
ScheduIed
Service
Airporls IxcIusiveIy Served by
Slale
|cgicna|s Majcrs Oincrs Wiincui
rcgicna|s
Wiin
rcgicna|s
AIabama 3 0 0 0 3 6
Arizona 10 0 0 0 2 12
Arkansas 6 0 0 0 2 8
CaIifornia 17 0 0 0 12 29
CoIorado 7 0 1 0 6 14
Conneclicul 1 0 0 0 1 2
Dislricl of CoIumbia 0 0 0 0 2 2
IIorida 6 0 2 0 13 21
Georgia 7 0 0 0 2 9
Idaho 7 0 0 0 1 8
IIIinois 6 0 1 0 5 12
Indiana 3 0 0 0 1 4
Iova 5 0 0 0 2 7
Kansas 7 0 0 0 1 8
Kenlucky 2 0 0 0 2 4
Louisiana 5 0 0 0 2 7
Maine 5 0 0 0 1 6
MaryIand 2 0 0 0 1 3
MassachuseĴs 6 0 0 0 1 7
Michigan 10 0 0 0 7 17
Minnesola 6 0 0 0 3 9
Mississippi 5 0 0 0 2 7
Missouri 5 0 0 0 3 8
Monlana 9 0 0 0 5 14
Nebraska 8 0 0 0 1 9
Nevada 3 0 0 0 2 5
Nev Hampshire 2 0 0 0 1 3
Nev Iersey 1 0 0 0 2 3
Nev Mexico 10 0 0 0 1 11
Nev York 10 0 0 0 8 18
Norlh CaroIina 5 0 0 0 4 9
Norlh Dakola 3 1 0 0 3 7
Ohio 1 0 1 0 5 7
OkIahoma 3 0 0 0 2 5
Oregon 6 0 0 0 1 7
IennsyIvania 10 0 0 0 4 14
Rhode IsIand 2 0 0 0 1 3
Soulh CaroIina 2 0 0 0 4 6
Soulh Dakola 5 0 0 0 2 7
Tennessee 3 0 0 0 3 6
Texas 13 0 0 0 13 26
Ulah 4 0 0 0 1 5
Vermonl 1 0 0 0 1 2
Virgina 4 0 0 0 3 7
Washinglon 16 0 0 0 3 19
Wesl Virgina 8 0 0 0 0 8
Wisconsin 6 0 0 0 4 10
Wyoming 9 0 0 0 1 10
TOTAL 48 STATIS 275 1 5 0 150 431
AIaska 193 3 0 0 14 210
Havaii 3 0 0 0 8 11
Iuerlo Rico 6 0 0 0 2 8
Virgin IsIands 2 0 0 0 2 4
TOTAL U.S. 479 4 5 0 176 664
Canada 12 1 0 0 7 20
Caribbean 18 5 0 1 15 39
Mexico 18 1 0 2 10 31
TOTAL NORTH AMIRICA 527 11 5 3 208 754
Source: RegionaI AirIine Associalion.
TABLE 2-4 Summary of Passenger Service by State, January 2005
A I R T R A N S P O R TAT I O N 6 4
by GI/Snecma, IraĴ & Whilney, or RoIIs-Royce. IIovn by lvo-person crevs, lhey couId
carry 190 persons in lhe narrov-body 757 version or 230 in lhe vide-body 767. The nev
pIanes fiIIed lhe niche belveen lhe 115–145-seal 737 and lhe smaIIesl 420-seal 747. The 757
quickIy suppIanled lhe aging 727 vilh ils grealer efficiency, and lhe roomy 767 proved lo
be economicaI on lhe lransalIanlic roules.
Wilh lhe increasing reIiabiIily of modern |el engines, lhe IAA had approved exlended
lvin-engine operalions (ITOIS) over roules lhal did nol meel lhe IAR 121.161(a)
requiremenl for conlinuous avaiIabiIily of a Ianding sile vilhin one hour of singIe-engine
cruising. HisloricaIIy lhe province of lhree-engine DC-10s and L-1011s as veII as four-
engine ßoeing and DougIas airIiners, lhe nev 120-minule ITOIS exemplion aIIoved lhe
767 lo fly lo Iurope vilhoul devialing over an uneconomic norlhern roule lo slay near
Iand.
Iirsl approved in Iebruary 1985 for TWA’s ßoeing 767-200, lhe basic crileria for ITOIS
vas a documenled in-flighl engine shuldovn rale of Iess lhan 0.05 per 1,000 hours of
operalion, or Iess lhan 1 shuldovn per 20,000 hours. Given lhal malure lurbine pover
pIanls vere experiencing shuldovn rales as Iov as 0.02 per 1,000 hours, lhe risk assumed
by flying over roules lhal vouId require lvo or even lhree hours of singIe-engine cruising
lo reach a diversionary airporl vas quile smaII. Wilhin eighl years, ITOIS had become
so commonpIace lhal 400-seal lvin-engine airIiners, such as lhe Airbus A330 and ßoeing
777, vere being deveIoped for lhe Norlh AlIanlic run.
MeanvhiIe, lhe 737 became lhe mosl-buiIl |elIiner in 1987, surpassing lhe 727’s
previous record of 1,832. More lhan 3,000 of lhe 737s have been soId lo dale, and lhe 300-
series, inlroduced in 1981, began a nev cycIe for lhis phenomenaIIy successfuI aircrah.
The 737-300, -400, and -500 are aII equipped vilh nev-lechnoIogy GI/Snecma CIM-56
lurbofans and “gIass cockpils” vilh eIeclronic flighl inslrumenlalion (IIIS) repIacing lhe
oId mechanicaI flighl direclors and engine gauges. IIIS had been inlroduced previousIy
on lhe 757 and 767.
The 747-400 appeared in 1988 vilh an exlended upper deck, bringing lhe lolaI sealing
up lo 660 in lhe aII-lourisl configuralion (550 on lhe main deck and 110 on lhe upper deck,
65 more lhan lhe 200ß). Iealuring IraĴ & Whilney IW 4000, GeneraI IIeclric CI6-80C2,
or RoIIs-Royce Rß 211-524D4D engines, lhe 747-400 is capabIe of flying 7,200 miIes, 1,000
more lhan lhe 747-300.
McDonneII-DougIas vas abIe lo remain a presence in lhe airIiner business during lhe
1980s and 1990s, bul vilh sliff compelilion from ßoeing and Airbus, il sav ils markel
share drop lo 10 percenl by lhe mid-1990s. The slrelched DC-9-80 became knovn
as lhe MD-80, subsequenlIy groving inlo lhe MD-81, MD-82, MD-83, MD-87, and
MD-88, vilh each modeI differing chiefly in gross veighl and ving size. An MD-90
version vilh furlher updaling vas roIIed oul in Iebruary 1993. GIass cockpils became lhe
norm, aIong vilh flighl managemenl syslems lhal choreographed flighls for maximum
efficiency. The Iasl DC-10 came off lhe produclion Iine in 1989, and in Ianuary 1990, lhe
MD-11 made ils maiden flighl. Iovered by nev engines, lhe nev airIiner grosses over
600,000 pounds al lakeoff and can carry over 400 passengers. The paneI fealures six
8-inch calhode-ray lube dispIays, repIacing aII lhe mechanicaI gauges of lhe DC-10, and
vilh lhe aid of flighl managemenl compulers, lhe pIane is simpIer lo fly, even vilh lvo
piIols. The MD-11 offers lhe oplion of manuaI cabIe conlroIs vhen lhe aulopiIol is nol
engaged, ralher lhan lhe fuII fly-by-vire syslems popuIarized by lhe Airbus A320.
ßy lhe earIy 1990s, more and more airIiners vere being buiIl in componenl form, vilh
onIy lhe finaI assembIy laking pIace al lhe parenl company’s pIanl. In lhe case of lhe MD-
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 6 5
11, lhe vings vere buiIl in Canada, lhe vingIels vere produced by IlaIy’s AerilaIia, lhe
laiIcone came from Milsubishi, and lhe conlroI surfaces vere manufaclured by companies
such as Imbraer and CASA.
ßoeing, seeking lo cIose lhe gap belveen lhe 767 and 747, deveIoped lhe 777, an even
Iarger lvin-engine airIiner capabIe of carrying 305–440 passengers. Iovered by huge
GeneraI IIeclric, IraĴ & Whilney, or RoIIs-Royce fan-|el engines in lhe 74,000- lo 92,000-
pound-lhrusl cIass, vilh fan diamelers approaching 10 feel, lhe 777 offers efficiency, size,
and Iong-range capabiIily. One of lhe 777’s unique oplions is ils foIding ving lips, vhich
reduce lhe 200-fool vingspan lo Iess lhan 160 feel for simpIified docking al crovded
gales.
Il shouId be noled lhal in 1997, ßoeing and McDonneII-DougIas merged lo become one
company, Ieaving Airbus Induslrie as lhe primary compelilor. The merger vas a slralegic
move lo expand ßoeing’s presence in lhe increasingIy compelilive aircrah manufacluring
markel. The merger vas anlicipaled lo bring an eslimaled $48 biIIion in revenues per
year. Aher lhe merger, ßoeing moved ils corporale headquarlers from SeaĴIe lo Chicago.
In 2006, ßoeing and Airbus conlinue lo remain lhe Iargesl aircrah manufaclurers in
lhe vorId conslanlIy compeling lo oul perform lhe olher in lerms of saIes. Nev aircrah
lechnoIogy Ieads lo increased saIes and for lhe firsl lime since 2000, ßoeing is once
again lhe number one aircrah manufaclurer Ieaving Airbus in lhe number lvo posilion.
ßoeing’s produclion of lhe ß787 DreamIiner has caplured lhe induslry by slorm as
airIines slrive lovard operaling fueI efficienl lvin-engine aircrah on Iong-hauI flighls.
Hovever, circumslances couId change al any lime as Airbus markels nev aircrah Iike lhe
Airbus A380, lhe vorId’s Iargesl commerciaI aircrah, and lhe A350 lo compele againsl lhe
DreamIiner.
Scpicn|cr 11. 2001—A Ncu |ra i n Ati aii cn
On Seplember 11, 2001, lhe vorId vas shocked lo hear aboul lhe biggesl disasler in lhe
hislory of avialion. Iour commerciaI airIine flighls vere hijacked simuIlaneousIy (Uniled
AirIines IIighl 93, Nevark lo San Irancisco: American AirIines IIighl 77, Washinglon
DuIIes lo Los AngeIes: Uniled AirIines IIighl 11, ßoslon lo Los AngeIes: and American
AirIines IIighl 175, ßoslon lo Los AngeIes). IIighl 93 missed ils inlended largel, beIieved
lo be lhe While House, and crashed inlo a fieId in Somersel, IennsyIvania, kiIIing aII 45
persons on board. IIighl 77 vas flovn direclIy inlo lhe Ienlagon, lhe ciladeI of vorId
slralegic miIilary pIanning, kiIIing 189 persons. IIighl 11 vas flovn direclIy inlo lhe norlh
lover of lhe WorId Trade Cenler in Nev York Cily, kiIIing aII 92 persons on board lhe
aircrah. IIighl 175 vas flovn direclIy inlo lhe soulh lover of lhe WorId Trade Cenler,
kiIIing aII 65 persons on board. In lhe end, more lhan 3,000 peopIe Iosl lheir Iives on 9/11
as a resuIl of lhe acls of fanalic lerrorisls.
ßecause of lhe evenls of 9/11, securily al airporls, as veII as securily al high-risk evenls
oulside avialion, vas slepped up significanlIy. The gIobaI avialion business vas hil hard
financiaIIy and conlinues lo recover. Il vas eslimaled in Oclober 2002 lhal airIines in lhe
Uniled Slales vouId Iose a lolaI of $8 biIIion by lhe end of lhe fourlh quarler for lhe same
year. Some anaIysls said lhal lhese eslimaled Iosses vere oplimislic and lhal $10 biIIion
vouId be a more IikeIy figure.
Since lhe evenls of 9/11, a number of airIines around lhe vorId have decIared bankruplcy
vilh some cIosing lheir doors forever. In lhis nev era of air lransporlalion, air carriers
A I R T R A N S P O R TAT I O N 6 6
have been forced lo impIemenl cosl-cuĴing slralegies in order lo survive. Such slralegies
are discussed in Ialer chaplers.
WorId War I ended in November 1918, and severaI lhousand Curlis Iennies, vhich cosl
lhe U.S. governmenl cIose lo $17,000 apiece, became surpIus and soId for as much as $750
for a nev pIane vilh an OX-5 engine and as IiĴIe as $50 for a used one. AIlhough mosl
WorId War I piIols relurned lo olher professions, a group of lhem vilh flying in lheir bIood
became barnstormers. Living from hand lo moulh and acling as lheir ovn mechanics, lhe
members of lhis happy-go-Iucky group pul on air shovs and look lhe IocaI lovnfoIk for
rides, usuaIIy for aboul five minules, and charged vhalever lhe lraffic vouId bear.
Wilh lhe passage of lhe Air Commerce Acl in 1926 and ils requiremenls for lhe Iicensing
of piIols, mainlenance requiremenls, and olher reguIalions, lhe barnslormer era came lo
an end. A number of lhese coIorfuI individuaIs seĴIed dovn and became knovn as fixed-
base operators, providing everylhing from flighl inslruclion, lo saIe of aircrah and fueI,
lo mainlenance vork. GeneraI avialion had been born.
GENERAL AVIATION
Tnc Hcnc cj Gcncra| Ati aii cn
Wichila, Kansas, vas a boom lovn in lhe 1920s. Since ils founding in 1870, lhe cily had
ridden lhe boom-lo-busl roIIer coasler in caĴIe and oiI. Avialion, hovever, vas lhe boom
lhal vouId Iasl. Wichila had lhe righl lerrain—flal (lhe cily vas caIIed lhe vorId’s Iargesl
naluraI airporl). Il had lhe righl vealher—cIear. Il aIso seemed lo aĴracl lhe righl peopIe.
MaĴy Laird and Iake MoeIIendick began vork in ApriI 1920 on lhe firsl Laird SvaIIov
aircrah. They soon hired lhree olher avialion enlhusiasls, vho in lime deveIoped lheir
ovn companies: ßuck Weaver, vho slarled Weaver Aircrah Company (WACO): LIoyd
Slearman: and WaIler ßeech. The Iasl lvo, aIong vilh anolher barnslormer by lhe name
of CIyde Cessna, pooIed lheir laIenls in 1925 lo form lhe TraveI Air Manufacluring
Company.
The firsl TraveI Air pIane, buiIl of veIded melaI lubing, as opposed lo vood framing,
von lhe 1925 Iord ReIiabiIily Tour vilh WaIler ßeech al lhe conlroIs. In lhe 1926
ReIiabiIily Tour, ßeech flev a TraveI Air 4000 monopIane equipped vilh inslrumenls lhal
permiĴed bIind flying, lhe firsl lime such a feal had ever been aĴempled. ßy 1929, vhen
lhe company vas boughl by Curliss-Wrighl Corporalion, TraveI Air vas producing 25
percenl of aII commerciaI aircrah in lhe Uniled Slales. ßeech, vho vorked for Curliss-
Wrighl unliI 1932, lhen embarked on vhal proved lo be his grealesl chaIIenge, lhe slarl of
ßeech Aircrah Corporalion. He soon announced pIans lo buiId a four-pIace cabin bipIane
lhal vouId fly 200 miIes per hour. ImpossibIe—or so lhe crilics lhoughl. Tvo monlhs
aher ßeech Aircrah inlroduced ils firsl airpIane, lhe slagger-ving ModeI 17, lhe sIeek
bipIane flev off vilh firsl pIace in lhe presligious Texaco Trophy Race in Miami. A slring
of lriumphs foIIoved as ßeechcrahs von five ma|or races in 1936 aIone, incIuding lhe
Denver MiIe-High Air Race and lhe ßendix TransconlinenlaI Speed Dash. ßeechcrahs
conlinued lo pick up lrophies inlo lhe nexl decade. In 1937, lhe ModeI 18 Tvin ßeech vas
born. ImpIoymenl peaked during lhe WorId War II years, and in 1946, ßeech inlroduced
lhe V-laiI ßonanza, vhich has had lhe Iongesl produclion record of any generaI avialion
aircrah.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 6 7
Al 48 years of age, WiIIiam T. Iiper vas a successfuI IennsyIvania oiIman vhen he
invesled in lhe TayIor Aircrah Company in 1931. He vas a superb saIesman vilh a cIear
idea of vhal vouId make a Iighl aircrah successfuI. His formuIa vas simpIe: buiId easy-
lo-fly machines and price lhem Iov enough lo aĴracl buyers. Aher an aborlive aĴempl
lo design a gIider, TayIor Aircrah deveIoped lhe I-2 Cub, an exceIIenl exampIe of Iiper’s
vision of lhe simpIe airpIane.
The name of lhe company vas changed lo Iiper Aircrah Corporalion in 1936, and
lhe subsequenl modeIs vere caIIed I-2 and I-3. The IA-11 came nexl in lhe Cub Iine, and
lhen lhe IA-18 Super Cub, vhich had essenliaIIy lhe same slrucluraI and aerodynamic
configuralion as lhe 1932 I-2. To lhis day, more lhan one-lhird of lhe over 120,000 aircrah
produced by Iiper since 1937 have been Cubs, and 80 percenl of U.S. piIols in WorId War II
received lheir iniliaI lraining in lhal lvo-pIace landem design. Iiper Aircrah Corporalion
boomed and lhen nearIy busled during lhe difficuIl days aher WorId War II.
Tnc Pcsi-Wcr| ! War || Ycars
Mr. Pi pcr an! Hi s Cu|s
ßy 1934, economic condilions had improved sufficienlIy lo aIIov CIyde Cessna lo open his
ovn smaII faclory in Wichila and lo inslaII his nephev, Dvane WaIIace, a recenl aeronaulicaI
engineering graduale, as pIanl manager. WaIIace vas nol paid a saIary, bul he did have lhe
opporlunily lo design, buiId, lesl, fly, seII, and race lhe company’s producls. WaIIace sel
aboul designing lhe C-34, a high-ving, four-pIace cabin monopIane vilh a 145-hp Warner
Super-Scarab engine. Aher monlhs of anxious flighl lesls and ledious refinemenls, lhe C-
34 vas enlered in lhe 1935 Delroil Nevs Trophy Race, parl of lhe presligious NalionaI
Air Races. The C-34 von lhe day, and lhe aĴendanl pubIicily vaslIy enhanced Cessna’s
repulalion as a buiIder of fasl, efficienl aircrah.
WaIIace’s nexl pro|ecl vas a Iighl, inexpensive lrainer-uliIily airpIane lhal vas easy
lo fly and nol loo sophislicaled lo buiId. ßy 1939, lhe T-50 vas flying, and by 1940, il
vas in produclion and ready for buyers. Among lhe firsl vas lhe Canadian governmenl,
foIIoved by lhe U.S. Army Air Corps. ßy 1945, some 5,000 of lhese lrainers had been
produced. Aher lhe var, Cessna inlroduced lhe 120/140 series, vhich vas foIIoved by lhe
190/195 series. These slrong bul simpIe singIe-engine aircrah heIped Cessna survive lhe
poslvar shakeoul of many smaII manufaclurers of generaI avialion aircrah and heIped
propeI lhe company inlo lhe 1950s.
Wichila is lhe home of anolher man vhose name is famous in corporale avialion:
WiIIiam Lear, gambIer, invenlor, discoverer, promoler, and induslriaIisl, vho deveIoped
lhe highIy successfuI corporale Lear |el.
The Aircrah Ovners and IiIols Associalion (AOIA) had 22,000 members by lhe mid-
1940s (387,000 members as of 2002), and lheir molivalions vere lhe same lhen as
nov: lo prolecl privale flying from lhe depredalions of lhe airIines and lhe assauIls of
bureaucrals vho vanl lo buiId empires around lhe commerciaI airIines and IegisIale
lhe privale flier oul of lhe skies. The AOIA is lhe Iargesl, mosl influenliaI avialion
associalion in lhe vorId. The lerm gcncra| atiaiicn vas coined lo remove lhe imagined
onus of lhe lerm “privale flying” from lhe induslry. GeneraI avialion denoles avialion
used for vilaI, usefuI, generaI purposes, much Iike lhose for vhich lhe privale
aulomobiIe is used.
A I R T R A N S P O R TAT I O N 6 8
The Iighl-aircrah manufaclurers, vilh fev exceplions, envisioned lheir producls
becoming as popuIar as lhe aulomobiIe in lhe years lo come. Aher a banner year in 1946,
lhe manufaclurers reaIized lhal lhe generaI pubIic had perhaps been oversoId on Iighl-
pIane flying and lhal lhey couId nol hope lo have a mass-produclion induslry comparabIe
lo lhe aulo induslry.
In 1947, a year before Cessna inlroduced ils 170, vhich evenluaIIy deveIoped inlo lhe
172, lhe vorId’s mosl successfuI Iighl pIane, lhe induslry vas beginning lo flounder.
Wilh manufacluring companies lurning beIIy up aII over lhe pIace, deIivery ramps
vere cIogged vilh unsoId airpIanes. Al lhe end of 1947, saIes vere dovn 44 percenl from
1946, and lhe dovnvard lrend conlinued veII inlo 1949. ßul lhis period aIso represenled a
ma|or lurning poinl for lhe Iighl-aircrah manufaclurers, as execulives began lo Iook al lhe
fulure from a differenl angIe. The fulure Iay in deveIoping a fleel of airpIanes lhal vouId
provide soIid, comforlabIe, reIiabIe business lransporlalion—aircrah lhal couId operale in
inslrumenl condilions vilh high enough speed and Iong enough range. A cerlain number
of lraining airpIanes vouId have lo be buiIl lo gel nev peopIe slarled flying, bul a uliIily
airpIane lhal businesspeopIe couId afford and on vhich lhe manufaclurer couId make a
fair profil vas lhe largel design for lhe fulure.
Iroduclion in 1951 vas onIy 2,477 unils. GeneraI avialion conlinued lo Iimp aIong,
aIlhough lhe ranks of lhe manufaclurers vere decimaled. ßeech, ßeIIanca, Cessna,
Iiper, and Ryan vere sliII lrickIing airpIanes off lhe produclion Iines, bul nol aII of lhese
companies vere sure lhal lhey couId hang on much Ionger.
Things vere nol aII bad in lhe earIy 1950s: more ground-based navigalion slalions vere
buiIl, improved slalic-free radios vere inslaIIed, and faclory oplions on more and more
airpIanes became avaiIabIe. ßiII Lear produced lhe firsl Iighl-pIane lhree-axis aulopiIol in
1951 and made cross-counlry flying easier and more reIaxing. Tovard lhe end of lhe year,
aboul lhe lime lhal Ryan vas dropping lhe produclion of lhe Navion, a nev company,
Aero Design and Ingineering, offered ils five-pIace Aero Commander lo lhe business
communily: and Mooney unveiIed ils singIe-pIace $1,000 Mooney Mile. Thal same year,
Iiper pul a nosevheeI on ils IiĴIe Iacer and renamed il lhe Tri-Iacer, vhich sparked a nev
surge of inleresl in Iighl pIanes for fun as veII as for business.
ßy 1953, lhings vere slarling lo lurn around for lhe induslry. Ingineers in Wichila
and Lock Haven made carefuI nole of lhe groving acceplance of Iighl lvins for business.
Cessna disconlinued lhe 195 modeI in 1953 and produced lhe four-pIace 180, a more
poverfuI successor lo lhe successfuI 170. Iiper slayed vilh lhe Tri-Iacer and lhe Super
Cub, and ßeech vas backIogged vilh orders for lhe ßonanza, lhe Tvin-ßonanza, and lhe
Super-18. The NalionaI ßusiness Aircrah Associalion heId ils firsl meeling, in Sl. Louis,
vhich vas aĴended by 9 manufaclurers and suppIiers aIong vilh 50 voling members and
16 associales (lhe annuaI NßAA meeling loday aĴracls over 10,000).
In 1954, Cessna and Iiper inlroduced lheir four-pIace Iighl lvins, lhe 310 and lhe
Apache, bolh of vhich represenled lhe beginning of a Iong Iine of descendanls. Many
companies had enlered lhe avionics business, incIuding ARC, ßendix, CoIIins, Lear,
MilcheII, and WiIcox, lo name a fev. Monlh aher monlh, nev aulopiIols vere coming oul
for Iighl pIanes.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 6 9
Tnc Maiuri ng cj Gcncra| Ati aii cn
As lhe 1950s lurned inlo lhe 1960s, generaI avialion vas deveIoping an unmislakabIe
slabiIily and purpose. Though pIeasure flying vas far from exlincl, lhe generaI avialion
airpIane cIearIy vas deveIoping inlo a viabIe means of business lransporlalion. In 10
years, lhe generaI avialion fleel had more lhan doubIed lo 60,000 aircrah, over haIf of
vhich vere equipped for inslrumenl flying. GeneraI avialion had become a ma|or parl
of lhe nalion’s lransporlalion syslem, vilh an invenlory of Iighl aircrah lhal vere fuIIy
capabIe of flying peopIe in comforl 1,500 miIes in one day lo lhousands of pIaces nol
served by lhe commerciaI air carriers.
ßeech broughl oul lhe TraveI Air, lo be foIIoved by lhe ßaron, lhe Oueen Air, and lhe
King Air. Cessna pul lricycIe Ianding gear on ils 170s and 180s in deveIoping lhe 172 and
182 series, vhich became lhe besl-seIIing airpIanes in hislory. Iiper disconlinued lhe Tri-
Iacer and enlered lhe Cherokee, Comanche, and Tvin Comanche inlo lhe markel. Many
of lhe oId names, such as ßeIIanca, Mooney, Navion, and Norlh American, vouId aIso
en|oy a comeback.
ßy 1965, lhe generaI avialion aircrah fleel had grovn lo 95,000 airpIanes, and
produclion lhal year lolaIed 11,852 nev aircrah. The foIIoving year a record 15,768 unils
vere produced. GeneraI avialion grovlh during lhe Iale 1960s paraIIeIed grovlh in lhe
economy and aII segmenls of avialion al lhal lime.
Nolhing added more lo lhe groving imporlance of generaI avialion lhan lhe advenl
of lurbine pover. The business |el and lurboprop vere inlroduced lo corporale users. Al
firsl, lhere vere |usl a fev Lockheed IelSlars, Norlh American SabreIiners, ßeech King
Airs, and Grumman GuIfslreams. Il vasn’l Iong before ßiII Lear arrived in Wichila vilh
lhe idea of lurning a smaII Sviss fighler aircrah inlo a business |el. ßolh lhe SabreIiner and
lhe IelSlar vere designed as miIilary uliIily aircrah. Lear vouId go on lo seII hundreds of
Lear|els and, Iike Iiper and his Cubs, his name vouId become synonymous vilh a cerlain
kind of lransporlalion.
In 1970, lhe manufaclurers of Iighl aircrah eslabIished a slrong and effeclive Iobbying
and pubIic reIalions organizalion in Washinglon, lhe GeneraI Avialion Manufaclurers
Associalion (GAMA). The NalionaI ßusiness Aircrah Associalion (NßAA) bIossomed
inlo a highIy professionaI Washinglon-based service organizalion for business users. The
Aircrah Ovners and IiIols Associalion (AOIA) and olher speciaI-aircrah-use organizalions
deveIoped inlo effeclive Iobbying groups. The IederaI Avialion Adminislralion (IAA),
under adminislralor Iack Shaffer, appoinled a depuly adminislralor for generaI avialion.
Despile an economic recession during lhe firsl lvo years of lhe 1970s and an oiI embargo
in 1973, generaI avialion conlinued lo grov, reaching a high poinl in 1978, vilh 17,811
unils produced. ßy lhe Iale 1970s, bolh manufaclurers and users began lo feeI a confidence
in generaI avialion lhal lhey had seIdom en|oyed before. Ierhaps for lhe firsl lime, lhe
generaI avialion communily perceived lhal polenliaI probIems reIaled lo governmenl
conlroIs, charges, fees, and laxes, as veII as reslriclive IegisIalion, vere manageabIe.
Hovever, fundamenlaI changes vere laking pIace in lhe induslry. IueI prices rose
dramalicaIIy during lhe 1970s, and manufaclurers Iooked lo more fueI-efficienl aircrah for
lhe fulure. Airspace congeslion vas anolher probIem lhal lhe induslry had been sludying
since lhe mid-1960s. As a resuIl, lhe Airporl and Airvays DeveIopmenl Acl of 1970 vas
passed lo provide lhe revenue needed lo expand and improve lhe airporl and airvay
syslem over a 10-year period. IinaIIy, lhe induslry vas faced vilh ever-increasing federaI
reguIalion during lhe 1970s. TerminaI conlroI areas (TCAs) vere inlroduced around lhe
A I R T R A N S P O R TAT I O N 7 0
counlry’s busiesl airporls, vhich required lvo-vay communicalion vilh air lraffic conlroI
(ATC), VHI OmnidireclionaI Range (VOR) navigalion capabiIily, and aIlilude-reporling
lransponders. Increasing reguIalions parlicuIarIy affecled lhe personaI-pIeasure piIol.
Il vas aIso during lhe 1970s lhal lhe aĴenlion of lhe generaI avialion induslry slarled
focusing on producl IiabiIily. As lhe number of Iavsuils and lhe size of avards increased,
insurance premiums shol up, from $51 per nev airpIane in 1962 lo $2,111 in 1972. This
lrend vas a sign of lhings lo come for aircrah manufaclurers and, no doubl, one of lhe
ma|or causes of lhe precipilous decIine in lhe produclion of generaI avialion aircrah
during lhe 1980s.
UnforlunaleIy, lhe 1980s broughl on a nev round of chaIIenges for lhe induslry. Soaring
inleresl rales and a depressed economy during lhe earIy 1980s had an effecl on saIes.
Aircrah shipmenls dropped from 11,877 in 1980 lo 9,457 in 1981 and lo 4,266 in 1982.
ßy 1994, lhe number had reached a record Iov of 928 unils. Once again, lhe ranks of lhe
manufaclurers vere being lhinned. Raylheon Company acquired ßeech in 1980, and in
1984, Lear-SiegIer look over Iiper as parl of a buyoul of ßangor Iunla, ils former parenl.
Iiper changed ovnership severaI more limes before lhe end of lhe decade. GeneraI
Dynamics look over Cessna, lhe Iasl independenl of lhe “big lhree” manufaclurers of
generaI avialion aircrah. ßy 1986, Cessna decided lo drop ils pislon-aircrah produclion.
Lov unil saIes of generaI avialion aircrah during lhe 1980s and earIy 1990s have been
aĴribuled lo lhe ever-increasing cosl of nev aircrah vilh reIaliveIy fev design changes
since lhe 1970s, higher fueI and olher operaling expenses, incIuding mainlenance and
hangar charges, and lhe avaiIabiIily of used aircrah. Olher anaIysls cile producl IiabiIily
cosls and changing lasles and preferences among lhe lradilionaI business and pIeasure
aircrah users. Inleresls in sporls cars and boals, lhe operalion of vhich requires Iess
lraining, seemed lo peak during lhe 1980s. Anolher financiaI pressure vorking againsl
aircrah ovnership invoIved lhe passage of lhe Tax Reform Acl of 1986, vhich eIiminaled
lhe 10 percenl inveslmenl lax credil (ITC). IinaIIy, foreign aircrah manufaclurers enlered
lhe lradilionaIIy U.S.-dominaled markel in a much bigger vay during lhe 1980s.
AIlhough lhe U.S. economy experienced impressive grovlh and inleresl rales decIined
during lhe IaĴer parl of lhe 1980s, generaI avialion faiIed lo recover. ßy 1992, lhe number
of generaI avialion aircrah manufaclured in lhe Uniled Slales had dropped beIov 1,000
for lhe firsl lime since lhe end of WorId War II. ßelveen 1978 and 1994, flying hours
decIined by aboul 45 percenl, and lhe aclive generaI avialion fleel, aher reaching a peak
of 220,943 aircrah in 1984, feII lo 170,660 by 1994. More imporlanlIy for lhe fulure grovlh
of lhe induslry, lhe number of sludenl and privale piIol cerlificales issued dropped by
aImosl 50 percenl belveen 1978 and 1994.
GeneraI Dynamics apparenlIy found lhe fieId of generaI avialion lo be loo far removed
from ils core miIilary business, vhich vas in decIine during lhe posl–CoId War period, so
Cessna vas soId lo Texlron in 1992. This caused much specuIalion in generaI avialion circIes
aboul a relurn lo Iighl-pIane produclion, because Texlron aIso ovned lhe manufaclurer
of Lycoming engines, vhich had been used in Cessna’s 152, 172, 172 RG, T182, and 182
RG modeIs, and il vouId be IogicaI lo creale a markel for lhem. Hovever, Texlron aIso
ovned ßeII HeIicopler, and lhere vas aboul as much chance of Cessna svilching over lo
heIicopler produclion as lo slarl buiIding Lycoming-povered Iighl pIanes again. Cessna
vas salisfied buiIding Caravan singIe-ngine lurboprops, operaled primariIy under
conlracl lo IederaI Ixpress over smaII-parceI freighl roules. Cessna vas aIso conlenl vilh
ils Iine of six business |els, ranging from lhe 10,400 pound Cilalion Iel, povered by II44
fan |els from WiIIiams Research, lo lhe speedy, 31,000 pound Cilalion X vilh ils lvo huge
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 7 1
AIIison GMA 3007C engines. More lhan 2,000 Cilalions have been soId since Seplember
1972, vhen lhe firsl one vas deIivered: pIane number 2,000, a Cilalion VII, vas roIIed oul
on March 30, 1993.
Iiper Iimped aIong lhrough lhe dovnlurn of lhe 1980s bul sliII ceIebraled ils fihielh
anniversary in 1987. Hovever, a series of ovnership changes had Ieh il iII-equipped lo
make lhe lough manageriaI decisions needed in hard limes. In 1970, conlroI passed from
lhe Iiper famiIy lo ßangor Iunla Corporalion, ilseIf acquired by Lear-SiegIer in 1984. In
lurn, Lear-SiegIer vas laken over by inveslmenl bankers Iorslmann LiĴIe in lhe mid-
1980s. Then, vilh shuldovn imminenl, privale enlrepreneur M. Sluarl MiIIar boughl
Iiper in May-1987 vilh lhe idea of relurning il lo ovner-managemenl. Iiper dropped
ils producl IiabiIily insurance in an aĴempl lo discourage Iavsuils, prices vere cul, and
enlhusiasm ran high. UnforlunaleIy, lhe company sIipped inlo Chapler 11 bankruplcy in
1991, unabIe lo buiId airpIanes cheapIy enough lo fiII lhe Iarge backIog of orders laken al
bargain prices. Il vas purchased in ApriI 1992 by anolher enlrepreneur, A. Slone DougIas.
A lrickIe of airpIanes conlinued lo flov from lhe produclion Iines under lhe proleclion of
lhe courl. IinaIIy, in IuIy 1995, lhe Nev Iiper Aircrah Corporalion vas formed from lhe
assels saIe of Iiper Aircrah Corporalion.
ßeech survived by concenlraling on ils lradilionaI roIe as a suppIier of business
airpIanes. Wilh over 90 percenl of lhe execulive lurboprop markel firmIy in lhe hands
of lhe various King Airs, ranging from lhe 7-passenger King Air C-90ß lo a 10-passenger
Super King Air 350, onIy Iimiled pIanl space vas devoled lo pislon-aircrah produclion.
Hovever, ßeech sliII offered ils four-pIace ßonanza I-33A, a six-seal ßonanza A-36 or
lurbo-charged ß36TC, and a lvin-engine ßaron 58. These fineIy crahed, pislon-povered
pIanes served lo inlroduce fulure King Air buyers lo ßeech quaIily.
ßeech acquired lhe righls lo Milsubishi’s Diamond business |el in 1986, giving il a fasl
enlry inlo lhe business |el fieId, |usl above lhe Iargesl King Air. This vas acluaIIy ßeech’s
lhird aĴempl al |els. The company had enlered inlo markeling agreemenls for lhe Irench-
made Moraine-SauInier MS-760 in 1955 and lhe ßrilish-made Havker ßH-125 in lhe
1970s, bul neilher venlure had been overIy profilabIe. This lime, hovever, ßeech vas in a
posilion lo lake over lhe produclion of ils |els, vhich il redesigned and buiIl as lhe ßeech
Iel-400A.
The resl of lhe U.S. generaI avialion induslry heId on lhrough lhe 1990s by slaying smaII,
merging, or diversifying. Mooney had been ovned by lhe Irench firm IuraIair since 1984
and vas sliII buiIding singIe-engine aircrah in lhe KerrviIIe, Texas, pIanl il occupied in
1953. Lear|el vas soId lo lhe Canadian firm ßombardier, bul il remained based in Wichila.
The slrelched ModeI 55 grev inlo lhe ModeI 60, cerlificaled in Iale 1992.
SpeciaIly aircrah buiIders hung on by expIoiling lheir parlicuIar niche, such as
manufaclurers of fabric-covered laiI-vheeI airpIanes (Husky, MauIe, TayIorcrah,
American Champion), amphibian flying boals (Lake), cuslom-made and sleeI-lube cIassic
aircrah (ßeIIanca, Waco CIassic), and olher personaI airpIanes (Commander’s 114 ß and
lhe American GeneraI Tiger, a rebirlh of lhe Grumman AA-58).
Signs of oplimism appeared in 1994 vilh lhe passage of lhe GeneraI Avialion
RevilaIizalion Acl, vhich Iimiled producls IiabiIily suils, and vilh Cessna’s announcemenl
lhal il vouId resume produclion of singIe-engine aircrah in 1996. The Nev Iiper Aircrah
Corporalion vas formed, and in 1995, generaI avialion aircrah shipmenls finaIIy increased
aher an 18-year decIine. UnqueslionabIy, lhe 1990s broughl nev chaIIenges lo lhe induslry.
ßul as lhe hislory of generaI avialion shovs, lhis is hardIy a noveI silualion.
A I R T R A N S P O R TAT I O N 7 2
Busi ncss Ati aii cn
AIlhough business or corporale flying had ils foundalions in lhe 1930s, vhen pelroIeum
companies, nevspaper pubIishers, and manufaclurers ovned and operaled lheir ovn
aircrah, il vasn’l unliI lhe Iale 1950s lhal business flying reaIIy look off. The lurbine engine
vas one of lhe ma|or faclors.
Iver since lhe end of WorId War II, corporale operalors had reIied heaviIy on former
miIilary aircrah lhal vere converled lo civiIian use. The Lockheed Lodeslar and Venlura
vere exampIes. Iacific Airmolive Corporalion’s Lode-slar conversion, lhe Learslar, vas
one of lhe mosl soughl aher of ils kind. Il offered 280-mph speed and 3,800-miIe range. The
DC-3 and ils miIilary version, lhe C-47, fil veII inlo lhe corporale fleels. Many corporale
flighl deparlmenls operaling loday gol slarled vilh ßeech D-18s or I-18s, each povered
by 450-hp IraĴ & Whilney R985 radiaI engines.
ßul lhe end vas signaIed for lhe Iarge radiaI-engine business aircrah vilh Grumman
Aircrah Corporalion’s announcemenl in 1957 lhal il inlended lo buiId lhe firsl made-for-
business-avialion lurbine-povered airpIane. Il vouId be caIIed lhe GuIfslream, and il
vouId cosl a haIf-miIIion doIIars.
Lockheed vas firsl on lhe lurbo|el scene vilh ils IelSlar, bul lhe big vinner in lhe |el
compelilion vas Norlh American Avialion’s T-39 SabreIiner. The DH-125 lvin-|el airpIane
by deHaviIIand foIIoved, and a shorl lime Ialer, DassauIl of Irance vas ready vilh ils
ModeI-20 IaIcon.
ßy lhe mid-1960s, lurboprops abounded. The Turbo Commander and King Air
couId be seen on many ramps, and lhere vas laIk of lhe coming of lhe Milsubishi
MU-2. ßul perhaps lhe favored aircrah among Iorlune 500 companies vas lhe ßeech|el.
ßusiness and corporale avialion has been Iess severeIy affecled lhan olher segmenls of
generaI avialion, a facl lhal reflecls lhe reIiabiIily and flexibiIily of loday’s corporale
fleel.
DereguIalion has had a lvofoId effecl on generaI avialion. Iirsl, corporalions and
businesses vilh videIy scaĴered pIanls, mines, miIIs, conslruclion siles, and so on have
found il essenliaI lo eslabIish flighl deparlmenls equipped vilh high-performance aircrah
lo minimize execulive lrip lime, increase empIoyee produclivily, and mainlain a high
IeveI of cohesion and conlroI of far-flung operalions. Second, lhe proIiferalion of hub-and-
spoke operalions for commerciaI lraffic has expanded scheduIed regionaI and commuler
airIine syslems, vhich feed aboul 70 percenl of lheir passengers from videIy scaĴered,
Iov-densily airporls inlo Iarge, high-densily lerminaIs, vhere lhey can conlinue lheir
lrips on lhe ma|or carriers. The regionaI/commuler airIines serve many communilies in
lhe conlinenlaI Uniled Slales, providing air Iinks lo communilies lhal mighl olhervise be
cul off from fasl, efficienl air lransporlalion.
Hovever, lhe proIiferalion and expansion of lhe nev regionaI carriers does nol mean
lhal aII business and corporale requiremenls for efficienl, nonscheduIed air lransporlalion
have been mel. The currenl hub-and-spoke paĴern may be economicaIIy more efficienl
lhan lhe eIaborale muIlipoinl nelvork il repIaced, bul some passengers musl pay for
lhis in lime-consuming Iayovers and olher inconveniences during lheir lrips. Ior
business and execulive lraveIers, lime is of greal imporlance—a commodily companies
have shovn lhemseIves viIIing lo pay for lhrough lhe purchase of business
aircrah.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 7 3
Wi | | Ncu Tccnnc| cgu Aj j cci inc |uiurc cj Ccrpcraic Ati aii cn?
Il vas nol loo Iong ago lhal lhe main funclion of corporale aircrah vas lo lransporl
execulives belveen deslinalions regardIess of lhe financiaI cosl faclors. Ohen, lhe aircrah
vas nol flovn enough in a year lo make il a viabIe mode of lransporl for lhe organizalion,
because ils use vas Iimiled lo a smaII number of key peopIe.
Today, organizalions musl reduce cosls vherever possibIe in order lo remain
compelilive in lhe gIobaI markelpIace. Ior lhe mosl parl, lhe days of lhe “royaI barge”
have disappeared as corporale aircrah operalors have Iearned aboul lhe high cosls of
operaling such aircrah. More and more, corporale aircrah are used nol |usl by key
execulives bul by empIoyees of aII IeveIs vilhin an organizalion. Some organizalions
conlinue lo underuliIize aircrah bul lhere mighl be advanlages lo doing lhis, depending
on vhal kind of business is lransacled on board lhe aircrah or al a deslinalion. Olher
organizalions fuIIy uliIize corporale aircrah and use lhis lechnoIogy as a shuĴIe belveen
deslinalions vhiIe maximizing lhe Ioad faclor.
Aircrah lechnoIogy has “shrunk” lhe vorId, and il is becoming more imporlanl lo
be abIe lo visil more deslinalions vilhin a shorl period of lime. As lhe need for lraveI
increases, expenses increase. Localions lhal vere previousIy nol accessibIe by commerciaI
and corporale aircrah need lo beaccessed.
Nev lechnoIogy is being deveIoped by governmenl, induslry, and academic parlners
for a lype of aircrah lhal can safeIy and affordabIy move peopIe and goods among
underuliIized airporls in urban, suburban, and ruraI Iocalions lhroughoul lhe Uniled
Slales. This nev lechnoIogy is knovn as lhe Small Aircra Transportation System
(SATS). The pro|ecl reached ils concIusion vilh a proof-of-concepl demonslralion in Iune
2005 al DanviIIe, VA. Demonslralions are inlended lo shov poIicymakers and lhe pubIic
lhal lhis nev lechnoIogy can vork.
Under SATS, each aircrah viII hoId 4 lo 10 peopIe, incIuding lhe piIol(s). Iach aircrah
viII be oulfiĴed vilh digilaI avionics suiles vilh saleIIile-based navigalion syslems, on-
board compulers lhal permil coordinaled conlroI and dispIay of aircrah syslem operalion
and slalus, and synlhelic vision lhal aIIovs operalions in Iov-visibiIily environmenls. A
compuler dispIay viII shov a lhree-dimensionaI viev of lhe flighl palh, lerrain, obslacIes,
lraffic, and vealher, vilh superimposed guides for lhe piIol lo fly any flighl pIan seIecled.
These aircrah viII have simpIer conlroIs lhan any aircrah currenlIy flying, making lhe
aircrah easier lo operale. The convenlionaI lhroĴIe and mixlure conlroIs viII be repIaced
by a singIe Iever pover conlroI. The yoke and pedaIs viII be repIaced by a simpIe |oyslick
conlroI.
ßecause of lhe simpIicily of lhis lechnoIogy, lhe amounl of flighl lraining required viII
be reduced, and lechniques used viII be simpIified. Il is expecled lhal a person viII receive
privale piIol cerlificalion vilh inslrumenl raling in an economicaI and acceIeraled singIe
course. SATS aircrah viII have access lo lhe Inlernel and lhe IubIic Svilched Nelvork for
airborne communicalions. Iach aircrah viII aIso have access lo vealher graphics, lraffic
informalion, and ground faciIily informalion, aIIoving operalors lo scheduIe reservalions
for meelings, accommodalions, car renlaIs, and reslauranls vhiIe en roule.
SATS aircrah viII nol be dependenl on currenl air lraffic conlroI (ATC) syslems because
of lhe use of saleIIile-based navigalion informalion. Iach aircrah viII knov ils exacl
Iocalion from lakeoff lo Ianding, reducing lhe number of deIays currenlIy imposed by ATC
syslems. Ior corporale operalors, lhis viII mean a more efficienl environmenl lo conducl
business. Iach SATS aircrah viII “beam” ils Iocalion and inlenl lo olher SATS aircrah in
A I R T R A N S P O R TAT I O N 7 4
lhe vicinily and lo IocaI ATC faciIilies, reducing rouling and scheduIing conslrainls. Once
SATS malures, il viII inlegrale vilh lhe NalionaI Airspace Syslem.
Il has been delermined lhal approximaleIy 5,000 exisling SATS IorlaI Airporls
lhroughoul lhe nalion viII be uliIized. Ior lhe mosl parl, lhese are airporls equipped vilh
fixed-base operalors (IßOs), offering a comforlabIe environmenl vilh accessibIe parking
and check-in, baggage handIing, food service, office supporl, ground lransporlalion, access
lo accommodalion, and aircrah service and mainlenance. Some 10 percenl of IIorida’s
airporls vere used for SATS demonslralions using primariIy professionaI piIols. Avionics
viII be vhal is commerciaIIy avaiIabIe. SATS viII have “muIlimodaI” conneclivily, and il is
expecled lhal lhese airporls viII aII remain in operalion as SATS airporls.
Ior corporale operalors, SATS viII reduce lraveI lime and eIiminale lhe need lo fly
in and oul of congesled airporls. No more airporl Iines and no more connecling flighls!
Deparlures and arrivaIs viII lake pIace vilhin a 30-minule radius of one’s home or office,
permiĴing more reasonabIe lraveI limes and increased lraveI range.
KEY TERMS
Airbus ßoeing
feeder roule dereguIalion
CoIumbia roule essenliaI air service
CAM (conlracl air barnslormers
maiI) roule fixed-base operalor
SpoiIs Conference SmaII Aircrah Transporlalion
air commerce Syslem (SATS)
REVI EW QUESTI ONS
1. When vas lhe firsl reguIar domeslic air maiI service provided` Who flev lhe maiI in
lhe years before 1925` Whal vas lhe ma|or significance of lhe KeIIy Acl` Of lhe Air
Commerce Acl` Who vas lhe successfuI bidder on lhe CoIumbia roule` Whal vas lhe
name of lhe aircrah specificaIIy designed lo carry maiI on lhe CoIumbia roule` Who
vere 6 of lhe firsl 12 carriers on lhe nevIy eslabIished CAM roules`
2. Whal roIe did WaIler IoIger ßrovn pIay in deveIoping lhe earIy CAM roules` Whal
vas lhe SpoiIs Conference` Which lhree carriers picked up lhe norlhern, cenlraI, and
soulhern cross-counlry roules` Whal evenl prompled Senalor ßIack lo invesligale air
maiI bidding praclices` Whal vas lhe significance of lhe Air MaiI Acl of 1934`
3. Whal vas lhe firsl modern airIiner` Hov did DougIas Aircrah gel slarled` Describe
severaI lechnicaI deveIopmenls lhal look pIace in lhe 1930s. Why did lhe federaI
governmenl lighlen ils grip over lhe induslry lovard lhe Ialer 1930s`
4. Who vere lhe Ieading commerciaI aircrah manufaclurers in lhe posl-WorId War II
period` Whal vas ßoeing doing al lhe lime` Whal posilion did lhe CAß lake vhen lhe
ma|or carriers vanled lo eslabIish feeder roules aher lhe var` Whal ma|or decision
did lhe ßrilish make` Why` ßriefly describe some of lhe lechnicaI advances lhal look
pIace in lhe earIy 1950s.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 7 5
5. Hov did ßoeing arrive al lhe design for lhe 707` Whal vere some of lhe evenls
Ieading up lo lhe eslabIishmenl of lhe IederaI Avialion Agency` Lisl and briefly
expIain severaI ma|or economic deveIopmenls in air lransporlalion during lhe four
decades from 1938 lo 1978.
6. Describe some of lhe reasons governmenl is rooled in lhe economic and physicaI
characlerislics of lhe air lransporl induslry. Whal vas lhe ma|or ob|ecl of lhe Air
Commerce Acl of 1926` Hov did lhe acl define “air commerce”` Which governmenlaI
agencies or deparlmenls vere empovered lo perform funclions reIalive lo carrying
oul lhe provisions of lhe acl` Why did Congress choose lo spread lhe vorkIoad over
so many unils of governmenl`
7. Whal vas lhe primary purpose of lhe CiviI Aeronaulics Acl of 1938` Whal does lhe
foIIoving slalemenl mean: “The five members of lhe CAA exercised quasi-|udiciaI
and quasi-IegisIalive funclions”` Describe four of lhe six funclions of lhe CAA.
Whal vas lhe significance of lhe reorganizalion pIans of 1940` ßriefly describe five
economic funclions performed by lhe CAß. Describe some of lhe fealures of lhe
IederaI Avialion Acl of 1958.
8. Whal vere some of lhe evenls Ieading up lo lhe passage of lhe AirIine DereguIalion
Acl of 1978` Describe lhe posilion of lhe CAß regarding dereguIalion under lhe
chairmanship of AIfred I. Kahn. Lisl some of lhe argumenls againsl dereguIalion.
Whal is lhe overriding lheme of lhe acl` Whal are lhe ma|or changes under lhe acl`
9. IxpIain hov lhe cerlificaled airIine induslry has changed since dereguIalion in lerms
of expansion, consoIidalion, and concenlralion. Describe lhe roIe of commuler/
regionaI carriers and lhe reasons lhey have experienced significanl grovlh despile
lheir shrinking numbers during lhe 1980s. Idenlify some of lhe nev-generalion
aircrah lhal have arrived in lhe posldereguIalion period.
10. Hov vas lhe lerm fixed-base operalor coined` Who vere some of lhe earIy generaI
avialion aircrah manufaclurers` Whal vas lhe prevaiIing lhinking of lhe Iighl-aircrah
manufaclurers aher WorId War II` Whal did lhey decide lo do lhal subsequenlIy
lurned lhe induslry around` When did lhings slarl lo Iook up` Describe lhe grovlh
of generaI avialion during lhe 1960s and 1970s. Whal vere some of lhe causes for
lhe sIovdovn in unil saIes during lhe 1980s and earIy 1990s` When did lhe Iarge
corporale aircrah arrive on lhe scene` Whal effecl has airIine dereguIalion had on
generaI avialion and corporale avialion`
11. Hov viII nev lechnoIogy Iike SATS impacl lhe fulure of generaI avialion` Hov viII
lhis lechnoIogy impacl airIine operalions`
WEB SI TES
hĴp://vvv.avialion-hislory.com
hĴp://vvv.lhehislorynel.com/AvialionHislory
hĴp://vvv.airpovermuseum.org
hĴp://vvv.smilhsonian.org
A I R T R A N S P O R TAT I O N 7 6
hĴp://vvv.sals.nasa.gov
hĴp://vvv.hislorycenlraI.com/avialion
SUGGESTED READI NGS
ßrenner, MeIvin A., Iames O. Leel, and Ihhu SchoĴ. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
ßriddon, ArnoId I., IIImore A. Champie, and Ieler A. Marraine. |AA Hisicrica| |aci Bcck. A
Cnrcnc|cgu 1926–1971. DOT/IAA Office of Informalion Services. Washinglon, D.C.: U.S.
Governmenl Irinling Office, 1974.
Caves, Richard I. Air Transpcri an! |is |cgu|aicrs. Cambridge, Mass.: Harvard Universily Iress,
1962.
Chanl, Chrislopher. Atiaiicn—An |||usiraic! Hisicru. Nev York: Crovn, 1980.
Davies, Granl MiIIer, ed. Transpcriaiicn |cgu|aiicn. A Pragnaiic Asscssncni. DanviIIe, III.: Inlerslale,
1976.
Davies, R. I. G. A Hisicru cj inc Wcr|!’s Air|incs. Oxford, IngIand: Oxford Universily Iress, 1964.
Davies, R. I. G. Air|incs cj inc Uniic! Siaics Sincc 1914. London: Iulnam, 1972.
DougIas, George W., and Iames C. MiIIer III. |ccncnic |cgu|aiicn cj Ocncsiic Air Transpcri. Tnccru
an! Praciicc. Washinglon, D.C.: The ßrookings Inslilulion, 1974.
Iads, George C. Tnc Icca| Scrticc Air|inc |xpcrincni. Washinglon, D.C.: The ßrookings Inslilulion,
1972.
Gunslin, ßiII. Atiaiicn Ycar |u Ycar. Nev York: DH IubIishing, 2001.
IabIonski, Idvard. Man uiin Wings. Garden Cily, N.Y.: DoubIeday, 1980.
Iordan, WiIIiam A. Air|inc |cgu|aiicn in Ancrica. |ffccis an! |npcrjcciicns. ßaIlimore, Md.: The Iohns
Hopkins Universily Iress, 1970.
Kane, Roberl. Air Transpcriaiicn, 13lh edilion. Dubaque, IA: KendaII/Hunl, 1998.
Keyes, LuciIIe Sheppard. |c!cra| Ccnirc| cj |niru inic Air Transpcriaiicn. Cambridge, Mass.: Harvard
Universily Iress, 1951.
Mondey, David, and MichaeI TayIor. Tnc Ncu |||usiraic! |ncuc|cpc!ia cj Aircrah. Idison, N.I.: ßook
SaIes, 2000.
Morrison, Sleven, and CIifford Winslon. Tnc |ccncnic |ffccis cj Air|inc Ocrcgu|aiicn. Washinglon,
D.C.: The ßrookings Inslilulion, 1986.
Ogur, Ionalhan D., Curlis Wagner, and MichaeI G. Vila. The DereguIaled AirIine Induslry: A Reviev
of lhe Ividence. ßureau of Iconomics, IederaI Trade Commission. Washinglon, D.C.: U.S.
Governmenl Irinling Office, 1988.
Redding, Roberl, and ßiII Yenne. Bccing. P|ancnakcr ic inc Wcr|!. Thunder ßay, Onl.: Thunder ßay
Iress, 1997.
Richmond, S. |cgu|aiicn an! Ccnpciiiicn in Air Transpcriaiicn. Nev York: CoIumbia Universily Iress,
1962.
TayIor, Iohn W. R., and Kennelh Munson, eds. Hisicru cj Atiaiicn. Nev York: Crovn, 1977.
Thayer, Irederick C. Air Transpcri Pc|icu an! Naiicna| Sccuriiu. ChapeI HiII: Universily of Norlh
CaroIina Iress, 1965.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. ßeImonl, CA: Thomson ßrooks/CoIe,
2005.
C H A P T E R 2 • H I S T O R I C A L P E R S P E C T I V E 7 7
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3
Air Transportation:
Regulators and Associations
Introduction
The Department of Transportation
The Federal Aviation Administration
The Transportation Security Administration
The National Transportation Safety Board
Major Aviation Associations
Chapter Checklist • You Should Be Able To:
Discuss lhe primary roIe of lhe DOT, IAA, TSA, and
NTSß
Describe lhe ma|or funclions of lhe IAA, incIuding
some nev deveIopmenls in air lraffic conlroI and
engineering
Idenlify lhe sleps invoIved in a ma|or-accidenl
invesligalion by lhe NTSß
Compare and conlrasl lhe foIIoving airIine
associalions: AirIine CIearing House, AirIine Tariff
IubIishing Company, and Air Cargo, Inc.
Describe lhe primary purpose of lhe Air Transporl
Associalion and lhe RegionaI AirIine Associalion
Dislinguish belveen lhe InlernalionaI CiviI Avialion
Organizalion and lhe InlernalionaI Air Transporl
Associalion






79
INTRODUCTION
1
See Roy I. Sampson and Marlin T. Iarris, Ocncsiic Transpcriaiicn. Praciicc. Tnccru. an! Pc|icu, 3rd ed.
(ßoslon: Houghlon Mifflin, 1975), p. 486.
In 1961 and 1962, seven ma|or sludies of lransporlalion and ils reguIalion vere reIeased
by various federaI agencies and sludy groups.
1
AIlhough lhe recommendalions of lhese
sludies varied, lhey generaIIy supporled reIaxalion of federaI reguIalions and grealer
reIiance on markel forces.
In response lo lhe conlinuing probIems of lhe U.S. lransporlalion syslem, Iresidenl
Iohn I. Kennedy deIivered a speciaI lransporlalion message lo Congress on ApriI 5, 1962.
In lhal address, Kennedy crilicized lhe exisling reguIalory slruclure as inconsislenl and
ouldaled and recommended a number of federaI reguIalory and promolionaI changes. He
proposed more flexibIe carrier rale making and suggesled lhal minimum rale reguIalion
shouId be eIiminaled on buIk and agricuIluraI shipmenls invoIving common carriers. He
aIso recommended exlension of lhe agricuIluraI and fishery exemplions lo aII carriers.
His message slressed vhal he perceived lo be inconsislencies in laxalion poIicies and
user charges in lransporlalion. To remedy lhis silualion, he urged repeaI of lhe 10 percenl
lax on raiIroad and bus lransporlalion and simuIlaneousIy caIIed for an increase in user
charges in air lransporlalion. He aIso suggesled impIemenlalion of a valervay user-
charge program lo recover federaI oulIays in lhal area. AddilionaIIy, Kennedy soughl lo
promole more even-handed lrealmenl of inlercily lransporlalion modes by reducing CAß
subsidies lo IocaI-service carriers and aboIishing such subsidies lo lrunk Iines.
ObviousIy, Iresidenl Kennedy beIieved lhal lhe fulure viabiIily of lhe nalionaI
lransporlalion syslem required ma|or reguIalory and promolionaI changes. His suggeslions
vere subsequenlIy incorporaled inlo IegisIalion and submiĴed lo Congress. In lhe
hearings lhal foIIoved, many of his recommendalions mel vilh resislance slrong enough
lo kiII lhe IegisIalion in commiĴee. NeverlheIess, severaI of Kennedy’s recommendalions,
parlicuIarIy lhose reIaled lo expansion of lhe user-charge concepl (lhal lhose vho use
lhe airvays and airIines shouId bear lhe cosls for lhe service received) vere reflecled in
subsequenl slalules.
In 1966, Iresidenl Lyndon ßaines Iohnson aIso chose lo deIiver a speciaI lransporlalion
message lo Congress. Deparling from Kennedy’s economic reguIalory lheme, Iohnson
focused inslead on lhe need for coordinalion of lhe nalionaI lransporlalion syslem,
reorganizalion of lransporlalion pIanning aclivilies, and aclive promolion of safely.
In his address, Iresidenl Iohnson conlended lhal lhe U.S. lransporlalion syslem Iacked
lrue coordinalion and lhal lhis resuIled in inefficiency. He advocaled crealion of a federaI
Deparlmenl of Transporlalion (DOT) lo promole coordinalion of exisling federaI programs
and lo acl as a focaI poinl for fulure research and deveIopmenl efforls in lransporlalion.
The nev agency vouId aIso become acliveIy invoIved in lransporlalion poIicy reviev
and crilique, aIlhough lhe economic reguIalory funclions of lhe Inlerslale Commerce
Commission (ICC), CiviI Aeronaulics ßoard (CAß), and IederaI Marilime Commission
vere lo be unaffecled. This vas nol a nev proposaI. In facl, a cabinel-IeveI lransporlalion
agency had firsl been proposed in 1870. Anolher ma|or focus of Iresidenl Iohnson’s
remarks vas lransporlalion safely. He suggesled crealion of a NalionaI Transporlalion
Safely ßoard lo invesligale ma|or accidenls and lo make reIevanl recommendalions lo
lhe appropriale federaI bodies. The board vas lo be pIaced under lhe auspices of lhe
secrelary of lransporlalion yel remain independenl of DOT operaling unils. In anolher
A I R T R A N S P O R TAT I O N 8 0
safely maĴer, Iohnson caIIed for eslabIishmenl of a nev highvay safely program lo be
adminislered by lhe DOT.
Olher recommendalions conlained in lhe Iohnson message deaIl vilh a broad range of
lopics, incIuding deveIopmenl of supersonic aircrah, conlroI of aircrah noise, and research
and deveIopmenl invoIving high-speed ground lransporlalion.
THE DEPARTMENT OF TRANSPORTATION
CongressionaI hearings vere heId on severaI biIIs invoIving mosl of Iresidenl Iohnson’s
recommendalions. AIlhough some opposilion vas expressed lo specific proposaIs, lhere
vas generaI supporl for crealion of lhe Deparlmenl of Transporlalion. The IegisIalion
crealing lhe agency vas approved in Oclober 1966. The DOT commenced operalions on
ApriI 1, 1967, and AIan S. ßoyd vas appoinled lhe firsl secrelary of lransporlalion.
The ob|eclives lhal Congress sel for lhe organizalion vere slaled in lhe acl lhal crealed
lhe DOT:
To assure lhe coordinaled, effeclive adminislralion of lhe lransporlalion programs
of lhe IederaI governmenl: lo faciIilale lhe deveIopmenl and improvemenl of coor-
dinaled lransporlalion service, lo be provided by privale enlerprise lo lhe maximum
exlenl feasibIe: lo encourage cooperalion of IederaI, Slale, and IocaI governmenls, carriers,
Iabor, and olher inleresled parlies lovard lhe achievemenl of nalionaI lransporlalion ob|ec-
lives: lo slimuIale lechnoIogicaI advances in lransporlalion: lo provide generaI Ieadership: lo
deveIop and recommend lo lhe Iresidenl and Congress for approvaI nalionaI lransporlalion
poIicies and programs lo accompIish lhese ob|eclives vilh fuII and appropriale consider-
alion of lhe needs of lhe pubIic, users, carriers, induslry, Iabor, and lhe nalionaI defense.
The secrelary of lransporlalion is a cabinel member appoinled by lhe presidenl vilh
lhe advice and consenl of lhe Senale. The secrelary reporls direclIy lo Congress.
Iigure 3-1 iIIuslrales lhe organizalion of lhe DOT, incIuding ils main componenls.
The deparlmenl has more lhan 70,000 fuII-lime, permanenl empIoyees and mainlains
more lhan 3,000 fieId offices in lhe Uniled Slales and foreign counlries. The secrelary of
lransporlalion oversees and coordinales lhe aclivilies of 10 adminislralions vilhin lhe
deparlmenl.
Tnc |c!cra| Ati aii cn A!ni ni siraii cn
Chief among lhe day-lo-day operalions of lhe IederaI Avialion Adminislralion (IAA) is
promolion of avialion safely vhiIe ensuring efficienl use of lhe nalion’s navigabIe airspace.
(See lhe more delaiIed descriplion of IAA aclivilies Ialer in lhis chapler.)
The IAA carries oul ils responsibiIilies in avialion safely by doing lhe foIIoving:
1. Issuing and enforcing safely ruIes and reguIalions
2. Cerlificaling “avialors,” aircrah, aircrah componenls, air agencies, and airporls
3. Conducling avialion safely-reIaled research and deveIopmenl
4. Managing and operaling lhe nalionaI airspace syslem
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 8 1
FIGURE 3-1 Organization of the U.S. Department of Transportation.
Secretary
Deput y Secretary
Associate Deputy
Secretary/Office of
Intermodalism
Office of Small and
Disadvantaged
Business Utilization
Office of
Intelligence and
Security
Office of Commercial
Space Transportation
Board of
Contract Appeals
National Highway
Traffic Safety
Administration
Federal Railroad
Administration
Federal Highway
Administration
Federal Aviation
Administration
U.S. Coast Guard
Bureau of
Transportation
Statistics
Research and
Special Programs
Administration
Maritime
Administration
Saint Lawrence
Seaway
Development
Corporation
Federal Transit
Administration
Office of Civil Rights
Assistant Secretary for
Transportation Policy
Assistant Secretary for
Aviation and
International Affairs
General Counsel
Office of
Environmental,
Civil Rights, and
General Law
Office of
International
Law
Office of
Environment,
Energy, and Safety
Office of
Economics
Office of
Litigation
Office of
Legislation
Office of
International
Transportation
and Trade
Office of
International
Aviation
Office of
Aviation Analysis
Office of Aviation
and International
Economics
Office of
Regulation and
Enforcement
Board for
Correction of
Military Records
Office of Aviation
Enforcement and
Proceedings
Assistant Secretary for
Governmental Affairs
Office of
Inspector General
Assistant Secretary for
Budget and Programs
and Chief
Financial Officer
Office of Programs
and Evaluation
Office of Budget
Office of
Congressional
Affairs
Office of
Intergovernmental
Affairs
Office of
Financial
Management
Assistant Inspector
General for
Investigations
Assistant Inspector
General for
Auditing
Assistant Inspector
General for
Inspections and
Evaluations
Directorate of
Administration
Assistant Secretary for
Administration
Office of Personnel
Office of
Management
Planning
Office of
Information
Resource
Management
Office of
Administrative
Services and Prop-
erty Management
Office of
Hearings
Office of
Acquisition and
Grant Management
Office of Security
Executive Secretariat
Office of
Public Affairs
Transportation
Security
Administration
US Department of Transportation
OFFICE OF THE SECRETARY
Tnc |c!cra| Hi gnuau A!ni ni siraii cn
ApproximaleIy one oul of lvo peopIe in lhe Uniled Slales oId enough lo drive ovns an
aulomobiIe loday, and approximaleIy four oul of five have driver’s Iicenses. When lhey
drive, lhey use lhe finesl, mosl exlensive syslem of slreels and highvays in lhe vorId.
Mosl of lhese roads, incIuding lhe Iimiled-access inlerslale syslem, vere buiIl vilh
assislance from lhe IederaI Highvay Adminislralion (IHA). IederaI-aid highvays make
up a nelvork of some 900,000 miIes and carry aboul lvo-lhirds of lhe nalion’s molor
vehicIe lraffic.
The IHA is responsibIe for adminislering lhe federaI-aid program vilh lhe slales and
for vorking vilh lhem in pIanning, deveIoping, and coordinaling federaI-aid conslruclion
of primary, secondary, urban, and inlerslale roads. Il aIso reguIales and enforces federaI
requiremenls for lhe safely of lrucks and buses engaged in inlerslale or foreign commerce
and governs lhe safe movemenl over lhe nalion’s highvays of such hazardous cargoes as
expIosives, flammabIe maleriaIs, and loxic subslances.
The agency aIso vorks vilh lhe U.S. Ioresl Service, lhe NalionaI Iark Service, and
olher federaI agencies in designing and buiIding principaI roads in nalionaI foresls, parks,
and Nalive American reservalions and assisls foreign governmenls in lhe various phases
of highvay engineering and adminislralion.
The organizalion of lhe IHA exlends from ils headquarlers in Washinglon, D.C., lo
encompass a broad regionaI and fieId slruclure. The fieId organizalion consisls of nine
regions, each of vhose regionaI headquarlers office oversees a geographic group of slales.
In addilion, an operaling division office is Iocaled in each slale (usuaIIy in lhe slale capilaI),
lhe Dislricl of CoIumbia, and Iuerlo Rico.
Tnc Mari ii nc A!ni ni siraii cn
The Marilime Adminislralion (MARAD) became an operaling unil of lhe DOT on Augusl 6,
1981. Like ils predecessor agencies daling back lo lhe crealion of lhe U.S. Shipping ßoard
in 1916, lhe MARAD is responsibIe for deveIoping and mainlaining a merchanl marine
capabIe of meeling U.S. requiremenls for bolh commerciaI lrade and nalionaI defense.
This duaI governmenl roIe supporls lhe principIe lhal a veII-baIanced merchanl marine
There are over 580,000 aclive IAA-Iicensed piIols, incIuding more lhan 100,000
sludenl piIols: in addilion, lhe IAA issues Iicenses for approximaleIy 60,000 olher piIols
annuaIIy.
The IAA operales and mainlains 24 air roule lraffic conlroI cenlers, 684 airporl lraffic
conlroI lovers, 135 flighl service slalions, 3 inlernalionaI flighl service slalions, 1,041 VHI
OmnidireclionaI Range (VOR), 1,344 nondireclionaI beacons, 310 airporl surveiIIance
radars, and 1,231 inslrumenl Ianding syslems. Il aIso has a lechnicaI cenler in AlIanlic
Cily, Nev Iersey, vhere nev aeronaulicaI equipmenl is lesled, and a lraining academy in
OkIahoma Cily.
Of lhe 19,200 airporls in lhe Uniled Slales, aboul 5,000 are pubIicIy ovned. Of lhese,
850 serve bolh airIine and generaI avialion aclivily. The remainder primariIy serve generaI
avialion.
The IAA aIso revievs bIueprinls and specificalions of aII nev aircrah designs and
cerlifies lheir filness lo fly aher exlensive ground and air lesls.
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 8 3
Tnc Si. Iaurcncc Scauau Octc| cpncni Ccrpcraii cn
Wilh lhe AlIanlic Ocean al one end and lhe Greal Lakes al lhe olher, lhe Sl. Lavrence
Seavay provides a 2,300-miIe slaircase, carrying ships from sea IeveI lo an eIevalion of
600 feel lhrough an inlricale series of Iocks and dams. The seavay is operaled |oinlIy by
lhe U.S. Sl. Lavrence Seavay DeveIopmenl Corporalion and lhe Canadian Sl. Lavrence
Seavay Aulhorily.
The Sl. Lavrence Seavay DeveIopmenl Corporalion vas crealed by IegisIalion in 1954
lo conslrucl lhe U.S. faciIilies of lhe Sl. Lavrence Seavay navigalion pro|ecl. Since 1959,
vhen lhe seavay vas opened lo deep-drah navigalion, lhe Seavay Corporalion has been
charged vilh lhe operalion and mainlenance of lhal parl of lhe seavay belveen MonlreaI
and Lake Irie vilhin U.S. lerriloriaI Iimils and vilh deveIopmenl of lhe fuII seavay syslem
from lhe veslern lip of Lake Superior lo lhe AlIanlic Ocean—a dislance of 2,300 miIes.
AII operalions, mainlenance, and capilaI improvemenl cosls are paid from revenues
oblained from loIIs charged lo vesseIs lhal pass lhrough lhe MonlreaI–Lake Onlario seclion
of lhe seavay. The U.S. share of lhese loIIs is 29 percenl. Seavay Corporalion offices are
Iocaled in Washinglon, D.C., and Massena, Nev York. The lvo U.S. seavay Iocks, vhich
are named aher Iresidenl Dvighl D. Iisenhover and Congressman ßerlrand H. SneII, are
Iocaled on lhe Sl. Lavrence River near Massena.
ßuIk cargoes represenl lhe Iargesl percenlage of lhe seavay’s lraffic voIume, and among
lhese, grains and iron ore predominale. Ixporl coaI from lhe Uniled Slales, hovever, is a
rapidIy groving buIk cargo. Iron and sleeI compose mosl of lhe seavay’s generaI cargo
lraffic. In recenl years, lhe number of commerciaI vesseIs moving lhrough lhe Seavay
Corporalion’s Iocks have averaged 4,500 annuaIIy, and lhey carry over 50 miIIion lons of
cargo. A Iarge number of recrealionaI boals aIso lraveI lhrough lhe seavay each year. The
and marilime induslry is vilaI lo U.S. seapover and conlribules lo lhe nalion’s economic
slrenglh and securily.
To accompIish ils ob|eclives, lhe MARAD performs lhese funclions:
1. Adminislers financiaI aid programs lo assisl U.S. shipbuiIders and ship operalors
2. Sponsors research and deveIopmenl programs lo enhance lhe marilime induslry’s
produclivily and compeliliveness
3. DeveIops promolionaI and markeling programs lo generale shipper supporl for
U.S.-flag vesseIs engaged in foreign lrade
4. Iromoles lhe domeslic shipping induslry and U.S. porl deveIopmenl
5. Trains ships’ officers al lhe U.S. Merchanl Marine Academy al Kings Ioinl, Nev
York, and provides supporl lo slale marilime schooIs
6. Negoliales biIaleraI marilime agreemenls and parlicipales in inlernalionaI marilime
forums
7. Mainlains lhe NalionaI Defense Reserve IIeel for limeIy depIoymenl in nalionaI
emergencies
A I R T R A N S P O R TAT I O N 8 4
Tnc |c!cra| Transi i A!ni ni siraii cn
Mass lransporlalion is more lhan |usl buses and subvays. Il incIudes slreelcars, ferries,
carpooIs, and commuler lrains. And il is vilaI lo miIIions of peopIe vho use lhis means of
lraveI lo gel lo vork, shop, or oblain essenliaI services.
The IederaI Transil Adminislralion (ITA) encourages pIanning and eslabIishmenl
of areavide urban lransporlalion syslems and provides assislance lo slale and IocaI
governmenls in financing such syslems. Il heIps deveIop improved mass lransporlalion
faciIilies and provides financiaI assislance for equipmenl. A Iarge parl of ils vork is in
deveIoping nev lechniques and melhods lo be used in lhe mass lransporlalion fieId.
Urban lransporlalion inveslmenls by lhe federaI governmenl began on a modesl IeveI
in 1961. AII ma|or eIemenls of lhe mass lransporlalion programs vere lransferred lo lhe
DOT and lhe Urban Mass Transporlalion Adminislralion (UMTA) in 1968.
Since 1970, urban mass lransporlalion assislance has been significanlIy
expanded. Nev IegisIalion passed in Congress in 1978 eslabIished a $16.4
biIIion granl-and-Ioan program for pubIic lransil capilaI and operaling assislance and
smaII urban and ruraI programs lhrough 1982. A discrelionary capilaI granl program
vas aulhorized lhrough 1990. The InlermodaI Surface Transporlalion Ifficiency Acl
of 1991 renamed lhe Urban Mass Transporlalion Adminislralion as lhe IederaI Transil
Adminislralion.
Since lhe capilaI assislance programs began, more lhan 5,400 nev raiI cars, 43,000
nev buses, and 18 ferry boals have been purchased by hundreds of IocaI lransil
aulhorilies and syslems. Many olher capilaI inveslmenls have aIso been made in
renovaled faciIilies and equipmenl. AII of lhese programs have heIped improve lhe
mobiIily of cilizens, conserve energy, reduce lraffic congeslion, and improve lhe nalion’s
environmenl.
Tnc Uni ic! Siaics Ccasi Guar!
Crealed by AIexander HamiIlon in 1790 lo apprehend smuggIers, lhe Uniled Slales Coasl
Guard over lhe years has seen ils roIe and mission expand lremendousIy. Coasl Guard
personneI go oul on more lhan 70,000 search-and-rescue missions each year and save
hundreds of Iives, and lhey have become vorId famous for lheir Iife-saving skiIIs.
ßul lhe Coasl Guard’s assignmenls are many. Il palroIs for oiI spiIIs, inspecls ships for
safely defecls, enforces fishing Iavs, operales lhe nalion’s onIy fleel of icebreakers, and
pIays a vilaI roIe in Iav enforcemenl by inlerdicling drug smuggIers aĴempling lo enler
lhe counlry by sea. Il aIso pIays a conlinuing roIe in inlercepling iIIegaI immigranls vho
lry lo reach lhis counlry by ship. In addilion, lhe Coasl Guard operales a vorIdvide
marine navigalion syslem and guards lhe nalion’s porls againsl sabolage, subversive acls,
accidenls, and olher lhreals.
An imporlanl lask for lhe Coasl Guard is boaling safely, vhich benefils lhe hundreds
of lhousands of recrealionaI boalers in lhis counlry. Il operales a nalionaI boaling safely
program lhal encompasses research and deveIopmenl of safer boaling praclices and
normaI shipping season runs from earIy ApriI lhrough mid-December, vhen lhe seavay
freezes over. The Seavay Corporalion has approximaleIy 170 empIoyees, mosl of vhom
vork in Massena.
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 8 5
Tnc |c!cra| |ai | rca! A!ni ni siraii cn
The IederaI RaiIroad Adminislralion (IRA) ensures lhal lhe nalion has a safe, efficienl,
and progressive raiIroad nelvork. The IRA issues slandards and reguIalions lo enhance
raiIroad safely and conducls safely research and deveIopmenl. Il aIso foslers grovlh
of an efficienl and economicaIIy viabIe syslem for movemenl of freighl lhroughoul lhe
counlry.
Since ils beginning in 1967, lhe agency aIso has provided ma|or poIicy guidance for lhe
DOT on IegisIalive maĴers affecling raiI lransporlalion. The IRA heIped guide lhrough
Congress IegisIalion eslabIishing lhe quasi-pubIic corporalion Amlrak lo manage and
operale inlercily raiI passenger service. Under provisions of lhe Norlheasl RaiI Service
Acl of 1981, Amlrak is nov engaged in carrying commuler raiI passengers.
Under lhe RaiIroad RevilaIizalion and ReguIalory Reform Acl of 1976, lhe IRA assisls
raiIroads lhal are unabIe lo oblain necessary funds for lrack and equipmenl rehabiIilalion
in lhe privale capilaI markel. The IRA aIso has lhe aulhorily lo provide assislance lo
slales lo enabIe lhem lo mainlain IocaI raiI freighl service. CurrenlIy, lhe IRA is reducing
lhe size of lhese lvo programs lo reflecl lhe raiIroad induslry’s Iessened need for federaI
assislance.
Tnc |cscarcn an! Spcci a| Prcgrans A!ni ni siraii cn
IslabIished in 1977, lhe Research and SpeciaI Irograms Adminislralion (RSIA)
coordinales federaI invoIvemenl in lransporlalion issues lranscending lhe separale
modes of lransporlalion. The RSIA is responsibIe for a number of programs invoIving
safely reguIalion, emergency preparedness, and research and deveIopmenl. Imphasis is
The NalionaI Highvay Traffic Safely Adminislralion is lhe agency vilhin lhe DOT
responsibIe for reducing highvay accidenls and lhe dealhs and in|uries lhal resuIl from
lhem. The agency carries oul ils congressionaI mandale by vorking lo improve lhe safely
characlerislics of molor vehicIes and conducling a nalionaI safely program in cooperalion
vilh slale and IocaI governmenls, induslry, and privale safely organizalions.
The agency, crealed by Congress in 1966, is aulhorized lo issue molor vehicIe safely
slandards based on specified IeveIs of performance and lo invesligale possibIe safely
defecls in vehicIes and lo direcl lheir recaII and repair vilhoul cosl lo consumers.
In ils highvay safely aclivilies, lhe agency has idenlified six lypes of slale and IocaI
safely programs lhal are mosl effeclive in reducing accidenls aIcohoI counlermeasures,
poIice lraffic services, occupanl proleclion, lraffic records, emergency medicaI services, and
safely conslruclion on and improvemenls lo exisling roads. The aIcohoI counlermeasures
program, vhich seeks lo gel drunk drivers off lhe roads, and a nalionvide efforl lo induce
molorisls lo vear lheir safely beIls are currenlIy lhe lvo lop-priorily programs of lhe
agency.
Tnc Naii cna| Hi gnuau Traj fic Saj ciu A!ni ni siraii cn
equipmenl, enforces boaling safely slandards, and conducls a vasl educalionaI program
on safely praclices for lhe boaling pubIic.
The Coasl Guard AuxiIiary, a voIunleer organizalion of civiIians, assisls in lhe boaling
safely program.
A I R T R A N S P O R TAT I O N 8 6
Tnc Burcau cj Transpcriaii cn Siaii sii cs
THE FEDERAL AVIATION ADMINISTRATION
Nov an operaling arm of lhe Deparlmenl of Transporlalion, lhe IederaI Avialion
Adminislralion lraces ils anceslry back lo lhe Air Commerce Acl of 1926, vhich Ied lo lhe
eslabIishmenl of lhe Aeronaulics ßranch (Ialer reorganized as lhe ßureau of Air Commerce)
in lhe Deparlmenl of Commerce, vilh aulhorily lo cerlificale piIols and aircrah, deveIop air
navigalion faciIilies, promole flying safely, and issue flighl informalion (see Chapler 2). The
governmenl acled |usl in lime. In May 1927, CharIes Lindbergh bridged lhe Norlh AlIanlic
in 33 hours, generaling nev inleresl and enlhusiasm for avialion in bolh Iurope and lhe
Uniled Slales.
Avialion conlinued lo grov and expand al a very rapid rale in lhe decade aher
Lindbergh’s hisloric flighl, crealing a need for nev machinery lo reguIale civiI flying.
The resuIl vas lhe CiviI Aeronaulics Acl of 1938, vhich eslabIished lhe independenl
CiviI Aeronaulics Aulhorily vilh responsibiIilies in bolh lhe safely and economic areas.
In 1940, lhe machinery vas read|usled, and lhe povers previousIy vesled in lhe CiviI
Aeronaulics Aulhorily vere assigned lo a nev CiviI Aeronaulics Adminislralion (CAA),
vhich vas pIaced under an assislanl secrelary in lhe Deparlmenl of Commerce, and lo
lhe semi-independenl CiviI Aeronaulics ßoard (CAß), vhich had adminislralive lies vilh
lhe Deparlmenl of Commerce bul reporled direclIy lo Congress.
The CAA performed yeoman service during WorId War II bul proved unequaI lo lhe
lask of managing lhe airvays in lhe poslvar years because of lhe lremendous surge in
civiI air lraffic and lhe inlroduclion of nev high-performance aircrah. In 1958, lhe same
year |els enlered commerciaI service, Congress passed lhe IederaI Avialion Acl, vhich
crealed lhe independenl IederaI Avialion Agency vilh broad nev aulhorily lo reguIale
civiI avialion and provide for lhe safe and efficienl uliIizalion of lhe nalion’s airspace.
In ApriI 1967, lhe IederaI Avialion Agency became lhe IederaI Avialion Adminislralion
and vas incorporaled inlo lhe nev DOT, vhich had been eslabIished lo give unily and
direclion lo a coordinaled nalionaI lransporlalion syslem. The IAA’s basic responsibiIilies
remain unchanged, hovever. WhiIe vorking vilh olher adminislralions in lhe DOT in
Iong-range lransporlalion pIanning, lhe IAA conlinues lo concern ilseIf primariIy vilh lhe
promolion and reguIalion of civiI avialion lo ensure safe and orderIy grovlh. Iigure 3-2
shovs lhe organizalionaI charl for lhe IederaI Avialion Adminislralion.
IslabIished in Iale 1992 under lhe InlermodaI Surface Transporlalion Ifficiency Acl of 1991,
lhe ßureau of Transporlalion Slalislics (ßTS) is lhe nevesl operaling adminislralion of
lhe DOT. The ßTS compiIes and pubIishes slalislics on aII lransporlalion modes, conducling
Iong-lerm dala coIIeclion programs and idenlifying lhe need for lransporlalion dala.
AnnuaIIy lhe ßTS aIso issues lhe Transporlalion Slalislics AnnuaI Reporl, in vhich il
summarizes lhe slale of lhe U.S. lransporlalion syslem.
given lo hazardous maleriaI lransporlalion and pipeIine safely, lransporlalion emergency
preparedness, safely lraining, and muIlimodaI lransporlalion research and deveIopmenl
aclivilies, incIuding programs vilh lhe universily communily.
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 8 7
FIGURE 3-2 Organization of the Federal Aviation Administration.
Office of
Accounting
Office of
Budget
Logistics
Service
Office of
Management
Systems
Aircraft
Certification
Service
Flight
Standards
Service
Office of
Rulemaking
Office of
Civil Aviation
Security
Associate
Administrator for
Aviation
Standards
Office of
Accident
Investigation
Office of
Aviation
Medicine
Aviation
Standards
National
Field Office
Associate
Administrator for
Regulation and
Certification
Office of
Program and
Resource
Management
Office of
the Chief
Counsel
Executive Director for
Regulatory Standards
and Compliance
Associate
Administrator for
Administration
Alaska
Region
Central
Region
Great Lakes
Region
New England
Region
Office of
Acquisition
Policy and
Oversight
Office of
Independent
Operational
Test and
Evaluation
Oversight
Office of
Human
Resource
Development
Office of Labor
and Employee
Relations
Office of
Personnel
Office of
Training and
Higher
Education
Associate
Administrator for
Human Resource
Management
Executive Director for
Administration and
Resource Management
Executive Director for
Acquisition
Assistant
Administrator for
Aviation Safety
Office of
Aviation Safety
Oversight
Office of
Aviation Safety
Analysis
Assistant
Administrator for
Airports
Office of
Airport Safety
and Standards
Office of Airport
Planning and
Programming
A I R T R A N S P O R TAT I O N 8 8
Office of
System
Capacity and
Secretary
Deput y Administrator
Office of
Civil Rights
Office of
Government
and Industry
Affairs
Office of
Public Affairs
Assistant Administrator
for Policy Planning and
International Aviation
NAS Program
Management
Service
Research and
Development
Service
Operations
Research
Service
NAS System
Engineering
Service
Facility System
Engineering
Service
Associate
Administrator for
NAS
Devlopment
Program
Manager for
Advanced
Automation
Program
Director for
Automation
Program
Director for
Navigation
and Landing
Program
Director for
Surveillance
Program
Director for
Communications
Program
Director for
Weather and
Flight Service
Systems
Associate
Administrator for
System Engineering
and Development
FAA
Technical
Center
Executive Director for
System Development
Air Traffic
Plans and
Requirements
Service
Office of Air
Traffic Program
Management
Air Traffic Rules
and Procedures
Service
Office of Air
Traffic System
Effectiveness
Office of Air
Traffic System
Management
Associate
Administrator for
Airway
Facilities
NAS Transition
and
Implementation
Service
Systems
Maintenance
Service
Associate
Administrator
for
Air Traffic Requirements
Executive Director for
System Operations
Northwest
Mountain Region
Southern
Region
Southwest
Region
Western Pacific
Region
Mike Monroney
Aeronautical Center
Europe, Africa
and Middle
East Office
Office of
International
Aviation
Office of
Environment
and Energy
Office of
Aviation Policy
and Plans
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 8 9
Air Traffic Control. One of lhe IAA’s principaI responsibiIilies is lhe operalion and
mainlenance of lhe vorId’s Iargesl and mosl advanced air lraffic conlroI and air navigalion
syslem. AImosl haIf lhe agency’s vork force of more lhan 52,000 peopIe are engaged in
some phase of air lraffic conlroI. They slaff 400 airporl conlroI lovers, 24 air roule lraffic
conlroI cenlers, and 91 flighl service slalions. The IAA aIso empIoys 12,000 lechnicians
and engineers lo inslaII and mainlain lhe various componenls of lhis syslem, such as
radar, communicalions siles, and ground navigalion aids. The IAA operales ils ovn fleel
of speciaIIy equipped aircrah lo check lhe accuracy of lhis equipmenl from lhe air.
AImosl aII airIine flighls and many generaI avialion flighls operale under instrument
flight rules (IFR) regardIess of vealher condilions. This means lhal lhey are foIIoved
from lakeoff lo louchdovn by air lraffic conlroI lo ensure lhal each flies in ils ovn reserved
bIock of airspace, safeIy separaled from aII olher air lraffic in lhe syslem.
A lypicaI lransconlinenlaI flighl from Los AngeIes lo Nev York, for exampIe, invoIves
aImosl a dozen air lraffic conlroI faciIilies. Irom lhe air lraffic conlroI lover al Los AngeIes
InlernalionaI Airporl, lhe flighl is lransferred, or “handed off,” firsl lo lhe lerminaI radar
conlroI room and lhen lo lhe air roule lraffic conlroI cenler al IaImdaIe, CaIifornia. The
SaIl Lake Cily cenler lakes conlroI nexl, and depending on lhe roule, il may be foIIoved
by lhe Denver, Kansas Cily, Chicago, CIeveIand, and Nev York cenlers. ApproximaleIy
30 miIes from Iohn I. Kennedy InlernalionaI Airporl, lhe flighl is handed off lo lhe radar
approach conlroI faciIily serving aII Nev York airporls and, finaIIy, lo lhe IIK air lraffic
conlroI lover, vhich issues finaI Ianding inslruclions. OnIy vhen lhe aircrah is safeIy on
lhe ground and has laxied cIear of olher lraffic does lhe IAA’s responsibiIily for lhe safely
of lhe passengers and crev on lhal parlicuIar flighl end.
When vealher condilions permil, many generaI avialion piIols foIIov visual flight rules
(VFR), vhich means lhey mainlain separalion from olher aircrah on a “see and avoid”
basis. AIlhough VIR flighls essenliaIIy are oulside lhe air lraffic conlroI syslem excepl in
busy lerminaI areas, lhey musl foIIov veII-eslabIished ruIes designed lo maximize lhe
safely of such operalions. VIR flighl aIso is banned from cerlain heavy-use airspace, such
as aIong lhe |el roules above 18,000 feel.
VIR piIols reIy heaviIy on lhe IAA’s nelvork of 91 flighl service slalions lo oblain
preflighl and in-flighl briefings, vealher informalion, suggesled roules, aIliludes, and
olher informalion imporlanl lo flighl safely. The flighl service slalion aIso is a friend in
need lo VIR piIols vho are Iosl or olhervise in lroubIe. In addilion, lhese faciIilies viII
iniliale search-and-rescue operalions vhen a VIR aircrah is overdue al ils reporling
slalion or deslinalion airporl.
To keep pace vilh lhe rapid grovlh of avialion, lhe IAA has impIemenled a compuler-
based, semiaulomaled air lraffic conlroI syslem al aII of lhe 20 en roule cenlers lhal
service lhe conliguous Uniled Slales and al aII ma|or lerminaI faciIilies. The syslem lracks
conlroIIed flighls aulomalicaIIy and lags each aircrah vilh a smaII bIock of informalion
vriĴen eIeclronicaIIy on lhe radar scopes used by conlroIIers. IncIuded in lhis dala bIock
are aircrah idenlily and aIlilude, informalion lhal previousIy had lo be acquired by voice
communicalions, lhereby imposing a burden on bolh piIols and conlroIIers, conlribuling
lo radio frequency congeslion and providing lhe possibiIily of human error.
SimiIar aulomaled radar syslems, laiIored lo lhe varied lraffic demands of lerminaI
Iocalions, aIready have been inslaIIed and are operalionaI al more lhan 60 Iarge- and
medium-hub airporls. Anolher 80 syslems have been inslaIIed al airporls in lhe smaII-hub
calegory.
Maj cr |cspcnsi |i | i ii cs
A I R T R A N S P O R TAT I O N 9 0
IAA pIans caII for lhe en roule and lerminaI syslems lo be lied logelher nalionvide
in a common nelvork for lhe exchange of dala. The capabiIilies of lhe aulomaled syslem
aIso are being upgraded lo incIude addilionaI air lraffic managemenl funclions, such as
aulomalic prediclion and resoIulion of air lraffic conflicls, melering and spacing of en
roule aircrah, and flov conlroI of aircrah in lhe lerminaI area.
Aircra and Aviator Certification. No air lraffic conlroI syslem, no maĴer hov aulomaled,
can funclion safeIy and efficienlIy unIess lhe peopIe and machines using lhe syslem measure
up lo cerlain prescribed slandards. The IAA lherefore has been charged vilh responsibiIily
for eslabIishing and enforcing slandards reIevanl lo lhe lraining and lesling of avialors and
lhe manufaclure and conlinued airvorlhiness of aircrah.
There are aImosl 180,000 civiI aircrah in lhe Uniled Slales, and lhe IAA requires lhal
each be cerlificaled, or Iicensed, as airvorlhy by lhe agency. ßolh lhe originaI design
and each subsequenl aircrah conslrucled from lhal design musl be approved by IAA
inspeclors. Iven home-buiIl aircrah require IAA cerlificalion.
In lhe case of nev lransporl airpIanes, such as lhe nev breed of fueI-efficienl |els
(ßoeing 777 and 787, Airbus A380 and A350), lhe cerlificalion process may lake years.
The IAA’s invoIvemenl begins vhen lhe aircrah is sliII in lhe bIueprinl slage. IAA
aeronaulicaI engineers vork side by side vilh faclory engineers lhroughoul lhe enlire
buiIding process, checking on lhe progress of lhe numerous componenls, such as lhe
fuseIage, vings, Ianding gear, and laiI surfaces, lo ensure quaIily of vorkmanship and
conformily lo an approved design. The same valchfuIness is exercised over lhe design
and manufaclure of aircrah engines, propeIIers, and inslrumenls.
When lhe nev aircrah prololype is finished, il musl pass an exlensive series of ground
and flighl lesls. If aII goes veII, lhe airpIane receives a type certificate lo shov lhal il
meels IAA slandards of conslruclion and performance. This is foIIoved by lhe issuance
of a production certificate lo lhe manufaclurer vhen ils capabiIily of dupIicaling lhe lype
design has been eslabIished. IinaIIy, each airpIane off lhe Iine receives an airworthiness
certificate aĴesling lo lhe facl lhal il conforms lo lhe lype cerlificale and is safe lo fly.
SmaII aircrah gel lhe same cIose aĴenlion during design, conslruclion, lesling, and
produclion as do big ones. Some faclories do a sufficienl voIume of business lo require
IAA inspeclors on lhe |ob fuII-lime: olhers may nol, bul lhe inspeclion procedures are
idenlicaI, and IAA inspeclors personaIIy make finaI checks.
Once an aircrah slarls flying, lhe IAA is concerned lhal il remain airvorlhy. Therefore,
lhe IAA approves airIine mainlenance programs, seĴing lhe limes for periodic inspeclions
and overhauIs of various aircrah componenls such as engines, propeIIers, inslrumenls, and
communicalions and flighl syslems. The IAA aIso cerlifies repair slalions lhal perform lhe
required mainlenance checks and lhe needed repairs and aIleralions on generaI avialion
aircrah—lhose flovn by businesspersons, commerciaI and induslriaI operalors, air laxi
operalors, and privale individuaIs. AII of lhese faciIilies are checked al reguIar inlervaIs
by IAA inspeclors.
The end resuIl of aII lhese efforls is reflecled in slalislics lhal shov lhal mechanicaI or
slrucluraI defecls accounl for onIy a reIaliveIy smaII percenlage of avialion accidenls. The
key eIemenl in lhe safely equalion is sliII lhe human one. Ior lhis reason, lhe IAA requires
lhal everyone direclIy invoIved in lhe operalion, mainlenance, and direclion of airpIanes
have a vaIid cerlificale from lhe agency vilh appropriale ralings. IncIuded are piIols, flighl
engineers, navigalors, avialion mechanics, air lraffic conlroIIers, aircrah dispalchers, and
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 9 1
parachule riggers. In addilion, lhe IAA cerlifies bolh piIol and mechanic schooIs and lhe
inslruclors vho leach in lhese inslilulions.
Airport Aid and Certification. One of lhe IAA’s mosl significanl efforls is aimed
al expanding and modernizing lhe nalion’s airporl faciIilies lo meel pro|ecled lraffic
demands. The agency vas given broad pover lo pursue lhis ob|eclive by lhe Airporl and
Airvay DeveIopmenl Acl of 1970, vhich repIaced lhe IederaI Airporl Acl of 1946 and
eslabIished bolh lhe Airporl DeveIopmenl Aid Irogram (ADAI) and lhe IIanning Granl
Irogram (IGI). The acl expired al lhe end of fiscaI 1980, and approprialions have been
made on an annuaI basis since lhen.
AIlhough lhe presenl airporl syslem in lhe Uniled Slales incIudes some 18,200 faciIilies,
onIy one-lhird of lhese are pubIicIy ovned. The resl are in privale hands, and lhe ma|orily
are cIosed lo lhe pubIic.
Under lhe ADAI, lhe IAA vas aulhorized lo aIIocale funds for airporl improvemenl
and conslruclion pro|ecls. During lhis 10-year program, lhe agency aIIocaled more
deveIopmenl money lhan il did during lhe enlire 26-year hislory of lhe previous IederaI
Aid Airporl Irogram. Iunds vere aIIocaled on a cosl-sharing basis for such pro|ecls as
acquisilion of Iand: conslruclion of runvays, laxivays, and aprons: purchase of fire and
crash-rescue equipmenl: and inslaIIalion of Iighling and navigalion and Ianding aids.
The purpose of lhe IGI vas lo promole lhe orderIy and limeIy deveIopmenl of lhe
nalion’s airporl syslem by assisling slale and IocaI aulhorilies in idenlifying presenl and
fulure air lransporlalion requiremenls. Granls vere made for lvo lypes of pIanning
pro|ecls: (1) preparalion of masler pIans al individuaI airporls and (2) deveIopmenl of
slalevide or regionaI airporl syslem pIans. The IAA paid lhree-fourlhs of lhe cosl of a
pIanning pro|ecl, vilh lhe IocaI agency conlribuling lhe remainder.
The Airporl and Airvay DeveIopmenl Acl of 1970 aIso aulhorized lhe IAA lo
issue operaling cerlificales lo airporls receiving service lo ensure lheir safe operalion.
In keeping vilh lhis direclive, lhe agency subsequenlIy adopled nev reguIalions
lhal sel safely slandards in 18 areas, incIuding lhe avaiIabiIily of firefighling and
rescue equipmenl, reduclion of bird hazards, marking and Iighling of runvays and
laxivays, handIing and slorage of dangerous maleriaIs, and marking and Iighling of
obslruclions.
The firsl phase of lhe cerlificalion program vas Iimiled lo lhe approximaleIy 500
airporls lhal receive reguIarIy scheduIed service by cerlificaled air carriers using Iarge
aircrah and accounl for 96 percenl of aII airIine passenger enpIanemenls in lhe Uniled
Slales. The IAA compIeled cerlificalion of lhese airporls in May 1973. The second
phase invoIved lhose airporls serving cerlificaled air carriers lhal conducl operalions
on an irreguIar or unscheduIed basis or operalions vilh smaII aircrah. IAA operaling
cerlificales had been issued lo more lhan 700 airporls by lhe end of 1980. The IAA aIso
assisls airporl ovners in designing, conslrucling, and mainlaining airporls in keeping
vilh avialion requiremenls, nalionaI safely slandards, and slale-of-lhe-arl design and
engineering lechnoIogy. This is accompIished by lhe issuance of slandards, pubIished
in lhe form of advisory circuIars, lhal are mandalory for granl recipienls and have
vorIdvide acceplance as lechnicaI advisory documenls. Advisory circuIars cover
such areas as airporl paving, drainage, and Iighling, and runvay, laxivay, and apron
design.
A I R T R A N S P O R TAT I O N 9 2
Environmental Protection. In addilion lo safely, lhe IAA aIso has imporlanl
responsibiIilies lo make airpIanes compalibIe vilh lhe environmenl by conlroIIing noise
and engine emissions. The agency considers lhese efforls of crilicaI imporlance in ensuring
lhe fulure grovlh and deveIopmenl of civiI avialion in lhe Uniled Slales.
Significanl progress has aIready been made since lhe inlroduclion of vide-body |els,
such as lhe ßoeing 747, lhe DC-10, and lhe Lockheed 1011, in lhe earIy 1970s. AIlhough lhe
engines lhal pover lhese aircrah generale 2.5 limes lhe lhrusl of any engine previousIy
used in commerciaI service, lhey are onIy aboul haIf as Ioud as lheir predecessors. In
addilion, lhey are virluaIIy smoke-free.
The IAA aIso has inilialed reguIalory aclion designed lo quiel oIder |els presenlIy
in service by requiring lhal lhey eilher be modified vilh noise suppression devices or
phased oul of service. In addilion, engine noise slandards have been deveIoped for lhe
nev generalion of aircrah and lhe supersonic lransporls.
Civil Aviation Security Program. Anolher ma|or IAA responsibiIily is lhe CiviI Avialion
Securily Irogram. Ifforls in lhis area are aimed al prevenling or delerring such criminaI
acls as air piracy, sabolage, exlorlion, and olher crimes lhal couId adverseIy affecl avialion
safely. Key eIemenls of lhe program incIude required screening of aII enpIaning airIine
passengers and a search of lheir carry-on baggage. A Iav enforcemenl officer aIso musl
be presenl al each screening slalion during lhe boarding process. In addilion, airporl
operalors are required lo eslabIish a securily syslem lhal viII keep unaulhorized persons
from gaining access lo air operalions areas.
ImpIemenlalion of lhese reguIalions in earIy 1973 and negolialion of an agreemenl vilh
lhe Cuban governmenl on lhe disposilion of hijackers al aboul lhe same lime produced a
dramalic lurnaround in lhe hijacking silualion. Aher averaging aImosl 30 per year from
1968 lo 1972, lhe number of hijacking aĴempls dropped lo 5 in 1977 and has remained al
around lhal number ever since.
CiviI avialion securily vas slrenglhened furlher in Augusl 1974 vhen Congress passed
lhe Anli-Hijacking Acl of 1974, vhich gave slalulory force lo lhe IAA’s securily reguIalions.
And in IuIy 1978, lhe induslriaIized nalions of lhe vorId agreed al a summil meeling in
ßonn, Germany, lo acl logelher lo cul off aII air service lo and from counlries lhal refuse
lo exlradile or prosecule aircrah hijackers. In addilion, lhe secrelary of lransporlalion is
aulhorized lo acl againsl foreign carriers operaling in lhe Uniled Slales lhal do nol meel
minimum securily slandards.
Engineering and Development. The IAA supporls aII of ils safely, securily, and
environmenlaI programs vilh exlensive engineering and deveIopmenl (I & D) pro|ecls,
conducled in parl lhrough conlracls vilh induslry, olher governmenl agencies, and
universilies. Much of lhe I & D vork, hovever, is done in-house al lhe IAA lechnicaI
cenler in AlIanlic Cily, Nev Iersey, and lhe lransporlalion syslems cenler in Cambridge,
MassachuseĴs. AeromedicaI research is done al lhe IAA’s CiviI AeromedicaI Inslilule in
OkIahoma Cily.
A conlinuing priorily of lhe agency’s I & D vork is furlher aulomalion of lhe air lraffic
conlroI syslem lo heIp conlroIIers keep aircrah safeIy separaled as air lraffic increases.
Warning syslems, for inslance, have been added lo lhe aulomaled syslems al lhe busiesl air
lraffic faciIilies lo aIerl conlroIIers vhen aircrah under lheir conlroI are dangerousIy cIose
lo lhe ground or lo one anolher. Work is under vay lo deveIop olher compuler syslems
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 9 3
lhal viII assisl conlroIIers in handIing higher lraffic Ioads vilh increased efficiency and
safely.
The IAA has aIso deveIoped collision avoidance systems lhal operale independenlIy
of lhe air lraffic conlroI syslem bul are compalibIe vilh il. These eIeclronic devices varn
piIols direclIy of polenliaI conflicls vilh olher aircrah and shov hov lo avoid lhem. The
firsl of lhese syslems, designed for use in en roule airspace and al airporls vilh Iighl lo
moderale lraffic, vere in operalion by 1981. The IAA conlinues lo deveIop and lesl more
sophislicaled coIIision avoidance syslems for effeclive operalion in congesled airspace.
An imporlanl eIemenl in an effeclive coIIision avoidance syslem for high-use airspace
is lhe discrele address beacon syslem (DAßS), vhich is being deveIoped by lhe IAA
lo upgrade lhe presenl air lraffic conlroI radar beacon surveiIIance syslem. IssenliaIIy,
DAßS is an improved lransponder, bul il viII provide a dala Iink for use vilh a ground-
based anlicoIIision syslem. Il viII aIso be lhe basis for olher syslem improvemenls, such
as aulomalic melering and spacing lo improve lhe flov of lraffic and aulomalic vealher
reporling.
SuppIying piIols vilh accurale and limeIy vealher informalion, parlicuIarIy in
hazardous vealher, is anolher ma|or I & D program goaI. Among lhe efforls under
vay lo achieve lhis safely goaI are lhe deveIopmenl and demonslralion of aulomaled
vealher observalion syslems for airporls vilhoul conlroI lovers, lesling of a vake vorlex
advisory syslem lhal varns piIols of polenliaIIy dangerous air lurbuIence in approach
and deparlure palhs, and Iov-IeveI vind shear aIerl syslems lo heIp piIols cope vilh vind
shear during lhe crilicaI slages of approach and Ianding. In addilion lo enhancing safely,
lhese vealher syslems viII heIp reduce deIays and conserve fueI and viII enabIe more
efficienl use of airporl capacily.
The IAA aIso has an exlensive aeromedicaI research program lo expIore lhe human
faclors lhal affecl lhe safely and advancemenl of civiI avialion. Currenl research efforls
incIude sludies of crash impacl and survivaI, lhe loxic hazards of burning cabin maleriaIs
aher a crash, and lhe effecl of aging and slress on piIols’ performance.
In addilion, lhe IAA conducls a comprehensive heaIlh program for more lhan 24,000 air
lraffic conlroI speciaIisls. The program provides a compIele annuaI physicaI examinalion
and cerlain Iaboralory procedures lo delermine vhelher conlroIIers are fil lo perform
lheir demanding dulies and lo preserve lheir usefuIness by earIy deleclion of correclabIe
diseases.
Oincr |AA Acii ti ii cs
ßecause lhe Uniled Slales is lhe recognized vorId Ieader in avialion, lhe IAA has a vilaI
roIe lo pIay in inlernalionaI avialion maĴers. Ior exampIe, in cooperalion vilh lhe Slale
Deparlmenl’s Agency for InlernalionaI DeveIopmenl, il sends civiI avialion assislance
groups abroad lo provide lechnicaI aid lo olher nalions. The IAA aIso lrains hundreds
of foreign nalionaIs every year al lhe Mike Monroney AeronaulicaI Cenler in OkIahoma
Cily.
The IAA aIso vorks vilh lhe InlernalionaI CiviI Avialion Organizalion (ICAO) in
eslabIishing vorIdvide safely and securily slandards and procedures, provides lechnicaI
advice on lhe exporl and imporl of avialion producls, and handIes cerlificalion of foreign-
made aircrah engines and parls under lhe lerms of biIaleraI airvorlhiness agreemenls.
The IAA aIso parlicipales vilh lhe NalionaI Transporlalion Safely ßoard
(NTSß) in lhe invesligalion of ma|or aircrah accidenls lo delermine if any
A I R T R A N S P O R TAT I O N 9 4
immediale aclion is needed lo correcl deficiencies and prevenl a recurrence.
In addilion, lhe agency invesligales mosl nonfalaI and many falaI generaI avialion
accidenls on behaIf of lhe NTSß, aIlhough lhe responsibiIily for delermining probabIe
cause remains vilh lhe board. The IAA aIso operales a pubIic-use airporl al ils lechnicaI
cenler oulside AlIanlic Cily, Nev Iersey.
THE TRANSPORTATION SECURITY ADMINISTRATION
On November 19, 2001, Iresidenl George W. ßush signed inlo Iav lhe Avialion and
Transporlalion Securily Acl, vhich among olher lhings eslabIished a nev Transporlalion
Securily Adminislralion (TSA) vilhin lhe Deparlmenl of Transporlalion headed by lhe
undersecrelary of lransporlalion for securily. In March 2003, lhe TSA vas moved lo lhe
Deparlmenl of HomeIand Securily. This acl vas impIemenled lo achieve a secure air lraveI
syslem and vas formed as a resuIl of lhe lragic evenls of Seplember 11, 2001. Ior lhe firsl
lime in U.S. avialion hislory, airporl securily became a direcl federaI responsibiIily. The
TSA prolecls lhe nalion’s lransporlalion syslems lo ensure freedom of movemenl for
peopIe and commerce by seĴing lhe slandard for exceIIence in lransporlalion securily
lhrough ils peopIe, processes, and lechnoIogies.
The TSA is responsibIe for federaI securily screening operalions for passenger air
lransporlalion and inleIIigence informalion reIaled lo lransporlalion securily: managing
and carrying oul program and reguIalory aclivilies: discovering, prevenling, and deaIing
vilh lhreals lo lransporlalion securily: research and deveIopmenl aclivilies reIaled lo
enhancing lransporlalion securily: coordinaling inlermodaI lransporlalion securily,
incIuding avialion, raiI, olher surface lransporlalion, and marilime lransporlalion:
and overseeing mosl lransporlalion-reIaled responsibiIilies of lhe federaI governmenl
during a nalionaI emergency.
The TSA issues and adminislers Transporlalion Securily ReguIalions (TSR), vhich
vere formerIy ruIes of lhe IAA. These ruIes vere lransferred lo lhe TSA vhen lhe
TSA assumed conlroI of lhe IAA’s civiI avialion securily funclion on Iebruary 17,
2002. The generaI conlenls of lhe TSR cover lhe responsibiIilies of lhe undersecrelary
of lransporlalion for securily, invesligalive and enforcemenl procedures, passenger
civiI avialion securily service fees, avialion securily infraslruclure fees, proleclion of
sensilive securily informalion, civiI avialion securily, airporl securily, aircrah operalor
securily (air carriers and commerciaI operalors), foreign air carrier securily, indirecl air
carrier securily, and aircrah securily under generaI operaling and flighl ruIes.
Crealed by lhe Deparlmenl of Transporlalion Acl of 1966, lhe NTSß officiaIIy came inlo
being by execulive order on ApriI 1, 1967. AcluaIIy, il vas on May 2 lhal lhe firsl five-
member board, appoinled by lhe presidenl vilh lhe advice and consenl of lhe Senale,
vas svorn inlo office.
The board vas lo be independenl in ils operalions, bul for housekeeping purposes,
il vas made a parl of lhe nev Deparlmenl of Transporlalion. NearIy eighl years Ialer,
lhe Transporlalion Safely Acl of 1974 eslabIished lhe board as an enlireIy independenl
agency and broadened lhe board’s slalulory mandale for invesligalion of cerlain surface
THE NATIONAL TRANSPORTATION SAFETY BOARD
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 9 5
FIGURE 3-3 Organization of the National Transportation Safety Board.
Member Member Member
Office of
Managing Director
Office of
General Counsel
Bureau of
Technology
Human Factors
Division
Operational Factors
Division
Engineering
Division
Laboratory Services
Division
Bureau of
Accident Investigation
Human Factors
Division
ANC – Anchorage
ATL – Atlanta
CHI – Chicago
DEN – Denver
FTW – Fort Worth
MKC – Kansas City
LAX – Los Angeles
MIA – Miami
NYC – New York
SEA – Seattle
Aviation Accident
Division
Railroad Accident
Division
Highway Accident
Division
Hazardous Materials and
Pipeline Accident Division
Marine Accident
Division
Office of Administrative
Law Judges
Office of Government
and Public Affairs
Vice-Chairman Member
lransporlalion accidenls. The nev acl aIso slrenglhened lhe NTSß’s posilion in pressing
for aclion by lhe DOT on board safely recommendalions. The secrelary of lransporlalion
vas required lo respond, in vriling, vilhin 90 days of each recommendalion lo lhe DOT
and lo give delaiIed reasons vhenever lhe DOT re|ecled a recommendalion. The NTSß,
in lurn, insliluled a formaI procedure for moniloring responses lo recommendalions and
for evaIualing lhem.
In 1982, lhe 1974 IegisIalion vas amended lo give lhe NTSß “priorily over aII olher
invesligalions-… by olher IederaI agencies” in surface lransporlalion cases. Irovision vas
made for parlicipalion of olher agencies in board invesligalions, and lhe board’s righls lo
examine physicaI evidence vere exlended specificaIIy lo “any vehicIe, roIIing slock, lrack,
or pipeIine componenl” invoIved in an accidenl. Iigure 3-3 shovs lhe organizalionaI charl
for lhe NTSß.
The board is composed of five members appoinled by lhe presidenl and confirmed by
lhe Senale, lvo of vhom are designaled by lhe presidenl for lvo-year lerms lo serve as
chair and vice-chair. The fuII lerm of a member is five years. The board’s headquarlers are
in Washinglon, D.C., and fieId offices are Iocaled in Anchorage, AlIanla, Chicago, Denver,
Iorl Worlh, Los AngeIes, Miami, Kansas Cily, Nev York Cily, and SeaĴIe.
A I R T R A N S P O R TAT I O N 9 6
Bureau of
Administration
Comptroller
Division
Personnel and
Training Division
Operations and
Facilities Division
Information
Management Division
Bureau of
Safety Programs
Safety Recommendations
Division
Safety Studies and
Analysis Division
Sccpc an! |cspcnsi |i | i ii cs
The NTSß is required lo delermine lhe probabIe cause of lhe foIIoving:
1. CiviI avialion accidenls
2. Highvay accidenls seIecled in cooperalion vilh lhe slales
3. AII passenger lrain accidenls, any falaI raiIroad accidenl, and any raiIroad accidenl
invoIving subslanliaI damage
4. Ma|or marine accidenls and any marine accidenl invoIving a pubIic and a
nonpubIic vesseI
5. IipeIine accidenls invoIving a falaIily or subslanliaI properly damage
Under lhe Transporlalion Safely Acl of 1974, lhe board is required lo lake lhese
aclions:
1. Conducl speciaI sludies on safely probIems
2. IvaIuale lhe effecliveness of governmenl agencies invoIved in lransporlalion
safely
3. IvaIuale lhe safeguards used in lhe lransporlalion of hazardous maleriaIs
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 9 7
4. Reviev appeaIs from avialors and merchanl saiIors vhose cerlificales have been
revoked or suspended
Safety Board Publications. The board’s IubIic Inquiries Seclion mainlains a pubIic
dockel al ils headquarlers in Washinglon, D.C. The dockel conlains lhe records of aII
board invesligalions, aII safely recommendalions, and aII safely enforcemenl proceedings.
These records are avaiIabIe lo lhe pubIic and may be copied, revieved, or dupIicaled
for pubIic use. The board makes pubIic aII of ils aclions and decisions in lhe form of
accidenl reporls, speciaI sludies, safely effecliveness evaIualions, slalislicaI revievs,
safely recommendalions, and press reIeases.
Aviation Safety. Avialion is lhe Iargesl of lhe NTSß’s divisions. The board invesligales
hundreds of accidenls annuaIIy, incIuding aII air carrier accidenls, aII in-flighl coIIisions,
falaI generaI avialion accidenls, and aII air laxi commuler accidenls. The ma|or share of
lhe board’s air safely recommendalions are direcled lo lhe IAA. The recommendalions
have resuIled in a vide range of safely improvemenls in areas such as piIol lraining,
aircrah mainlenance and design, air lraffic conlroI procedures, and survivaI equipmenl
requiremenls. The board aIso is empovered lo conducl speciaI sludies of lransporlalion
safely probIems, videning lhe focus on a singIe accidenl invesligalion lo examine a safely
probIem from a broader perspeclive. In lhe pasl, for exampIe, lhe board has conducled
speciaI sludies in lhe areas of vealher, crash vorlhiness, in-flighl coIIisions, and commuler
airIines.
In 1967, lhe NTSß inheriled lhe enlire ßureau of Safely of lhe CiviI Aeronaulics ßoard, a
professionaI slaff vilh a hislory of more lhan 50 years of pioneering vork in civiI avialion
accidenl invesligalion. Ils go-leam organizalion and ils emphasis on speciaIized sludy of
aII facels of an accidenl had been recognized for ils exceIIence and emuIaled lhroughoul
lhe vorId.
In lhe NTSß’s 35-year hislory, airIine safely has improved sleadiIy. In 1967, lhe airIine
falaI accidenl rale vas 0.006 per miIIion aircrah miIes flovn. ßy 1980, il vas dovn lo
0.001 per miIIion miIes, a reduclion of 83 percenl. And on Ianuary 1, 1982, U.S. airIines
compIeled 26 monlhs vilhoul a calaslrophic crash of a pure-|el lransporl: never before
had lhere been lvo caIendar years vilhoul such an accidenl. The airIines flev more lhan
a haIf-biIIion passengers on over 10 miIIion flighls in lhal 26-monlh period—more lhan a
haIf-lriIIion passenger miIes. The aeriaI lransporlalion invoIved vouId have laken every
man, voman, and chiId in lhe counlry on a flighl of more lhan 2,000 miIes.
In 1985, lhere vere four falaI accidenls, incIuding lvo by lhe ma|or carriers, ending
lhe dovnvard lrend in accidenl rales. The falaI accidenl rale decIined during lhe Iale
1980s, reaching anolher Iov of 0.023 per 100,000 deparlures by year-end 2005. The chance
of a passenger on a ma|or carrier being invoIved in a falaI accidenl is sliII aboul 1 in 3
miIIion.
Sicps |ntc| tc! i n a Maj cr Acci !cni |ntcsii gaii cn
In lhe evenl of a ma|or accidenl, lhe NTSß foIIovs cIearIy deIinealed procedures, as
oulIined here.
1. Tnc gc-ican. One of lhe more pubIicIy visibIe aspecls of a ma|or NTSß accidenl
invesligalion is lhe board’s use of lhe go-team concepl. The go-leam, vhich is on
A I R T R A N S P O R TAT I O N 9 8
24-hour aIerl, is a group of board personneI vhose members possess a vide range of
accidenl invesligalion skiIIs. In avialion, for exampIe, a go-leam rosler couId incIude
one of lhe five members of lhe safely board, an air lraffic conlroI speciaIisl, and experls
lrained in vilness inlerrogalion, aircrah operalions, and aircrah mainlenance records.
In lhe case of a raiIroad accidenl, lhe go-leam is simiIar, bul lhe speciaIlies vary,
lypicaIIy consisling of lrack engineers, Iocomolive and signaI experls, and operalions
speciaIisls. Some go-leam members are inlermodaI in lhal lheir area of experlise is
appIicabIe lo each lransporlalion mode. Human-faclors experls faII inlo lhis calegory,
as do lhe board’s melaIIurgisls, meleoroIogisls, and hazardous maleriaIs experls.
2. Ai inc siic. The Ienglh of lime a go-leam remains on lhe accidenl sile varies vilh
need, bul generaIIy a leam compIeles ils vork in 7–10 days. Hovever, accidenl
invesligalions ohen can require off-sile engineering sludies or Iaboralory lesls lhal
may exlend lhe facl-finding slage.
3. |n inc |a|craicru. The NTSß operales ils ovn lechnicaI Iaboralory lo supporl
invesligalors in lhe fieId vilh unbiased anaIysis. Ior exampIe, lhe Iaboralory has lhe
capabiIily lo read oul aircrah cockpil voice recorders (CVRs) and decipher flighl dala
recorders (IDRs). These so-caIIed bIack boxes provide invesligalors vilh a profiIe
of an aircrah during lhe ohen cruciaI Iasl minules of flighl. ßul lhe board’s readoul
capabiIily is nol confined lo avialion. SimiIar lechniques are appIied lo marine
course recorders laken from ships invoIved in accidenls. MelaIIurgy is anolher of lhe
Iaboralory’s skiIIs. ßoard melaIIurgisls perform poslaccidenl anaIyses of vreckage
parls ranging from aircrah componenls lo raiIroad lracks. The Iaboralory is capabIe
of delermining vhelher faiIures resuIled from inadequale design slrenglh, excessive
Ioading, or delerioralion in slalic slrenglh due lo melaI faligue or corrosion.
4. Tnc sajciu rcccnncn!aiicn. The safety recommendation is lhe NTSß’s end
producl. Nolhing lakes a higher priorily: nolhing is more carefuIIy evaIualed. The
recommendalion is vilaI lo lhe board’s basic roIe of accidenl prevenlion, because il is lhe
Iever used lo bring changes in procedures and improvemenls in safely lo lhe nalion’s
lransporlalion syslem. Wilh human Iives invoIved, limeIiness aIso is an essenliaI parl
of lhe recommendalion process. As a resuIl, lhe board issues a safely recommendalion
as soon as a probIem is idenlified, vilhoul necessariIy vailing unliI an invesligalion
is compIeled and lhe probabIe cause of an accidenl delermined. In ils mandale lo lhe
board, Congress cIearIy emphasized lhe imporlance of lhe safely recommendalion,
slaling lhal lhe board shaII “advocale meaningfuI responses lo reduce lhe IikeIihood
of recurrence of lransporlalion accidenls.” Iach recommendalion issued by lhe board
designales lhe person or lhe parly expecled lo lake aclion, describes lhe aclion lhe
board expecls, and cIearIy slales lhe safely need lo be salisfied. To emphasize lhe
imporlance of lhe safely recommendalion, Congress has required lhe DOT lo respond
lo each board recommendalion vilhin 90 days.
5. Tnc pu||ic ncaring. Aher an accidenl, lhe NTSß may decide lo hoId a pubIic hearing
lo coIIecl addilionaI informalion and lo air al a pubIic forum lhe issues invoIved in
an accidenl. The hearing is presided over by a member of lhe board, and vilnesses
leslify under oalh. Ivery efforl is made lo hoId lhe hearing promplIy and cIose lo lhe
accidenl sile.
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 9 9
6. Tnc fina| rcpcri. Wilh lhe compIelion of lhe facl-finding phase, lhe accidenl
invesligalion enlers ils finaI slage—anaIysis of lhe facluaI findings. The anaIysis is
conducled al lhe NTSß’s Washinglon headquarlers, and lhe resuIl is a slalemenl of
vhal lhe board lerms “lhe probabIe cause of lhe accidenl.” The final report on lhe
accidenl is lhen presenled lo lhe fuII five-member board for discussion and approvaI
al a pubIic meeling in Washinglon. The enlire process, from accidenl invesligalion
lo finaI reporl, normaIIy lakes severaI monlhs. Accidenls invesligaled by lhe board’s
fieId invesligalors are reporled in brief formal.
MAJOR AVIATION ASSOCIATIONS
Ai r| i nc-|c| aic! Asscci aii cns
Air Transport Association of America
1301 IennsyIvania Avenue NW
Washinglon, DC 20004
hĴp://vvv.airIines.org
Iounded in 1936, lhe Air Transport Association of America (ATA) is lhe lrade and service
organizalion of lhe scheduIed airIines of lhe Uniled Slales. Through lhe ATA, member
airIines pooI lheir lechnicaI and operalionaI knovIedge lo form a singIe, inlegraled airIine
syslem serving lhousands of communilies nalionvide.
Of aII ATA aclivilies, safely is foremosl. Olher ob|eclives incIude lhe improvemenl of
passenger and cargo lraffic procedures, economic and lechnicaI research, and aclion on
IegisIalion affecling lhe induslry. IIanning lhe airIines’ roIe in augmenling lhe nalionaI
defense is anolher imporlanl ATA concern, as are such maĴers as faciIilaling lhe movemenl
of passengers and cargo across inlernalionaI borders, improving lhe environmenlaI
aspecls of airIine operalions, and ensuring lhe accessibiIily of lhe airIines lo adequale
sources of energy lo meel pubIic lransporlalion needs.
The ATA is divided inlo nine deparlmenls: (1) Operalions and Airporls, (2) Traffic
Services, (3) Iconomics and Iinance, (4) InlernalionaI Affairs, (5) LegaI, (6) IederaI Affairs,
(7) IubIic Affairs, (8) IubIic ReIalions, and (9) Office of Inforcemenl.
The inleresls and goaIs of lhe airIines as an induslry are achieved lhrough a syslem
of counciIs and reIaled commiĴees made up of airIine and ATA slaff members vorking
logelher. The commiĴee slruclure aIso incIudes lhe Air Traffic Conference, vhose funclion
is lo deveIop induslry slandards lhrough inlercarrier agreemenls. These agreemenls
make il possibIe for a member of lhe pubIic lo vaIk inlo lhe office of virluaIIy any airIine
or lraveI agenl in any cily and buy a lickel lhal viII lake him or her lo any poinl served
by lhal airIine or any olher scheduIed airIine lhroughoul lhe vorId. The same service is
avaiIabIe lo a person making a shipmenl by air freighl.
Regional Airline Association
1200 19lh Slreel NW
Washinglon, DC 20036
hĴp://vvv.raa.org
The Regional Airline Association (RAA), renamed in 1981 (formerIy lhe Commuler
AirIine Associalion of America), represenls lhose airIines engaged in lhe scheduIed air
lransporlalion of passengers and cargo primariIy in IocaI, feeder, and shorl-hauI markels
A I R T R A N S P O R TAT I O N 1 0 0
lhroughoul lhe Uniled Slales and ils lerrilories. The RAA is charlered lo promole a heaIlhy
business cIimale for lhe grovlh of regionaI and commuler services by vorking vilh
governmenl, olher organizalions, and lhe pubIic on issues affecling lhe induslry. Through
cooperalion and educalion, lhe RAA seeks lo fosler lhe deveIopmenl of lhe induslry.
Oincr Ai r| i nc Asscci aii cns
Airline Clearing House
1301 IennsyIvania Avenue NW
Washinglon, DC 20004
The Airline Clearing House is a corporalion, vhoIIy ovned by lhe Iarger cerlificaled
airIines, lhrough vhich lhe inlerIine accounls of airIines, cerlificaled and regionaI,
are seĴIed on a nel basis each monlh. RegionaI airIines, by parlicipaling as associale
members, are abIe lo reaIize aII lhe biIIing and cIearance benefils vilhoul lhe necessily of
purchasing slock in lhe corporalion.
Iach member air carrier submils a recap sheel on lhe fiheenlh of each monlh lo lhe
AirIine CIearing House bank shoving accounls due from every olher member, covering
bolh passenger and freighl. The bank nels lhese accounls and nolifies each airIine on
lhe lvenlielh of lhe monlh of lheir nel debil or credil posilion in lhe CIearing House.
SeĴIemenl is made on lhe lvenly-eighlh, vilh penaIlies Ievied for faiIure lo pay. IIighl
coupons and air biIIs are senl lo lhe appropriale airIine for a foIIov-up audil, vilh an
opporlunily for subsequenl CIearing House ad|uslmenls.
Iach parlicipaling carrier is requesled lo mainlain an accounl al lhe AirIine CIearing
House bank. The AirIine CIearing House performs lhe cIearing funclions vilhoul charge.
The cosl of such ilems as prinling, poslage, buIIelin correspondence, and mainlenance
of lhe manuaI of procedures is nominaI. Reimbursemenl for such cosls is biIIed lo aII
members and associale members on an annuaI basis. When making appIicalion as an
associale member, commuler airIines are required lo have inlerIine agreemenls vilh al
Ieasl one member or associale member of lhe CIearing House.
Airline Tariff Publishing Company
DuIIes InlernalionaI Airporl
ßox 17415
Washinglon, DC 20041
hĴp://alpco.nel
The Airline Tariff Publishing Company (ATPCO), vhoIIy ovned by 35 cerlificaled
air carriers, is empIoyed by lhe airIines lo pubIish and dislribule fares and cargo rales
lo lhe lraveI induslry. ATICO pubIicalions Iisl |oinl fares lariffs, commuler IocaI fares
lariffs, commuler airIine cargo IocaI ruIes and rales, smaII-package rales, and air cargo
memorandum lariffs. ATICO dislribules lhese lariffs lo lraveI agenls, airIine rale desks,
and olher companies in lhe business.
Air Cargo , Inc.
1819 ßay Ridge Road
AnnapoIis, MD 21403
Air Cargo, Inc. is a service organizalion ovned by lhe scheduIed airIines of lhe Uniled
Slales. Air Cargo, Inc.’s compIele syslem of airIine and air freighl services invoIves lhree
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 1
dislincl areas: IocaI air freighl pickup and deIivery, air and lruck and conlainer pickup and
deIivery, and Ioading and unIoading. RegionaI airIines may conlracl for lhe services of Air
Cargo, Inc. as associale members.
Aeronautical Radio, Inc.
2551 Riva Road
AnnapoIis, MD 21401
Aeronautical Radio, Inc., more famiIiarIy knovn as ARINC, is dedicaled lo serving lhe
communicalions needs of lhe air lransporl communily. The company’s services, once used
aImosl excIusiveIy by ma|or U.S. airIines, nov are empIoyed by a variely of corporalions,
governmenl agencies, and domeslic and foreign carriers ranging in size from ma|or lrunks
lo commuler air carriers. ARINC’s services conlinue lo be provided on a nol-for-profil
basis, as vas lhe case vhen lhe company vas incorporaled in 1929.
ARINC provides such benefils as advanced lechnoIogy, high-quaIily service, cosl-based
charges, and Iong-slanding reIalionships vilh lhe reguIalory bodies and lhe avialion
communily. ARINC aIso provides many services.
1. Wcaincr uirc scrticc dislribules severaI forms of vealher dala lo lhe avialion
communily. The informalion incIudes hourIy sequence reporls, upper almospheric
vind and lemperalure dala, foreign vealher informalion, and reprinls of vealher
saleIIile piclures.
2. Air/grcun! !cncsiic scrticc is lhe originaI service provided by ARINC. Radio operalors
slalioned in Nev York, Chicago, and San Irancisco conlroI a series of nelvorks of
radio slalions. VirluaIIy uninlerrupled air-ground-air VHI voice communicalions are
provided lhroughoul lhe conliguous Uniled Slales. ReguIar service consisls of lhe
exchange of messages belveen users’ aircrah and flighl operalions or olher offices
via ARINC operalors. In addilion, radio-phone palches, permiĴing direcl conlacl
belveen air and ground personneI, are made via ARINC nelvorks. Messages consisl
of operalionaI informalion.
3. Air/grcun! inicrnaiicna| scrticc is simiIar lo air/ground domeslic. Voice service is
provided oulside lhe conliguous Uniled Slales lhrough lhe use of bolh VHI and
HI radio. Messages consisl of users’ operalionaI informalion and air lraffic conlroI
inslruclions.
4. ACA|S (ARINC communicalions addressing and reporling syslem) is lhe nevesl
service. Using slale-of-lhe-arl lechnoIogy, speciaI equipmenl in aircrah aulomalicaIIy
coIIecls numerous operalionaI characlerislics. DigilaI messages conlaining lhe
informalion are lransmiĴed aulomalicaIIy or on requesl via lhe ARINC radio nelvork
and message-svilching syslem lo lhe respeclive ground offices. CurrenlIy, a number
of domeslic lrunk and regionaI airIines use lhe service.
5. Pcini-ic-pcini scrticc is a syslem of Iov- and medium-speed dedicaled and shared
generaI-purpose communicalions channeIs. Links exisl belveen lhe conliguous
Uniled Slales and cenlers in AIaska, Havaii, Iuerlo Rico, lhe Caribbean, CenlraI
and Soulh America, and lhe soulh and vesl areas of lhe Iacific Ocean. The channeIs
A I R T R A N S P O R TAT I O N 1 0 2
connecl vilh lhe ISS (see lhe nexl ilem). They permil lhe exchange of messages and
operalionaI informalion belveen users operaling in each of lhe areas.
6. |SS (eIeclronic svilching syslem) is one of lhe Iargesl message-svilching services.
Over 300 users, incIuding domeslic and foreign airIines, holeI and renlaI car
chains, and governmenl agencies are lied logelher lhrough an exlensive nelvork
of communicalions Iinks. A baĴery of compulers, Iocaled in Chicago, aulomalicaIIy
svilch messages belveen users. Much of lhe lraffic consisls of inlerIine reservalions.
7. PI|N (privale-Iine inlercily nelvork) is an exlensive nelvork of communicalions Iinks
lhroughoul lhe conliguous Uniled Slales. ARINC purchases services from leIephone
companies and olher common carriers and is abIe lo provide Iov-cosl foreign exchange
Iines and privale-Iine leIephone and dala circuils lo aII carriers.
8. Icca|-arca VH| air/grcun! ccnnunicaiicns scrticc incorporales a number of radio
slalions Iicensed by ARINC bul slaffed by lhe user’s personneI. The radio slalions are
used for lhe exchange belveen air crevs and ground personneI of such operalionaI
informalion as gale assignmenls, arrivaI and deparlure limes, speciaI handIing
arrangemenls for passengers, and so forlh. This service is made avaiIabIe lo users
under one of lvo arrangemenls:
a. A||NC-cunc! scrticc permils users lo opl for ARINC-ovned, -Iicensed, -inslaIIed, and
-mainlained radio equipmenl. ARINC aIso seIecls lhe besl frequency for operalion.
b. Icasc! ccniracis aIIov users lo ovn, inslaII, and mainlain lhe equipmenl. ARINC,
as lhe Iicensee, handIes lhe adminislralive aclivilies associaled vilh hoIding and
mainlaining ICC Iicenses for aeronaulicaI en roule and IocaI radio slalions.
9. Supp. svcs (suppIemenlaI services) are exlensions of basic services provided by
ARINC. SpeciaI services laiIored lo individuaI users’ requiremenls make up lhis
service. IxampIes incIude ARINC-ovned IocaI VHI radio slalions and lhe lerminaI
devices and connecling circuilry for a user of lhe ISS nelvork. ARINC provides
mainlenance service on radio syslems, flighl informalion dispIay syslems (IIDS), dala
lerminaIs, muIlipIex syslems, and a variely of olher lypes of eIeclronic equipmenl.
Mainlenance can be purchased on a lime-and-maleriaI basis or al an eslabIished rale
per monlh lhal is sub|ecl onIy lo annuaI reviev.
Aerospace Industries Association
1250 Iye Slreel NW, Sle. 1200
Washinglon, DC 20005
hĴp://vvv.aia-aerospace.org
The Aerospace Industries Association (AIA) is lhe nalionaI lrade associalion lhal
represenls U.S. companies engaged in research, deveIopmenl, and manufaclure of such
aerospace syslems as aircrah, missiIes, spacecrah, and space-Iaunch vehicIes: propuIsion,
guidance, and conlroI syslems for lhe flighl vehicIes: and a variely of airborne and
Ai rcraj i-Manuj aciuri ng Asscci aii cns
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 3
ground-based equipmenl essenliaI lo lhe operalion of lhe flighl vehicIes. A secondary
area of induslry efforl, grouped under lhe heading “nonaerospace producls,” consisls of
a broad range of syslems and equipmenl generaIIy derived from lhe induslry’s aerospace
lechnoIogicaI experlise bul inlended for appIicalions olher lhan flighl.
The AIA funclions on nalionaI and inlernalionaI IeveIs, represenling ils membership
in a vide range of lechnoIogicaI and olher reIalionships vilh governmenl agencies and
lhe pubIic. To faciIilale ils vork al lhe nalionaI IeveI, lhe AIA is a member of lhe CounciI
of Defense and Space Induslry Associalions (CODSIA), a coordinalion medium for six
induslry associalions vilh muluaI inleresls reIaled lo federaI governmenl procuremenl
poIicies. In inlernalionaI aclivilies, lhe AIA cooperales, vhenever il is praclicaI, vilh
lrade associalions in olher counlries, bolh individuaIIy and lhrough lhe InlernalionaI
Coordinaling CounciI of Aerospace Induslry Associalions (ICCAIA), an informaI body of
lhe vorId’s nalionaI aerospace associalions. The AIA aIso serves as secrelarial for TC 20,
lhe aircrah/space group of lhe InlernalionaI Organizalion for Slandardizalion (ISO).
General Aviation Manufacturers Association
1400 K Slreel NW
Washinglon, DC 20005
hĴp://vvv.generaIavialion.org
The General Aviation Manufacturers Association (GAMA) is an independenl lrade
organizalion represenling 52 U.S. companies lhal produce over 95 percenl of lhe nalion’s
generaI avialion aircrah and equipmenl. The GAMA represenls lhe |oinl inleresls of lhe
generaI avialion seclor in Washinglon and provides insighl inlo lhe induslry’s roIe in lhe
U.S. lransporlalion syslem.
Aviation Distributors and Manufacturers Association
1900 Arch Slreel
IhiIadeIphia, IA 19103
hĴp://vvv.adma.org
The Aviation Distributors and Manufacturers Association (ADMA) represenls
dislribulors and manufaclurers of avialion parls, suppIies, and equipmenl in aII maĴers
of nalionaI imporlance. The ADMA cooperales vilh various governmenl agencies,
incIuding lhe IAA, and represenls lhis segmenl of lhe induslry in aII issues reIaling lo
federaI IegisIalion, reguIalions, orders, and olher governmenl aclivilies. Like lhe GAMA,
il provides a focaI poinl for aII olher eIemenls in lhe induslry lo delermine vhal can be
done lhrough induslry efforls lo make prospeclive purchasers and lhe pubIic al Iarge
avare of lhe advanlages and usefuIness of given avialion producls. The ADMA conducls
research in conneclion vilh operalions of members lo promole efficiency and economy in
lhe dislribulion of avialion parls, suppIies, and equipmenl.
Gcncra| Ati aii cn Asscci aii cns
National Business Aircra Association
1200 18lh Slreel NW, Sle. 400
Washinglon, DC 20036
hĴp://vvv.nbaa.org
A I R T R A N S P O R TAT I O N 1 0 4
The National Business Aircra Association (NBAA) represenls more lhan 4,000 businesses
and corporalions lhal generale more lhan one-lhird of lhe gross nalionaI producl of lhe
Uniled Slales. Members fly more lhan 5,500 aircrah in lhe conducl of business, from
singIe-engine pIanes and heIicoplers lo inlerconlinenlaI |els of airIiner size. More lhan
haIf lhe members ovn and operale one or more aircrah.
Al lhe nalionaI IeveI, lhe NßAA is concerned vilh fueI aIIocalion and avaiIabiIily,
discriminalion in lhe use of airporls and airspace, aircrah noise and lhe environmenl,
flighl service slalion requiremenls, vealher reporling services, federaI laxes for lhe use of
airporls and air lraffic conlroI syslem, cusloms services, and any federaI reguIalion lhal
has a bearing on business aircrah use.
There is no olher spokesperson for business avialion before Congress, lhe DOT, lhe
IAA, lhe Deparlmenl of Inergy, lhe IRS, lhe U.S. Cusloms Service, or any olher federaI
agency. Slaff members inlerprel business avialion’s requiremenls, accompIishmenls, and
aclivilies: anaIyze governmenl proposaIs, ruIes, and reguIalions for lhe effecl on members:
generale pubIic informalion programs: and coordinale, vhen appropriale, vilh olher
nalionaI avialion associalions. As needed, slaff members lurn lo lhe enlire membership
for assislance.
Aircra Owners and Pilots Association
421 Avialion Way
Irederick, MD 21701
hĴp://vvv.aopa.org
The Aircra Owners and Pilots Association (AOPA) represenls more lhan 265,000
members vho ovn or fly generaI avialion aircrah and fly for personaI and business
purposes.
The AOIA vorks cIoseIy vilh lhe IAA, lhe DOT, lhe NTSß, Congress, and olher
avialion organizalions, bolh IocaI and nalionaI, lo ensure lhal lhe inleresls of ils members
and lhe enlire generaI avialion communily are veII represenled.
Safely in flying has aIvays been of prime concern lo lhe AOIA. ßy 1950, lhal area of
aclivily had expanded lo lhe degree lhal a separale organizalion, lhe AOIA Ioundalion,
Inc., vas deveIoped lo concenlrale on avialion safely and educalionaI programs. In 1967,
lhe foundalion vas redesigned and named lhe AOIA Air Safely Ioundalion.
During lhe 1960s, AOIA’s success in effecliveIy represenling lhe generaI avialion
popuIalion gained vorIdvide recognilion. Spearheaded by lhe AOIA, lhe InlernalionaI
CounciI of Aircrah Ovner and IiIol Associalions (IAOIA) vas formed. The goaI vas
lo bring lo olher nalions around lhe gIobe lhe same flying freedom and professionaI
represenlalion lhal lhe AOIA oblained in lhe Uniled Slales.
AIlhough service lo ils members remains ils primary consideralion, lhe AOIA
aggressiveIy pursues lhe lolaI pubIic acceplance of generaI avialion.
National Association of State Aviation Officials
8401 CoIesviIIe Road, Sle. 505
SiIver Spring, MD 20910
hĴp://vvv.nasao.org
The National Association of State Aviation Officials (NASAO) represenls 47 slale
avialion agencies, as veII as Iuerlo Rico’s Avialion Deparlmenl. Ils members are lhe
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 5
|nicrnaii cna| Ati aii cn Asscci aii cns
aeronaulics commissions and deparlmenls crealed under lhe Iavs of lhe various slales lo
fosler, deveIop, and reguIale avialion al lhe IocaI and slale IeveIs.
The primary purpose of lhe NASAO as an associalion is lo fosler and encourage
cooperalion and muluaI aid among lhe slales, as veII as federaI and IocaI governmenls, in
deveIoping bolh slale and nalionaI air lransporlalion syslems lhal viII be responsive lo lhe
needs of aII users of avialion. ßy vorking lo coordinale various slale Iavs, reguIalions, and
programs vilh lhose of lhe federaI governmenl, lhe NASAO seeks lo deveIop operalionaI
uniformily among lhe slales and lo minimize conflicl belveen and dupIicalion of slale and
federaI efforls in lhe deveIopmenl of an inlegraled nalionaI air lransporlalion syslem.
International Civil Aviation Organization
IIace de L’Avialion InlernalionaIe
IO ßox 400
MonlreaI, I.O., Canada H3A2R2
hĴp://vvv.icao.org
The principaI aim of lhe International Civil Aviation Organization (ICAO) is lo deveIop
lhe principIes and lechniques of inlernalionaI air navigalion and lo fosler lhe pIanning and
deveIopmenl of inlernalionaI air lransporlalion. The specific goaIs of lhe ICAO incIude
lhe foIIoving:
1. Insure lhe safe and orderIy grovlh of inlernalionaI civiI avialion lhroughoul lhe
vorId
2. Incourage lhe arls of aircrah design and operalion for peacefuI purposes
3. Incourage lhe deveIopmenl of airvays, airporls, and air navigalion faciIilies for
inlernalionaI civiI avialion
4. Meel lhe needs of lhe peopIes of lhe vorId for safe, reguIar, efficienl, and economicaI
air lransporl
5. Irevenl economic vasle caused by unreasonabIe compelilion
6. Insure lhal lhe righls of conlracling slales are fuIIy respecled and lhal every conlracling
slale has a fair opporlunily lo operale inlernalionaI airIines
7. Avoid discriminalion belveen conlracling slales
8. Iromole safely of flighl in inlernalionaI air navigalion
9. Iromole generaIIy lhe deveIopmenl of aII aspecls of inlernalionaI civiI aeronaulics
The ICAO has a sovereign body, lhe AssembIy, composed of 182 counlries (conlracling
slales), and a governing body, lhe CounciI, made up of 36 conlracling slales. The AssembIy
meels al Ieasl once every lhree years and is convened by lhe CounciI. Iach conlracling
slale is enlilIed lo one vole, and decisions of lhe AssembIy are made by a ma|orily of
A I R T R A N S P O R TAT I O N 1 0 6
lhe voles casl excepl vhere olhervise slipuIaled in lhe convenlion. Al lhis session, lhe
compIele vork of lhe organizalion in lhe lechnoIogicaI, economic, IegaI, and lechnicaI-
assislance fieIds is revieved in delaiI, and guidance is given lo lhe olher bodies of lhe
ICAO for lheir fulure vork.
The CounciI is a permanenl body responsibIe lo lhe AssembIy. Conlracling slales are
eIecled by lhe AssembIy for lhree-year lerms. In lhe eIeclion, adequale represenlalion
is given lo slales of chief imporlance in air lransporl. Slales nol olhervise incIuded lhal
make lhe Iargesl conlribulion lo lhe provision of faciIilies for civiI air navigalion or vhose
designalion viII ensure lhal aII lhe ma|or geographic areas of lhe vorId are incIuded aIso
are represenled on lhe CounciI.
The CounciI, lhe Air Navigalion Commission, lhe Air Transporl CommiĴee, lhe
CommiĴee on Ioinl Supporl of Air Navigalion Services, and lhe Iinance CommiĴee
provide lhe conlinuing direclion of lhe vork of lhe organizalion. One of lhe ma|or dulies
of lhe CounciI is lo adopl inlernalionaI slandards and recommended praclices and lo
incorporale lhese as annexes lo lhe Convenlion on InlernalionaI CiviI Avialion. The
CounciI may acl as an arbiler belveen member slales on maĴers concerning avialion
and impIemenlalion of lhe convenlion, and il may invesligale any silualion lhal presenls
avoidabIe obslacIes lo lhe deveIopmenl of inlernalionaI air navigalion. In generaI, il may
lake vhalever sleps are necessary lo mainlain lhe safely and reguIarily of operalion of
inlernalionaI air lransporlalion.
International Air Transport Association
800 IIace Vicloria
IO ßox 113
MonlreaI, I.O., Canada H421M1
hĴp://vvv.iala.org
Whereas lhe ICAO’s ma|or focus is on seĴing slandards for lhe safe and orderIy flov of air
lransporlalion lhroughoul lhe vorId, lhe International Air Transport Association (IATA)
is primariIy concerned vilh lariff coordinalion, incIuding lhe coordinalion of fares, rales,
and charges, and rales and IeveIs of lraveI agenl commissions. Il provides a forum for
member slales lo discuss lhese maĴers coIIecliveIy and lo enabIe lhem, if lhey vish, lo
deveIop and adopl agreemenls on fares, rales, and commissions lhal are submiĴed lo
lheir respeclive governmenls for approvaI.
The IATA’s vork begins onIy aher governmenls have promuIgaled a formaI exchange
of lraffic and olher righls (biIaleraI air lransporl agreemenls) and have Iicensed lhe airIines
seIecled lo perform lhe service. ßul from lhal poinl on, lhe aclivily of lhe IATA spreads
lhrough virluaIIy every phase of air lransporl operalions.
The basic source of aulhorily in lhe IATA is lhe annuaI generaI meeling, in vhich aII
aclive member slales have an equaI vole. Year-round poIicy direclion is provided by an
eIecled execulive commiĴee (of airIine chief execulives), and ils crealive vork is IargeIy
carried oul by ils lraffic, lechnicaI, financiaI, and IegaI commiĴees. Coordinalion of fares
and rale agreemenls is enlrusled lo lhe IATA lariff coordinalion conferences, vilh separale
meelings addressing passenger and cargo issues and eslabIishing agreemenls vaIid for
periods of up lo lvo years.
Members of IATA commiĴees are nominaled by individuaI airIines, and, sub|ecl lo
lhe reguIalion and reviev of lhe execulive commiĴee, lhey serve as experls on behaIf of
lhe enlire induslry. In lhe lraffic conferences, hovever, deIegales acl as represenlalives of
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 7
lheir individuaI companies. AIlhough lhe execulive commiĴee fixes lhe lerms of reference
of lhese conferences, lheir decisions are sub|ecl onIy lo lhe reviev of governmenls and
cannol be aIlered by any olher parl of lhe associalion. The day-lo-day adminislralion of
lhe IATA is carried oul by a nine-member execulive managemenl board, headed by a
direclor generaI.
KEY TERMS
inslrumenl flighl ruIes (IIR) AirIine Tariff IubIishing Company
visuaI flighl ruIes (VIR) Air Cargo, Inc.
lype cerlificale ARINC
produclion cerlificale AIA
airvorlhiness cerlificale GAMA
coIIision avoidance syslem ADMA
go-leam NßAA
safely recommendalion AOIA
finaI reporl NASAO
ATA ICAO
RAA IATA
AirIine CIearing House
REVI EW QUESTI ONS
1. Describe some of lhe evenls lhal Ied lo lhe crealion of lhe Deparlmenl of Transporlalion.
Whal are lhe primary ob|eclives of lhis deparlmenl` ßriefly describe lhe ma|or roIe of
each of lhe nine adminislralions under lhe DOT.
2. The IAA has ils rools in vhich earIy piece of IegisIalion` When vas lhe IAA crealed
as an agency` Describe some IAA funclions vilh regard lo air lraffic conlroI, aircrah
and avialor cerlificalion, airporl aid and cerlificalion, environmenlaI proleclion, civiI
avialion securily programs, and engineering and deveIopmenl. Hov does lhe IAA
inlerface vilh lhe ICAO and lhe NTSß`
3. ßriefly describe lhe genesis of lhe NTSß. Whal is lhe board’s primary funclion`
Whal are some of ils olher funclions` Give lhe sleps invoIved in a ma|or accidenl
invesligalion. Whal is incIuded in a safely recommendalion` A finaI reporl` Describe
lhe accidenl experience of U.S. scheduIed air carriers and generaI avialion over lhe
period 1973–85.
4. Whal is lhe primary funclion of lhe foIIoving associalions: lhe ATA, RAA, AIA, GAMA,
ADMA, NßAA, and AOIA` Describe lhe funclions performed by lhe foIIoving airIine
associalions: AirIine CIearing House: AirIine Tariff IubIishing Company: Air Cargo,
Inc.: and ARINC. Whal are some of lhe services provided by ARINC`
5. Whal is lhe primary purpose of lhe NASAO`
6. Compare lhe roIes of lhe ICAO and lhe IATA. Hov are lhey simiIar` Differenl`
A I R T R A N S P O R TAT I O N 1 0 8
7. Whal is lhe primary purpose of lhe TSA`
WEB SI TES
hĴp://vvv.iala.org
hĴp://vvv.icao.org
hĴp://vvv.aopa.org
hĴp://vvv.nasao.org
hĴp://vvv.airIines.org
hĴp://vvv.raa.org
hĴp://vvv.alpco.nel
hĴp://vvv.nbaa.org
hĴp://vvv.generaIavialion.org
hĴp://vvv.adma.org
hĴp://vvv.aia-aerospace.org
SUGGESTED READI NGS
ßurkhardl, Roberl. Tnc Citi| Acrcnauiics Bcar!. DuIIes InlernalionaI Airporl, Va.: Green HiIIs, 1974.
Caves, Richard I. Air Transpcri an! |is |cgu|aicrs. Cambridge, Mass.: Harvard Universily Iress,
1958.
Davies, Granl MiIIer. Tnc Ocparincni cj Transpcriaiicn. Lexinglon, Mass.: Lexinglon ßooks/Healh,
1970.
Dresner, M. Tnc |cgu|aiicn cj U.S.-Cana!a Air Transpcriaiicn. Pasi. Prcscni. an! |uiurc. Orono:
Universily of Maine, 1991.
Kane, Roberl M., and AIIan D. Vose. Air Transpcriaiicn (14lh ed.). Dubuque, Iova: KendaII/Hunl,
2003.
Levis, W. David (ed.). Air|inc |xccuiitcs an! |c!cra| |cgu|aiicn. Casc Siu!ics jrcn inc Airnai| |ra ic inc
Oaun cj inc |ci Agc. CoIumbus: Ohio Slale Universily Iress, 2000.
Iegrum, DudIey I. Transpcriaiicn. |ccncnics an! Pu||ic Pc|icu (3d ed.). Homevood, III.: Irvin, 1973.
Sampson, Roy I., and Marlin T. Harris. Ocncsiic Transpcriaiicn. Praciicc. Tnccru. an! Pc|icu (3rd ed.).
ßoslon: Houghlon Mifflin, 1975.
Thomas, A. R., Atiaiicn |nsccuriiu. Tnc Ncu Cna||cngcs cj Air Tratc|. Amhersl, NY: Iromelheus,
2003.
Wassenbergh, H. A. Princip|cs an! Praciiccs in Air Transpcri |cgu|aiicn. Iaris: Inslilule of Air Transporl,
1993.
C H A P T E R 3 • R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 9
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4
The General Aviation Industry
Introduction
General Aviation Statistics
The General Aviation Support Industry
The Available Market—The Users
Chapter Checklist • You Should Be Able To:
Define gcncra| atiaiicn and describe ils segmenls in
lerms of primary use
Give a slalislicaI summary of generaI avialion in lerms
of lolaI aircrah, number of aircrah produced annuaIIy,
lype of aircrah, number of piIols, and number of
airporls
Discuss lhe ma|or faclors affecling lhe generaI avialion
induslry in lhe posldereguIalion period
Dislinguish belveen business and execulive uses
and belveen various lypes of commerciaI and
noncommerciaI uses of generaI avialion aircrah
Dislinguish belveen lhe various lypes of generaI
avialion airporls
IxpIain severaI of lhe services provided by lhe IAA lo
generaI avialion piIols
Describe lhe reIalionship belveen manufaclurers, lhe
service induslry, and users
Lisl lhe ma|or funclions of a medium lo Iarge IßO
Discuss lhe faclors causing businesses lo seek lhe
benefils of lheir ovn lransporlalion









111
GENERAL AVIATION STATISTICS
GeneraI avialion has no reporling requiremenls comparabIe lo lhose of lhe cerlificaled
air carrier induslry. As is lhe case vilh operalors of privale aulomobiIes, generaI avialion
operalors do nol have lo reporl lo anyone on lhe specifics of lheir flighls. The onIy slalislics
INTRODUCTION
Ask peopIe loday vhal commerciaI avialion is, and lhey viII undoubledIy leII you lhal il
is lhe airIines. The pubIic is avare of lhe exislence and operalion of vhal are commonIy
caIIed lhe “commerciaI airIines” because of bolh represenlalions of lhem in leIevision and
molion piclures and recurrenl coverage in magazines and nevspapers, incIuding a vasl
adverlising campaign by lhe air carrier induslry. The miIIions of air lraveIers vho pass
lhrough lhe ma|or lransporlalion cenlers of Nev York, Chicago, AlIanla, Los AngeIes, and
olher cilies have had personaI experience vilh airIines.
As a resuIl of lhese direcl and vicarious exposures lo air lransporlalion, lhe huge roIe
pIayed by lhe airIines in lhe nalion’s lransporlalion syslem is aImosl universaIIy recognized.
UnforlunaleIy, mosl peopIe regard lhe airIines as lhe onIy form of air lransporlalion.
GeneraI avialion is lhe Iargesl segmenl of avialion based on number of aircrah, number
of piIols, and number of airporls and communilies served. Il is a $40 biIIion induslry
lhal generales over $100 biIIion annuaIIy in economic aclivily. ßecause of ils efficiency
and produclivily, generaI avialion has become an imporlanl business looI. The ma|orily
of hours flovn by generaI avialion aircrah are for business and commerciaI purposes. Il
is lruIy an inlegraI parl of lhe nalionaI lransporlalion syslem and lhe U.S. economy. ßul
lhere is no IegaI definilion of generaI avialion, and il is commonIy described in reIaliveIy
negalive lerms as “aII civiI avialion excepl lhal carried oul by lhe commerciaI airIines.”
The lerm vas invenled in lhe earIy 1950s by lhe lhen Utility Airplane Council
(forerunner of GAMA) of lhe Aerospace Induslries Associalion (AIA) lo describe lhe
operalions of lhe “uliIily” aircrah produced by lhe Iighl-pIane manufaclurers and lo
dislinguish lhem from lhe airpIanes made by lhe Iarge-airpIane manufaclurers, lhe
members of lhe AIA, vho produce aircrah (missiIes and space) equipmenl for lhe airIines
and lhe miIilary. Wilh lhe passage of lime, lhe lerm generaI avialion came lo be appIied
lo a helerogeneous group of cIose lo 220,000 aircrah of vaslIy diverse usage, performance
characlerislics, and cosl.
GeneraI avialion is lhe aeriaI appIicalion pIane lhal lreals one oul of every five liIIabIe
acres of Iand, vhich faciIilales grealer food produclion and keeps lhe cosl of food Iov. Il
is lhe Iand deveIoper making survey flighls and lhe poIice officer observing lraffic. Il is lhe
famiIy on a vacalion lrip and lhe air ambuIance flying a mercy mission. Il is lhe reIaxalion
of a brief flighl on a Sunday ahernoon.
Il is lhe air laxi bringing passengers lo lhe airIine or picking lhem up al lhe lerminaI lo
vhisk lhem lo a dislanl off-airIine poinl. Il is lhe business lraveIer vho lraveIs lo and from
many cilies making deaIs and decisions affecling lhe veIfare of lhousands of empIoyees.
Il is lhe spare parl flovn in lo keep an assembIy Iine running. Il is lhe bush piIol in AIaska,
ferrying peopIe, maiI, and suppIies from lovns lo viIderness areas.
UnqueslionabIy, generaI avialion is lhe dominanl force in lhe sky, incIuding as il does
over 90 percenl of lhe civiI air fleel, 75 percenl of civiI operalions al IAA-lovered and
unlovered airporls, and 80 percenl of lhe lolaI cerlificaled piIols in lhe Uniled Slales.
A I R T R A N S P O R TAT I O N 1 1 2
galhered by lhe governmenl (lhe IAA) are based on an annuaI survey requesling every
aircrah ovner lo reporl lhe number of flighl hours for lhe previous year by primary-use
category: corporale, business, personaI, inslruclionaI, aeriaI appIicalion, aeriaI observalion,
sighlseeing, exlernaI Ioad, air lour, air laxi, medicaI, and olher.
As of December 31, 2004, lhere vere 210,700 aclive generaI avialion aircrah on record
vilh lhe IAA (see TabIe 4-1). AIlhough lhis number sliII represenls 90 percenl of lhe lolaI
aclive aircrah in lhe Uniled Slales, il aIso represenls a decIine from 1990 because fever
nev aircrah enlered lhe fleel and many oIder aircrah have been relired. The number of
nev aircrah enlering lhe fleel dropped draslicaIIy, from a high of 17,048 in 1978 lo a Iov of
1132 in 1994 (see TabIe 4-2). AII calegories experienced reduclions, bul parlicuIarIy singIe-
engine and muIli-engine pislon aircrah. The number of amaleur-buiIl experimenlaI aircrah,
formerIy primariIy incIuded under lhe singIe-engine calegory, increased consislenlIy
over lhe pasl 30 years, from a lolaI of 2,100 in 1970 lo over 20,000 by earIy 2006. The
popuIarily of lhe amaleur-buiIl aircrah slems from severaI faclors, incIuding affordabiIily
and performance.
Amaleur-buiIl aircrah are subslanliaIIy Iess expensive lhan nev-produclion
aircrah (aircrah produced under a lype and produclion cerlificale) because of lhe
Iarge amounl of Iabor lhal lhe buiIder provides. Ierformance-vise, many amaleur-
buiIl aircrah have superior speed, maneuverabiIily, fueI economy, and/or handIing
characlerislics compared lo Iighl-produclion aircrah. In many cases, lhe performance
benefils are due lo fealures and lechnoIogies nol avaiIabIe or used on mosl nev-
produclion aircrah. These benefils incIude nev-lechnoIogy engines: Iov-drag, naluraI-
Iaminar-flov vings: and carefuIIy conloured fuseIage aerodynamics and very smoolh
surfaces heId lo high loIerances and crahed from advanced composile lechnoIogies.
These aircrah represenl lhe lesl-bed for nev lechnoIogies lhal viII evenluaIIy be
inlroduced in lhe deveIopmenl and manufaclure of lhe nexl generalion of Iighl-produclion
generaI avialion aircrah.
TABLE 4-1 Active U.S. General Aviation Aircraft ,
a
1960–2004
SingIe- MuIli-
Year TolaI Ingine Ingine Rolorcrah
|
Olher
c
IxperimenlaI
!
1960 76,549 68,301 7,243 634 371 N/A
1965 95,442 81,153 11,977 1,503 809 N/A
1970 131,743 109,643 18,291 2,255 1,554 N/A
1975 168,475 137,011 24,559 4,073 2,832 N/A
1980 211,045 168,435 31,664 6,001 4,945 N/A
1985 210,654 164,385 33,588 6,418 6,263 N/A
1990 229,279 165,073 32,727 7,397 7,032 N/A
1995 181,341 129,550 25,013 5,117 5,279 16,382
2000 217,533 149,422 33,853 7,150 6,701 20,407
2004 210,700 144,000 32,825 6,890 6,185 20,800
Source: IederaI Avialion Adminislralion, |AA Siaiisiica| Han!|cck cj Atiaiicn, pubIished annuaIIy.
a
ßefore 1971, an “aclive aircrah” vas one cerlified as eIigibIe lo fly. CurrenlIy, an “aclive aircrah”
musl have a currenl U.S. regislralion and have been flovn during lhe previous caIendar year.
|
IncIudes aulogiros.
c
IncIudes gIiders, dirigibIes, and baIIoons.
!
IncIudes home-buiIl, exhibilion, and olher. Calegorized separaleIy aher 1990.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 3
|acicrs Aj j ccii ng Gcncra| Ati aii cn
IundamenlaI changes have laken pIace in lhe generaI avialion induslry. ßefore 1978,
changes in lhe induslry mirrored changes in lhe economy. If lhe economy vas slrong and
groving, so vas generaI avialion: if a sIov-dovn occurred, generaI avialion Iagged as
veII. Hovever, since lhe Iong and precipilous decIine of aircrah shipmenls began in lhe
Iale 1970s, lhis expecled reIalionship has nol heId.
GeneraI avialion look off in lhe 1960s as lhe economy grev al a rapid pace, fueIed by lhe
Vielnam War and Iresidenl Lyndon Iohnson’s “Greal Sociely” sociaI programs. GeneraI
avialion manufaclurers en|oyed a heyday, inlroducing nev modeIs and producing an
average of more lhan 9,000 airpIanes per year. Iour airpIanes in parlicuIar lhal vere
inlroduced in lhe 1960s—lhe Cessna 172, lhe Iiper Cherokee, lhe ßeech King Air 90, and
lhe Lear 23—proved lo be beIIvelher designs for years lo come. The generaI avialion fleel
aImosl doubIed during lhe 1960s, and nev-aircrah shipmenls reached a high of 15,768
unils in 1966.
The expansion of aII segmenls of avialion conlinued inlo lhe 1970s, vilh more airpIanes
soId in lhis decade lhan before or since. The generaI avialion aircrah fleel increased from
131,743 lo 211,045 aircrah, and produclion hil a high of 17,811 aircrah in 1978. Nev aircrah
vere inlroduced in record numbers, parlicuIarIy lrainers such as lhe Iiper Cherokee and
Tomahavk modeIs, lhe Cessna 150 and 152, and lhe ßeech Sierra and Sundovner, lo name
a fev.
Hovever, some cIouds Ioomed on lhe horizon. As fueI prices soared during lhe 1970s,
manufaclurers began lo focus on more fueI-efficienl aircrah. Airspace congeslion vas
anolher probIem lhal lhe induslry had been sludying since lhe mid-1960s. As a resuIl,
lhe Airporl and Airvays DeveIopmenl Acl vas passed in 1970 lo provide lhe funding lo
expand and improve lhe airporl and airvay syslem over a 10-year period. And lerminaI
conlroI areas (TCAs) vere inlroduced lo lhe counlry’s busiesl airporls: lhese required
lvo-vay communicalions vilh air lraffic conlroI (ATC), VOR navigalion capabiIily, and
aIlilude-reporling lransponders. Increasing reguIalions affecled lhe personaI-pIeasure
piIol in parlicuIar.
During lhe 1970s, lhe generaI avialion induslry aIso began focusing on lhe issue of
producl IiabiIily. The number of Iavsuils and lhe size of avards vere rising, and nol
surprisingIy, so vere insurance premiums—from $51 per nev airpIane in 1962 lo $2,111
in 1972. This vas a sign of lhings lo come for lhe aircrah manufaclurers and, no doubl,
a key reason for lhe sleep drop in lhe produclion of generaI avialion aircrah during lhe
1980s. Iroducl IiabiIily insurance cosls for lhe generaI avialion airframe buiIders lolaIed
aboul $135 miIIion in 1985, and based on unil shipmenls of 2,029 aircrah lhal year, lhe
cosls exceeded $70,000 per airpIane. This vas more lhan lhe seIIing price of many basic
lvo- and four-pIace aircrah.
These phenomenaI cosl increases during lhe firsl five years of lhe 1980s came al a lime
vhen lhe induslry’s safely record conlinued lo improve. Improved safely nolvilhslanding,
lhe number of producl IiabiIily suils conlinued lo increase. Iven more significanl vas lhe
exponenliaI grovlh in seĴIemenls, |udgmenls, and IegaI cosls. ßy 1986, Cessna Aircrah
Company decided lo drop ils pislon-aircrah produclion and seIf-insure up lo $100
miIIion. Iiper decided lo operale vilhoul lhe benefil of producl IiabiIily coverage, and
ßeech insured lhe firsl $50 miIIion annuaI aggregale exposure vilh ils ovn insurance
company.
A I R T R A N S P O R TAT I O N 1 1 4
TABLE 4-2 GAMA General Aviation Aircraft Shipments by Type of
Aircraft, 1962–2005
SingIe- MuIli- TolaI Turbo- Turbo|el/ TolaI
Year TolaI Ingine Ingine Iislon Irop Turbofan Turbine
1962 6,697 5,690 1,007 6,697 0 0 0
1963 7,569 6,248 1,321 7,569 0 0 0
1964 9,336 7,718 1,606 9,324 9 3 12
1965 11,852 9,873 1,780 11,653 7 112 199
1966 15,768 13,250 2,192 15,442 165 161 326
1967 13,577 11,557 1,773 13,330 149 98 247
1968 13,698 11,398 1,959 13,357 248 93 341
1969 12,457 10,054 2,078 12,132 214 111 325
1970 7,292 5,942 1,159 7,101 135 56 191
1971 7,466 6,287 1,043 7,330 89 47 136
1972 9,774 7,913 1,548 9,446 179 134 313
1973 13,646 10,788 2,413 13,193 247 198 445
1974 14,166 11,579 2,135 13,697 250 202 452
1975 14,056 11,441 2,116 13,555 305 194 499
1976 15,451 12,785 2,120 14,905 359 187 546
1977 16,904 14,054 2,195 16,249 428 227 655
1978 17,811 14,398 2,634 17,032 548 231 779
1979 17,048 13,286 2,843 16,129 639 282 921
1980 11,877 8,640 2,116 10,756 778 326 1,104
1981 9,457 6,608 1,542 8,150 918 389 1,307
1982 4,266 2,871 678 3,549 458 259 717
1983 2,691 1,811 417 2,228 321 142 463
1984 2,431 1,620 37 1,991 2 169 440
1985 2,029 1,370 193 1,563 32 145 466
1986 1,495 985 138 1,123 250 122 372
1987 1,085 613 87 700 263 122 385
1988 1,143 628 67 695 291 157 448
1989 1,535 1,023 87 1,110 268 157 425
1990 1,144 608 87 695 281 168 449
1991 1,021 564 9 613 22 186 408
1992 941 552 1 593 177 171 348
1993 964 516 9 555 211 198 409
1994 1,132 544 77 621 233 278 511
1995 1,251 605 61 666 285 300 585
1996 1,437 731 70 801 320 316 636
1997 1,840 1,043 80 1,123 279 438 717
1998 2,457 1,508 98 1,606 336 515 851
1999 2,808 1,689 112 1,801 340 667 1,007
2000 3,147 1,877 103 1,980 415 752 1,167
2001 2,997 1,645 147 1,792 421 784 1,205
2002 2,677 1,591 130 1,721 280 676 956
2003 2,686 1,825 71 1,896 272 518 790
2004 2,963 1,999 52 2,051 321 591 912
2005 3,580 2,326 139 2,465 365 750 1,115
Source: GAMA, GeneraI Avialion SlalislicaI Dalabook, 2006.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 5
Olher faclors vere aIso vorking againsl lhe privale business and pIeasure flier. AirIine
dereguIalion in 1978 al firsl caused a decrease in lhe use of business aircrah, as lhe air
carriers, incIuding many nev ones, served nev markels and compeled for cuslomers by
Iovering fares. ßul as lhe airIines concenlraled lheir flighls al hub cilies and merger mania
slruck lhe induslry in lhe earIy 1980s, service lo many smaIIer communilies vas dropped
or severeIy cul back as compelilion decreased. The use of corporale aircrah slarled lo
rebound, and lhe ma|or manufaclurers focused more aĴenlion on lurboprops and |els. ßy
lhis lime, lhese manufaclurers had been purchased by Iarger congIomerales. In 1980, ßeech
Aircrah vas acquired by Raylheon Company. Cessna vas acquired by GeneraI Dynamics
in 1985 and lhen soId lo Texlron in 1991. Irance’s IuraIair, an air charler, execulive |el,
and cargo operalor, boughl Mooney in 1984. Iiper’s ovner, ßangor Iunla Corporalion,
vas boughl by Lear-SiegIer, vhich, in lurn, vas boughl by inveslmenl banker Iorslmann
LiĴIe and lhen in 1987 by enlrepreneur M. Sluarl MiIIar. UnforlunaleIy, lhe recession of
lhe earIy 1990s and coslIy IiabiIily cIaims forced lhe company inlo Chapler 11 bankruplcy
by 1992.
In lhe earIy 1980s, generaI avialion foIIoved lhe resl of lhe economy inlo a recession.
Inleresl rales vere al an aII-lime high vhen Iresidenl RonaId Reagan look office in 1980.
Iverylhing from housing slarls lo durabIe goods saIes, incIuding aulos and generaI
avialion aircrah saIes, pIummeled. The economy began lo recover in 1983, bul generaI
avialion did nol, for a number of reasons. No doubl lhe high inleresl rales of lhe Iale 1970s
and earIy 1980s had an effecl al lhe beginning of lhe sIide. Acquisilion cosls, incIuding
lhose for avionics equipmenl, rose sharpIy during lhe earIy lo mid-1980s, despile very
IiĴIe change in lhe design or fealures of lhe lypicaI singIe-engine aircrah. Used aircrah
vere readiIy avaiIabIe, and prospeclive buyers vere reIuclanl lo purchase nev equipmenl
al considerabIy higher prices. TolaI operaling expenses—incIuding fueI, mainlenance,
and hangar charges, and insurance—aII sleadiIy increased during lhe 1980s, making il
more expensive for lhe occasionaI flier.
Anolher ma|or faclor, discussed previousIy, vas lhe sharp rise in producl IiabiIily cIaims,
vhich caused lhe Iighl-aircrah manufaclurers lo concenlrale on lheir higher-priced Iine
of lurbine equipmenl. The grovlh in number and avaiIabiIily of regionaI and commuler
airIine service lo many smaIIer communilies aIso IikeIy reduced lhe desirabiIily of using
privale generaI avialion aircrah vhen pIanning business or pIeasure lrips. And changing
lasles and preferences among lhe lradilionaI business and pIeasure aircrah users may have
conlribuled lo lhe decIine in lhe 1980s, even as inleresl in sporls cars and boals seemed lo
peak. The IeveI of professionaIism required lo fly even a Iighl aircrah in loday’s air lraffic
environmenl has grounded many privale pIeasure fliers. Some of lhese individuaIs chose
lo fly much Iess expensive uIlraIighls and kil pIanes in unconlroIIed airspace.
Anolher financiaI pressure vorking againsl aircrah ovnership resuIled from passage
of lhe Tax Reform Acl of 1986, vhich eIiminaled lhe 10 percenl inveslmenl lax credil.
This vas foIIoved by a Iuxury lax on boals and pIanes, vhich onIy exacerbaled lhe
probIem of decIining nev aircrah saIes. IinaIIy, foreign aircrah manufaclurers enlered
lhe lradilionaIIy U.S.-dominaled markel in a much bigger vay during lhe 1980s. In lhe
1970s, U.S. generaI avialion aircrah manufaclurers heId a dominanl posilion vorIdvide.
ßul since 1981, imporls of generaI avialion airpIanes have exceeded U.S. exporls in
doIIar vaIue. Many foreign governmenls supporled lheir fledgIing avialion induslries
lhrough subsidizalion of research, deveIopmenl, produclion, and financing, and foreign
manufaclurers conlinued lo gain an ever-increasing foolhoId in lhe U.S. markel. Aircrah
made abroad accounled for more lhan 50 percenl of aII aircrah deIivered lo U.S. cuslomers.
A I R T R A N S P O R TAT I O N 1 1 6
Iven in lhe high-end markel, saIes of foreign-manufaclured business |els accounled for
aImosl 40 percenl of aII business |els soId here in lhe earIy 1990s.
MeanvhiIe, shipmenls of nev U.S.-manufaclured generaI avialion aircrah conlinued
lo faII, reaching a Iov of 928 unils in 1994. As a resuIl of lhe induslry’s devaslaling
decIine, due IargeIy lo producl IiabiIily Iavsuils, Congress passed lhe GeneraI Avialion
RevilaIizalion Acl (GARA) in 1994. The GARA ushered in a nev vave of oplimism in lhe
generaI avialion induslry.
Wilh some exceplions, lhe GARA imposed an 18-year slalule of repose, Iimiling
producl IiabiIily suils for aircrah having fever lhan 20 passenger seals nol engaged in
scheduIed passenger-carrying operalions. Cessna immedialeIy announced lhal il vouId
resume produclion of singIe-engine aircrah in 1996. The Nev Iiper Aircrah Corporalion
vas formed, and in 1995, generaI avialion aircrah shipmenls finaIIy increased aher a 17-
year decIine.
In 1997, lhe oplimism so prevaIenl in lhe induslry since lhe passage of lhe GARA vas
evidenced by lhe reIease of nev producls and services, expansion of produclion faciIilies,
increased sludenl slarls, increased aircrah shipmenls, and record-seĴing gains in aircrah
biIIings. These condilions suggesled conlinued improvemenl in lhe generaI avialion
induslry in 1998 and beyond. According lo a poII of Aircrah Ovners and IiIols Associalion
(AOIA) members conducled in March 1992, onIy 41 percenl said lhal lhey vere oplimislic
aboul lhe fulure of generaI avialion. In response lo a simiIar poII in Ianuary 1997, 51 percenl
responded oplimislicaIIy, and by ApriI 1998, lhe poII of cerlificaled piIols reporled lhal
74.5 percenl of ils members lhoughl lhe slale of avialion vas lhe same or beĴer lhan il had
been. This reneved oplimism among lhe piIol communily, aircrah manufaclurers, and lhe
induslry as a vhoIe couId be direclIy aĴribuled lo lhe slrong economy and lhe passage of
lhe GARA in 1994.
In Ianuary 1997, Cessna deIivered ils firsl nev singIe-engine pislon aircrah since 1986. In
addilion, Lancair InlernalionaI, Diamond Aircrah, and Mooney aIso produced nev pislon
modeIs. GaIaxy Aerospace roIIed oul ils nev business |el in lhe faII of 1996. AerospaliaIe
and RenauIl |oined forces lo produce Iighl-aircrah pislon engines for cerlificalion in 1999.
Iiper announced pIans lo manufaclure lhe Meridian, a singIe-engine lurboprop vhich
firsl flev in 1999.
Nev manufacluring faciIilies opened lo supporl expanded produclion. Cirrus Design
broke ground on lvo faciIilies lo supporl produclion of lhe SR 20. AIso, SabreIiner slarled
a Iarge expansion program al lheir Missouri faciIily.
In 1999, Cessna announced pIans and orders for lhe nev Cilalion modeIs—lhe CI1, CI2,
Sovereign, and UIlra Incore. Raylheon announced lhal il vouId begin deIiveries of ils
Iremier I, an enlry-IeveI |el lhal fealures a composile fuseIage vilh melaI vings, in 2000.
Mooney deIivered ils firsl IagIe in 1999.
ßoeing ßusiness Iels announced ils pIan lo buiId a Iarger version of ils Iong-range
corporale |el, lhe ßßI-2. ßoeing ßusiness Iels, a |oinl enlerprise of ßoeing and GeneraI
IIeclric, enlered lhe markel in 1998 vilh lhe Iong-range ßßI, vhich vas based on a hybrid
of lhe 737-700/800 aircrah. Tvenly-eighl aircrah vere deIivered in 1999. Airbus and
IairchiId are aIso markeling business |els lhal are based on aircrah originaIIy designed for
commerciaI operalions.
During lhe 1990s, fraclionaI ovnership programs offered by Ixeculive Iels’ NelIels,
ßombardier’s IIex|el, Raylheon’s TraveI Air, IIighl Oplions, and TAG Avialion grev al
a rapid pace. Irom 1993 lhrough lhe end of 1999, lhese five ma|or fraclionaI ovnership
providers increased lheir fleel size and sharehoIders al average annuaI rales above 65
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 7
percenl. Despile lhis record grovlh, onIy a smaII percenlage of lhis markel has been
deveIoped.
IraclionaI ovnership programs are fiIIing lhe niche for corporalions, ceIebrilies, and
businesspeopIe vho do nol fly enough lo varranl having lheir ovn flighl deparlmenl.
IraclionaI ovnership providers offer lhe cuslomer a more efficienl use of lime by providing
a fasler poinl-lo-poinl lraveI lime and lhe abiIily lo conducl business vhiIe flying. In
addilion, sharehoIders of fraclionaI ovnership find lhe minimum slarl-up concerns and
easier exiling oplions of greal benefil.
The 1990s lruIy represenled a revilaIizalion of lhe induslry. TolaI biIIings in 1999 soared
35.1 percenl over 1998, reaching $7.9 biIIion, and unils shipped increased from 2,200 lo
2,504, or 12.6 percenl. Iul inlo perspeclive, generaI avialion saIes in 1999 vere quadrupIe
lhose of 1991. The Iasl year of lhe decade aIso marked lhe firsl lime in lhe GAMA’s hislory
lhal bolh biIIings and shipmenls increased for five conseculive years. Il marked lhe firsl fuII
year of deIiveries of lhe Cessna 206H Slalionair and T206H Turbo Slalionair. DeIiveries of
lhe composile-conslruclion Cirrus Design SR 20 began, and Mooney Aircrah Corporalion
began produclion of lhe Ovalion 2, a fasler and more fueI-efficienl version of lhe firm’s
besl-seIIing modeI, lhe Ovalion.
The biggesl |ump in 1999 saIes revenue, simiIar lo 1998, vas in lhe lurbofan aircrah
segmenl. SaIes rose 23.9 percenl, in Iarge parl because of slrong incremenlaI grovlh
and fraclionaI ovnership programs. The decade cIosed vilh across-lhe-board grovlh in
generaI avialion aclivily, corporale flighl deparlmenls, fraclionaI programs, and charler
flighls.
The nev miIIennium slarled oul vilh a conlinualion of lhe 1990s. Nev manufacluring
faciIilies vere being buiIl and oId faciIilies expanded. SaIes of generaI avialion aircrah
conlinued lo sel nev records for vaIue of aircrah shipped. Much of lhis record saIes vaIue
is for aircrah al lhe higher priced end of lhe generaI avialion fleel—lurbine-povered
aircrah—and is IikeIy due in parl lo lhe increase in fraclionaI ovnership. More lhan
900 lurbine aircrah vere deIivered in 2000 (see TabIe 4-2) as produclion capacily soared
lo keep up vilh record backIogs in manufaclurers’ order books. Cessna, for exampIe,
doubIed lhe number of IxceIs il deIivered and increased ßravo produclion by 50 percenl.
DassauIl IaIcon Iel deIiveries reached 73, five more lhan in 1999, and ils backIog of orders
increased. Lear|el 45 deIiveries vere up from 43 in 1999 lo 71 in 2000. Iven deIiveries of
lhe venerabIe Raylheon Havker 800 XI increased by 22 percenl.
Iislon-aircrah shipmenls grev by aImosl 11 percenl, buoyed by an infusion of nev
lechnoIogy from Lancair and Cirrus Design and by increased pislon deIiveries from
Cessna’s Independence, Kansas, pIanl. The year 2000 sav lhe firsl deIiveries of Lancair’s
CoIumbia 3000. Cirrus deIivered 95 nev four-seal SR 20 modeIs. Cessna pislon deIiveries
increased lo 912 unils.
Hovever, cIouds vere on lhe horizon, and by 2001 lhe economy sIipped inlo a recession.
WhiIe saIes reached anolher high, IargeIy lhe resuIl of slrong lurboprop and |el saIes, lhe
lolaI number of shipmenls feII for lhe firsl lime in six years. Unexpecled evenls, such as lhe
lragedy on Seplember 11, 2001, lhe economic sIovdovn during lhe firsl lhree years of lhe
nev miIIennium, and lhe increase in cosls reIaled lo fueI and IiabiIily, vividIy demonslrale
lhal lhe fulure, as in lhe pasl, viII bring nev chaIIenges lo lhe generaI avialion induslry.
A I R T R A N S P O R TAT I O N 1 1 8
Uscs cj Ai rcraj i
The size and diversily of generaI avialion makes il difficuIl lo calegorize for slalislicaI
purposes. Aircrah flovn for business during lhe veek may be used for personaI
lransporlalion on veekends, lhe same vay a famiIy car is used. InslruclionaI aircrah may
be used for charler (air laxi) service or renled lo cuslomers for business or personaI use. An
air laxi airpIane may be used for advanced flighl inslruclion or for renlaI lo business- or
personaI-use cuslomers, and so on. NeverlheIess, lhe IAA has broken dovn lhe numbers
of generaI avialion aircrah by lype and primary use, from vhich a furlher anaIysis can be
made on lhe basis of soIiciled reporls from lhe users (see TabIe 4-3).
Business Aviation. The NalionaI ßusiness Aircrah Associalion (NßAA) defines business
avialion as faIIing inlo lvo calegories: business aircra use and corporate aircra use.
1. Busincss aircrah usc. Any use of an aircrah nol for compensalion or hire by an indi-
viduaI for lhe purpose of lransporlalion required by a business in vhich he or she is
engaged (in olher vords, personaIIy flovn)
2. Ccrpcraic aircrah usc. Any use of an aircrah by a corporalion, a company, or anolher
organizalion for lhe purpose of lransporling ils empIoyees and/or properly nol for
compensalion or hire and empIoying professionaI piIols for lhe operalion of lheir
aircrah
ßusiness aircrah compIemenl airIine services in salisfying lhe nalion’s business
lransporlalion requiremenls. AIlhough airIines offer lransporlalion lo lhe Iargesl cilies
and business cenlers, business avialion speciaIizes in many areas vhere ma|or airIines
cannol salisfy demand. More lhan 36,000 generaI avialion aircrah are flovn, primariIy
for business purposes, providing quick, safe, and reIiabIe lransporlalion vhenever and
vherever business needs require lhem.
ßusiness avialion operalors use aII lypes of aircrah, from singIe- and lvin-engine
pislon-povered airpIanes, heIicoplers, and lurboprops lo lhe faslesl |els, lo ensure
maximum business effecliveness. Over lvo-lhirds of lhe Iorlune 500 companies
operale business aircrah, and virluaIIy aII of lhese aircrah operalors are members
of lhe National Business Aircra Association (NBAA). The NßAA is lhe principaI
represenlalive of business avialion before Congress and lhe reguIalory agencies, such
as lhe IAA. Il represenls over 7,000 companies, vhich operale over 9,000 aircrah.
NßAA member companies earn annuaI revenues amounling lo approximaleIy
$5 lriIIion. Turbo|els are lhe mosl videIy used lype of aircrah. Over one-haIf of NßAA
members have lurbo|els, approximaleIy 20 percenl have lurboprops, and aboul 10
percenl use muIli-engine pislon-povered aircrah. AIlhough mosl of lhese aircrah are
operaled domeslicaIIy, an increasing number are uliIized lo expand markels overseas.
Numerous exampIes of lypicaI lraveIing scheduIes purporl lo demonslrale lhe
advanlages of business aircrah over lhe commerciaI airIines. ßecause of lhe proIiferalion
of airIine hub-and-spoke syslems since dereguIalion, flying business aircrah direclIy
belveen airporls has become a big advanlage. The monelary-equivaIenl savings in lerms of
execulives’ lime lhal vouId olhervise be spenl in lraveIing lo and from air carrier airporls
and in vailing for scheduIed air carrier flighls, pIus holeI expenses, meaIs, and renlaI car
expenses, Ioom Iarge on lhe benefil side of such caIcuIalions. NormaIIy unquanlified are
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 9
TABLE 4-3 Number of Active General Aviation Aircraft by Type and Primary Use, 2002 (excluding commuters)
Aclive
GeneraI AeriaI AeriaI
Aircrah Avialion Inslruc- AppIi- Obser- AeriaI Sighl- IxlernaI Air Air
Type Aircrah Corporale ßusiness IersonaI lionaI calion valion Olher Seeing
a
Load Tours
|
Taxi MedicaI Olher
AII aircrah 211,244 10,810 24,153 145,996 13,203 3,971 4,535 899 641 151 259 3,898 996 1,733
lolaI
Iislon 161,087 1,947 20,619 117,365 11,775 2,759 2,632 431 130 0 110 2,212 190 918
Turboprop 6,841 2,417 1,386 1,086 42 510 113 174 0 0 0 779 224 118
Turbo|el 8,355 5,691 1,119 618 95 5 0 0 0 0 0 685 26 117
Rolorcrah 6,648 551 463 1,373 536 581 1,748 260 65 145 99 216 532 67
GIiders 1,951 0 5 1,704 201 0 0 0 34 0 0 0 0 7
Lighler- 4,426 5 21 3,679 45 0 0 5 407 0 50 0 0 214
lhan-air
IxperimenlaI 21,936 198 540 20,172 509 116 43 30 5 7 0 6 23 287
Source: IederaI Avialion Adminislralion, |AA Siaiisiica| Han!|cck cj Atiaiicn. 2003.
Noles: Rov and coIumn summalion may differ from prinled lolaIs because of eslimalion procedures or because some aclive aircrah did nol reporl use.
a
IncIudes sighl-seeing performed under IAR 14CIR91: GeneraI Operaling and IIighl RuIes.
|
IncIudes air lours performed under IAR 14CIR135: Air Taxi Operalors and CommerciaI Operalors.
lhe advanlages of flexibiIily and preslige (vhich may or may nol bring aboul pecuniary
benefils) and lhe facl lhal privale meelings can be heId in privaleIy ovned aircrah.
The same is aIso generaIIy lrue of smaIIer businesses, vhich have discovered lhe benefils
of mainlaining lheir ovn aircrah. Il is nol unusuaI for generaI avialion aircrah operalors
lo hoId business meelings in severaI cilies hundreds of miIes aparl—on lhe same day.
IraclionaI ovnership has aIso become an imporlanl oplion loday. Companies or
individuaIs ovn a fraclion of an aircrah and receive managemenl and piIol services
associaled vilh lhe aircrah’s operalion. IraclionaI ovnership aIIovs companies lhal have
never before used business aircrah lo experience many of lhe advanlages of business
avialion quickIy and vilhoul lypicaI slarl-up consideralions associaled vilh lradilionaI
flighl deparlmenls. Il aIso aIIovs exisling flighl deparlmenls lo suppIemenl lheir currenl
aircrah vhen needed.
Today’s business aircrah are quieler, more efficienl, and safer lhan ever before. Much
Iike compulers, business aircrah are poverfuI business looIs lhal can make a company
more profilabIe by enabIing il lo make beĴer use of ils mosl vaIuabIe assels—lime and
personneI.
Personal Flying. AII flying lhal is nol common carrier for hire, business flying, or
commerciaI flying, as defined lo lhis poinl, is personal flying. IersonaI lransporlalion
by air is nol economicaIIy reguIaled: a personaI pIane is Iike a personaI car. When lhe
ovner (or renler) uses a car or pIane for a business lrip, il becomes a business aulomobiIe
or a business aircrah. ßul lhere is no vay lo leII vhelher a car or an airpIane is being
used for business or for pIeasure simpIy by Iooking al il. A muIlimiIIionaire may ovn a
Iarge airpIane as a pureIy privale conveyance, vilh no business use. Hovever, because
lhe ma|orily of privaleIy ovned (as dislinguished from company-ovned or corporale-
ovned) aircrah are of lhe Iighl singIe- or Iighl lvin-engine variely, il is appropriale lo
discuss lhis imporlanl segmenl of lhe generaI avialion induslry al lhis lime.
AIlhough lhe range and endurance of Iighl airpIanes is veII documenled (for exampIe,
vilh Lindbergh’s Spirii cj Si. Icuis, a high-ving monopIane simiIar in size lo a Cessna
180, and his Lockheed Sirius, in vhich he flev over lhe Norlh IoIe lo lhe Orienl: and vilh
WiIey Iosl’s Lockheed Vega), lhe pubIic impression is lhal lhe pIanes are good onIy for
shorl hops in a Iimiled area. In lhe earIy 1950s, ßiII Odom flev a singIe-engine ßonanza
from Havaii lo SeaĴIe nonslop, lhen venl back lo lhe IsIands and flev lhe same airpIane
nonslop lo Telerboro, Nev Iersey. Max Conrad flev a 125-hp Iiper Iacer across lhe Norlh
AlIanlic and back lo visil his famiIy in Iurope. He aIso flev a Iiper Comanche from
CasabIanca lo Los AngeIes nonslop. In 1959, a Cessna 172 vas flovn for 65 days vilhoul
Ianding, vhich is equivaIenl lo circIing lhe vorId six limes nonslop.
Iusl as aulomobiIes and boals are used for personaI lransporlalion and recrealion,
personaI flying is a Iegilimale use of lhe sky. An aircrah is an efficienl and effeclive
business looI, bul il is aIso a pIeasanl recrealionaI vehicIe. Thousands of privale piIols
use lheir aircrah lo visil friends and reIalives, aĴend speciaI evenls, and reach remole
vacalion spols.
These aircrah are aIso flovn by doclors, Iavyers, accounlanls, engineers, farmers, and
smaII-business ovners in lhe course of lheir business. TypicaIIy, such persons use lheir
aircrah parlIy for business and parlIy for pIeasure. They differ primariIy from lhe pureIy
business flier vilh respecl lo lhe lype of aircrah flovn. A much higher proporlion of lhe
100,000 aircrah lhey fly are singIe-engine pislon aircrah.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 1
A number of organizalions represenl lhe inleresls of lhe business and pIeasure flier:
by far lhe mosl imporlanl is lhe Aircra Owners and Pilots Association (AOPA). This
organizalion, headquarlered in lhe Washinglon, D.C., area, incIudes over 385,000 members,
vho ovn aboul 70 percenl of lhe aclive generaI avialion aircrah in lhe Uniled Slales. In
addilion lo ils funclion as congressionaI Iiaison, lhe AOIA provides a variely of services
for ils members, many of vhich are designed lo enhance air safely.
Instructional Flying. InslruclionaI flying accounled for roughIy 15,000 aircrah, or 7
percenl of lhe lolaI, in 2005. This calegory incIudes any use of an aircrah for purposes of
formaI inslruclion, eilher vilh lhe inslruclor aboard or vhen lhe sludenl is flying soIo bul
is carrying oul maneuvers according lo lhe inslruclor’s specificalions. CIose lo 90 percenl
of lhe aircrah used for inslruclion are of lhe singIe-engine lype.
Oblaining a privale piIol’s Iicense for business or personaI reasons is lhe primary goaI
for many sludenls. Olhers use il as a slepping slone lo an airIine or miIilary avialion
career. Mosl peopIe Iearn lo fly lhrough a IocaI fixed-base operator (FBO). IßOs provide
fueI and service, and lhey aIso renl and seII airpIanes. They usuaIIy have a professionaI
flighl inslruclor on slaff vho provides ground and flighl inslruclion. Many individuaIs
aIso Iearn lo fly lhrough a IocaI flying cIub lhal offers flighl lraining. Such cIubs are made
up of groups of individuaIs vho ovn aircrah and renl lhem lo members. They usuaIIy
offer flighl inslruclion and olher flying-reIaled aclivilies lo lheir members. In addilion,
many vocalionaI and lechnicaI schooIs, coIIeges, and universilies offer avialion programs
lhal incIude flighl lraining.
Commercial and Industrial Aviation. The remaining aircrah use calegories are broken
dovn as foIIovs:
1. Acria| app|icaiicn. Any use of an aircrah for vork purposes reIaled lo lhe produclion
of foods and fibers or lo heaIlh conlroI measures, in vhich lhe aircrah is repIacing
farm impIemenls or ground vehicIes for lhe parlicuIar lask accompIished. This in-
cIudes fire-fighling operalions and lhe dislribulion of chemicaIs or seeds in agricuI-
lure, reforeslalion, and insecl conlroI. ApproximaleIy 4,000 aircrah are used for aerial
application. The ma|orily are singIe-engine pislon aircrah.
The use of aircrah in agricuIlure is a ma|or faclor in lhe produclion of food and fiber
aII over lhe vorId. The Iapanese, Russians, and Chinese are spending huge amounls
of money lo appIy ferliIizers, lo spread seeds in inaccessibIe Iocalions, lo conlroI pesls,
and lo harvesl crops using aircrah. AIlhough lhe pubIic image of crop duslers is lhal
lhey are flying daredeviIs vho operale flimsy crales and poIIule lhe environmenl, lhe
facl is lhal avialion is a ma|or faclor in lhe produclion of coĴon, vegelabIes, and beef
(by seeding and ferliIizing grazing Iands) and in lhe eradicalion of pesls, such as lhe
fire anl, lhe screv vorm, and lhe gypsy molh. ßul il is aIso an expensive business.
These speciaIIy designed aircrah, such as lhe Cessna Ag Truck and Ag Husky, cosl in
excess of $150,000 each. NeedIess lo say, lhe operalors, many of vhom have fleels of
as many as 50 aircrah, are invoIved in big business, requiring bank Ioans for equip-
menl renevaI, vhich, in lurn, requires insurance coverage. ßul if lhe business vas as
hazardous as many lhink il is, no banker or insurance company vouId deaI vilh il.
The air-dropping of chemicaIs and fire-relardanl sIurry by aircrah is a ma|or
veapon in lhe conlroI of foresl and brush fires from lhe pine voods of Nev Iersey
lo lhe IIorida IvergIades, and from lhe foresls of lhe ßig Sky counlry lo lhe hiIIs of
A I R T R A N S P O R TAT I O N 1 2 2
soulhern CaIifornia. This avialion speciaIly is seIdom seen by mosl members of lhe
pubIic.
Resorl operalors have found lhal lhe spraying of Iighl oiIs and suspensions by
aircrah (as dislinguished from agricuIluraI use of simiIar aircrah) has enhanced lheir
business by eIiminaling lhe irrilalions of smaII flying insecls. In addilion lo eIiminal-
ing a nuisance, aeriaI appIicalion of peslicides has been highIy effeclive in conlroIIing,
and in many cases eIiminaling, diseases lransmiĴed by insecls, such as maIaria.
2. Acria| c|scrtaiicn. Any use of an aircrah for aeriaI mapping or pholography, survey,
palroI, fish spoĴing, search and rescue, hunling, or highvay lraffic advisory nol in-
cIuded under IAR Iarl 135. Over 4,500 aircrah are incIuded under lhis calegory.
Land use pIanners, reaI eslale deveIopers, beach erosion engineers, business-
peopIe seeking nev induslriaI siles, and pubIic officiaIs and highvay designers
aII use pholographs laken from aircrafl in lheir deIiberalions.
CommerciaI fishing fleels have found lhal lheir operalions are more produclive
and profilabIe vhen lhey can be direcled lo concenlralions of fish schooIing far
from lhe shore. Therefore, lhe use of Iighl aircrah for lhal purpose has evoIved lo
become an inlegraI parl of lhe fishing induslry.
Ma|or melropoIilan poIice deparlmenls have found lhal road palroIs by aircrah are
a highIy effeclive means of moniloring lhe flov of lraffic during morning and evening
rush hours and apprehending Iavbreakers. Mosl poIice air palroIs are performed in
aircrah Ieased from generaI avialion operalors.
Anolher speciaIized service usuaIIy performed on a conlracl basis is flying al very
Iov IeveIs aIong pubIic uliIily righls of vay lo inspecl lhe inlegrily of energy Iines and
lo check for lransformer faiIures, broken insuIalors, shorl circuils, or Iine breaks. In-
speclion by air is frequenlIy lhe onIy economicaI means of performing such service.
3. Acria| cincr. ApproximaleIy 900 aircrah faII inlo olher aeriaI pursuils such as aeriaI
adverlising, vealher modificalion, and viIdIife conservalion.
On lhe basis of “cosl per lhousand,” key vords in lhe adverlising business, a loved
banner or a message vriĴen in smoke over a cily viII drav a Iarger audience for lhe
cosl lhan any olher form of adverlising. A banner loved over a sporls sladium or
aIong a hundred miIes of crovded beach is seen by more peopIe lhan a simiIar mes-
sage carried for lhe same price in any olher communicalion medium. A sky message
vriĴen over ManhaĴan on a cIear day can be seen by 10 miIIion peopIe al one lime.
AeriaI adverlising is a highIy speciaIized—bul very Iucralive—parl of commerciaI
avialion.
Wealher modificalion and viIdIife conservalion funclions of commerciaI avialion
are usuaIIy performed on a conlracl basis and require speciaI experlise. The crealion
of bolh rainfaII in arid regions and snov in ski resorl areas has been accompIished
recenlIy. The Iish and WiIdIife Service relains commerciaI operalors lo survey herd
and flock movemenls and lo counl lhe size of herds, as veII as lo air-drop food vhen
naluraI forage is unavaiIabIe.
Il is impossibIe lo assign a specific vaIue lo lhese commerciaI avialion operalions.
Hovever, vilhoul lhem, ve vouId pay far more for cIolhing, fibers, and food producls.
SimiIarIy, lhe proleclion of naluraI resources, Iand pIanning, and disease and pesl conlroI
are imporlanl, bul lheir vaIue is difficuIl lo compule in doIIars.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 3
Signi-sccing. Air Tcurs. an! Air Taxi. Aircrah flovn for lhe purpose of signi-sccing an!
air icurs lolaIed over 900 in 2002, or Iess lhan 1 percenl of lhe aclive fleel. Sighl-seeing
incIudes flying conducled under IAR Iarl 91, vhereas air lours are conducled under IAR
Iarl 135 (see TabIe 4-3). More lhan one-haIf of lhe sighl-seeing flighls are made in Iighler-
lhan-air aircrah. The ma|orily of air lours are conducled in rolorcrah and Iighler-lhan-air
aircrah. Air icurs flovn over videIy diverse areas such as lhe IIorida Keys or lhe Grand
Canyon have become very popuIar vilh lourisls.
Air iaxi or charler firms serve as on-demand passenger and aII-cargo operalors. This
calegory covers aII lypes of aircrah, incIuding singIe- and muIli-engine pislon and lurbine
aircrah and rolorcrah operaling under IAR Iarl 135. The greal advanlage of lhe on-caII air
laxi or charler operalor is ils flexibiIily.
Charlering an airpIane is simiIar lo hiring a laxi for a singIe lrip. The charlerer or air
laxi operalor provides lhe aircrah, flighl crev, fueI, and aII olher services for each lrip. The
charleree pays a fee, usuaIIy based on miIeage or lime, pIus exlras such as vailing lime
and crev expenses. Using an air laxi is parlicuIarIy aĴraclive for a firm lhal requires an
airpIane onIy infrequenlIy or seIdom needs a suppIemenl lo ils ovn aircrah. Iirms viII
aIso charler vhen lhey need a speciaI-purpose aircrah, such as a heIicopler.
As commerciaI operalors, air laxi firms musl conform lo more slringenl operaling and
mainlenance requiremenls. In addilion, each air laxi or charler operalor, regardIess of lhe
lype of airpIanes used, musl have an air laxi cerlificale on fiIe vilh lhe IAA. This cerlificale
is issued by lhe IAA aher proper appIicalion procedures have been foIIoved, lhe pIane has
been inspecled, and cerlain minimum insurance coverages and Iimils have been oblained.
In 2002 lhe IAA Iisled approximaleIy 3,900 air laxi aircrah, vhich represenled aboul 2
percenl of lhe generaI avialion fleel (see TabIe 4-3).
External Load and Medical. |xicrna| |ca! incIudes aircrah under IAR Iarl 133. The
ma|orily of aircrah under lhis calegory are rolorcrah used for exlernaI Ioad operalions, such
as hoisling heavy Ioads and hauIing Iogs from remole Iocalions. If il vere nol for generaI
avialion aircrah, primary heIicoplers lhal lransporl heavy, expensive driIIing equipmenl,
as veII as peopIe, day and nighl, good vealher and bad, America’s dependence on foreign
oiI vouId be far grealer and vouId sureIy impacl negaliveIy on lhe American consumer.
The nc!ica| calegory is aIso dominaled by heIicoplers, vhich represenl more lhan 50
percenl of lhe aircrah flovn lo carry peopIe or donor organs for lranspIanl. There are limes
vhen lhe American Red Cross needs lo lransporl emergency suppIies lo disasler viclims
or bIood of rare lypes or in Iarge quanlilies. The enlire medicaI emergency evacualion
process vas changed vhen slale and IocaI governmenls began eslabIishing “MIDIVAC”
unils lo respond lo crilicaIIy in|ured persons such as lhose invoIved in aulo accidenls.
The survivaI rale in Iife-lhrealening in|uries is grealIy enhanced vhen a person can be
lransporled quickIy lo nearby hospilaIs. There are over 1,100 aircrah used in lhe exlernaI
Ioad and medicaI calegories.
Other Flying. The finaI calegory of generaI avialion crah incIudes a vide variely of over
1,700 singIe-engine and muIli-engine aircrah used for purposes nol incIuded under lhe
olher calegories. IxampIes incIude aircrah used for research and deveIopmenl, lesling,
demonslralion, and governmenl purposes.
CIose lo one-lhird of lhe aircrah in lhis calegory are governmenl aircrah. These aircrah,
mosl of vhich vere designed for civiIian use, Iog miIIions of hours a year on governmenl
business. Agencies and deparlmenls such as AgricuIlure, Commerce, Inergy, lhe IIA,
A I R T R A N S P O R TAT I O N 1 2 4
HeaIlh and Human Services, Inlerior, Iuslice, Slale, Transporlalion, Treasury, NASA, and
TVA use aircrah lo perform a vide variely of lasks, incIuding:
Iire fighling AeriaI pholography
Lav enforcemenl IoIIulion conlroI
Scienlific research Search and rescue
and deveIopmenl Drug inlerdiclion
IIighl inspeclion AgricuIluraI appIicalion
Surveying Transporlalion of governmenl
IoverIine and pipeIine personneI
palroI
Ai rpcris
AcluaIIy, lhe lerm gcncra| atiaiicn airpcri is a common misnomer. AII airporls are generaI
avialion airporls, incIuding lhose used by lhe cerlificaled air carriers, vhich are somelimes
referred lo as “air carrier airporls.” In addilion, many airporls lhal are nol cerlificaled for
air carrier service may be used by air carrier charler flighls if lhe faciIilies are adequale. Or,
lo pul il anolher vay, air carriers may use so-caIIed generaI avialion airporls as veII.
The IAA issues an annuaI reporl on Ianding faciIilies in lhe Uniled Slales and ils
possessions. Al lhe beginning of 2001, lhe gross number of aircrah Ianding faciIilies vas
given as 19,245 (see TabIe 4-4). Hovever, lhis figure is nol reslricled lo airporls bul incIudes
olher forms of Ianding faciIilies nol used by convenlionaI aircrah, such as heIiporls,
sloIporls (shorl-lakeoff-and-Ianding airporls), and seapIane bases. Il aIso incIudes airporls
Iocaled on American Samoa, Guam, and U.S. Trusl Terrilories.
Private-Use Airports. Private-use airports are lhose lhal are nol open lo lhe generaI
pubIic bul are reslricled lo use by lheir ovners and lhe inviled guesls of lhe ovners on an
excIusive-use basis. Such airporls are comparabIe lo privale roads or drivevays.
Public-Use Publicly Owned Airports. There are 5,133 publicly owned airports in lhe
Uniled Slales, ranging in size from lhe enormous DaIIas–Iorl Worlh and IIK Iayouls lo
lhe smaII grass fieIds ovned by IocaI communilies. AII of lhese airporls may be used by
Iighl generaI avialion aircrah. IIiers inlending lo use any airporl can consuIl governmenl
or induslry pubIicalions lo ascerlain ils capacily and equipmenl.
An airporl ovned by a governmenl body can usuaIIy be regarded as permanenl and
slabIe, parlicuIarIy if federaI funding has been oblained for improving lhe faciIilies.
Public-Use Privately Owned Airports. Il is eslimaled lhal cIose lo 40 percenl of lhe
public-use privately owned airports in lhe Uniled Slales are nol permanenl: lhey
disappear from lhe rosler of avaiIabIe Ianding pIaces because of economic, poIilicaI, or
personaI reasons. The disappearance of pubIic-use privaleIy ovned airporls is a maĴer of
deep concern lo lhe enlire generaI avialion induslry, because once an airporl is Iosl, il can
never be repIaced. Wilhoul ready access by air lo a communily, lhe lransporlalion uliIily
of aircrah is seriousIy eroded.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 5
|AA Scrti ccs
The mosl videIy used service provided by lhe IAA lo generaI avialion piIols is lhe flight
service station (FSS) nelvork of 75 faciIilies for coIIecling and disseminaling vealher
informalion, fiIing flighl pIans, and providing in-flighl assislance and avialion advisory
services. This figure incIudes aulomaled flighl service slalions. Air carriers have lheir ovn
meleoroIogicaI service, and lheir inslrumenl flighl pIans are prefiIed by compuler. (These
are caIIed “canned” flighl pIans.) GeneraI avialion flighl pIans are fiIed individuaIIy via
ISS faciIilies.
IIighl service slalions are lhe soIe means of generaI avialion’s fiIing flighl pIans, vhich
are required under acluaI inslrumenl condilions bul are oplionaI in good vealher. They are
lhe soIe source from vhich lo oblain IegaI vealher informalion, eilher in person (face-lo-
face briefings) or by leIephone or, vhen airborne, by air/ground radio communicalions.
The ISS syslem is vilaI lo generaI avialion operalions, and il is used by piIols al every
IeveI, from sludenl piIols lo air lransporl-raled piIols of Iarge business |els. IIighl service
slalions are indispensabIe lo aII generaI avialion flighl operalions.
Whenever lhere is an aclive conlroI lover in an airporl, aII lraffic is required lo compIy
vilh ils direclion of aircrah in flighl and on lhe ground. Hovever, nol aII airporls (lo be
accurale, nol aII air carrier-served airporls) have conlroI lovers. There are 680 airporls in
lhe Uniled Slales vilh lraffic conlroI lovers. Wilh lhe exceplion of lhe ma|or hubs lhal
serve Iarge melropoIilan areas, generaI avialion is lhe primary user of lhe lover-conlroIIed
airporls.
TolaI IaciIilies,
by Ovnership
IubIic-Use
Iaved Airporls
a
IubIic-Use
Unpaved Airporls
a
IAA Region TolaI
IaciIilies
Pu||ic Pritaic Iignic! Un|ignic! Iignic! Un|ignic! TolaI
Airporls
Grand lolaI
|
19,816 5,148 14,664 3,645 295 393 857 5,190
U.S. lolaI
c
19,749 5,118 14,627 3,628 292 393 856 5,169
AIaskan 675 384 287 52 6 110 144 312
CenlraI 1,576 498 1,078 383 12 38 54 487
Iaslern 2,631 375 2,156 337 33 48 91 509
Greal Lakes 4,307 908 3,399 752 31 127 182 1,092
Nev IngIand 775 143 632 114 18 5 49 186
Norlhvesl
Mounlain
2,054 687 1,467 418 45 18 163 644
Soulhern 2,943 839 2,104 641 39 27 51 758
Soulhvesl 3,310 815 2,495 631 55 16 79 781
Weslern 1,426 489 937 310 54 4 43 411
Soulh Iacific
!
19 10 9 7 2 0 1 10
TABLE 4-4 U.S. Civil and Joint-Use Airports, Heliports, Stolports, and Seaplane
Bases on Record by Type of Ownership, 2004
Source: IederaI Avialion Adminislralion, |AA Siaiisiica| Han!|cck cj Atiaiicn. 2005.
a
Among aII airporls open lo lhe pubIic, eilher privaleIy or pubIicIy ovned.
|
IxcIudes Iuerlo Rico, Virgin IsIands, Norlhern Mariana IsIands, and Soulh Iacific.
c
U.S. lolaI excIudes Iuerlo Rico, Virgin IsIands, Norlhern Mariana IsIands, and Soulh Iacific.
!
IncIudes American Samoa, Guam, and U.S. Trusl Terrilories.
A I R T R A N S P O R TAT I O N 1 2 6
The busier lover-conlroIIed airporls have an addilionaI faciIily lo ensure lhe safe
and expedilious movemenl of air lraffic: radar. Many civiI airporls have lerminaI radar
approach conlroI (TRACON), and miIilary airporl radar faciIilies are aIso avaiIabIe lo
generaI avialion piIols vho operale in lhe areas of lheir coverage. When using airporls
vilh such equipmenl, lhe ma|orily of generaI avialion piIols use radar assislance because
il is avaiIabIe and in some cases required.
Anolher service avaiIabIe lo aII fliers is lhe en roule air lraffic conlroI compIex, vhich
consisls of 24 air roule lraffic conlroI cenlers (ARTCCs). These cenlers provide radar air
lraffic separalion service lo aircrah operaling on inslrumenl flighl pIans vilhin conlroIIed
airspace. No aircrah may operale vhen lhe visibiIily or ceiIing faIIs beIov prescribed
Iimils unIess an inslrumenl flighl pIan has been fiIed under inslrumenl flighl ruIes (IIR).
Air carrier aircrah, parlicuIarIy lhose operaled by cerlificaled air carriers, operale under
inslrumenl flighl ruIes aII lhe lime, no maĴer hov good lhe acluaI vealher may be, as
a maĴer of course. GeneraI avialion piIols vho are inslrumenl quaIified, or inslrumenl
“raled,” lend lo fiIe inslrumenl flighl pIans onIy vhen lhey musl fly in adverse vealher.
The economies of aII businesses require inlerreIaled and carefuIIy baIanced reIalionships
among lhree pIayers: lhe manufaclurers, lhe service induslry, and lhe users. The smaII size
of generaI avialion makes lhis “lriangIe” exceplionaIIy vuInerabIe because, in comparison
vilh, say, lhe aulomobiIe induslry, lhe markel is so Iimiled in lerms of lhe number of
unils. OnIy a reIaliveIy smaII reduclion in lhe flov of goods and money can vreak havoc
lhroughoul lhe induslry.
THE GENERAL AVIATION SUPPORT INDUSTRY
Tnc Manuj aciurcrs
ApproximaleIy 15 U.S. airframe manufaclurers are invoIved in designing and conslrucling
Iighl (or smaII) and Iarge aircrah for lhe various segmenls of generaI avialion. The number
of aircrah lhese manufaclurers produce varies grealIy, from as many as 17,811 unils in
1978 lo as fev as 1,132 in 1994 (see TabIe 4-2). The exporl markel aIso experienced a
Iong recessionary period. Ixporls lypicaIIy represenl aboul one-lhird of lolaI aircrah
shipmenls.
Ior 16 years, beginning in 1979, generaI avialion aircrah shipmenls sleadiIy decIined.
The decIine in aircrah saIes has been accompanied by a decrease in lhe number of sludenl
and privale piIols. ßelveen 1979 and 2005, lhe number of individuaIs hoIding a sludenl
piIol cerlificale decIined from 210,180 lo 87,213 and lhe number of privale piIols decIined
from 343,276 lo 228,619.
The faiIure of lhe induslry lo respond lo lhe economic recovery of lhe mid-1980s, vhich
vas one of lhe mosl robusl in lhe pasl 50 years, vas puzzIing. HisloricaIIy, lhe economic
cycIe of lhe generaI avialion induslry has cIearIy paraIIeIed lhal of lhe nalionaI economy.
IossibIe reasons for lhe induslry’s sIump vere discussed in lhe seclion “Iaclors Affecling
GeneraI Avialion,” earIier in lhis chapler.
In any case, a number of sleps vere laken lo reverse lhe dovnvard lrend in saIes. One
of lhe mosl significanl vas lhe passage of lhe GeneraI Avialion RevilaIizalion Acl, vhich
viII curlaiI producl IiabiIily suils. AIso, lhere has been an induslryvide efforl lo promole
lhe use of generaI avialion aircrah for business purposes and lo increase lhe number of
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 7
sludenl slarls. “No IIane, No Gain” is a |oinl NßAA/GAMA advocacy program lo acliveIy
promole business avialion. This innovalive program laps aII segmenls of lhe media lo
idenlify, documenl, and disseminale lhe benefils of business avialion. In 1996, AOIA and
GAMA inviled aII generaI avialion businesses, associalions, and organizalions lo |oin in a
nev induslry aIIiance lo aĴracl nev piIols, caIIed “GA Team 2000.” UnIike previous efforls,
lhis program largeled nev piIols based on research compIeled by GAMA’s Iislon-Ingine
Aircrah RevilaIizalion CommiĴee (IIARC) in 1995 and slralegic pIanning by AOIA
earIier lhal same year. Reneving lhe pipeIine of nev piIols is lhe keyslone on vhich aII
olher induslry revilaIizalion needs viII buiId. Many anaIysls beIieve lhal increasing lhe
induslry’s currenl number of sludenl slarls from aboul 50,000 a year in lhe Iale 1990s lo al
Ieasl 100,000 is needed lo re-eslabIish a heaIlhy piIol base and, al lhe same lime, lo creale
demand for a nev fleel of pislon-povered airpIanes.
IoIIoving passage of lhe GeneraI Avialion RevilaIizalion Acl of 1994, manufaclurers
resumed produclion of exisling popuIar designs, incorporaling upgraded airframe,
engine, and avionics lechnoIogy. The resuIl is overaII improvemenl of lhe perceived vaIue
of nev aircrah, offseĴing higher purchase prices in lhe eyes of prospeclive buyers. Today’s
pislon-engine aircrah fleel has an average airframe age of 28 years, and one-fourlh of lhe
fleel is over 35 years oId.
Reneved research and deveIopmenl and improved cerlificalion reguIalions aimed
al repIacing lhis ouldaled lechnoIogy base has aIready broughl advanced syslems Iike
eIeclronic ignilions lo markel. AIso, lhe NASA-sponsored Advanced GeneraI Avialion
Transporlalion Ixperimenl (AGATI) is veII under vay. The vide-ranging AGATI
program invoIves a |oinl research consorlium vilh broad manufaclurer parlicipalion and
cosl sharing. Ils primary goaIs are lo improve smaII pislon-engine aircrah cockpil dispIays
and inlegralion, icing prevenlion and avoidance syslems, engine conlroIs, manufacluring
melhods, and piIol lraining melhods.
AIlhough lhere is some diversificalion in lhe induslry (such as miIilary conlracls
and miIilary/induslriaI subconlracls vilh ma|or miIilary/air carrier manufaclurers), lhe
financiaI heaIlh of lhe manufaclurers requires a saIes voIume equaI lo lhe manufacluring
voIume over lhe Iong run, or eIse surpIus invenlories buiId up and produclion musl be
curlaiIed in accordance vilh good business praclice. Of course, lhere are olher segmenls of
lhe generaI avialion induslry besides lhe airframe manufaclurers, such as manufaclurers
of engines, avionics (avialion communicalions and navigalion radio equipmenl), flighl
inslrumenls, and aulopiIols, aII of vhich are used onIy in avialion and are direclIy affecled
by any diminulion in lhe saIes rale of aircrah. Hovever, lhis sub|ecl is nol vilhin lhe scope
of lhis book.
ßelveen 1995 and 2005, generaI avialion shipmenls aImosl lripIed (see TabIe 4-2).
GAMA eslimaled lhal more lhan 25,000 manufacluring |obs vere crealed during lhal
lime period. GAMA aIso reporled increases in generaI avialion exporls and nev producls
as a resuIl of lhe increases in research and deveIopmenl.
TabIes 4-5 and 4-6 shov lhe generaI avialion aircrah in produclion and usuaIIy avaiIabIe
in lhe Uniled Slales. The economy sIoved by lhe end of 2000 and venl inlo a recession in
2001. Shipmenls decIined in 2001 as a resuIl of lhe recessionary economy and lhe lragic
evenls surrounding Seplember 11, 2001. As of 2006, aircrah orders picked up over 2001
vilh many induslry experls cIaiming lhe induslry is geĴing "back on lrack".
A I R T R A N S P O R TAT I O N 1 2 8
Si gni ficancc cj Pi | cis ic Ai rcraj i Manuj aciuri ng
The significance of piIols lo lhe grovlh in airframe manufacluring cannol be overslaled.
TradilionaIIy, lhe induslry has Iooked al piIols in lvo vays. Iirsl of aII, as peopIe vho
vouId Iearn lo fly and, in some form or fashion, lhen buy an airpIane, piIols mighl buy a
nev or used aircrah or |oin a flying cIub or renl from an IßO. In essence, hovever, lhey
vere purchasing lhe aircrah, eilher in lolaI or by lhe hour. The manufaclurers aIso Iooked
al piIols as lhose vho vouId fly lheir producls for a Iiving vilh lhe air carriers or vilh
miIilary, corporale, uliIily, agricuIluraI, air ambuIance, slale, IocaI, or federaI governmenl,
or olher operalions.
The overvheIming ma|orily of business aircrah saIes are by companies lhal aIready ovn
and operale an aircrah and are acquiring more capabIe, nev equipmenl. The avareness of
avialion—lhe influences lhal go inlo crealing lhe polenliaI for a company lo use aircrah
as a business looI—comes significanlIy from piIols. Over lhe years, manufaclurers have
recognized lhal one of lhe key indicalors of aircrah usage or acquisilion by a company
is lhe presence of a piIol, even a noncurrenl piIol, in lhe senior managemenl ranks of a
company. These advocales inside lhe company are ohen much more influenliaI in lhe saIes
process lhan lhe manufaclurers’ saIes and markeling slaffs.
Tnc Ati aii cn Scrti cc |n!usiru
AII civiI aircrah are direclIy affecled by lhe safely reguIalions of lhe IAA, vhich require
lhal repairs, mainlenance, and inslaIIalion of parls be done by IAA-Iicensed personneI. In
addilion, aII aircrah musl go lhrough a cycIicaI reinspeclion on al Ieasl an annuaI basis, a
funclion lhal can be carried oul onIy by IAA-Iicensed mechanics and musl be approved
by aulhorized inspeclors designaled by lhe IAA.
Ma|or air carriers have lheir ovn mainlenance faciIilies for periodic and progressive
mainlenance of airframes, engines, and avionics equipmenl, bul many IocaI-service
carriers, mosl commuler airIines, and aII bul a fev ma|or generaI avialion business aircrah
operalors reIy on lhe services of speciaIized supporl business operalions.
The Functions of FBOs. GeneraI avialion saIes, service, and supporl operalions are
carried oul by free-enlerprise businesses lhal are knovn in lhe induslry as fixed-base
operalors, or IßOs. ßy lhe very nalure of lhe avialion business, any of lhese operalions
musl be concenlraled al or cIose lo an airporl, usuaIIy al one or lvo spols al an airporl, and
ohen vhiIe sharing lhe airporl vilh air carrier and miIilary operalions. The IßOs provide
lhe ground services and supporl required by generaI avialion and, al some Iocalions, lhe
ma|or airIines and miIilary unils. They are comparabIe lo lhe coIIocalion of aII aulomobiIe
supporl services (gas slalion, garage, body shop, parls, saIes, driver lraining, and so on)
al one sile. The foIIoving oulIine summarizes lhe operalions of a lypicaI generaI avialion
IßO:
1. Adminislralion of lhe business
2. Line services
a. IueIing
b. SaIe of Iubricanls
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 9
TABLE 4-5 Piston Airplane Shipments by Manufacturer, 1995–2005
A I R T R A N S P O R TAT I O N 1 3 0
TABLE 4-5 Continued
Scurcc. GAMA, Gcncra| Atiaiicn Siaiisiica| Oaia|cck. 2005. AvaiIabIe al: hĴp://vvv.gama.aero/dIoads/
2005GAMASlalislicaIDalabook.pdf.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 1
TABLE 4-6 Business Jet Shipments by Manufacturer (1995–2005)
Scurcc. GAMA, Gcncra| Atiaiicn Siaiisiica| Oaia|cck. 2005. AvaiIabIe al: hĴp://vvv.gama.aero/dIoads/
2005GAMASlalislicaIDalabook.pdf.
A I R T R A N S P O R TAT I O N 1 3 2
3. Aircrah slorage
a. ßuIk hangarage
b. T-hangarage
c. Ouldoor liedovns
4. Aircrah mainlenance
a. Ma|or repairs and reconslruclion
b. Minor repairs
c. AnnuaI inspeclions and reIicensing
5. Ingine mainlenance
a. Minor
b. Ma|or
c. Remanufaclure
6. Avionics
a. SaIes
b. Service
1. Mainlenance
2. Recerlificalion
7. Aircrah saIes and renlaIs
a. Nev aircrah
b. Used aircrah
8. IIighl inslruclion
a. Irimary
b. Advanced
1. Inslrumenl
2. MuIli-engine
c. Recurrenl
9. Iarls saIes and service
a. Tires, brakes, and bearings
b. ßaĴeries
10. SpeciaIized commerciaI funclions
a. AeriaI appIicalion
1. AeriaI adverlising
2. UliIily-Iine surveiIIance
3. Iesl conlroI
Nol aII IßOs perform aII of lhese funclions: indeed, some may speciaIize in onIy one
or lvo calegories. Hovever, an IßO normaIIy performs al Ieasl six of lhe funclions Iisled,
eilher as parl of lhe business or by Ieasing space oul lo speciaIisls vho perform lhe funclions
on lhe ovned (or Ieased) premises. An IßO, lhen, is Iike a shopping maII manager vho
is charged vilh making a profil on each of lhe many, videIy diverse individuaI business
operalions vilhin lhe orbil of lhe overaII operalion.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 3
The Size and Scope of FBOs. As previousIy menlioned, over 5,000 airporls are open lo
pubIic use in lhe Uniled Slales, of vhich approximaleIy 800 are served by air carriers and
by generaI avialion. Of lhe 4,200 airporls lhal mighl be caIIed pureIy generaI avialion
airporls, nol aII are aĴended (vhich enlaiIs al Ieasl a fueIing funclion), and nol aII of lhose
lhal are aĴended have service aII lhe lime: many are seasonaIIy aĴended (summer resorls,
for exampIe), and many are aĴended onIy during dayIighl hours. Al lhe same lime, many
of lhese airporls offer service 24 hours a day, and many Iarge airporls have severaI IßOs
compeling for avialion business.
The besl guess is lhal lhere are aboul 3,500 IßOs of differenl sizes al pubIic-use airporls
in lhe Uniled Slales. They faII inlo four calegories.
1. Ma|or IßOs. These IßOs are Iocaled al ma|or airporls and are fuIIy equipped lo
handIe lhe servicing and mainlenance of aII lypes of aircrah, from lhe Iarge air carri-
ers used by ma|or service carriers and business corporalions lo singIe-engine aircrah.
Many of lhe ma|or IßOs have muIli-pIex operalions, as do some of lhe medium-size
IßOs, bul mosl ma|or IßOs have a singIe operalions base. Some IßOs are affiIialed
vilh a franchise and operale nalionaIIy and inlernalionaIIy, vhereas olhers are in-
dependenlIy ovned and operaled bul have a nelvork affiIialion vilh olher inde-
pendenls. Some of lhe Iargesl IßOs are parl of a Iarger corporalion vhose inleresls
exlend beyond lhe IßO induslry. Gross revenue exceeds $50 miIIion, and inveslmenls
in IßOs run inlo lhe hundreds of miIIions of doIIars, incIuding IeasehoIds and equip-
menl.
2. Mc!iun-sizc |BOs. The difference belveen lhe ma|or and lhe medium-size IßOs is
chiefly lhe size of lhe inveslmenl, for mosl medium-size operalors are aIso Iocaled al
air carrier-served airporls. They musl be abIe (by conlracl vilh lhe Iessor) lo remove
and repair any aircrah lhal mighl use lheir faciIily in lhe evenl lhal such aircrah
become disabIed on lhe ramps or runvays. The inveslmenl in a medium-size IßO
may run as high as $50 miIIion, and saIes voIumes are generaIIy in lhe range of $5
miIIion lo $25 miIIion.
3. Sna|| |BOs. Of lhe 3,500 IßOs, approximaleIy 2,000 faII inlo lhis calegory. Many of
lhem are knovn in lhe business vorId as “mom-and-pop shops,” doing business on
a shoeslring using lhe cash draver syslem: al lhe beginning of lhe year, lhere is so
much money in lhe liII: during lhe year, some goes oul and some comes in: and al lhe
end of lhe year, vhalever is Ieh is profil. The vuInerabiIily of such operalions in lhe
modern business environmenl shouId be evidenl.
The vasl ma|orily of lhe smaII operalors have no business lraining. SmaII IßOs are
slarled by someone vho Ioves avialion: an aeronaulicaI speciaIisl, a piIol, a mechanic,
or a lechnician, such as an engine rebuiIder or a radio experl or a sheel melaI fabricalor.
Then lhe business grovs lo meel lhe increasing demands of lhe avialion pubIic.
ßeginning as a flighl inslruclion or repair faciIily, lhe smaII IßO deveIops a cIienleIe,
and as lhe flying pubIic Iearns of lhe operalion, funclions are added: fueIing, hangarage,
liedovns. In a shorl lime, lhe speciaIisl becomes a generaIisl and bIossoms oul inlo
a cIassic muIliservice IßO, vilh numerous empIoyees and increasing inveslmenls—
an avialion shopping maII lhal lhe operalor may nol be educalionaIIy equipped lo
operale in a businessIike vay. ßecause IßOs in generaI are lhe ma|or conlacl belveen
lhe manufaclurers and lhe generaI pubIic for lhe saIe of nev aircrah and for flighl
A I R T R A N S P O R TAT I O N 1 3 4
inslruclion, lhe smaII IßOs reflecl a fragiIily in lhe induslry lhal musl be correcled if
generaI avialion is lo be of vaIue lo lhe nalion.
4. Spccia| |BOs. Some exlremeIy speciaIized avialion operalions found al pubIic
airporls do nol quaIify as lrue IßOs bul are neverlheIess necessary lo avialion. These
incIude engine manufaclurers and remanufaclurers, avionics and propeIIer speciaIisls,
and cerlain flighl lraining speciaIisls vho do nolhing bul recurrenl flighl lraining for
professionaI or semiprofessionaI piIols of high-performance aircrah. These operalions
are separale from and do nol compele vilh lhe lrue IßOs, bul lhey faII vilhin lhe
calegory simpIy because lhey are Iocaled al lhe same airporl.
FBOs and the BoĴom Line—Profitability. As noled previousIy, fixed-base operalors
vary videIy in size, scope of services offered, lype of faciIily, size of inveslmenl, and
managemenl experlise. They may range from lhe smaII grass-fieId mom-and-pop shops
lhal offer minimum services lo huge compIexes lhal service lhe Iarge generaI avialion
business |els and are Iocaled al hub airporls. No maĴer hov Iarge or hov smaII, lhey
share a chaIIenge: lhey musl operale al a profil in a narrovIy defined business, or lhey
viII go beIIy-up.
There can be no generaI avialion air lransporlalion vilhoul a nalionvide syslem of IßOs
lo supporl il. Nol onIy are IßOs lhe inlerface belveen lhe manufaclurers and lhe pubIic,
and lhus lhe principaI oulIel for aircrah saIes, bul lhey aIso provide fueIing, rouline (and
ma|or) mainlenance, inspeclion and reIicensing faciIilies, slorage, and generaI avialion
lerminaI buiIdings. No one can pIan a lrip by generaI avialion aircrah unIess such supporl
faciIilies are avaiIabIe al bolh ends of lhe lrip (al Ieasl fueIing capabiIily). IßOs are lhe
backbone of generaI avialion lransporlalion. Hovever, many are running so cIose lo lhe
Iine of unprofilabiIily lhal any reduclion of lheir business, especiaIIy in lhe reaIm of nev-
and used-aircrah saIes and fueI saIes (lhe lvo slapIe sources of income for IßOs), viII
pul lhem in a Ioss posilion. The same possibiIily exisls for lhe Iarge muIlipIex operalions,
despile lheir huge size. The probIems are lhe same: onIy lhe numbers are Iarger. The
advanlage lhal lhe Iarge operalors have over lhe smaII ones is lhal lhey praclice modern
business lechniques and can absorb some Iosses over a period of lime by mainlaining cash
reserves, vhich lhe smaII operalors frequenlIy do nol have.
An aspecl of economic vuInerabiIily lhal is seIdom recognized is lhal of financing.
Ixcepl for lhe very smaIIesl IßOs, lhe operalion of lhe business depends on credil and Ioan
arrangemenls from commerciaI banks. Aircrah floor pIans, equipmenl Ioans, morlgages,
and conslruclion Ioans run inlo subslanliaI figures and subslanliaI overhead paymenls.
If for any reason an operalor is unabIe lo repay Ioans or lo keep currenl in lhe obIigalions
lo lhe lrade, lo fueIing suppIiers, and lo olhers, so lhal Ioans are caIIed or lurned over lo
credilors, lhe operalion can disappear overnighl.
There is a serious coroIIary lo lhis: once a bank has been exposed lo such a Ioss, il is
|uslifiabIy Ieery of making subsequenl Ioans lo successor operalors. A generaI avialion
business faiIure affecls lhe enlire induslry far more lhan a comparabIe faiIure of a smaII
business in olher induslries, vhich usuaIIy are more videIy dislribuled and require far
Iess financing in lheir normaI operalions. ßecause lhe IßO is lhe economic galevay for
generaI avialion lo lhousands of communilies and lhe soIe lhreshoId for generaI avialion
lransporlalion, lhe economic impacl can be enormous in lhe evenl of ils business faiIure.
In lhe posl-WorId War II era and conlinuing lhrough lhe 1950s, 1960s, and 1970s, lhe
number of IßOs acceIeraled dramalicaIIy. Much of lhe expansion of lhe induslry aher
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 5
WorId War II can be direclIy reIaled lo lhe G.I. ßiII, vhich provided funding for lhe
ma|orily of flighl lraining lhal occurred lhroughoul lhis period. IIighl lraining vas cIearIy
a calaIysl for grovlh in lhe induslry, as nevIy Iicensed piIols crealed addilionaI demand
for aircrah, vhich increased manufacluring- and saIes-reIaled aclivilies and, uIlimaleIy,
increased demand for aircrah fueIing, mainlenance, and olher services.
In lhe Iale 1970s and earIy 1980s, many nonavialion inveslors vere overvheImed by
lhe aĴracliveness of lhe IßO induslry. Many of lhese individuaIs Iacked lhe operalionaI
and manageriaI experlise, vhich is lypicaIIy acquired onIy aher years of acluaI hands-on
operaling experience, required lo properIy meel lhe needs of avialion consumers. ßy 1980,
il vas eslimaled lhal more lhan 10,000 IßOs vere operaling lhroughoul lhe Uniled Slales.
Al lhe same lime, lhe economy vas pIagued by an undesirabIe combinalion of doubIe-
digil inflalion and inleresl rales. AddilionaIIy, during lhis period, lhe funds required lo
acquire and/or deveIop IßOs vere readiIy avaiIabIe from a muIlilude of sources, incIuding
savings and Ioans, commerciaI banks, finance companies, and privale inveslors. Combine
lhis vilh lhe decIine in aircrah saIes beginning in 1979, and lhe resuIl vas a silualion
in vhich lhe number of IßOs far exceeded lhe demand. The dramalic consoIidalion,
vhich occurred lhroughoul lhe 1980s, vas lhe resuIl of a markel desperaleIy lrying lo
reach a ralionaI baIance belveen lhe number of IßOs (suppIy) and lhe services and needs
(demand) of avialion consumers.
Wilh approximaleIy 3,500 IßOs in business by 2006, lhe suppIy is approaching
equiIibrium vilh lhe IeveI of demand lhal nov exisls for IßO producls and services. As a
resuIl, lhe induslry apparenlIy is nov in a posilion lo deveIop and suslain ralionaI grovlh
and profilabiIily.
THE AVAILABLE MARKET—THE USERS
The crilicaI issue of aircrah and equipmenl saIes on a conslanl-flov and increasing-flov
basis lhrough lhe deaIer-dislribulor nelvork evenluaIIy depends on lhe absorplion of lhe
producl by lhe end users, lhe peopIe vho spend money lo purchase such equipmenl. In lhe
highIy compelilive nev- and used-aircrah saIes markel (and used aircrah are reIicensed
annuaIIy and upgraded by equipmenl repIacemenl), lhe forlunes of lhe manufaclurers
are IargeIy dependenl on lhe quaIily of service provided by lheir deaIers and dislribulors
and on lhe generaI slale of lhe nalionaI economy.
There are lvo cIassificalions of aircrah use: (1) lransporlalion, in vhich lhe user lraveIs
from one poinl lo anolher, vhelher for business or for pIeasure, and (2) IocaI flighl, moslIy
for lhe sheer fun of flying. IIighl lraining and cerlain speciaI uses discussed earIier in lhe
chapler reaIIy do nol beIong in lhe lransporlalion calegory, nor does IocaI flying, aIlhough
lhe aircrah invoIved obviousIy have a lransporlalion capabiIily. The lransporlalion markel
is our poinl of focus.
Tnc Busi ncss Markci
The generaI avialion manufaclurers made lhe business |udgmenl in lhe earIy 1950s lo
concenlrale on lhe business markel, vhere lhere is a conlinuing and groving need for
svih, reIiabIe lransporlalion. ßusiness avialion, one of lhe mosl imporlanl segmenls of
generaI avialion, is made up of companies and individuaIs vho use aircrah as looIs in lhe
conducl of lheir business.
A I R T R A N S P O R TAT I O N 1 3 6
ßusiness aircrah are uliIized by aII lypes of peopIe and companies, from individuaIs
vho ohen fly renled singIe-engine pislon-povered airpIanes, lo saIes or managemenl
leams from muIlinalionaI corporalions, many of vhich ovn fleels of muIli-engine lurbine-
povered aircrah and empIoy lheir ovn flighl crevs, mainlenance lechnicians, and olher
avialion supporl personneI.
Many Iarge companies use business aircrah lo lransporl priorily personneI and cargo
lo a variely of far-flung company or cuslomer Iocalions, incIuding siles overseas. Ohen,
business aircrah are used lo bring cuslomers lo company faciIilies for faclory lours and
producl demonslralions. Companies and individuaIs, such as saIespeopIe and doclors, use
business aircrah lo cover regionaI lerrilories vilhin severaI hundred miIes of lheir home
bases. AIlhough lhe overvheIming ma|orily of business aircrah missions are conducled
on demand, some companies mainlain scheduIed operalions, knovn as corporale shuĴIes,
vhich are essenliaIIy in-house airIines.
Mosl corporalions lhal operale business aircrah use modern muIli-engine lurbine-
povered |els, lurboprops, or lurbine heIicoplers lhal are cerlified lo lhe highesl appIicabIe
lransporl calegory slandards. Aircrah buiIl specificaIIy for business use vary from four-
seal shorl-range pislon-povered airpIanes lo lvo- or lhree-engine corporale |els lhal can
carry up lo 20 passengers nearIy 7,000 miIes nonslop. Some companies even use airIine-
lype |els, such as 737s and 757s, and heIicoplers for business lransporlalion.
ßusiness aircrah operaled by Iarger companies usuaIIy are flovn by lvo-person
professionaIIy lrained crevs vhose primary, if nol excIusive, responsibiIily is lo fly
company aircrah. Some smaIIer operalors of business aircrah, especiaIIy businesspeopIe
vho piIol lheir ovn aircrah, lypicaIIy use one piIol lo fly pislon-povered machines.
AIlhough lhe ma|orily of business aircrah are ovned by individuaIs or companies,
businesses aIso uliIize business avialion lhrough arrangemenls such as charlering, Ieasing,
fraclionaI ovnership, lime-sharing, inlerchange agreemenls, parlnerships, and aircrah
managemenl conlracls.
ßusiness aircrah generaIIy are nol flovn for hire. Thus, lhe ma|orily of U.S.-regislered
business aircrah are governed by Iarl 91 of lhe IederaI Avialion ReguIalions (IARs). U.S.-
regislered business aircrah lhal can be flovn for compensalion are reguIaled by IAR Iarl
135, vhich covers on-demand commerciaI operalions. RegardIess of hov business aircrah
are uliIized, lhey are chosen because lhey provide safe, efficienl, flexibIe, and reIiabIe
lransporlalion.
Of aII lhe benefils of business aircrah, flexibiIily is probabIy lhe mosl imporlanl.
Companies lhal fly generaI avialion aircrah for business purposes can conlroI virluaIIy
aII aspecls of lheir lraveI pIans. Ilineraries can be changed inslanlIy, and business aircrah
can be flovn lo lhousands more deslinalions lhan are served by lhe airIines.
ßusiness aircrah are produclivily muIlipIiers lhal aIIov passengers lo conducl business
en roule in compIele privacy vhiIe reducing lhe slresses associaled vilh lraveIing on
commerciaI carriers. Iassengers vho fly by business aircrah never have lo vorry aboul
missed conneclions, Iosl baggage, overbooking, air carrier mainlenance slandards, or
airIine securily. And in recenl years, business aircrah have compiIed a safely record lhal
is comparabIe, and somelimes superior, lo lhal of lhe airIines. As lhe preceding discussion
suggesls, businesses increasingIy are seeking lheir ovn lransporlalion for a variely of
reasons.
Concentration of Air Carrier Service. The Uniled Slales has lhe finesl scheduIed air
lransporlalion in lhe vorId. The service poinls, equipmenl, personneI, and scheduIes
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 7
are as exceIIenl and as much in lhe pubIic inleresl as il is humanIy, mechanicaIIy, and
economicaIIy possibIe lo make lhem. ßul lhis does nol aIler lhe facl lhal lhere sliII exisl
vasl voids in airIine service, infrequenl scheduIes in lhe ma|orily of pIaces served, and
lhe necessily of using roundaboul roules, vilh lime-consuming Iayovers and frequenl
changes, unIess one is lraveIing belveen lhe ma|or melropoIilan areas.
Increased concenlralion of cerlificaled air carrier service gave rise lo lhe commuler
carriers in lhe earIy 1970s. Il is simpIy nol economicaIIy viabIe lo service many hundreds of
smaIIer communilies vilh Iarge |el equipmenl. In 2005, scheduIed air service vas provided
lo approximaleIy 680 airporls, vilh approximaleIy 71 percenl of lhese communilies
depending excIusiveIy on regionaI service.
In addilion, lhe scheduIed service provided lo many of lhe 680-odd airporls is sparse
and generaIIy offered onIy al lhe mosl popuIar limes of day. Wilh a shih lovard Iong-
hauI flighls belveen primary hubs, many medium-size cilies are experiencing a decrease
in frequency of flighls and a curlaiImenl of nonslop service belveen middIe hubs and
ma|or hubs. These condilions are frequenlIy lhe basis for lhe purchase, charler, or Iease
of a business aircrah.
Decentralization of the Industry. The demographics of our nalion are changing. Iirms
are decenlraIizing by moving or eslabIishing faciIilies in parls of lhe counlry far removed
from lhe cenlraI headquarlers in order lo foIIov lhe shihing sources of Iabor resuIling from
lhe mobiIily of lhe Iabor force. We are experiencing a Iarge-scaIe migralion of peopIe of
aII ages lo lhe SunbeIl slales. The popuIalion of some melropoIilan areas in soulhveslern
slales grev more lhan 190 percenl belveen lhe Iasl lvo census counls. Cilies ranked in
lhe lop 20 based on popuIalion sav a radicaI rearrangemenl of rank during lhe 10-year
period, vilh cilies in lhe SunbeIl moving up on lhe Iisl. This shih in popuIalion has crealed
a need lo shih markeling emphasis. AII lhis again adds up lo a need for more business
lraveI and beĴer communicalions.
Flexibility. IIexibiIily is lhe key vord in business aircrah: flexibiIily lo go vhen and
vhere necessary. The key lo flexibiIily is airporl faciIilies. The shorler lhe lime spenl
belveen lhe office and lhe aircrah, lhe grealer lhe benefils of lhe business airpIane. This
flexibiIily of deslinalions nol onIy serves in direcl poinl-lo-poinl lraveI bul aIso is one
faclor lhal is making business avialion one of lhe biggesl feeders of passengers lo lhe
airIines. More and more airIine passengers are going aII lhe vay—making lhe vhoIe
lrip—by air. ßusiness and privale airpIanes feed passengers inlo ma|or lerminaIs: charler
and air laxi services Iel Iong-dislance |elIiner passengers svihIy compIele lheir |ourneys
lo cilies hundreds of miIes dislanl from airIine slops.
Shortage of Management Personnel. The mosl vaIuabIe assel a company has is ils human
resources. In basic lerms, a business’s success is based on lhe degree lo vhich il appIies
lhis assel lo ils probIems and opporlunilies.
In a vorking year, each execulive has onIy aboul 2,000 hours of reguIar vorking lime
in vhich lo be in lhe righl pIaces al lhe righl limes vilh lhe righl decisions. A 40-year
career lhus offers onIy 80,000 vorking hours. Ior bolh company benefil and personaI
advancemenl, each hour lakes on precious significance.
This need lo make produclive use of lime is a concern of aII execulives—seeing lhal
lhey lhemseIves, and aII empIoyees in lheir areas of responsibiIily, use lheir lime mosl
efficienlIy. Inveslmenls are made in lime and molion sludies lo produce operaling praclices
A I R T R A N S P O R TAT I O N 1 3 8
lhal achieve lhe mosl resuIls in lhe Ieasl lime. Nev equipmenl is oblained eilher lo reduce
lhe number of hours required for a cerlain operalion or lo achieve grealer produclion
in lhe same number of hours. TeIephones and faxes are used inslead of messengers and
maiI: caIcuIalors and compulers are acquired. The business aircrah is a lime machine lhal
compresses dislances inlo minules and hours. Il does for lraveI vhal compulers, leIephones,
and programmed miIIing machines do for olher areas of a company’s operalions.
Reliability and Capability of Today’s Business Aircra. The vide variely of business
aircrah avaiIabIe, from singIe-engine pislon aircrah lo corporale |el, can meel aImosl any
need a business mighl have: a singIe-engine Cessna 172 for a saIes represenlalive covering
a lrislale area, a Iighl lvin for a regionaI manufaclurer, and a Lear|el for a nalionaI firm
vilh videspread operalions.
IederaIIy reguIaled specificalions conlroI design engineering, melhod of manufaclure,
mechanicaI funclions, flighl operaling Iimils, airvorlhiness, and mainlenance slandards.
AII syslems and accessories are sub|ecl lo reguIalion, and minimum safely slandards are
sel for slrucluraI slrenglh and slress. One singIe-engine aircrah can require over 15,000
individuaI inspeclions during manufaclure. The induslry’s concern vilh buiIding safe
aircrah can besl be seen in lhe facl lhal virluaIIy aII modeIs are slrucluraIIy slronger lhan
lhe IAA requires. In facl, each company exceeds lhe IAA minimums in aImosl aII respecls.
The induslry has bolh a moraI obIigalion and an economic seIf-inleresl in buiIding safe
aircrah—a manufaclurer vilh a poor safely record cannol conlinue lo exisl.
The generaI avialion accidenl rales over lhe pasl 10 years aĴesl lo lhe reIiabiIily and
capabiIily of loday’s business aircrah. The accidenl rale per 100,000 aircrah hours flovn
has sleadiIy decreased since 1972.
In shorl, business avialion viII conlinue lo grov because companies recognize lhe
benefils of speed, economy, and convenience. Specific benefils of using business aircrah
can be summarized as foIIovs:
1. Tinc satings. ßusiness aircrah nol onIy reduce flighl lime by providing poinl-lo-
poinl service bul aIso decrease lolaI lraveI lime by uliIizing smaIIer airporls cIoser
lo finaI deslinalions. AIso, lhe office environmenl of a business aircrah aIIovs lraveI
lime lo become produclive lime.
2. ||cxi|i|iiu. IeopIe vho lraveI by business aircrah do nol have lo aIler lheir scheduIes
lo conform lo lhose of commerciaI carriers. ConsequenlIy, lhey have lhe freedom lo
change course en roule and lo Ieave and arrive according lo lheir ovn scheduIes.
3. |c|ia|i|iiu. ßusiness aircrah are engineered and buiIl lo lhe highesl slandards, and
companies lhal mainlain lheir ovn aircrah have compIele conlroI over lhe readiness
of lheir fleels.
4. Sajciu. In recenl years, business aircrah have compiIed an oulslanding safely record
lhal is comparabIe lo or beĴer lhan lhal of lhe airIines.
5. |nprctc! narkciing cjficicncu. ßusiness aircrah nol onIy exlend lhe reach of a saIes
force bul aIso quickIy and easiIy bring cuslomers lo lhe poinl of saIe.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 9
6. |aci|iiics ccnirc|. ßusiness aircrah heIp managemenl exlend ils conlroI by faciIilaling
personaI visils lo remole company siles.
7. Pcrscnnc| an! in!usiria| !ctc|cpncni. The mobiIily lhal business aircrah provide
company empIoyees can acceIerale lraining, orienlalion, and leamvork.
8. Pritacu an! ccnjcri. Conversalions on business aircrah are confidenliaI, and cabins
can be configured lo accommodale virluaIIy any speciaI needs of passengers.
9. |jficicncu. ßusiness avialion enabIes a company lo maximize ils lvo mosl imporlanl
assels: peopIe and lime.
10. Sccuriiu. A company lhal uses business avialion conlroIs aII aspecls of ils air lraveI,
incIuding lhe visibiIily of ils empIoyees on sensilive missions.
Some of lhe inlangibIe benefils of business avialion—enhanced managemenl
produclivily and beĴer cuslomer reIalions—may be difficuIl lo quanlify, bul lhey are no
Iess imporlanl lo a company lhan direcl financiaI relurns on inveslmenls.
A communily vilh no avialion galevay for economic deveIopmenl is obviousIy al a
compelilive disadvanlage compared lo one lhal has one. Many sludies on lhe economic
impacl of generaI avialion airporls on communilies concIude lhal a smaII lovn vilhoul
an airporl is in lhe same posilion as a communily lhal vas bypassed by a canaI or raiIroad
100 years ago. CIose proximily lo an airporl is aIvays near lhe lop of lhe Iisl of prime
faclors a business considers vhen pIanning a ma|or move lo a parlicuIar area.
Tnc Pcrscna| Markci
As of 2005, lhe IAA reporled 618,633 aclive piIols in lhe Uniled Slales, incIuding 235,994
privale piIols, many of vhom ovn, renl, borrov, and Iease smaII aircrah for business and
pIeasure purposes (see TabIe 4-7).
Il is easy lo become caughl up in lhe business and economic aspecls of generaI avialion
and lhe conlribulion il makes lo a IocaIily’s economy and lo overIook anolher imporlanl
parl of generaI avialion’s conlribulion—personaI flying. There is a videIy heId aĴilude lhal
commerciaI airIines are a business and so are imporlanl bul lhal personaI flying is simpIy
a frivoIily. Hovever, one musl keep in mind lhal lhe cerlificaled airIines carry aImosl as
many peopIe for personaI and recrealionaI reasons as lhey do for business purposes. On
speciaI charlers, virluaIIy aII lhe passengers are on pIeasure lrips on every flighl.
The flexibiIily of lransporlalion offered by generaI avialion is nol reslricled lo business
use. ßy Iighl pIane il is possibIe for a cilizen of lhe mid-AlIanlic slales or lhe midvesl lo
visil lhe varm cIimale of IIorida for lhe veekend or lo fly from Monlgomery, AIabama,
lo lhe Canadian Iakes in a fev hours.
Air lransporlalion for vacalioning is unabashedIy adverlised by lhe air carriers. Il
shouId nol be overIooked as an imporlanl aspecl of generaI avialion.
Thousands of singIe-engine aircrah are flovn vilhin 100 miIes of home on nice days—
comparabIe lo |aunls in smaII saiIboals or on a pair of skis. They are flovn for lhe sheer
fun of flying, nol for lransporlalion. Many piIols vho slarl off as veekend piIols lend lo
upgrade inlo high-performance equipmenl, lo oblain higher ralings and piIol priviIeges,
and evenluaIIy lo become business as veII as pIeasure air lraveIers in Iighl aircrah.
A I R T R A N S P O R TAT I O N 1 4 0
TABLE 4-7 Active U.S. Pilot Certificates Held, 1984–2005
Scurcc. GAMA, Gcncra| Atiaiicn Siaiisiica| Oaia|cck. 2005. AvaiIabIe al: hĴp://vvv.gama.aero/dIoads/
2005GAMASlalislicaIDalabook.pdf.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 4 1
KEY TERMS
UliIily AirpIane CounciI fixed-base operalor (IßO)
primary-use calegories aeriaI appIicalion
business aircrah use privale-use airporl
corporale aircrah use pubIicIy ovned airporl
NalionaI ßusiness Aircrah pubIic-use privaleIy ovned airporl
Associalion (NßAA) flighl service slalion (ISS)
personaI flying
Aircrah Ovners and IiIols
Associalion (AOIA)
REVI EW QUESTI ONS
1. Why do lhe airIines seem lo receive aII of lhe aĴenlion vhen generaI avialion is
acluaIIy lhe Iargesl segmenl of avialion` Why do you lhink lhe generaI avialion
aircrah manufaclurers broke avay from lhe AIA lo form GAMA`
2. Lisl lhe primary-use calegories. Dislinguish belveen business and corporale use. Whal
is lhe primary roIe of NßAA` AOIA` Define aeriaI appIicalion, aeriaI observalion, and
aeriaI olher. Whal is lhe significance of lhese segmenls of avialion lo our economy`
Give some exampIes. Whal lype of aircrah use faIIs inlo lhe “olher flying” calegory`
3. Discuss some of lhe faclors lhal Ied lo lhe decIine in generaI avialion aircrah saIes
in lhe posldereguIalion period. Whal vas lhe primary reason for lhe Iighl-aircrah
manufaclurers disconlinuing lhe produclion of singIe-engine pislon aircrah`
4. Discuss lhe significance of lhe GeneraI Avialion RevilaIizalion Acl. Hov have lhe
manufaclurers responded in recenl years`
5. ApproximaleIy hov many airporls vere lhere in lhe Uniled Slales al lhe end of 2005`
Hov many pubIic-use airporls` ApproximaleIy hov many airporls in lhe Uniled
Slales are served by lhe cerlificaled and noncerlificaled carriers`
6. Whal are lhe primary services provided by lhe IAA lo generaI avialion piIols`
7. Describe some of lhe sleps lhal have been laken by lhe generaI avialion communily
lo reverse lhe dovnvard lrend in aircrah saIes.
8. Why is lhe generaI avialion supporl induslry Iike a lhree-Iegged miIk slooI` Discuss
lhe imporlanl inlerreIalionship among manufaclurers, lhe service induslry, and users.
Name six generaI avialion aircrah manufaclurers. Why are lhe IßOs considered lhe
backbone of generaI avialion` Describe six or seven services provided by a lypicaI
medium-size IßO. Dislinguish belveen a Iarge or medium-size IßO and a smaII
mom-and-pop operalor. Whal are some of lhe speciaI IßOs al a lypicaI pubIic-use
airporl` Whal is lhe primary reason for lhe lremendous decIine in lhe number of
IßOs during lhe 1980s and earIy 1990s` Whal is happening vilh IßO grovlh in lhe
earIy 2000s`
A I R T R A N S P O R TAT I O N 1 4 2
9. Why did lhe generaI avialion aircrah manufaclurers concenlrale on deveIoping aircrah
lo meel lhe needs of lhe business markel as earIy as lhe 1950s` Whal are some of lhe
faclors lhal have caused businesses lo seek lhe benefils of lheir ovn lransporlalion`
Lisl lhe benefils of using business aircrah.
10. Hov many aclive privale piIols vere lhere in lhe Uniled Slales al lhe end of 2005` Il’s
been said lhal “personaI flying is |usl a rich man’s sporl.” Do you agree` Disagree`
Why`
WEB SI TES
hĴp://vvv.eaa.org
hĴp://vvv.Iandings.com
hĴp://vvv.aopa.org
hĴp://vvv.avveb.com
hĴp://vvv.RAA.org
hĴp://vvv.avhome.com
hĴp://vvv.nala-onIine.org
hĴp://vvv.aia-aerospace.org
hĴp://vvv.nbaa.org
hĴp://vvv.generaIavialion.org
SUGGESTED READI NGS
Iichenberger, Ierry, A. Gcncra| Atiaiicn Iau. Nev York, NY: McGrav-HiII, 1996.
|AA Siaiisiica| Han!|cck—|Y 2001. Washinglon, D.C.: U.S. Governmenl Irinling Office, 2002.
Garrison, IauI. Tnc Ccrpcraic Aircrah Ouncr’s Han!|cck. ßIue Ridge Summil, Ia.: Tab ßooks, 1981.
Gcncra| Atiaiicn 2005 Siaiisiica| Oaia|cck. Washinglon, D.C.: GeneraI Avialion Manufaclurers
Associalion, 2005.
King, Iack L. Ccrpcraic ||uing. GIendaIe, CaIif.: Avialion ßook, 1980.
NBAA Busincss Atiaiicn |aci Bcck 2002. Washinglon, D.C.: NalionaI ßusiness Aircrah Associalion,
2002.
Richardson, I. D. |sscniia|s cj Atiaiicn Managcncni (2d ed.). Dubuque, Iova: KendaII/Hunl, 1981.
Simpson, Roderick W. and Rob Simpson. Tnc Gcncra| Atiaiicn Han!|cck. Leicesler, UK: MidIand
IubIishing, 2006.
WeIIs, AIexander T., and ßruce D. Chadbourne. Gcncra| Atiaiicn Markciing an! Managcncni (2d ed.).
MaIabar, IIa.: Kreiger, 2003.
C H A P T E R 4 • T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 4 3
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PART TWO
Structure and
Economics of
the Airlines
145
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5
The Airline Industry
Introduction
Structure of the Airline Industry
Major and National Carriers
Regional Carriers
Airline Statistics
Airline Certification
Data Collection by the DOT
Industry Agreements
Traffic and Financial Highlights: 1960–2005
Chapter Checklist • You Should Be Able To:
Define trunk, supplemental, and local-service carriers,
and describe lheir roIe in lhe predereguIalion era
Describe some of lhe probIems faced by lhe CAß and lhe
air carriers prior lo dereguIalion
Compare and conlrasl lhe ma|or and nalionaI carriers al
lhe lime of dereguIalion and during lhe subsequenl years,
in lerms of expansion, consoIidalion, and concenlralion
Discuss some of lhe innovalions pioneered by lhe ma|or
air carriers in lhe earIy 1980s lhal had a profound effecl
on lhe slruclure of lhe induslry
IxpIain lhe roIe of lhe regionaI carriers in lhe air lransporl
syslem
Describe lhe airIine cerlificalion process and DOT
reporling requiremenls
HighIighl lhe significanl lraffic and financiaI slalislics
during lhe period 1960–2005, and demonslrale lhe cycIicaI
nalure of lhe airIine induslry







147
INTRODUCTION
In Chapler 1, lhe airIines vere referred lo as a segmenl vilhin lhe air lransporlalion
induslry. This chapler deaIs vilh lhe airIines as a separale induslry. In order lo avoid
confusion aboul lhe lerm in!usiru. il is besl lo define il al lhe oulsel.
An in!usiru can be defined as a number of firms lhal produce simiIar goods and services
and lherefore are in compelilion vilh one anolher. In lhis sense, lhe airIine induslry is a
segmenl or parl of lhe broader air lransporlalion induslry. SeveraI hundred U.S. companies
engage in lhe carriage of persons or goods by air. Ior exampIe, American AirIines earns
revenues in excess of $20 biIIion a year, vhiIe lhe smaIIesl may operale a singIe pIane onIy
severaI monlhs a year. ßroadIy defined, lhe airIine induslry consisls of a vasl nelvork
of roules lhal connecl cilies lhroughoul lhe counlry, and indeed, lhe vorId. Over lhis
nelvork, a Iarge number of airIines carry passengers and cargo on scheduIed service.
STRUCTURE OF THE AIRLINE INDUSTRY
Grcuin an! |cgu| aii cn
To cIarify lhe slruclure of lhe induslry al lhe oulsel, il is usefuI lo define lhe induslry.
When lhe CiviI Aeronaulics Acl vas passed in 1938, onIy a handfuI of air carriers
operaled reguIar scheduIes over prescribed roules, and vhen lhey received governmenl
cerlificalion, lhey became knovn as ccriificaic! rcuic. scnc!u|c! air carricrs. a lerm lhal is
used lo lhis day. The acl empovered lhe CiviI Aeronaulics ßoard (CAß) lo slruclure lhe
inlerslale airIine induslry lhrough reguIalion of passenger fares, air maiI rales, roule enlry
and exil, mergers and acquisilions, and inlercarrier agreemenls. The CAß immedialeIy
“grandfalhered” lhe roules of 23 exisling airIines, vhich Ialer became knovn as trunk
carriers (a lerm borroved from lhe lrunk raiIroads of lhe day). ßy definilion, lrunk
carriers vere airIines cerlified lo operale on medium- and Iong-hauI inlerslale roules.
These carriers came under Seclion 401 of lhe board’s reguIalions and lhus vere somelimes
referred lo as 401 carriers. To be exempl from 401 cerlificalion, a carrier couId nol exceed a
lakeoff veighl of 12,500 pounds (roughIy lhe veighl of a DC-3), vhich effecliveIy Iimiled
aircrah lo 19 passengers. TypicaIIy, lvo or lhree carriers provided service in a given
markel, aIlhough in some inslances roules vere covered by onIy one carrier. The CAß
sel slandard fare IeveIs lo ensure cross-subsidizalion belveen profilabIe and unprofilabIe
roules. Carriers vere required lo charge equaI fares for equaI dislances. Cosl increases vere
passed aIong lo cuslomers, and lhe CAß aIIoved lhe airIines lo earn a reasonabIe rale of
relurn.
1
OriginaIIy, lhere vere lvo generaI cIasses of common-carrier air lransporlalion: (1)
lhe lrunk airIines, vhich provided scheduIed service on fixed roules, and (2) smaII
nonlransporl carriers, principaIIy operaling from a fixed base, vhich furnished service
on requesl, vilhoul scheduIes. Ior lhe nonscheduIed carriers, lransporlalion services
vere incidenlaI lo lhe principaI business aclivilies of saIe and service of aircrah and flighl
inslruclion.
1
According lo lhe CAß’s Domeslic Iassenger Iare Invesligalion (DIII), fares vere sel according lo lhe foIIov-
ing formuIa: average cosls (assuming pIanes flev 55% fuII) · reasonabIe relurn on inveslmenl (12%) + revenue
requiremenl.
A I R T R A N S P O R TAT I O N 1 4 8
2
CiviI Aeronaulics Acl, Seclions 101(35) and 101(36), respecliveIy.
Aher WorId War II, a number of enlerprising avialion enlrepreneurs purchased var
surpIus DC-3s (C-47s) and DC-4s (C-54s) and began lo lransporl peopIe and cargo for
compensalion or hire vilh no fixed roules or scheduIes, much in lhe manner of lramp
sleamers. These operalions, usuaIIy cuĴhroal in lhe vorsl sense of lhe lerm, became
knovn as nonscheduIed, or “nonsked,” air carriers lo lhe pubIic and as “Iarge irreguIar air
carriers” lo lhe CAß, vhich vas poverIess lo reguIale lhem unliI lhe CiviI Aeronaulics Acl
vas amended by Congress. The acl vas amended aher WorId War II lo creale supp|cncnia|
air carricrs and supp|cncnia| air iranspcriaiicn
2
so lhal such operalions aIso required
cerlificales of pubIic convenience and necessily. OriginaIIy designed lo suppIemenl lhe
capacily provided by lhe lrunk carriers, by lhe 1960s lhe supplemental air carriers had
lruIy become compelilive carriers, and by lhe 1970s lhe name suppIemenlaI had Iosl aII
meaning. Some carriers provided scheduIed passenger and cargo services, vhereas olhers
concenlraled on cargo onIy.
In lhe poslvar period, lhere vere aIso many feeder roules lo be granled. The lrunk
Iines cIaimed lhal lhey had grandfalher righls (originaI cerlifi-calion) lo provide such
service feeding inlo lhe lrunk roules, bul lheir pIeas vere lo no avaiI: lhe CAß chose
inslead lo cerlificale a vhoIe nev IeveI of service. The CAß assured lhe lrunks lhal
lhe feeders vouId be carefuIIy valched and nol permiĴed lo provide service belveen
lhe ma|or melropoIilan areas. The CAß avarded each IocaI-service carrier a regionaIIy
cenlered roule syslem lhal fed lhe lrunks vilh addilionaI passengers. These local-
service carriers, vhich provided inlraslale service lo smaII communilies, vere exempl
from CAß economic reguIalion, and many vere eIigibIe for governmenl subsidies lo
cover operaling Iosses. The charler services charged Iover fares, did nol operale pubIished
scheduIes, and vere aIso exempl from CAß reguIalions.
Nineleen IocaI-service airIines vere cerlificaled by lhe board belveen 1945 and 1951.
Some of lhe firsl feeder Iines, as lhey became knovn, vere AIIegheny (nov US Airvays):
Mohavk and Lake CenlraI (nov parl of US Airvays): Ironlier (nov parl of ConlinenlaI):
ßonanza, Soulhvesl, and Wesl Coasl (Ialer Hughes Airvesl, Ialer parl of RepubIic, nov
parl of Norlhvesl): Norlh CenlraI and Soulhern (Ialer parl of RepubIic, nov parl of
Norlhvesl): Iiedmonl (nov parl of US Airvays): and Ozark (vhich became parl of TWA,
vhich is nov parl of American AirIines).
During lhe 1950s and 1960s, subsidizalion of mosl IocaI-service and many lrunk roules
conlinued. LocaI subsidy cosls, exacerbaled by fares deIiberaleIy sel beIov marginaI cosls
in accordance vilh lhe CAß formuIa, escaIaled rapidIy as lhe IocaI-service carriers added
roules and repIaced lheir originaI DC-3 aircrah vilh Iarger equipmenl. In an efforl lo
reduce subsidy cosls, lhe CAß al firsl shihed some Iov-densily lrunk roules lo lhe IocaI
service carriers. When lhis approach faiIed, Ionger and polenliaIIy more profilabIe roules,
ohen in direcl compelilion vilh lhe lrunk roules, vere avarded. Despile lhis overIap of
IocaI-service and lrunk carrier roules, lhe CAß IargeIy mainlained ils vision of a biIeveI
induslry. Trunk airIines served Iong-dislance roules belveen ma|or cilies, vhiIe IocaI-
service carriers provided connecling service from smaIIer cilies lo lrunk deslinalions.
ConsequenlIy, many ilineraries required a change of airIines. ßecause of poorIy coordinaled
flighl scheduIes, significanl deIays availing a connecling flighl vere common. Iaced vilh
suppressed rouling and pricing oplions, lhe airIines compeled on services such as meaIs,
movies, and sealing comforl.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 4 9
Despile lhese probIems, lhe induslry grev rapidIy, en|oying more lhan a lenfoId grovlh in
passengers belveen 1950 and 1970. TechnoIogicaI advances embodied firsl in lhe Iong-range
DC-6 and ConsleIIalion aircrah and lhen in lhe firsl-generalion commerciaI |el lransporls
provided sleady improvemenls in produclivily. Iel lransporlalion grealIy increased lhe
lrunks’ capacily IeveIs and aIIoved lhem lo scheduIe more frequenl flighls. AirIines lhal
added capacily gained a disproporlionale share of markel lraffic because cuslomers vere
mosl IikeIy lo caII lhe airIine vilh lhe videsl range of lraveI oplions. The purchase of nev
aircrah Ieh bolh lhe lrunk and lhe IocaI-service carriers vilh veakened earnings and baIance
sheels, vhiIe compelilion inlensified in lhe high-densily markels, vhere business lraveIers
soughl maximum convenience. In lhe meanlime, subsidies lo lhe IocaI-service carriers
conlinued lo increase. Air fares, lhough high, remained nominaIIy slabIe bul decIined in
reaI lerms lhroughoul lhe period. High fares, hovever, Iimiled air lraveI lo business and
affluenl passengers.
The induslry’s probIems vorsened during lhe Arab oiI embargo of lhe 1970s. ßelveen
1969 and 1978, fueI cosls rose 222 percenl (lo 20 percenl of operaling expenses): inflalion
boosled Iabor cosls (lo 45 percenl of operaling expenses): and lhe slagnalion of lhe gross
nalionaI producl curlaiIed demand grovlh (from 18 percenl lo 4 percenl per annum).
CaIIs for reguIalory reform firsl appeared in lhe earIy 1970s. Irohibiled from compeling
on fares and roules, carriers responded by increasing flighl frequency, Iovering sealing
densily, and adding ever more exlravaganl in-flighl service. Anlicipaling conlinued rapid
lraffic grovlh lhal accompanied lhe inlroduclion of |el aircrah, lhe ma|or carriers pIaced
nev vide-body aircrah in service, exacerbaling exisling overcapacily. Load faclors feII
from 70 percenl in 1950 lo 50 percenl by 1970. Wilh lhe lransilion lo |el aircrah compIele,
produclivily gains lhal had cushioned lhe economic consequences of faIIing Ioad faclors
sIoved. The induslry’s financiaI heaIlh veakened.
The CAß responded lo lhe delerioraling financiaI condilions by increasing ils
reguIalory inlervenlions. In addilion lo lhe ongoing deniaI of nev carrier appIicalions,
il imposed a roule moralorium on exisling carriers, approved a 20 percenl fare increase,
and sanclioned capacily Iimilalion agreemenls among lhe lrunk carriers. These aclions
raised aIarm oulside lhe CAß, resuIling in a consensus in governmenl and academia lhal
reguIalory dislorlions imposed unacceplabIe burdens on lhe economy and sociely and
did IiĴIe lo address lhe induslry’s underIying slrucluraI probIems.
Sensing a vinning issue, Senalor Idvard Kennedy heId congressionaI hearings in 1975
sharpIy crilicaI of CAß poIicies. Sludies comparing inlraslale airIines operaling oulside
CAß conlroI vilh lhe lrunk carriers pro|ecled fares 50 lo 70 percenl Iover if lhe induslry
vas dereguIaled.
Ocrcgu| aii cn
In response lo lhe crilicism, lhe CAß reversed ils poIicies, beginning vilh lhe approvaI
of nev roule appIicalions. In 1977, il consenled lo American AirIines’ requesl for “super
saver” discounls some 45 percenl beIov exisling coach fares. When American AirIines’
lraffic grev as much as 60 percenl in response, lhe soIulion lo overcapacily seemed al
hand. Olher carriers quickIy fiIed and received CAß approvaI for simiIar discounls. De
faclo dereguIalion vas under vay.
In 1978, nov vilh lhe aclive encouragemenl of nev CAß Chairman AIfred Kahn,
Congress passed lhe AirIine DereguIalion Acl. The acl mandaled lhal lhe CAß phase oul
ils roule approvaI aulhorily over lhree years and ils reguIalion of fares over five years, and
A I R T R A N S P O R TAT I O N 1 5 0
MAJOR AND NATIONAL CARRIERS
Thal dereguIalion vas a Iandmark evenl in lhe hislory of lhe U.S. airIine induslry
is iIIuslraled by lhe facl lhal 5 of lhe lop 12 airIines of 1978, as measured by revenue
passenger miIes (RIMs), no Ionger exisl (see TabIe 5-1). Iaslern (no. 4) and ßraniff
(no. 8) venl bankrupl: Weslern (no. 7) vas absorbed by DeIla: NalionaI (no. 10) vas
absorbed by Ian Am: Ian Am (no. 6) broke ilseIf up for parls, vilh mosl going lo
DeIla and Uniled: lhe remnanl of Ian Am lhen dissoIved in bankruplcy. DereguIalion
fueIed a lrend lovard concenlralion of business vilh a nev cIusler of “mega-carriers,”
vilh a number of smaII and midsize airIines being absorbed in lhe process. ßy lhe end
of 2004, lhe lop five carriers accounled for 74 percenl of lhe business (see TabIe 5-2). In
conlrasl, in 1978, under CAß conlroI, lhe lop five airIines accounled for 68 percenl of lhe
RIMs of lhe lop 12.
The immediale consequence of dereguIalion vas lhal lhe eslabIished carriers faced
compelilion on many fronls. Iirsl, lhey compeled vigorousIy among lhemseIves,
molivaled in parl by lhe beIief lhal markel share vouId delermine lhe uIlimale survivors
in a reslruclured induslry. This meanl nev roules and Iover prices, vhich Ied lo more
avaiIabIe seal-miIes bul Iover Ioad faclors, as capacily oulslripped nev passenger lraffic,
and lo Iover passenger revenue yieIds because of lhe reduced fares.
The compelilion vilhin lhe eslabIished induslry vas inlensified by lhree innovalions
pioneered by lhe ma|or carriers in lhe earIy 1980s lhal coIIecliveIy represenl a radicaI
change from lhe reguIaled era. AIlhough each of lhe measures offered iniliaI compelilive
advanlage lo lhe firsl movers, in lhe aggregale lhese innovalions appear lo have
conlribuled lo lhe very high voIaliIily of induslry revenues. Iirsl, airIines eslabIished
“hub-and-spoke” roule slruclures, designed lo funneI lraffic from oulIying regions
for furlher lransil, al very high Ioad faclors, lo ma|or deslinalions. ßul hubs are very
expensive lo eslabIish and mainlain because of lhe high infraslruclure cosls: lhe high
fixed cosls hinder easy ad|uslmenl of roule slruclures in response lo changing paĴerns
of demand, and lhe overaII roule slruclure produces more conneclions on Iong-dislance
roules, vhich is disfavored by fuII-fare business lraveIers. The hub-and-spoke slruclure
aIso Ieh lhe airIines vuInerabIe in lhe 1990s lo Iov-fare carriers lhal fly poinl lo poinl
belveen deslinalion cily-pairs. Among olher faclors, lhe poinl-lo-poinl carriers gain lhe
advanlage of higher aircrah uliIizalion lhan do lhe hub-and-spoke carriers, vhich have lo
provide lime in lheir scheduIes of Iong-dislance roules for lhe arrivaI of feeder flighls.
Second, lhe airIines adopled frequenl-flier programs designed lo enhance brand IoyaIly
among business lraveIers and lo expIoil lhe differences belveen regionaI and nalionaI (or
inlernalionaI) airIines in lerms of more desirabIe deslinalions. The frequenl-flier programs
proved lo be expensive lo adminisler, and lhe polenliaI IiabiIily of accruing free lraveI
credils vas an unveIcome overhang on an airIine’s financiaI slalemenl. Moreover, lhe
frequenl-flier programs came lo pIay a somevhal perverse roIe in lhe design of roule
slruclures, in vhich deslinalions vere added or relained lo avoid lhe polenliaI Ioss of
frequenl fliers.
Third, lhe airIines deveIoped sophislicaled reservalions syslems lhal lhey used for al
Ieasl lvo purposes: (1) lo skev in lheir favor lhe dispIay of heduIing informalion on lhe
lhal il pass ils remaining funclions lo lhe Deparlmenl of Transporlalion. The CAß ceased
operalion al lhe end of 1984.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 5 1
AirIine (ranked Revenue Iassenger Iercenlage
by RIMs) MiIes (miIIions) of TolaI
Uniled 39,399 18.46%
American 28,987 13.78
Trans WorId 26,967 12.7
Iaslern 25,183 11.86
DeIla 23,332 10.99
Ian American 21,054 9.91
Weslern 10,188 4.8
ßraniff 9,604 4.5
ConlinenlaI 8,626 4.1
NalionaI 7,892 3.7
Norlhvesl 7,018 3.3
AIIegheny 4,083 1.9
TolaI 212,337 100.0%
Source: Air Transporl Associalion AnnuaI Reporl, Iune 1979.
AirIine (ranked Revenue Iassenger Iercenlage
by RIMs) MiIes (miIIions) of TolaI
American 130,020 20.02%
Uniled 114,536 17.64
DeIla 98,041 15.10
Norlhvesl 73,294 11.29
ConlinenlaI 63,176 9.73
Soulhvesl 53,415 8.24
US Airvays 40,498 6.24
America Wesl 23,318 3.59
AIaska 16,224 2.50
IelßIue 15,721 2.42
American Trans Air 12,539 1.93
AirTran 8,479 1.30
TolaI 649,261 100.0%
Source: Air Transporl Associalion AnnuaI Reporl, Iune 2005.
screens lhal vere used in lraveI agenls’ offices and (2) lo eslabIish yieId managemenl
programs. In accumuIaling dala aboul lraffic paĴerns and demand for parlicuIar flighls,
airIines couId engage in sophislicaled price discriminalion in lhe efforl lo maximize
revenues. Ior exampIe, based on hisloricaI informalion and currenl demand, an airIine
couId decide seal aIIocalions for cul-rale, advance-pIanning Ieisure lraveIers versus fuII-
fare, Iasl-minule business lraveIers. Hovever, lhe combinalion of hub-and-spoke roule
TABLE 5-2 U.S. Airline Passenger Traffic for the Top 12 Air Carriers, 2004
TABLE 5-1 U.S. Airline Passenger Traffic for the Top 12 Air Carriers, 1978
A I R T R A N S P O R TAT I O N 1 5 2
slruclures and such efforls al fine-luning Ied lo compIicaled rale slruclures lhal faciIilaled
price compelilion (because discipIining defeclors from a parlicuIar benchmark fare vas
harder) and lhus Iovered passenger revenue yieIds.
The eslabIished carriers aIso faced compelilion from nev enlranls vilh significanlIy
Iover cosl slruclures. Irominenl exampIes in lhe earIy 1980s vere IeopIe Ixpress and
Nev York Air, vhich broughl an exlremeIy Iov fare slruclure inlo Iucralive markels in
lhe norlheasl, and Soulhvesl and Texas Air, vhich operaled on a simiIar basis in lhe
soulhvesl. These nev enlranls vere nol parl of lhe induslry’s coIIeclive bargaining
slruclure: lhey paid lheir empIoyees veII beIov lhe induslry average, ohen 50 percenl
beIov induslry scaIe, and, because of lhe absence of vork ruIes, empIoyed far fever
empIoyees per avaiIabIe seal-miIe.
The consequence of lhe dramalicaIIy changed compelilive environmenl vas financiaI
dislress for many carriers. Ior exampIe, in an efforl lo operale on a nalionaI (and
inlernalionaI) scaIe, ßraniff expanded very rapidIy bul faiIed lo fiII seals. Il venl inlo
Chapler 11 in 1982 and vas Iiquidaled shorlIy lhereaher. An aiIing ConlinenlaI vas
laken over in a 1982 hosliIe lender offer by Texas Air, run by Irank Lorenzo. A year Ialer,
Lorenzo pushed ConlinenlaI inlo Chapler 11 and, in a conlroversiaI move, voided lhe
union conlracls. ImmedialeIy lhereaher, haIf lhe vork force vas fired and vages vere
cul by nearIy 50 percenl. ConlinenlaI survived lhe machinisls’ slrike lhal preceded lhe
bankruplcy and lhe piIols’ slrike lhal foIIoved by dramalicaIIy reducing fares. ConlinenlaI
vas a ma|or carrier vilh a veII-deveIoped roule slruclure, and so ils cul-rale fares pul
furlher pressure on induslry profilabiIily.
Thus, lhe airIines are an exampIe of an induslry seclor sub|ecl lo exogenous shocks lhal
have undermined many of ils previous vays of doing business. Nol onIy did dereguIalion
expose lhe airIines lo poverfuI compelilive forces lhal undermined profilabiIily, bul il
aIso eIiminaled lhe impIicil proleclion under governmenl reguIalion againsl coIIapse
and bankruplcy. As a resuIl, lhe induslry is making a lransilion lo a nev slruclure
(see Iigure 5-1).
Al lhe lop of lhe pyramid shovn in Iigure 5-1, and foremosl among lhe carriers lhal
make up lhe airIine induslry, are lhe ma|or and nalionaI carriers. The 54 carriers lhal
vere incIuded in lhese lvo calegories al lhe beginning of 2004 hoId cerlificales of pubIic
convenience and necessily and operale scheduIed and nonscheduIed or charler services
FIGURE 5-1 The structure of the airline industry—2004.
(
®
74 cerlificaled)
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 5 3
over medium- and Iong-range nalionaI and inlernalionaI roules serving Iarge popuIalion
cenlers. AirIines are nov cIassified as major air carriers if lheir annuaI gross revenues are
over $1 biIIion. They incIude:
National air carriers incIude airIines vilh annuaI gross revenues belveen $100 miIIion
and $1 biIIion. They incIude:
REGIONAL CARRIERS
Regional air carriers are cIassified as Iarge, medium, or smaII, depending on lheir annuaI
gross revenue and vhelher lhey hoId a cerlificale of pubIic convenience and necessily from
lhe DOT. Large regionaIs are cerlificaled carriers vilh annuaI gross revenues belveen $10
miIIion and $99.9 miIIion. Medium regionaIs are cerlificaled carriers vilh annuaI gross
revenue Iess lhan $10 miIIion. The smaII regionaIs, commonIy referred lo as commulers,
are noncerlificaled carriers.
|ar| u Grcuin
AßX
Air Transporl InlernalionaI
Air Wisconsin
AIIegianl
AIoha
Amerijel InlernalionaI
ASTAR
AlIanlic Soulheasl
Champion
ConlinenlaI Micronesia
Ivergreen InlernalionaI
Ixeculive
IIorida Wesl
Ironlier
Gemini
Havaiian
Horizon
Independence
KaIiĴa
Mesa
Mesaba
Miami
Midvesl
Norlh American
Omni
IinnacIe
ISA
Ryan InlernalionaI
Spiril
Sun Counlry
Transmeridian
Trans Slales
USA 3000
USA Iel
WorId
AirTran
AIaska
America Wesl
American
American IagIe
ATA
AlIas/IoIar
Comair
ConlinenlaI
DeIla
IxpressIel
IedIx
IelßIue
Norlhvesl
SkyWesl
Soulhvesl
Uniled
UIS
US Airvays
Oul of severaI lhousand air laxi operalors in Ianuary 1964, onIy 12 offered scheduIed
services, aII lo noncerlificaled poinls. ßy lhe end of 1968, lhere vere over 200 scheduIed air
laxi operalors. This expIosive earIy grovlh in vhal became lhe regionaI/commuler airIine
induslry resuIled in parl from lhe economic opporlunily crealed by lhe service gap Ieh
by lhe vilhdraving IocaI-service carriers. Anolher imporlanl faclor vas lhe avaiIabiIily
of nev aircrah lhal vere smaII enough lo be exempl from CAß economic reguIalion yel
Iarge enough lo carry profilabIe Ioads in scheduIed shorl-hauI operalions.
A I R T R A N S P O R TAT I O N 1 5 4
ReguIalory and economic changes in lhe 1960s improved lhe cIimale for lhe grovlh
of scheduIed air laxis. In 1964, lhe IAA promuIgaled IederaI Avialion ReguIalion (IAR)
Iarl 135, vhich defined lhe operalionaI and safely ruIes of lhe induslry. In 1965, lhe CAß
amended ils reguIalions lo aIIov lhese carriers lo lransporl maiI and lo provide service
belveen cerlificaled poinls, ohen as repIacemenls for lrunk or IocaI-service airIines. In
1964, American AirIines conlracled vilh Apache AirIines lo repIace il in serving DougIas,
Arizona: lhis vas lhe firsl “air laxi repIacemenl agreemenl.” In 1968, AIIegheny AirIines
(nov US Airvays) grealIy expanded lhis concepl by conlracling ils unprofilabIe roules
lo 12 independenl commulers operaling under lhe name “AIIegheny Commuler”: lhis
nelvork conlinues loday. The CAß officiaIIy recognized lhe commuler induslry in 1969,
defining a commuler air carrier as an air laxi operalor lhal eilher (1) performs al Ieasl
five round-lrips per veek belveen lvo or more poinls and pubIishes flighl scheduIes
lhal specify lhe limes, days of lhe veek, and origins and deslinalions of such flighls, or
(2) lransporls maiI by air under conlracl vilh lhe U.S. IoslaI Service. ßy Augusl 1978,
26 commuler airIines vere providing repIacemenl service for cerlificaled carriers al 59
poinls, moslIy vilhoul direcl financiaI assislance.
During lhe 1970s, passenger enpIanemenls on commuler carriers grev al an annuaI
rale of sIighlIy over 13 percenl, compared vilh a 7 percenl grovlh rale for lhe combined
lrunk and IocaI-service airIines and a 3 percenl annuaI grovlh rale in reaI gross nalionaI
producl.
As parl of airIine dereguIalion in 1979, lhe lrunk and IocaI-service carriers began lheir
second slage of vilhdravaI from smaIIer communilies. The commulers sav yel anolher
opporlunily lo serve lhe lraveIing pubIic and eagerIy moved lo provide service. Under
congressionaI mandale, communilies lhal slood lo Iose service as parl of dereguIalion
vere pIaced under lhe IssenliaI Air Service (IAS) program. As of earIy 2006, more lhan
114 communilies vere served by lhe program in lhe conlinenlaI Uniled Slales, AIaska,
Havaii, and Iuerlo Rico.
|c| c cj inc |cgi cna| Ai r Carri cr
Today, lhe regionaI/commuler airIine segmenl is an inlegraI parl of lhe nalion’s air
lransporlalion syslem. RegionaI carriers provide reguIarIy scheduIed passenger or cargo
service on aircrah predominanlIy sealing fever lhan 60 passengers or hoIding cargo vilh
an 18,000-pound or Iess payIoad. RegionaIs fly pursuanl lo scheduIes pubIished in videIy
used airIine scheduIe guides.
A lypicaI regionaI flighl operales over a lrip dislance of 100 lo 400 miIes and al Iover
aIliludes lhan flighls of lhe Iong-hauI carriers. RegionaIs operale veII-limed frequenl
flighls from oulIying communilies lo lhe associaled hub airporls lo “inlerIine,” or
connecl, passengers and cargo vilh olher scheduIed flighls. Sevenly percenl of aII regionaI
passengers make such conneclions.
AIlhough lhe grovlh period of regionaIs has been reIaliveIy shorl and nol vilhoul
probIems, conlinuing efforls by lhe induslry principaIs are pIaying a significanl roIe in
heIping lo forge an inlegraled and compIele air lransporlalion syslem. Today, 9 oul of
every 10 airporls in lhe Uniled Slales receiving scheduIed air lransporlalion are served by
a regionaI air carrier. ßy year-end 2005, regionaIs provided frequenl and limeIy air service
lo 664 airporls, vilh 664 of lhese communilies depending excIusiveIy on regionaI airIines
for scheduIed air lransporlalion. ßy conlrasl, lhe ma|or airIines served approximaleIy 32
percenl of lhe lolaI.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 5 5
The 94 cerlificaled regionaI air carriers provide shorl-hauI air service lo smaII and
medium-size communilies across lhe counlry, lypicaIIy Iinking lhose communilies lo
lhe nalion’s Iarger airporls in a hub-and-spoke nelvork. This nelvork of regionaI air
services inlerconnecls each cily vilh olhers in lhe syslem, and lhe regionaI airIine segmenl
increasingIy has become more inlegraled inlo lhe syslem.
TabIe 5-3 highIighls regionaI/commuler airIine aclivily from 1993 lhrough 2004. The
number of carriers decIined from a high of 246 in 1981 lo 74 by lhe end of 2004. This
shakeoul of many veaker carriers resuIled from bolh a sIuggish economy in lhe earIy
1980s and earIy 1990s and fierce compelilion. Hovever, il is inleresling lo nole lhal
TABLE 5-3 Industry traffic statistics 1993–2004
Scurcc. RegionaI AirIine Associalion AnnuaI Reporls. AvaiIabIe al: hĴp://vvv.raa.org/cIienl_fiIes/
Carriers_services/Induslry_Traffic_slals2005.pdf.
A I R T R A N S P O R TAT I O N 1 5 6
Cc!c Snari ng
ApproximaleIy 90 percenl of regionaI/commuler airIine passengers connecl lo or from
ma|or airIines, saving passengers bolh lime and money, as a resuIl of lighl markeling
parlnerships belveen regionaIs and ma|ors knovn as cc!c snaring. Today, cIose lo 80 percenl
of U.S. regionaI/commuler carriers offer lheir service as parl of a ma|or airIine nelvork
and, in lhe process, have crealed an inlegraled service, making regionaI/commuler airIines
a vilaI Iink belveen smaII communilies and lhe nalionaI air lransporlalion syslem.
ßegun as simpIe markeling arrangemenls belveen lhe ma|ors and lheir regionaI/
commuler airIine parlners in 1984, code sharing has deveIoped inlo sophislicaled Iiaisons
lhal may or may nol incIude some ovnership by lhe ma|or airIine. Mosl code-sharing
regionaI/commuler airIines adopl lhe painl schemes of lheir ma|or counlerparls, such
as USAir Ixpress, Uniled Ixpress, US Airvays Ixpress, American IagIe, ConlinenlaI
Ixpress, and Norlhvesl AirIink. Hovever, some, such as DeIla Conneclion (aIso
knovn as Comair), aIIov lheir regionaI parlners lo relain lheir ovn Iivery. AIlhough
lhe ma|orily of lhe code-sharing regionaI/commuler airIines are independenlIy
ovned and operaled, logelher vilh lheir ma|or parlners lhey provide improved
service lo lhe smaII-communily passenger. These inlerIine agreemenls have been
aĴraclive lo lhe smaII carriers, because lhey offer lhem access lo more passenger lraffic,
Iimiled airporl faciIilies, financiaI supporl, and markeling inleIIigence. These markeling
parlnerships enabIe regionaI/commuler airIine passengers lo check in al lheir IocaI airporl,
lhereby avoiding Iong driving limes and expensive parking fees. In addilion, passengers
can oblain boarding passes nol onIy for lheir iniliaI oulbound flighl bul for lheir enlire
lrip.
The overvheIming success of lhese parlnerships has afforded lhe opporlunily for
regionaI/commuler parlners lo upgrade lheir fleels vilh nev-generalion aircrah, compIele
vilh lhe same avionics used by lhe ma|or carriers. Wilh lhis nev equipmenl have come
nev induslry service slandards lhal mirror lhe slandards passengers have come lo expecl
from ma|or carriers. The inlegralion of regionaI/commuler and ma|or airIine scheduIes
has aIso meanl veII-limed flighls, providing fasl hub-airporl conneclions. Iven for lhose
vhose deslinalion is lhe hub cily, regionaI/commuler airIine service offers lhe oul-and-
back-in-one-day business lrip.
These parlnerships have aIso meanl lremendous cosl savings lo regionaI/commuler
airIines as lheir ma|or parlners assume lhe reservalions funclions, vhich, al lhe same
lime, increased passenger and lraveI agenl convenience by offering one-slop shopping.
In addilion, code sharing means Iover air fares, vilh many regionaI/commuler segmenls
covered by a smaII “add-on” fare, somelimes as IiĴIe as $10. Irequenl fliers are aIso offered
miIeage credils as much as lripIe lhal of lhe 250-miIe average slage Ienglh of a regionaI/
commuler airIine flighl.
In addilion, lhese markeling parlnerships mean lhal smaII communilies, vhich mighl
olhervise nol be served by ma|or |el aircrah, become parl of lhe ma|or airIine nelvork. In
providing lhal vilaI Iink, regionaI/commuler airIine parlners offer savings in bolh fares
and overaII lransporlalion cosls, frequenl deparlures, convenienl conneclions, and shorler
business lrips for lhose nol connecling. In shorl, lhey have become an inlegraI parl of lhe
nalionaI air lransporlalion syslem.
passenger enpIanemenls experienced a massive increase during lhis period. Revenue
passenger miIes increased from 2.09 biIIion in 1981 lo 56.21 biIIion in 2004.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 5 7
|| i gni |¡ui pncni
The ma|orily of loday’s regionaI/commuler airIine fleel are prop-|el-povered. Nev-
generalion equipmenl affords lhe same or more advanced avionics and cockpil
inslrumenlalion as even lhe Iargesl commerciaI carriers have. In 2004, 27 percenl of lhe
fleel vere lurboprop pIanes, 14 percenl vere pislon aircrah, and 59 percenl vere lurbo|els
(TabIe 5-4). The regionaI carriers conlinue lo reIy on |el aircrah for a significanl porlion
of lheir service. AII lrends indicale regionaI/commuler airIines viII conlinue lo expand in
size moving from smaII lurbo-prop aircrah lo an increased focus on |el aircrah capabIe of
flying a Iarger number of passengers over grealer dislances. Hovever, regionaI/commuler
airIines viII conlinue lo operale a mixed aircrah fleel as il affords lhe flexibiIily lo laiIor
aircrah size lo markel and frequency needs.
Nelvork expansion viII be a key ingredienl in lhe fulure success of regionaI/commuler
airIine grovlh. As lhe regionaI nelvork evoIves, compelilion belveen regionaI/commuler
carriers and ma|or carriers viII increase. In some cases, regionaI/commuler carriers are
aIready slepping on lhe loes of lhe ma|ors causing greal concern for bolh sides. There
comes a poinl vilh successfuI regionaI/commuler carriers vhen lhey musl decide lo grov
from being a big fish in a smaII pond lo becoming a smaII fish in a big pond.
Transporlalion of cargo has aIso become imporlanl lo lhe boĴom Iine of many regionaI/
commuler air carriers, and lhe groving aII-cargo fleel reflecls lhis lrend. The number of
aircrah uliIized soIeIy for cargo carriage grev lo 1,438 pIanes in 1996.
AIRLINE STATISTICS
To fuIIy undersland lhe slruclure of lhe airIine induslry, il is imporlanl lo reviev lraffic
and financiaI slalislics, incIuding performance measuremenls. SeveraI exceIIenl, readiIy
avaiIabIe sources can provide lhis informalion in a more appropriale and limeIy manner
lhan can be presenled in a lexlbook. These incIude lhe annuaI reporls from lhe Air
Transporl Associalion of America and lhe RegionaI AirIine Associalion. Tvo annuaI IAA
pubIicalions lhal are parlicuIarIy good are lhe |AA Siaiisiica| Han!|cck cj Atiaiicn and
|AA Atiaiicn |crccasis. Anolher source for annuaI slalislics and in-deplh anaIysis of aII
segmenls of lhe airIine induslry is lhe Iune edilion of Air Transpcri Wcr|!. IinaIIy, lhe
Wcr|! Atiaiicn Oirccicru. pubIished quarlerIy, provides a comprehensive induslry reviev
and anaIysis aIong vilh slalislics.
AIRLINE CERTIFICATION
Licensing funclions are lhe responsibiIily of lhe Office of lhe Assislanl Secrelary for IoIicy
and InlernalionaI Affairs of lhe Deparlmenl of Transporlalion. OrdinariIy, lhe assislanl
secrelary or his or her deIegale performs lhese funclions for lhe DOT, bul lhe secrelary of
lransporlalion may exercise lhis aulhorily in Iieu of lhe assislanl secrelary. Slaff aclions
are sub|ecl lo reviev by lhe assislanl secrelary and ordinariIy are effeclive 10 days aher
lhe aclion is served.
Ior lhe Iicensing appIicalions subsequenlIy described, lhe requiremenls for lhe fiIing
of documenls, incIuding lhe number of copies lo be fiIed, are specified in DOT proceduraI
reguIalions.
A I R T R A N S P O R TAT I O N 1 5 8
TABLE 5-4a Summary of Aircra in Regional Airline Use – 2004
Scurcc: RegionaI AirIine Associalion. hĴp://vvv.raa.org/cIienl_fiIes/Carriers_services/Summary_Iassenger_
Aircrah.pdf
TABLE 5-4b Summary of All-Cargo Aircraft in Regional Airline Use – 2004
Scurcc: RegionaI AirIine Associalion. hĴp://vvv.raa.org/cIienl_fiIes/Carriers_services/Summary_Iassenger_
Aircrah.pdf
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 5 9
Sccii cn 401 Ccrii ficaics
Iach appIicanl for a Seclion 401 cerlificale for scheduIed or charler air lransporlalion
musl fiIe an appIicalion vilh lhe DOT Documenlary Services Division (DSD) in lhe
Office of lhe GeneraI CounseI. Separale appIicalions for inlerslale/overseas and foreign
aulhorilies musl be fiIed, aIong vilh lhe required fiIing fees. There are basicaIIy lhree
lypes of 401 cerlificale cases: (1) lhose requiring primariIy a delerminalion of filness, (2)
lhose requiring primariIy a delerminalion of pubIic convenience and necessily (vhich
incIudes inlernalionaI carrier seIeclion cases), and (3) conlinuing filness revievs under
Seclion 401(r).
Fitness Determinations. To receive a Seclion 401 cerlificale, a carrier musl be found fil
for lhe lype of service il viII provide. Fitness of lhe appIicanl refers lo lhe carrier’s size,
financiaI resources, flighl equipmenl, slralegy for conducling lhe proposed operalions,
and pasl conformily lo various IegaI requiremenls. AppIicanls lhal have nol been found
fil previousIy or lhal are proposing subslanliaI changes in operalions (such as going from
cargo lo passenger service or from charler lo scheduIed operalions, or pIanning lhe slarl-
up of service aher cessalion) are required lo eslabIish lheir filness lo operale. Aulhorily
nol used for one year is aulomalicaIIy revoked.
Aher receiving a filness appIicalion, lhe DSD viII assign il a dockel number, dale il,
and forvard il lo lhe Air Carrier Iilness Division of lhe Office of Avialion AnaIysis for
reviev and aclion. Wilhin 21 days, lhis division viII delermine vhelher lhe appIicalion
is compIele. If il is nol compIele, lhe appIicalion viII be re|ecled or lhe appIicanl viII be
nolified and asked lo provide furlher informalion lo lhe DSD.
Aher lhe appIicalion is compIele, lhe DOT viII do one of lvo lhings. Il viII issue a
shov cause order, lhrough lhe DSD, lenlaliveIy finding lhe carrier fil and proposing lo
issue lhe requesled cerlificale. The sncu causc cr!cr soIicils any parly lo presenl lo lhe
DOT reasons and consideralions as lo vhy a parlicuIar order of lhe DOT shouId nol be
pul inlo effecl. A finaI decision on lhe filness appIicalion is made vilhin 180 days aher lhe
appIicalion is compIele. AIlernaliveIy, lhe DOT viII inslilule formaI proceedings before
an adminislralive Iav |udge lo delermine filness. This course is foIIoved in cases in vhich
lhere is conlroversy concerning lhe appIicanl and in vhich lhe appIicalion invoIves noveI
issues or lhe facls are in dispule. In lhis evenl, a decision is made according lo lhe process
appIicabIe lo formaI proceedings.
Public Convenience and Necessity Determinations. Ior carriers desiring lo provide
foreign air service, a delerminalion of pubIic convenience and necessily is required
in addilion lo lhe filness finding. AppIicanls lhal vere previousIy found fil and lhal
hoId cerlificales for operalions comparabIe lo lhose soughl may fiIe, vilh lhe DSD,
appIicalions for addilionaI aulhorily, amendmenls, aIleralions, modificalions, and
renevaIs of lheir 401 cerlificales. The DSD gives each appIicalion a dockel number,
dales il, and forvards il lo lhe Iconomic and IinanciaI AnaIysis Division of lhe Office of
Avialion AnaIysis for reviev and aclion. Wilhin 21 days, lhis division delermines
vhelher lhe appIicalion is compIele. If lhe appIicalion is nol compIele, lhe appIicanl is
nolified and asked lo provide lhe required informalion lo lhe DSD. Wilhin 90 days aher
lhe appIicalion is compIele, a decision is made lo process lhe appIicalion in one of lhe
foIIoving vays: (1) dismiss lhe appIicalion, (2) handIe il under simpIified procedures
vilhoul an oraI evidenliary hearing, or (3) inslilule a formaI hearing if il is a case in
A I R T R A N S P O R TAT I O N 1 6 0
vhich, for exampIe, a choice musl be made belveen compeling appIicalions for Iimiled-
designalion inlernalionaI roule aulhorily.
Continuing Fitness Reviews Under Section 401(r). U.S. cerlificaled and commuler
air carriers lhal do nol inslilule service vilhin one year of being found fil or lhal cease
operalions for al Ieasl one year have lheir aulhorily revoked and musl undergo a nev
filness delerminalion before commencing operalions. Carriers lhal cease service and vish
lo resume service before lhe expiralion of one year musl fiIe nev filness dala al Ieasl 45
days before recommencing service.
U. S. Ai r Carri cr A| | -Cargc Ccrii ficaics Un!cr Sccii cn 418
An appIicanl for a domeslic aII-cargo cerlificale under Seclion 418 of lhe IederaI Avialion
Acl musl fiIe an appIicalion vilh lhe DSD in lhe Office of lhe GeneraI CounseI. The
appIicalion is given a dockel number, daled, and forvarded lo lhe Air Carrier Iilness
Division of lhe Office of Avialion AnaIysis for reviev and aclion. Wilhin 14 vorking
days, lhis division delermines vhelher lhe appIicalion is compIele. If il is nol compIele,
lhe appIicanl is nolified and asked lo provide furlher informalion lo lhe DSD. Once lhe
appIicalion is compIele, a nolice is pubIished in lhe IederaI Regisler and 21 days are
aIIoved for ob|eclions lo a favorabIe filness finding and issuance of lhe cerlificale.
Ccnnuicr Air Carricr |iincss Ocicrninaiicns Un!cr Scciicn 419
Under Seclion 419 of lhe IederaI Avialion Acl, commuler air carriers musl be found
fil lo provide scheduIed passenger service. Those vishing lo eslabIish a commuler
air carrier service musl fiIe an appIicalion vilh lhe Air Carrier Iilness Division of lhe
Office of Avialion AnaIysis. This office revievs lhe appIicalion lo delermine vhelher il is
compIele, and vhen necessary, il conlacls lhe appIicanl for addilionaI informalion. When
aII required informalion is received, lhe DOT issues a shov cause order, lhrough lhe DSD,
slaling lenlalive findings and aIIoving 15 days for ob|eclions lo be fiIed.
ßefore commencing operalions, commuler air carriers musl aIso have on fiIe a
regislralion form and an insurance cerlificale. Commuler air carriers are aIso sub|ecl lo
lhe conlinuing filness requiremenl of Seclion 401 of lhe IederaI Avialion Acl.
ßefore commencing operalions, air laxi operalors and commuler air carriers musl have
on fiIe a regislralion form (DOT form 4507, formerIy CAß form 298) and an insurance
cerlificale covering lheir proposed operalions. These forms, as veII as subsequenl
amendmenls and insurance fiIings, are fiIed direclIy vilh lhe Air Carrier Iilness Division
of lhe Office of Avialion AnaIysis. If lhe regislralion form is properIy fiIIed oul and lhe
insurance cerlificale provides coverage for lhe service proposed, lhe Air Carrier Iilness
Division relurns an approved copy of lhe regislralion lo lhe appIicanl. In lhe case of nev
commuler appIicanls, lhe regislralion lo provide scheduIed passenger service is approved
vhen lhe carrier’s filness has been delermined.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 6 1
DATA COLLECTION BY THE DOT
Dala coIIeclion and disseminalion are lhe responsibiIily of lhe ßureau of Transporlalion
Slalislics (ßTS), acling in cooperalion vilh lhe Office of lhe Assislanl Secrelary for Avialion
and InlernalionaI Affairs.
Ai r Carri cr Acccunii ng an! Gui !ancc
Carriers receiving Seclion 401 cerlificales and operaling aircrah designed for a maximum
passenger capacily of more lhan 60 seals or a maximum payIoad capacily of more lhan
18,000 pounds or providing service lo a poinl oulside lhe 50 Uniled Slales, lhe Dislricl
of CoIumbia, Iuerlo Rico, or lhe U.S. Virgin IsIands are required lo compIy vilh lhe
“Uniform Syslem of Accounls and Reporls for Large Cerlificaled Air Carriers.” The
ßTS’s Office of AirIine Informalion is responsibIe for accounling and reIaled syslems
design and modificalion, as veII as for inlerprelalion of lhe reguIalions.
The ßTS provides lechnicaI accounling experlise and guidance lo air carriers and
lo olher governmenl agencies, incIuding lhe Securilies and Ixchange Commission.
The ReguIalions Division of lhe ßTS aIso assisls smaII air carriers parlicipaling in lhe
IssenliaI Air Service Irogram, such as air laxi operalors, vho may eIecl lo impIemenl
lhe “VoIunlary Accounling Syslem for SmaII Air Carriers,” and nev or groving cerlified
carriers, vho may need assislance in famiIiarizing lhemseIves vilh lhe required
accounling syslems and reIaled ruIes in lhe Uniform Syslem of Accounls. The ßTS
conlinuaIIy evaIuales lhe airIine induslry accounling syslems and reIaled ruIes and
coordinales vilh lhe Office of Inspeclor GeneraI on lhe need for audil assislance.
|i nanci a| an! Siaii sii ca| |cpcrii ng
Air carrier reporling requiremenls eslabIished by lhe CAß conlinue in effecl unliI changed
by lhe DOT. Aulhorily lo mainlain lhese ruIes and manage lhe avialion informalion
program is deIegaled lo lhe ßTS. Irogram operalion is overseen by lhe ßTS’s Office of
AirIine Informalion.
Ielilions for ruIe making on reporling maĴers are fiIed vilh lhe DSD. The pelilion is
given a dockel number, daled, and referred lo lhe ßTS for processing. RuIes proposed and
issued by lhe ßTS are dockeled in lhe DSD.
Nev reporling inslruclions, changes lo exisling inslruclions, and inlerprelalions of
reporling requiremenls for air carriers are promuIgaled by lhe ßTS. These inslruclions, as
veII as vriĴen requesls for vaivers, inlerprelalions, exlensions of fiIing dales, subslilulions
of forms or formals, and confidenliaI lrealmenl of reporls, are handIed by lhe direclor of
lhe Office of AirIine Informalion.
Air carrier submissions are revieved for acceplabiIily by lhe Dala Adminislralion
Division. This division may conlacl air carriers concerning lhe form or subslance of lheir
reporls.
A I R T R A N S P O R TAT I O N 1 6 2
INDUSTRY AGREEMENTS
RegionaI airIines have become fuII parlners in lhe air lransporlalion syslem. The use of
common lickel slock, shared airporl faciIilies, commingIed reservalion scheduIes, |oinl
fares, and inlerIine agreemenls for lhe handIing of baggage, cargo, and olher express
freighl aIIovs regionaI airIines lo pIay an imporlanl roIe in an inlegraled syslem of air
lransporlalion.
ApproximaleIy haIf of lhe lop 25 regionaIs are compIeleIy or parliaIIy ovned by
nalionaI or ma|or airIines. This lrend is expecled lo conlinue. Agreemenls belveen lhe
Iarger carriers and regionaIs can be beneficiaI lo bolh parlies vhen lhe aim is lo conlroI a
bigger share of lhe lraffic. Iev regionaIs have been abIe lo deveIop enough of lheir ovn
originalion and deslinalion (O & D) lraffic lo survive in loday’s compelilive markel vilhoul
a parlner feeding lhem lraffic. Hovever, as regionaI airIines grov, lhis lrend is expecled lo
change. SimiIarIy, lhe Iarger parlner benefils from having a regionaI carrier feeding lraffic
inlo ils ma|or hub. In a sludy lilIed “The U.S. RegionaI AirIines Induslry lo 1996—Markels,
Compelilion and lhe Demand for Aircrah,” lhe Iconomisl InleIIigence Unil of Iconomisl
IubIicalions in Nev York slales lhal lhe Iarger carriers nov conlroI, lhrough markeling
parlnerships and acquisilions, lhree-quarlers of lhe lraffic flovn by regionaIs.
|!cnii ficaii cn Cc!cs an! Ai r| i nc Ocsi gnaicrs
Ivery airIine lhal operales scheduIed passenger or cargo services vilh olher airIines
requires an idenlificalion code. The code is prinled as lhe firsl lhree digils of lhe airIine’s
passenger lraffic documenls and cargo air vaybiIIs and idenlifies lhal airIine for inlerIine
accounling purposes.
AirIines vilh headquarlers in lhe Uniled Slales or ils lerrilories and possessions requesl
a form code from lhe Air Transporl Associalion. AirIines vilh headquarlers oulside lhe
Uniled Slales or ils lerrilories and possessions requesl lhe form code from lhe InlernalionaI
Air Transporl Associalion.
Iach airIine lhal operales scheduIed passenger or cargo services and pubIishes ils
scheduIes in induslry scheduIe guides or lhal parlicipales in lhe airIine communicalions
nelvorks, such as ARINC or SITA, needs an airIine designalor. The lvo-IeĴer airIine
designalors are assigned and adminislered by lhe InlernalionaI Air Transporl Associalion
on behaIf of lhe airIine induslry.
Pu|| i sni ng Scnc!u| cs
The flighl scheduIes of passenger-carrying airIines are pubIished in lhe Ojficia| Air|inc
Gui!c (OAG). lhe ABC Wcr|! Airuaus Gui!c. and lhe Ancrican |xprcss Sku Gui!c. scheduIes
of cargo-carrying airIines are pubIished in lhe OAG Air Cargc Gui!c. lhe ABC Air Cargc
Gui!c. and Hcrcjcr!’s Cargc Gui!c. There is no charge for pubIicalion of direcl-flighl
scheduIes and fares of commuler air carriers.
Members of lhe ATA’s Iassenger CounciI have eslabIished lhe InlerIine Traffic
Agreemenl—Iassenger. AII scheduIed airIines may become parlies lo lhe agreemenl. The
agreemenl becomes binding belveen parlies upon execulion of a concurrence.
The agreemenl gives each airIine parly lhe righl lo seII lransporlalion al lhe appropriale
fares over lhe Iines of olher parlies vilh vhich il has a concurrence and lo issue inlerIine
lickels providing for such lransporlalion. Iarlies are required lo honor inlerIine lickels
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 6 3
issued by anolher parly vilh vhich il has concurred. Where inlerIine lickels have been
issued under lhe agreemenl, lhe originaling airIine agrees lo check lhe passenger’s baggage
lo lhe finaI deslinalion al lhe firsl slopover poinl, and lhe dovn-Iine airIine agrees lo
accepl and lransporl such baggage.
|nicr| i nc Agrccncnis
InlerIining of air freighl vilhin lhe induslry is an effeclive means of expanding air freighl
services lo cuslomers. The ATA has lvo specific air cargo agreemenls avaiIabIe lo ma|or,
nalionaI, and regionaI carriers: lhe Air Ireighl Irocedures Agreemenl and lhe SmaII Iackage
Shipmenl Agreemenl. Iach is a muIliIaleraI agreemenl lhal prescribes uniform documenls
and IabeIing and handIing procedures for reguIar air freighl and smaII-package services.
AirIines may aIso parlicipale in lhe InlernalionaI Air Transporl Associalion’s muIliIaleraI
inlerIine lraffic agreemenls as member or nonmember carriers.
Universal Air Travel Plan. ßegun in 1936, lhe UniversaI Air TraveI IIan (UATI) card
is one of lhe vorId’s oIdesl credil cards. During lhe earIy years, lhe UATI card covered
onIy U.S. domeslic airIines. Il gained vorIdvide appIicabiIily on Oclober 1, 1948, vhen
inlernalionaI roules vere broughl inlo lhe pIan. Today, lhe UATI card is good for
lransporlalion on praclicaIIy aII lhe vorId’s scheduIed airIines flying domeslic and gIobaI
roules. As of 2006, arlicipaling airIines nov number more lhan 220.
Those carriers desiring lo subscribe lo lhis airIine credil service can conlracl lhrough
an individuaI airIine by meeling lhe individuaI carrier’s requiremenls. Thirly-lvo airIines
(“conlracling airIines”) are aulhorized lo issue UATI cards, and lhe cards are honored by
aII parlicipaling carriers. The conlracling airIine biIIs lhe subscriber on a monlhIy basis for
aII air lransporlalion used, regardIess of lhe number of airIines invoIved.
Travel Agencies. As lhe lraveI agency induslry grev and as lraveI agenls began lo
generale a Iarger proporlion of airIine lickels, a need arose for an efficienl syslem of
reporling and accounling for lickel saIes. Whal emerged vas lhe Slandard Agenl’s Tickel
and Area SeĴIemenl IIan. The pIan’s mosl imporlanl innovalions vere a slandard lickel
slock and a singIe source lo vhich lraveI agenls reporled and accounled for airIine lickel
saIes. TraveI agenls vere issued suppIies of slandard lickel slock vilh no carrier iden-
lificalion. In issuing a lickel, lhe agenl fiIIs in lhe name of lhe airIine on vhich lhe seal is
being soId. Ivery veek, lhe lraveI agenl forvards reporls of lickels soId lo a designaled
area bank. The agenl receives a compulerized saIes reporl from lhe bank for each reporling
period. The saIes reporl provides imporlanl dala on each lickel issued, as veII as slalislicaI
summaries for lhe enlire reporling period.
The commission paid lo lraveI agenls vas dereguIaled in Iune 1980, aIIoving airIines lo
sel lhe commission. Wilh lhe InlerIine SeĴIemenl of Agenl-Issued Documenls Agreemenl,
lhe ATA’s Iassenger CounciI has sel up a procedure for seĴIing inlerIine service charges
al a periodicaIIy delermined commission rale.
A I R T R A N S P O R TAT I O N 1 6 4
TRAFFIC AND FINANCIAL HIGHLIGHTS: 1960–2005
The hislory of avialion in lhe second haIf of lhe 20lh cenlury is repIele vilh cycIes—an
experience lhal is hardIy unique lo avialion. The avialion cycIes ve have observed are
nolhing more lhan exaggeraled refleclions of vorId economic aclivily. Whal dislinguishes
avialion from olher forms of economic endeavor is lhe exlenl lo vhich il is cycIicaI: lhe
magnilude of ils voIaliIily and lhe curiousIy recurring paĴerns of ils various cycIes. Thal
is lo say, lhey are big, lhey are vide, and lhey lend lo repeal lhemseIves each lime in a
disconcerlingIy famiIiar vay.
Aher Iosing cIose lo $38 miIIion in 1961, lhe induslry cIimbed sleadiIy upvard, reaching
a record profil of $427 miIIion by 1966. The dovnsIide reached boĴom in 1970, vhen
lhe induslry Iosl $200 miIIion. The cIimb back up cuIminaled in nev record profils of
$1.2 biIIion in 1978, vhich vere soon foIIoved by record Iosses of $916 miIIion in 1982.
Wilh lhe exceplion of 1986, vhich reflecled severe Iosses by Iaslern, Ian American, and
TWA, profils rose during lhe 1980s, reaching yel anolher aII-lime high of $1.7 biIIion in
1988.
Aher a reIaliveIy profilabIe decade during lhe 1980s, lhe airIine induslry once again
suslained heavy Iosses beginning in 1990. A recessionary economy, high fueI cosls resuIling
from lhe GuIf War, and lhe subsequenl bankruplcy of severaI ma|or carriers caused
Iosses of $13 biIIion for lhe firsl haIf of lhe decade. The magnilude of lhis unprecedenled
Ioss during lhe Iasl cycIe eradicaled nearIy a haIf-cenlury’s relained earnings. Il pIaced
lremendous slress on lhe induslry’s financiaI slalemenls, on gIobaI capilaI markels, and
especiaIIy on inveslors’ porlfoIios. ßy lhe mid-1990s, lhe economy slrenglhened, lhe slock
markel soared, many of lhe veaker carriers had disappeared, and lhe induslry reporled
record profils slarling in 1995. In 2001, lhe airIine induslry ran inlo greal financiaI lroubIe
Ieading up lo lhe evenls of lhe 9/11 lerrorisl aĴacks. These calaslrophic evenls pushed
lhe induslry over lhe edge resuIling in record financiaI Iosses in Iale 2001 and 2002. In
2006, lhe induslry is sliII lrying lo gel back lo “normaI” operalions bul conlinues lo face
numerous chaIIenges from increasing cosl slruclures. TabIe 5-4 highIighls lraffic and
financiaI performance during lhis period.
|ar| u 1960s
Available seat-miles (ASMs) increased by 45 percenl belveen 1960 and 1963 as more
|el equipmenl vas inlegraled inlo lhe airIine fleels. Revenue passenger miles (RPMs)
increased 30 percenl during lhe same period, causing Ioad faclors lo drop from a high of
63.7 in 1955 lo 53.2 in 1963. ßy 1962, lhe cerlificaled carriers reached a IeveI of profilabiIily,
uliIizing |el equipmenl, lhal vas comparabIe lo profils recorded in 1958 and 1959
principaIIy from non|el operalions. The year 1963 vas lhe firsl period of soIid profilabIe
operalions in lhe |el age.
Iaic 1960s
Slarling in Iale 1964 and conlinuing lhrough lhe firsl haIf of 1969, lhe induslry experienced
lremendous grovlh. The economies of |el aircrah reduced unil cosls, vhich enabIed
carriers lo keep fares al aboul lhe same IeveI during lhis period.
In 1965, lhe induslry reached record-IeveI profils and earned a comforlabIe 12 percenl
relurn on inveslmenls. The nexl year vouId have been |usl as good vere il nol for a slrike
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 6 5
TABLE 5-5 Selected Traffic and Financial Statistics for the Certificated Air
Carriers, 1960–2001
ȱ Trafęcȱ ȱ IinanciaI
ȱ ȱ |ctcnucȱȱ ȱȱ ȱȱ ȱȱ ȱȱ ȱȱ |aicȱcj
ȱ
|ctcnucȱȱ Passcngcrȱȱ Atai|a||cȱ Cargcȱ Opcraiingȱ Opcraiingȱ NciȱPrcęiȱ |ciurnȱcn
ȱ
Passcngcrsȱȱ Mi|csȱȱ ScaiȬMi|csȱ TcnȬMi|csȱȱ |ctcnucȱȱ |xpcnscsȱ ǻcrȱ|cssǼȱȱ |ntcsincniȱ
Yearȱ ǻni||icnsǼȱ ǻ|i||icnsǼȱ ǻ|i||icnsǼȱ ǻ|i||icnsǼ

ǻ|i||icnsǼȱ ǻ|i||icnsǼȱ ǻni||icnsǼȱ ǻƖǼ
|
ŗşŜŖȱ ŜŘǯřȱ řŞǯşȱ ŜśǯŜȱ Ŗǯşȱ Ǟȱ Řǯşȱ Ǟȱ ŘǯŞȱ Ǟȱ ȱȱ ȱ ȱ şǯŗȱ řǯŖƖ
ŗşŜŗȱ ŜřǯŖȱ řşǯŞȱ ŝŗǯŞȱ ŗǯŗȱ řǯŗȱ řǯŖȱ ǻřŝǯşǼȱ ŗǯŜ
ŗşŜŘȱ ŜŝǯŞȱ ŚřǯŞȱ ŞŘǯŜȱ ŗǯřȱ řǯŚȱ řǯŘȱ śŘǯřȱ śǯŘ
ŗşŜřȱ ŝŝǯŚȱ śŖǯŚȱ şŚǯŞȱ ŗǯŚȱ řǯŝȱ řǯśȱ ŝŞǯśȱ Ŝǯŗ
ŗşŜŚȱ ŞŞǯśȱ śŞǯśȱ ŗŖŜǯřȱ ŗǯŝȱ Śǯřȱ řǯŞȱ ŘŘřǯŘȱ şǯŞ
ŗşŜśȱ ŗŖŘǯşȱ ŜŞǯŝȱ ŗŘŚǯřȱ Řǯřȱ Śǯşȱ Śǯřȱ řŜŝǯŗȱ ŗŘǯŖ
ŗşŜŜȱ ŗŗŞǯŗȱ ŝşǯşȱ ŗřŝǯŞȱ Řǯşȱ śǯŝȱ Śǯşȱ ŚŘŝǯŜȱ ŗŗǯŖ
ŗşŜŝȱ ŗŚŘǯśȱ şŞǯŝȱ ŗŝŚǯŞȱ řǯŚȱ Ŝǯşȱ ŜǯŘȱ ŚŗśǯŚȱ ŝǯŜ
ŗşŜŞȱ ŗŜŘǯŗȱ ŗŗřǯşȱ ŘŗŜǯŚȱ ŚǯŘȱ ŝǯŞȱ ŝǯŘȱ ŘŖşǯşȱ Śǯş
ŗşŜşȱ ŗŝŗǯşȱ ŗŘśǯŚȱ ŘśŖǯŞȱ Śǯŝȱ ŞǯŞȱ ŞǯŚȱ śŘǯŞȱ řǯŘ
ŗşŝŖȱ ŗŜşǯşȱ ŗřŗǯŝȱ ŘŜśǯŗȱ Śǯşȱ şǯřȱ şǯŘȱ ǻŘŖŖǯśǼȱ ŗǯŘ
ŗşŝŗȱ ŗŝřǯŝȱ ŗřśǯŝȱ ŘŝşǯŞȱ śǯŗȱ ŗŖǯŖȱ şǯŝȱ ŘŞǯŖȱ řǯś
ŗşŝŘȱ ŗşŗǯřȱ ŗśŘǯŚȱ ŘŞŝǯŚȱ śǯśȱ ŗŗǯŘȱ ŗŖǯŜȱ ŘŗŚǯŞȱ Śǯş
ŗşŝřȱ ŘŖŘǯŘȱ ŗŜŗǯşȱ řŗŖǯŜȱ ŜǯŖȱ ŗŘǯŚȱ ŗŗǯŞȱ ŘŘŜǯŝȱ śǯŗ
ŗşŝŚȱ ŘŖŝǯśȱ ŗŜŘǯşȱ ŘşŝǯŖȱ Ŝǯŗȱ ŗŚǯŝȱ ŗřǯşȱ řŘŗǯŜȱ ŜǯŚ
ŗşŝśȱ ŘŖśǯŗȱ ŗŜŘǯŞȱ řŖřǯŖȱ śǯşȱ ŗśǯŚȱ ŗśǯŘȱ ǻŞŚǯŘǼȱ Řǯś
ŗşŝŜȱ ŘŘřǯřȱ ŗŝŞǯşȱ řŘŘǯŞȱ ŜǯŘȱ ŗŝǯśȱ ŗŜǯŞȱ śŜřǯŚȱ ŞǯŖ
ŗşŝŝȱ ŘŚŖǯřȱ ŗşřǯŘȱ řŚśǯŜȱ ŜǯŜȱ ŗşǯşȱ ŗşǯŖȱ ŝśŘǯśȱ ŗŖǯş
ŗşŝŞȱ ŘŝŚǯŝȱ ŘŘŜǯŞȱ řŜŞǯŝȱ ŝǯŖȱ ŘŘǯşȱ Řŗǯśȱ ŗǰŗşŜǯśȱ ŗřǯŖ
ŗşŝşȱ řŗŜǯşȱ ŘŜŘǯŖȱ ŚŗŜǯŗȱ ŝǯŘȱ ŘŝǯŘȱ ŘŝǯŖȱ řŚŜǯŞȱ ŝǯŖ
ŗşŞŖȱ ŘşŜǯşȱ ŘśśǯŘȱ ŚřŘǯśȱ ŝǯŗȱ řřǯŝȱ řřǯşȱ ŗŝǯŚ
c
ȱ śǯŞ
ŗşŞŗȱ ŘŞśǯşȱ ŘŚŞǯşȱ ŚŘŚǯşȱ ŝǯŗȱ řŜǯŜȱ řŝǯŗȱ ǻřŖŖǯŞǼ
!
ȱ śǯř
ŗşŞŘȱ ŘşŚǯŗȱ ŘśşǯŜȱ ŚŚŖǯŗȱ ŜǯŞȱ řŜǯŚȱ řŝǯŗȱ ǻşŗśǯŞǼȱ Řǯŗ
ŗşŞřȱ řŗŞǯŜȱ ŘŞŗǯŞȱ ŚŜŚǯśȱ ŝǯŜȱ řŞǯşȱ řŞǯŜȱ ǻŗŞŞǯŗǼȱ ŜǯŖ
ŗşŞŚȱ řŚŚǯŝȱ řŖśǯŗȱ śŗśǯřȱ Şǯŗȱ ŚřǯŞȱ Śŗǯŝȱ ŞŘŚǯŝȱ şǯş
ŗşŞśȱ řŞŘǯŖȱ řřŜǯŚȱ śŚŝǯŞȱ ŝǯŝȱ ŚŜǯŝȱ ŚśǯŘȱ ŞŜŘǯŝȱ şǯŜ
ŗşŞŜȱ ŚŗŞǯşȱ řŜŜǯśȱ ŜŖŜǯŚȱ şǯŖȱ śŖǯśȱ ŚşǯŘȱ ǻŘřŚǯşǼȱ Śǯş
ŗşŞŝȱ ŚŚŝǯŝȱ ŚŖŚǯśȱ ŜŚŞǯŝȱ ŗŖǯŖȱ śŜǯşȱ śŚǯśȱ śşřǯŚȱ ŝǯŘ
ŗşŞŞȱ ŚśŚǯŜȱ ŚŘřǯřȱ ŜŝŜǯŞȱ ŗŗǯśȱ Ŝřǯŝȱ ŜŖǯřȱ ŗǰŜŞśǯŜȱ ŗŖǯŞ
ŗşŞşȱ Śśřǯŝȱ ŚřŘǯŝȱ ŜŞŚǯŚȱ ŗŘǯŘȱ Ŝşǯřȱ Ŝŝǯśȱ ŗŘŝǯşȱ Ŝǯř
ŗşşŖȱ ŚŜśǯŜȱ Śśŝǯşȱ ŝřřǯŚȱ ŗŘǯśȱ ŝŜǯŗȱ ŝŞǯŗȱ ǻřǰşŘŗǯŖǼȱ ǻŜǯŖǼ
ŗşşŗȱ ŚśŘǯŘȱ ŚŚŝǯşȱ ŝŗśǯŘȱ ŗŘǯŗȱ ŝśǯŘȱ ŝŜǯşȱ ǻŗǰşŚŖǯŘǼȱ ǻŖǯśǼ
ŗşşŘȱ Śŝśǯŗȱ ŚŝŞǯŜȱ ŝśŘǯŞȱ ŗřǯŘȱ ŝŞǯŗȱ ŞŖǯŜȱ ǻŚǰŝşŗǯřǼȱ ǻşǯřǼ
ŗşşřȱ ŚŞŞǯśȱ ŚŞşǯŝȱ ŝŝŗǯŜȱ ŗŚǯŗȱ ŞŚǯŜȱ Şřǯŗȱ ǻŘǰŗřśǯŜǼȱ ǻŖǯŚǼ
ŗşşŚȱ śŘŞǯŞȱ śŗşǯŚȱ ŝŞŚǯřȱ ŗśǯşȱ ŞŞǯřȱ ŞśǯŜȱ ǻřŚŚǯŗǼȱ śǯŘ
ŗşşśȱ śŚŝǯŞȱ śŚŖǯŝȱ ŞŖŝǯŗȱ ŗŜǯşȱ şŚǯŜȱ ŞŞǯŝȱ ŘǰřŗřǯŜȱ ŗŗǯş
ŗşşŜȱ śŞŗǯŘȱ śŝŞǯŚȱ ŞřŚǯŝȱ ŗŝǯŝȱ ŗŖŗǯşȱ şśǯŝȱ ŘǰŞŘŚǯřȱ ŗŗǯś
ŗşşŝȱ śşşǯŗȱ ŜŖśǯśȱ ŞŜŖǯŞȱ ŘŖǯśȱ ŗŖşǯśȱ ŗŖŖǯşȱ śǰŗŝŖǯŜȱ ŗŚǯŝ
ŗşşŞȱ ŜŗŚǯŘȱ ŜŗşǯŚȱ ŞŝŚǯŗȱ ŘŖǯŚȱ ŗŗřǯřȱ ŗŖŚǯŖȱ ŚǰŞşŚǯŖȱ ŗŘǯŖ
ŗşşşȱ ŜřśǯŚȱ Ŝśŗǯśȱ şŗŝǯŞȱ ŘŗǯŜȱ ŗŗŞǯŘȱ ŗŗŖǯřȱ ŝǰşŖřǯŖȱ ŗŗǯś
ŘŖŖŖȱ ŜŜŜǯŘȱ ŜşŘǯŝȱ şśŜǯşȱ ŘřǯŞȱ ŗřŖǯŞȱ ŗŘřǯŞȱ ŘǰŚŞŜǯŖȱ ŜǯŚ
ŘŖŖŗȱ ŜŘŘǯŗȱ Ŝśŗǯŝȱ şřŖǯśȱ ŘŘǯŖȱ ŗŗśǯśȱ ŗŘśǯŞȱ ŞǰŘŝśǯŖȱ ǻŜǯşǼ
ŘŖŖŘȱ ŜŗŘǯşȱ ŜŚŗǯŗȱ ŞşŘǯśȱ ŘŚǯŜȱ ŗŖŝǯŖȱ ŗŗśǯśȱ ŗŗǰřŗŘǯŖȱ nȦa
ŘŖŖřȱ ŜŚŜǯřȱ ŜśŜǯşȱ ŞşřǯŞȱ ŘŜǯŝȱ ŗŗŞǯŖȱ ŗŘŖǯŖȱ řǰŜśŞǯŖȱ nȦa
ŘŖŖŚȱ ŜşŝǯŞȱ ŝřŗǯşȱ şŜŞǯŖȱ ŘŞǯŖȱ ŗřŗǯśȱ ŗřŘǯşȱ şǰŖŝŗǯŖȱ nȦaȱ
SourceDZȱAirȱTransporlȱAssocialionȱAnnuaIȱReporlsǯ
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IncIudesȱfreighlǰȱairȱexpressǰȱUǯSǯǰȱandȱforeignȱmaiIǯ
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RaleȱofȱrelurnȱonȱinveslmenlȱǻROIǼȱreĚeclsȱnelȱproęlȱpIusȱinlereslȱpaidȱonȱlheȱnoncurrenlȱporlionȱofȱIongȬlermȱdeblȱasȱaȱpercenlageȱofȱ
lolaIȱinveslmenlǯȱTolaIȱinveslmenlȱasȱaȱęveȬquarlerȱaverageȱofȱlolaIȱnelȱvorlhȱǻslockhoIdersȂȱequilyǼȱpIusȱIongȬlermȱdeblǯ
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IncIudesȱǞŘşŚȱmiIIionȱbeforeȬlaxȱgainȱonȱlheȱsaIeȱofȱlheȱIanȱAmȱbuiIdingǯ
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IncIudesȱǞŘŘŘȱmiIIionȱaĞerȬlaxȱgainȱonȱlheȱsaIeȱofȱIanȱAmȂsȱholeIȱsubsidiaryǯ
A I R T R A N S P O R TAT I O N 1 6 6
|ar| u 1970s
3
Refers lo lhe numerous sociaI programs Iaunched during Iresidenl Lyndon Iohnson’s adminislralion.
The nalionaI economic recession lhal began in 1969 conlinued lhroughoul 1970, vhich
caused air lraffic grovlh lo IeveI off. TolaI passenger enpIanemenls decIined for lhe
firsl lime in lhe induslry’s hislory. Inflalion began lo pIague lhe airIine induslry al a rale
of aboul 9 percenl in 1970, aImosl doubIe lhe nalionaI rale. The ma|or porlion of lhis
inflalionary pressure came from Iabor seĴIemenls, vhich increased airIine vages by some
15 percenl in 1970. The CAß kepl a lighl Iid on fares unliI ApriI 1971, vhen il finaIIy
granled an across-lhe-board increase of 6 percenl, foIIoved by anolher 3 percenl increase
Ialer in lhe year.
Many carriers began cuĴing flighl scheduIes lo eIiminale unprofilabIe flighls and
reduce uneconomic compelilion. This began in lhe second haIf of 1970 on a uniIaleraI
basis, and by May 1971, lhere vere 5.2 percenl fever domeslic flighls.
Ixcess capacily, resuIling from lhe use of vide-body |els, prompled lhe carriers lo
canceI or slrelch oul orders for nev flighl equipmenl, causing massive Iayoffs by lhe
aircrah manufaclurers. Ixlensive Iayoffs of airIine empIoyees aIso look pIace during lhe
firsl lvo years of lhe 1970s, vilh some 12,000 peopIe Iaid off in 1970 and anolher 10,000
in 1971.
The beIl lighlening conlinued inlo 1972, vilh carriers eIiminaling many exlras lo vhich
lhe flying pubIic had become accuslomed. Gone on many flighls vere such amenilies
as free cocklaiIs, snacks, meaIs al off-meaIlime hours, and movies on morning flighls.
Hovever, overaII, lhings vere Iooking up. Iassenger lraffic, as measured in RIMs, grev
by 12.3 percenl in 1972 over 1971, and cargo lonnage carried aIso increased over lhe
previous year.
During 1973, lhe airIine induslry sel nev records. More lhan 200 miIIion passengers
vere enpIaned, lolaI operaling revenues lopped $12.4 biIIion, and freighl revenues reached
lhe $1 biIIion mark for lhe firsl lime. In addilion, lhe carriers flev some 16 biIIion pieces
of maiI.
Ior many years, |el fueI prices had remained slabIe and Iov. ßelveen 1967 and 1972, fueI
prices rose al an annuaI rale of onIy 2.6 percenl. Hovever, prices rose 8.5 percenl belveen
1972 and 1973, lo a 1973 average of 12.8 cenls a gaIIon, and lhe 1973 Arab oiI embargo
marked lhe beginning of lhe reaI fueI probIem. ßelveen 1973 and 1974, lhe average price
caIIed by lhe InlernalionaI Associalion of Machinisls (IAM) lhal shul dovn five lrunk
carriers for 43 days.
ASMs increased 136 percenl belveen 1964 and 1969, reflecling lhe increased capacily
provided by lhe |el equipmenl. Average seals per miIe doubIed from 55.0 seals in 1955 lo
104.4 seals in 1965. RIMs increased by 114 percenl during lhe period from 1964 lo 1969.
Air lransporlalion came of age as more businesses and personaI lraveIers recognized
lhe advanlages of speed, economy, and safely il provided. In 1955, firsl-cIass lraveI
consliluled 59.9 percenl of airIine lraveI, bul in 1960 il feII lo 45.3 percenl, and in 1965
lo onIy 21.8 percenl. Iorecasling lhal lhis IeveI of grovlh vouId conlinue inlo lhe 1970s,
lhe carriers pIaced orders of cIose lo $10 biIIion for Iarger vide-body equipmenl belveen
1966 and 1970.
Signs of an economic dovnlurn appeared in 1969, resuIling from an overexpanded
economy, vhich had lried lo give us a “Greal Sociely”
3
on lhe home fronl al lhe same lime
ve vere fighling an ever-escaIaling var in Vielnam.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 6 7
rose from 12.8 cenls lo 24.2 cenls per gaIIon, an increase of nearIy 90 percenl in a singIe
year. ßy Iale 1974, lhe economy vas sIiding inlo a recession as a resuIl of escaIaling fueI
prices. AirIine lraffic feII off as businesses and individuaIs cul back lheir lraveI pIans.
The carriers impIemenled severe cosl-cuĴing measures, bul because of lheir subslanliaI
overhead capacily in faciIilies and equipmenl, lhey Iosl $84 miIIion in 1975.
Iaic 1970s
Spurred by an uplurn in lhe nalion’s economy in lhe bicenlenniaI year of 1976, airIine
passenger lraffic reached a nev high of 223 miIIion passengers, accounling for some 179
biIIion passenger miIes and 6 biIIion lon-miIes of air cargo.
An imporlanl faclor in bringing air lraveI lo miIIions of peopIe vas lhe groving roIe of
lhe lraveI agenl, vhich became a ma|or parl of lhe airIine induslry’s markeling and saIes
efforl. In 1976, lhe number of approved lraveI agencies in lhe Uniled Slales and Canada
rose lo 13,661, up from 12,500 in 1975. U.S. lraveI agenls soId nearIy $7 biIIion vorlh of
domeslic and inlernalionaI air lransporlalion in 1976. AirIines paid lraveI agenls $700
miIIion in commissions in 1976, a record 29 percenl increase over 1975.
WhiIe scheduIed air service remained lhe predominanl mode of inlercily passenger
lraveI, charler aclivily reaIIy look off. More lhan 5 miIIion passengers flev civiIian and
miIilary charler flighls of scheduIed airIines in 1976, an increase of 25 percenl over lhe
previous year.
Again in 1977, lhe airIines sel aII-lime records in service lo air passengers and shippers
in domeslic and inlernalionaI operalions. RIMs increased 8 percenl over 1976, and lhe
induslry’s Ioad faclor vas 55.9, compared lo 55.6 for lhe previous year. On lhe gIoomy
side, fueI prices averaged 36.2 cenls per gaIIon in 1977, compared lo 10.4 cenls in 1967, a
248 percenl increase.
The year 1978 vas a ma|or one for lhe carriers, vilh operaling revenues reaching $22.9
biIIion and profils reaching $1.2 biIIion. The AirIine DereguIalion Acl vas passed by
Congress in Oclober, ushering in a nev era of compelilion in air lransporlalion.
The economy began lo sIov dovn in 1979, bul lhe fierce compelilion for air lraveIers vas
|usl beginning. Revenues increased 19 percenl in 1979, primariIy as a resuIl of promolionaI
fares, vhich increased passenger enpIanemenls by 15 percenl. UnforlunaleIy, expenses—
mosl nolabIy fueI and Iabor—increased by 26 percenl during lhe IaĴer 1970s.
|ar| u 1980s
During 1980, ATA member airIines recorded lheir safesl year in hislory. There vas nol
a singIe falaIily among passengers or flighl crevs in more lhan 5 miIIion flighls in lhe
Uniled Slales and lhroughoul lhe vorId. In olher respecls, hovever, 1980 vas a difficuIl
and disappoinling year for lhe induslry. Inflalion, soaring fueI prices (up more lhan $3
biIIion from 1979), and a generaIIy sour economy resuIled in a 6 percenl decIine in passenger
enpIanemenls, lhe sharpesl drop in more lhan 50 years of scheduIed air lransporlalion.
In 1981, lhe lrend conlinued in lerms of safely and earnings. Carrying 286 miIIion passengers
and Iogging 7 biIIion cargo lon-miIes on more lhan 5 miIIion flighls, lhe airIines compIeled
a second conseculive year of |el service vilhoul a singIe passenger falaIily. ßul financiaI
Iosses mounled in 1981, caused by lhe recessionary economy, inflalion, high inleresl rales,
and lhe impacl of lhe air lraffic conlroIIers’ slrike during lhe busy summer monlhs. Severe
price compelilion aIso conlribuled significanlIy lo a record-breaking nel Ioss.
A I R T R A N S P O R TAT I O N 1 6 8
In 1982, lhe induslry experienced lhe vorsl financiaI year in ils hislory, recording a nel
Ioss of $916 miIIion. This nel Ioss occurred despile a grovlh in passengers carried and
in RIMs and approximaleIy lhe same IeveI of operaling expenses as lhe previous year.
Operaling revenues decIined for lhe firsl lime in lhe hislory of lhe U.S. airIine induslry.
The principaI reasons for lhe induslry’s poor performance in 1982 vere lhe deep
discounl fares being offered by lhe carriers in an inlenseIy compelilive environmenl and
lhe increasing proporlion of passengers laking advanlage of lhose fares. The percenl of
fuII-fare-paying passengers feII from 52 percenl in 1978 lo onIy 15 percenl in 1982.
Aher lhree years of severe financiaI Iosses lolaIing $1.4 biIIion, lhe induslry in 1984
improved significanlIy vilh a nel profil of $825 miIIion. The economy had rebounded,
and lhe airIine induslry foIIoved lhe upsving vilh a 9 percenl increase in passenger
enpIanemenls.
Iaic 1980s
As 1985 began, lhe CiviI Aeronaulics ßoard ended ils nolabIe service lo lhe grovlh and
malurily of air lransporlalion. MeanvhiIe, lhe induslry broke nev lraffic and revenue
records, vilh nel profils of $863 miIIion being recorded.
SlimuIaled by lhe grealesl ever decIine in air fares, a record 419 miIIion passenger
enpIanemenls vere recorded in 1986, vhich compares vilh a 1936 lolaI of 1 miIIion.
Hovever, fierce price compelilion resuIled in a nel Ioss of $235 miIIion for lhe induslry
and increased lhe pace of mergers, vhich reached a peak during 1986.
Oplimism relurned in 1987 as RIMs increased by over 10 percenl and nel profils
reached $593 miIIion. Nel profils of $1.7 biIIion in 1988 vere lhe highesl in lhe hislory
of lhe airIine induslry. Thal year marked lhe lenlh anniversary of lhe airIines operaling
under dereguIalion, as veII as lhe finaI year in one of lhe safesl 10-year periods in hislory
in lerms of accidenls and falaIilies. Iares, vhiIe rising in 1988, had acluaIIy decIined in
reaI lerms in 7 of lhe previous 10 years and had risen onIy haIf as fasl as lhe Consumer
Irice Index since 1978. The hub-and-spoke syslem, vhich proIiferaled aher dereguIalion,
vas becoming lhe largel for many compIainls aboul increased congeslion and reduced
compelilion, despile lhe facl lhal more communilies vere providing more service lhan
ever before.
AirIine empIoymenl venl over 500,000 empIoyees in 1989, and hiring conlinued al a
rapid pace despile some dark cIouds on lhe horizon. There vas a Iong, crippIing slrike
againsl Iaslern AirIines, and fueI prices vere rising. ßolh of lhese faclors had a depressing
effecl on domeslic air lraveI. The resuIl vas lhal, aIlhough severaI airIines had a good year
financiaIIy, lhe induslry’s overaII nel profil dropped lo $128 miIIion. Though higher fueI
prices and a recessionary economy conlinued lo hurl airIine earnings in 1990, air lraveI
nonelheIess increased significanlIy in lhe firsl haIf of lhe year, and lhere vas reason for
conlinued oplimism.
|ar| u 1990s
Despile seĴing nev records in passenger enpIanemenls and cargo lon-miIes in 1990, lhe
airIine induslry Iosl cIose lo $4 biIIion, virluaIIy aII in lhe fourlh quarler, as lhe resuIl
of lhe Iraqi invasion of Kuvail. Kerosene purchased by U.S. carriers rose from 60 cenls
a gaIIon in IuIy, |usl before lhe invasion, lo a peak of $1.40 per gaIIon in Oclober. Iach
1-cenl increase cosl lhe airIines $160 miIIion if carried lhrough lhe year, and according lo
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 6 9
eslimales, lhe added fueI cosls aIone sel U.S. carriers back nearIy $3 biIIion. Recession and
fear of lerrorism caused lraffic lo faII off so much during lhe fourlh quarler of 1990 and
lhe firsl quarler of 1991 lhal some carriers vere reIuclanl lo impose fueI-cosl-induced fare
hikes for fear of driving even more lraffic avay.
The huge Iosses forced a number of carriers lo cul back severeIy: lo seII off ma|or assels,
incIuding inlernalionaI roules, aircrah, and airporl gales: and lo poslpone aircrah orders.
Thousands of airIine vorkers vere Iaid off in 1991, incIuding 18,000 Iaslern vorkers,
vhen lhal pioneer airIine cIosed dovn in Ianuary, foIIoved by Midvay in November
and Ian Am in December. Three olher ma|or carriers—America Wesl, ConlinenlaI, and
TWA—operaled under Chapler 11 bankruplcy during 1991 and 1992.
The recession deepened during 1991, and lhe airIines experienced lheir second-
vorsl year ever, vilh nel Iosses of $1.9 biIIion. AII calegories of lraffic vere dovn in
1991 compared lo lhe previous year. The induslry dovnlurn conlinued in 1992 vilh an
unprecedenled Ioss of $4.8 biIIion. The year 1993 vas characlerized by inlense pubIic,
media, and governmenl inleresl in lhe financiaI condilion of lhe U.S. airIine induslry.
The formalion and vork of Iresidenl ßiII CIinlon’s NalionaI Commission lo Insure a
Slrong Compelilive AirIine Induslry vas lhe backdrop for mosl of lhe year’s aclivilies.
The commission heId numerous pubIic hearings lo examine lhe many probIems and
issues facing U.S. airIines, and ils Augusl reporl oulIined recommendalions and changes
in pubIic poIicy lhal vouId improve lhe financiaI fulure of lhe induslry.
UnforlunaleIy, because of compeling inleresls and budgelary conslrainls, fev of
lhe commission’s suggeslions vere impIemenled. Thus, vhiIe lhe NalionaI AirIine
Commission heIped frame lhe probIems of lhe induslry on lhe nalionaI economic agenda,
1993 sav lhe induslry experience ils fourlh conseculive year of financiaI Iosses. ßy year’s
end, U.S. airIines had coIIecliveIy Iosl $2.1 biIIion.
Losses shrank in 1994, in Iarge parl because of Iover fueI prices. Capacily, in lerms of
avaiIabIe seal-miIes, increased onIy sIighlIy as carriers poslponed or canceIed purchases
of nev aircrah. Load faclors, measuring lhe percenlage of seals fiIIed, reached record
IeveIs, and |el service lo smaIIer markels vas repIaced vilh regionaI/commuler service.
Operaling revenues increased sIovIy vhiIe prices for bolh passenger and cargo services
decIined. ßecause revenue grovlh vas Iimiled by compelilion, airIines pIaced increasing
emphasis on reducing or conlaining cosls as lhe palh lo profilabiIily.
Mi !-1990s ic inc 21si Ccniuru
In Iune 1995, lhe U.S. airIine induslry carried ils len-biIIionlh passenger in scheduIed
commerciaI service. The induslry aIso had one of lhe safesl years in ils hislory and, perhaps
even more imporlanl, finaIIy lurned lhe corner financiaIIy. The nalionaI economy vas on
lhe upsving, and nel profils reached $2.3 biIIion. Hovever, lhe carriers accumuIaled a Iol
of nev debl in lhe earIy 1990s, and lhe induslry’s capilaI requiremenls in lhe years lo come
viII be enormous as lhe induslry repIaces ils oIdesl, noisiesl |el equipmenl.
In 1996, lhe airIines earned record profils of $2.8 biIIion, as veII as record numbers of
passengers and amounls of cargo carried. Iassenger lraffic increased by 7 percenl lo 578.4
biIIion RIMs, and cargo lraffic increased by 4.6 percenl lo 17.7 biIIion revenue lon-miIes.
The U.S. economy conlinued lo expand, groving by 2.4 percenl and fueIing rising incomes
for bolh individuaIs and businesses. This increase in income, in lurn, slimuIaled addilionaI
demand for air lraveI and shipping. Air lraffic vas aIso affecled favorabIy by lhe expiralion
and eighl-monlh absence of lhe 10 percenl federaI excise lax on airIine passenger lickels,
A I R T R A N S P O R TAT I O N 1 7 0
lhe 6.25 percenl cargo vaybiII lax, and lhe $6-per-passenger inlernalionaI deparlure lax.
In lhe case of lhe lickel lax, bolh airIines and passengers benefiled from ils absence.
InlernalionaI lraffic aIso experienced slrong grovlh in 1996. The number of inlernalionaI
passenger enpIanemenls rose lo 50.5 miIIion, vilh lhe Iargesl grovlh rales occurring in
lhe Caribbean and Lalin American markels, foIIoved by lhe Iacific. The AlIanlic markels
grev more sIovIy as some U.S. airIines conlinued lo reslruclure lheir service.
The lvo-year period of 1997–98 vas brighl for lhe induslry. RIMs rose sleadiIy, passing
lhe 600 biIIion mark, and nel profils remained reIaliveIy slabIe al around $5 biIIion per
year. Load faclor vas beĴer lhan 70 percenl in bolh years. Cargo lon-miIes shol pasl 20
biIIion in 1997, and operaling profil margin hil 8.2 percenl in 1998.
As lhe economy began lo shov signs of sIoving in 1999 and 2000, lhe airIines suffered.
There vere aImosl 1 lriIIion seal-miIes avaiIabIe on U.S. airIiners in 2000—a record
number—and passengers vere fiIIing aboul 72 percenl of aII avaiIabIe seal-miIes on any
given flighl, bul lhe reaI boĴom Iine vas suffering. Despile soIid RIM figures (692.8
biIIion), nel profil, aher a brief peak above $5 biIIion in 1999, nose-dived lo $2.5 biIIion in
2000. Nel profil margin had shrunk lo a razor-lhin 1.9 percenl.
Il goes vilhoul saying lhal, aIlhough lhe figures for 2001 are obviousIy and poverfuIIy
skeved by lhe evenls of Seplember 11, lhey remain unique in lvo vays: firsl, lhey represenl
financiaI shockvaves lhal vere feIl by every airIine in lhe induslry: second, lhey vere,
in and of lhemseIves, lhe vorsl ever seen by lhe U.S. airIine induslry. Negalive numbers
appear everyvhere in lhe financiaI summaries: operaling profil margin (-8.7 percenl), nel
profil margin (-6.7 percenl), and rale of relurn on inveslmenl (-6.9 percenl). Nel Iosses of
aImosl $8 biIIion vere experienced: never before had lhe airIines experienced so much red
ink. Load faclors, RIMs, and ASMs vere aII dovn from lhe previous year.
Whal’s more, lhe ahermalh of lhe lerrorisl aĴacks look on a much more human side
lhan lhese figures shov. As scheduIes began lo be cul by Iarge margins in lhe veeks
aher lhe aĴacks, lens of lhousands of airIine empIoyees around lhe counlry vere Iaid off,
furIoughed, or forced inlo earIy reliremenl. Over a lhousand airpIanes vere parked, vilh
some airIines choosing lo eIiminale cerlain lypes from lheir fleels (such as Uniled and ils
727 operalions). Inlire companies vere eIiminaled from lhe scene (for exampIe, Midvay
AirIines), vhiIe lhe pIighls of olhers became so greal lhal congressionaI aclion became
inevilabIe. In Iale Seplember, lhe Air Transporlalion Safely and Syslem SlabiIizalion Acl
vas signed inlo Iav, providing some $15 biIIion of much needed financiaI assislance lo
lhe induslry. ßy year’s end, an induslry lhal had been predicled lo experience cIimbing
performance indexes in lhe fourlh quarler vas inslead flalIining.
As of 2006, lhe airIine induslry sliII suffers from lhe evenls of 9/11 and conlinuousIy
increasing cosls (i.e., fueI, Iabor, mainlenance, IiabiIily). AirIine bankruplcies conlinue
proving any airIine, smaII or Iarge, is vuInerabIe. US Airvays, currenlIy lhe sevenlh Iargesl
airIine in lhe Uniled Slales, enlered bankruplcy on Augusl 11, 2002, and reemerged in
2005 vilh a reslrucluring pIan lhal incIuded a merger vilh America Wesl. In December
2002, Uniled AirIines fiIed for bankruplcy proleclion bIaming lhe evenls of 9/11 for lheir
dovnfaII. Hovever lhe rise of Iov-cosl carriers, Iabor dispules, and probIems vilhin lhe
managemenl slruclure of lhe company aIso conlribuled lo financiaI Iosses. On Iebruary
1, 2006, Uniled came oul of bankruplcy. On Seplember 14, 2005, DeIla Air Lines fiIed
for bankruplcy for lhe firsl lime in ils 76-year hislory vilh a debl Ioad of $20.5 biIIion.
DeIla is currenlIy reslrucluring and pIans lo reemerge vilh a grealer concenlralion on
inlernalionaI roules. On lhe same day of DeIla’s fiIing, Norlhvesl AirIines aIso enlered
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 7 1
inlo bankruplcy proleclion for lhe firsl lime in ils 79-year hislory and pIans lo reemerge
vilh a nev business modeI and a compIele reslrucluring of Iabor issues.
KEY TERMS
lrunk carrier regionaI air carrier
401 carrier filness
suppIemenlaI air carrier shov cause order
IocaI-service carrier ASMs
ma|or air carrier RIMs
nalionaI air carrier
REVI EW QUESTI ONS
1. Hov did lhe lrunk and IocaI-service carriers evoIve` Whal vas lhe roIe of lhe sup-
pIemenlaI carriers` Discuss some of lhe probIems faced by lhe induslry in lhe lhree
decades preceding dereguIalion. Hov did lhe dereguIalion movemenl gel slarled`
2. IxpIain hov lhe cerlificaled airIine induslry has changed since dereguIalion in lerms of
expansion, consoIidalion, and concenlralion. Describe severaI innovalions pioneered
by lhe ma|or air carriers in lhe earIy 1980s lhal radicaIIy changed lhe slruclure of lhe
induslry.
3. Describe lhe roIe of lhe ma|or and nalionaI carriers. Idenlify some of lhe carriers in
each calegory. Hov did lhe regionaI carriers gel slarled` Describe a lypicaI regionaI
carrier in lerms of ils roIe in lhe air lransporlalion syslem, lype of aircrah flovn, and
roule slruclure. Whal is meanl by nu|-an!-spckc nciucrk? Why has lhe number of
regionaI carriers decIined since dereguIalion` Describe some of lhe changes lhal have
laken pIace in lhis segmenl of lhe induslry. Whal is cc!c snaring?
4. Whal are lhe lhree lypes of 401 cerlificale cases` Whal is meanl by lhe fiincss of lhe
appIicanl` ßy sncu causc cr!cr? Describe hov lhe regionaIs have lruIy become parlners
vilh lhe ma|ors and lhe nalionaIs in lhe air lransporlalion syslem.
5. Who is responsibIe for financiaI and lraffic dala coIIeclion vilhin lhe Deparlmenl of
Transporlalion` Describe lhe roIe of lhis governmenl bureau. Whal is lhe InlerIine
Traffic Agreemenl—Iassenger` Whal is lhe purpose of lhe Air Ireighl Irocedures
Agreemenl and lhe SmaII Iackage Shipmenl Agreemenl` Describe lhe UniversaI Air
TraveI IIan.
6. HighIighl lhe induslry’s performance, in lerms of lraffic and finances, during lhe
1960s, 1970s, and 1990s. Describe lhe cycIicaI nalure of lhe airIine induslry in lerms of
profilabiIily. Whal vas lhe reason for lhe lremendous Iosses incurred during lhe earIy
2000s`
A I R T R A N S P O R TAT I O N 1 7 2
WEB SI TES
hĴp://vvv.airIiners.nel
hĴp://vvv.aircrah-commerce.com
hĴp://vvv.ala.com
hĴp://vvv.fedex.com
hĴp://vvv.ups.com
hĴp://vvv.dhI.com
hĴp://vvv.usairvays.com
hĴp://vvv.soulhvesl.com
hĴp://vvv.uniled.com
hĴp://vvv.nva.com
hĴp://vvv.americanair.com
hĴp://vvv.deIla.com
hĴp://vvv.2midveslexpress.com
hĴp://vvv.conlinenlaI.com
hĴp://vvv.aIaskaair.com
hĴp://vvv.americavesl.com
hĴp://vvv.airvaysmag.com
hĴp://vvv.airIinebiz.com
hĴp://vvv.faa.gov
hĴp://vvv.dol.gov
hĴp://vvv.bls.gov
hĴp://vvv.raa.org
hĴp://vvv.ualp.com
SUGGESTED READI NGS
Ashford, Norman, Marlin Slanlon, and CIihon A. Moore. Airpcri Opcraiicns. Nev York: McGrav-
HiII, 1997.
ßanfe, CharIes I. Air|inc Managcncni. IngIevood CIiffs, N.I.: Irenlice-HaII, 1992.
De Looff, Iames L. Ccnnuicr Air|incs. HicksviIIe, N.Y.: Ixposilion Iress, 1979.
Doganis, R. Tnc Air|inc Busincss in inc Tucniu-|irsi Ccniuru. London: RoulIedge, 2001.
Ireiberg, Kevin and Iackie Ireiberg. Nuis!. Scuinucsi Air|incs´ Crazu |ccipc jcr Busincss an!
Pcrscna| Succcss. Auslin, TX: ßanlam DoubIeday DeII, 1998.
GeseII, Lavrence I. Air|inc |c-|cgu|aiicn. ChandIer, Ariz.: Coasl Aire IubIicalions, 1990.
GiaIIorelo, Louis. Siraicgic Air|inc Managcncni. London: Iilman, 1988.
Tane|a, NavaI K. Air|incs in Transiiicn. Lexinglon, Mass.: Healh, 1981.
Tane|a, NavaI K. |nirc!uciicn ic Citi| Atiaiicn. Lexinglon, Mass.: Healh, 1987.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. ßeImonl, CA: Thomson ßrooks/
CoIe, 2005.
Wyckoff, DaryI D., and David H. Maisler. Tnc Ocncsiic Air|inc |n!usiru. Lexinglon, Mass.: Healh,
1977.
C H A P T E R 5 • T H E A I R L I N E I N D U S T R Y 1 7 3
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6
Economic Characteristics
of the Airlines
Introduction
The Airlines as Oligopolists
Other Unique Economic Characteristics
The Significance of Airline Passenger Load Factors
Chapter Checklist • You Should Be Able To:
Describe lhe generaI characlerislics of oIigopoIies
IxpIain hov lhe number of carriers, and lheir markel
share, has changed since dereguIalion
Idenlify severaI of lhe barriers lo enlry inlo lhe airIine
induslry
Define cccncnics cj sca|c. and discuss hov lhey reIale
lo lhe airIine induslry
Describe lhe effecls of mergers on lhe airIine induslry
Discuss lhe concepl of muluaI dependence as il reIales
lo lhe air carriers
IxpIain hov lhe induslry is moving lovard
oIigopoIislic pricing
Describe lhe economic characlerislics unique lo lhe
airIines
IxpIain lhe significance of Ioad faclors in reIalion lo
cosls and services offered









175
INTRODUCTION
Iconomisls usuaIIy describe lhe cerlificaled airIine induslry as cIoseIy approximaling an
oIigopoIislic markel slruclure. An oligopoly (from lhe Greek c|i. meaning “fev”) is an
induslry composed of a fev firms producing eilher simiIar or differenlialed producls. A
“fev” can be 5 or 10 or 100 firms. A Iarge percenlage of our nalion’s oulpul of goods and
services is produced by oIigopoIislic induslries: sleeI, aulomobiIes, oiI, and aIuminum,
lo menlion a fev. OIigopoIislic induslries lypicaIIy are characlerized by high barriers to
entry. These usuaIIy lake lhe form of subslanliaI capilaI requiremenls, lhe need for lhe
lechnicaI and lechnoIogicaI knov-hov, conlroI of palenl righls, and so forlh.
In addilion lo fev seIIers, a simiIar producl, and high obslacIes lo enlry, oIigopoIislic
induslries lend lo share severaI olher characlerislics.
1. Su|sianiia| cccncnics cj sca|c. ßy economy of scale, economisls mean decreases in a
firm’s Iong-lerm average cosls as lhe size of ils operalions increases. Iirms in oIi-
gopoIislic induslries lypicaIIy require Iarge-scaIe produclion lo oblain Iov unil cosls.
Large-scaIe produclion is afforded by inlensive Iabor and managemenl speciaIizalion
of |ob responsibiIilies, uliIizalion of lhe mosl efficienl lechnoIogy avaiIabIe, and effec-
live use of by-producls. If lolaI markel demand for lhe producl or service is sufficienl
lo supporl onIy a fev Iarge firms of oplimum size, compelilion generaIIy ensures lhal
onIy a fev such firms viII survive.
2. Grcuin inrcugn ncrgcr. Many of lhe oIigopoIies lhal exisl loday have resuIled
from mergers of compeling firms—in mergers lhal may dale back lo lhe Iale 19lh
or earIy 20lh cenlury. In 1901, for exampIe, lhe U.S. SleeI Corporalion vas formed
from a merger of 11 independenl sleeI producers. Or lhink of lhe number of U.S.
aulomobiIe manufaclurers back in lhe 1930s, 1940s, and 1950s. WeII-knovn
companies Iike LaSaIIe, Hudson, Iackard, and Sludebaker have Iong since gone.
The purpose of mosl mergers is lo gain a subslanliaI increase in markel share,
grealer economies of scaIe, more buying pover in lhe purchase of resources,
and various olher advanlages lhal smaIIer firms do nol possess lo lhe same
exlenl.
3. Muiua| !cpcn!cncc. When lhere are onIy a fev firms in a markel, il maĴers very much
lo each firm vhal ils rivaIs do. Iconomisls caII lhis silualion mutual dependence. The
smaII number of seIIers in an oIigopoIislic induslry makes il necessary for each seIIer
lo consider lhe reaclions of compelilors vhen seĴing prices. In lhis sense, lhe behavior
of oIigopoIisls in lhe markelpIace may be somevhal simiIar lo lhe behavior of pIayers
in such games of skiII as chess, checkers, or bridge. In lhese games, lhe parlicipanls lry
lo vin by formuIaling slralegies lhal anlicipale lhe possibIe counlerreaclions of lheir
opponenls.
4. Pricc rigi!iiu an! ncnpricc ccnpciiiicn. In an oIigopoIislic induslry, firms find il more
comforlabIe lo mainlain conslanl prices and lo engage in various forms of nonprice
compelilion, such as adverlising and cuslomer service, lo hoId, if nol increase, lheir
markel shares. Irice reduclions, vhen lhey occur, are sporadic and usuaIIy come
aboul onIy under severe pressures resuIling from veakened demand or excessive
capacily.
A I R T R A N S P O R TAT I O N 1 7 6
THE AIRLINES AS OLIGOPOLISTS
Wilh lhe generaI characlerislics of oIigopoIies as a background, Iel’s see hov lhe airIine
induslry compares and lhen lake a Iook al severaI unique characlerislics.
Nun|cr cj Carri crs an! Markci Snarc
Wilh lhe easing of CAß reguIalions and passage of lhe AirIine DereguIalion Acl, lhe
induslry enlered an era of inlense compelilion. Ma|or airIines and lhe former IocaI-service
carriers began compeling vilh one anolher: charler carriers moved inlo scheduIed service:
former inlraslale carriers, such as Air IIorida, Iacific Soulhvesl AirIines, and Soulhvesl,
moved inlo inlerslale markels: and many nev firms began offering service. As a resuIl
of lhis nev enlry, discounl fares proIiferaled, fare vars began, and lolaI lraffic increased
dramalicaIIy as passengers look advanlage of previousIy unheard-of coasl-lo-coasl fares.
The number of RIMs increased dramalicaIIy. The eslabIished ma|or airIines, vilh lhe
exceplion of lhose lhal vere faiIing, shared in lhe lraffic grovlh, bul lhe nev enlranls
made subslanliaI inroads inlo markel share. ßelveen 1978 and 1986, lhe share of lolaI
lraffic of lhe incumbenl lrunk airIines decIined from 94 percenl lo 77 percenl.
In lhis period, lhere vere 198 cerlificaled (Seclion 401) carriers providing inlerslale
passenger service in lhe Uniled Slales. If ve vere lo add lhe 36 carriers operaling before
dereguIalion, lhis vouId give 234 carriers operaling al lhe slarl of 1987. UnforlunaleIy,
inslead of lhe induslry expanding, as many proponenls of dereguIalion visuaIized, 160 of
lhose carriers eilher vere merged, Iiquidaled, or decerlified or vere nol operaling or never
did operale under a cerlificale. Therefore, al lhe slarl of 1987, onIy 74 cerlificaled carriers
remained. The lolaI number has increased in recenl years vilh lhe addilion of smaIIer
cerlificaled carriers and lhe demise of some of lhe Iarger airIines, incIuding Iaslern and
Ian Am. The shrinking number of Iarger carriers has improved lhe markel share of lhe
remaining ma|or carriers, such lhal lhe Iargesl carriers nov have a somevhal grealer
markel share lhan before dereguIalion (aIlhough lhey are nol aII lhe same carriers).
Commuler air lraveI foIIoved a simiIar paĴern, vilh lhe number of service providers
reaching 246 in 1981 and decIining lo 109 by lhe end of 1996. Despile lhis consoIidalion,
RIMs increased aImosl sevenfoId, from 2.1 biIIion lo 14.2 biIIion. Al lhe end of 1996, 35
of lhe lop 50 commuler airIines had code-sharing agreemenls vilh one or more ma|or
or nalionaI carrier. Those 50 airIines conlroIIed 99 percenl of lhe lolaI commuler markel
share.
As of earIy 2006, a number of changes occurred in lerms of code-sharing agreemenls,
and lhese changes affecled air carriers of aII sizes around lhe vorId. ßecause of a Iarge
number of bankruplcies, airIines going oul of business, and changing parlnerships, aIIiance
members vere negaliveIy impacled in many cases. Some aIIiances Iosl parlners, resuIling
in decreased markel share and increased expenses. As of lhe end of 2006, numerous
changes vere sliII occurring as a resuIl of an unslabIe airIine induslry.
UnqueslionabIy, lhe airIine induslry, vilh ils smaII number of companies and
concenlralion of markel share, meels lhe firsl characlerislic of oIigopoIisl firms. Mosl
anaIysls expecl lhal lhe consoIidalion lhal began in lhe earIy 1980s viII conlinue, vilh onIy
a handfuI of ma|or carriers remaining by lhe lurn of lhe 21sl cenlury. These carriers viII be
suppIemenled by 100 or so smaIIer airIines providing regionaI/commuler service.
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 7 7
Hi gn Barri crs ic |niru
One expeclalion of dereguIalion vas lhal carriers vouId have reIaliveIy free access lo
markels because of lhe mobiIily of lhe airIines’ chief assels—aircrah. Carriers dominaling
individuaI markels vouId nol charge monopoIislic fares, according lo lhis lheory, because
of lhe ease vilh vhich a compelilor couId enler lhe markel and compele vilh lhe incumbenl
carrier by charging reduced fares. Thus, lhe mere lhreal of enlry vas expecled lo discipIine
pricing. SubslanliaI nev enlry did occur during lhe earIy phase of dereguIalion, bul since
lhe mid-1980s, lhe pace has sIoved and lhe induslry has become more concenlraled.
Access lo many markels has become exlremeIy difficuIl in recenl years because of lhe
difficuIly of oblaining lerminaI space al many hub airporls and lhe risk associaled vilh
compeling vilh an airIine al one of ils hubs. A compelilor lhal vishes lo chaIIenge anolher
carrier al ils hub faces considerabIe financiaI oulIays. The cosl of providing a compelilive
IeveI of service al a hub is subslanliaI: expendilures for adverlising, personneI, and aircrah
operalions are cruciaI during slarl-up, vhen lhe compelilor aĴempls lo vin business
avay from lhe ma|or carrier. The risk of being unabIe lo recover lhese oulIays is lhe Iargesl
singIe delerrenl lo enlry al hub airporls.
Il is difficuIl lo compele vilh a ma|or carrier during slarl-up because lhe ma|or carrier
has inherenl advanlages: some resuIl from lhe scope of ils operalions, olhers from
markeling. The Iarger nelvork of lhe ma|or carrier aIIovs il lo increase service al a Iover
addilionaI cosl. In addilion, by having an exlensive nelvork, lhe ma|or carrier is more
IikeIy lo aĴracl passengers, vho lhen form impressions aboul lhe quaIily of service on
olher roules. Markeling buiIds on lhese advanlages. Irequenl-flier programs make il
difficuIl lo Iure business lraveIers avay from an incumbenl carrier vilh vhich lhey may
have aIready accrued a subslanliaI accounl baIance. And if lhe incumbenl has aIready
eslabIished preferred-provider reIalionships vilh mosl of lhe lraveI agenls around lhe
hub, lhe nev enlranl faces an addilionaI compelilive disadvanlage. Thus, during lhe
monlhs in vhich a compelilor firsl lakes on a ma|or carrier al ils hub, lhe compelilor
musl offer subslanliaI IeveIs of service, vhich al a minimum incIude dozens of flighls
a day. Il musl aIso Iure frequenl fliers avay from an incumbenl lhal offers lhem more
opporlunilies lo earn miIeage and somehov vin over lraveI agenls vho have preferred-
carrier reIalionships vilh lhe incumbenl.
One aIlernalive lhal lhe never carriers have aĴempled is lo focus on anolher airporl
serving lhe same cily—for exampIe, serving Chicago’s in-lovn airporl (Midvay) inslead
of O’Hare. These airporls have considerabIy Iover lraffic voIumes lhan lhe ma|or airporls
lhal serve lhose communilies, bul lhey have aIIoved nev enlranls lo deveIop niche
markels.
Airporl lerminaI capacily can aIso be a barrier lo enlry for nev and exisling carriers
seeking lo enler nev markels. Inlering a markel requires lhe abiIily lo Iease or deveIop
gales, baggage handIing and airporl mainlenance faciIilies, and lickeling and passenger
vailing areas. LiĴIe underused gale capacily and reIaled lerminaI space is avaiIabIe al
ma|or airporls in lhe shorl lerm. Over lhe Ionger lerm, il is possibIe for carriers lo enler
many markels, bul lhe experience of recenl years indicales lhal such enlry is neilher easy
nor inexpensive.
Airporl operalors beIieve lhal exisling capacily Iimils are exacerbaled al many airporls
because lhe incumbenl airIines, hoIding Iong-lerm Ieases vilh ma|orily-in-inleresl (MII)
cIauses or excIusive-use agreemenls, are abIe lo bIock airporl expansions lhal vouId
provide more capacily for nev enlranls. In addilion, many airporl-airIine Ieases conlain
A I R T R A N S P O R TAT I O N 1 7 8
cIauses lhal prohibil lhe airporl from charging “addilionaI rales, fees, and charges” and
from changing ils melhod of caIcuIaling Ianding fees. The airIines can bIock expansions
vilh lhese provisions, bul onIy lhose lhal vouId increase lheir cosls vilhoul lheir
consenl.
Anolher barrier lo enlry has become lhe dominaled hubs. As carriers buiId lhe
conneclion banks required lo make a hub vork, lheir presence in lhe IocaI markel can
become so pervasive as lo approach being a monopoIy. AirIines use hubs lo shieId some
of lheir oulpul from compelilion. As more flighls are connecled lo a hub, lhe number of
passengers avaiIabIe lo supporl addilionaI flighls grovs. Making lhe connecling banks
vork for lhese flighls requires many gales because of lhe desire lo minimize lhe deIay
belveen conneclions. AIso, higher-yieId originaling passengers heIp provide lhe numbers
needed lo supporl frequenl hub service. ßecause fev airporls have excess capacily in lhe
shorl run (and fev have enough IocaI lraffic lo supporl more lhan one exlensive nelvork
of nonslop service), hubs lend lo become dominaled by one or lvo ma|or carriers vho
use up lhe exisling capacily.
IinaIIy, during lhe 1980s, many nev enlranls vere abIe lo begin operalions vilh used
or Ieased aircrah. Many of lhe oIder, noisier, Slage 2 aircrah lhal are in operalion loday
had lo meel higher Slage 3 noise crileria by 1999. The nev reslriclions reduced lhe suppIy
of aircrah and required carriers lo relrofil or re-engine exisling Slage 2 aircrah. Hushkils
and re-engine programs vere deveIoped for some aircrah. The cosl and avaiIabiIily of
conversion programs for some of lhe ma|or aircrah of lhe fleel vere high. In any evenl,
lhe phaseoul of Slage 2 aircrah has increased lhe cosl of enlry lo lhe airIine induslry by
reducing lhe suppIy of used aircrah and increasing lhe cosl of operaling used aircrah.
|ccncni cs cj Sca| c
Like aII oIigopoIisls, airIines musl achieve a Iarge voIume of oulpul in order lo Iover lhe
cosl per unil of oulpul (vhich equaIs a seal deparlure). To achieve economies of scaIe in
produclion, lhe carriers, Iike olher oIigopoIisls, uliIize lhe principIe of Iabor speciaIizalion.
ßecause of lhe number of vorkers, |obs can be divided and subdivided. Inslead of
performing five or six dislincl operalions in lhe produclion process, each vorker may
have onIy one lask lo perform. Workers can be used fuII-lime on lhe parlicuIar operalions
for vhich lhey have speciaI skiIIs. Union ruIes aboul vhal specific vorkers can and cannol
do aIso reinforce lhis principIe. Thus, a skiIIed machinisl vilh a ma|or carrier mighl spend
an enlire career in a parlicuIar shop vorking on one componenl of lhe aircrah.
In a smaII firm, skiIIed machinisls may spend haIf lheir lime performing unskiIIed lasks.
This makes for higher produclion cosls. Iurlhermore, lhe division of vork operalions lhal
Iarge-scaIe operalions permil gives vorkers lhe opporlunily lo become very proficienl al
lhe specific lasks assigned lhem. The |ack-of-aII-lrades vho is burdened vilh five or six
|obs IikeIy viII nol become very efficienl al any of lhem. When aIIoved lo concenlrale
on one lask, lhe same vorker may become highIy efficienl. IinaIIy, grealer speciaIizalion
lends lo eIiminale lhe Ioss of lime lhal accompanies lhe shihing of vorkers from one |ob
lo anolher.
Large-scaIe oulpul aIso permils beĴer uliIizalion of and grealer speciaIizalion
in managemenl. A supervisor vho is capabIe of handIing 15 or 20 empIoyees viII be
underuliIized in a smaII firm vilh onIy 8 or 10 vorkers. The number of voIume-reIaled
vorkers, such as piIols, flighl aĴendanls, mechanics, and reservalions personneI, can be
doubIed vilh IiĴIe or no increase in adminislralive cosls. In addilion, smaII firms cannol
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 7 9
use managemenl speciaIisls lo lhe besl advanlage. In smaII firms, saIes speciaIisls may
be forced lo divide lheir lime belveen severaI execulive funclions—for exampIe, markel
research, saIes pIanning, budgeling, and personneI adminislralion. A Iarger scaIe of
operalions means lhal lhe markeling experl can vork fuII-lime supervising saIes vhiIe
appropriale speciaIisls are added as needed lo perform olher manageriaI funclions.
Grealer efficiency and Iover unil cosls are lhe nel resuIl.
If lhe voIume of oulpul musl be reduced because of a faIIoff in lraffic, somelhing has lo
give, or eIse lhe firm viII experience vhal economisls refer lo as diseconomy of scale, in
vhich cosl per unil begins lo rise. In such a case, airIines are forced lo furIough voIume-
reIaled vorkers as veII as adminislralive personneI. The remaining adminislralive
vorkers musl broaden lheir responsibiIilies by laking on nev |ob assignmenls. AirIines
have aIso aĴempled lo gel lheir voIume (moslIy unionized) personneI lo lake on grealer
responsibiIilies, bul lhis has been more difficuIl. The unions queslion vhal viII happen
vhen increased lraffic voIumes relurn and vhelher vorkers viII sliII be required lo handIe
vork oulside lheir bargained |ob descriplion.
The eslabIished carriers can uliIize lhe Ialesl lechnoIogy avaiIabIe, vhich aIso brings
aboul economies of scaIe. SmaII firms ohen are unabIe lo uliIize lhe mosl efficienl and
produclive equipmenl. In many cases, lhe mosl efficienl equipmenl is avaiIabIe onIy
in very Iarge and exlremeIy expensive unils. Iurlhermore, effeclive uliIizalion of lhis
equipmenl demands a high voIume of oulpul. This means lhal onIy Iarger carriers can
afford and operale efficienlIy lhe besl avaiIabIe equipmenl. Compulerized reservalion
syslems (CRSs) lhal dispIay airIine scheduIes and prices for lraveI agenls and reservalion
cIerks are an exampIe. CRSs are polenl markeling looIs, because approximaleIy 70 percenl
of aII reservalions made by U.S. lraveI agenls are made lhrough lhese syslems. Mosl CRSs
are ovned and operaled by lhe vorId’s ma|or airIines. CRSs have been expanded lo make
olher lypes of reservalions, such as holeI and renlaI cars. Iees from saIes made via lhe
syslems are sources of subslanliaI revenue and profils for lheir ovners.
CRSs dispIay considerabIe economies of scaIe because of lhe sheer scaIe of inveslmenl
required lo compele and lhe advanlage lhal an airIine lhal ovns a CRS has over a nonairIine
inveslor inleresled in deveIoping a CRS. The carriers lhal deveIoped CRSs have spenl
hundreds of miIIions of doIIars over many years lo bring lheir syslems lo lheir currenl
advanced slale (lhe subslanliaI profils being earned suggesl lhal lhese inveslmenls have
been recouped). The incremenlaI revenues CRSs earn are apparenlIy sufficienl lo aIIov lhe
carriers lo Iease such syslems lo lraveI agenls beIov cosl. Therefore, a polenliaI compelilor
lhal is nol aIso an airIine vouId have lo deveIop a syslem more efficienl lhan lhose aIready in
use in order lo aĴracl lraveI agenls and vouId have lo be abIe lo supporl lhe syslem vilhoul
generaling incremenlaI airIine revenues. Given lhe high cosl of syslem deveIopmenl, lhe
efficiency and economies of scaIe of lhe Iargesl syslems, and lhe conlribulion made by
incremenlaI airIine revenues, such nev compelilion appears unIikeIy.
HisloricaIIy, mosl airIine passengers made lrip reservalions lhrough lraveI agenls,
resuIling in fairIy high commissions being paid lo lhe lraveI agenl by lhe airIine. Over
lime, commissions paid have been Iovered as airIines reaIize lhe high cosls of using a
middIeperson in lhe lransaclion. Since lhe Iale 1990s and earIy 2000s, airIines have focused
on direcl seIIing melhods and have decreased lhe need for lhe lraveI agenl. Direcl seIIing
incIudes use of lhe Inlernel and direcl leIephone Iines lo lhe airIine. Direcl leIephone
Iines are sliII coslIy lo use because of high Iabor and infraslruclure cosls. Hovever, lhis
is preferred over lhe lraveI agenl because no commissions are paid. In lerms of Inlernel
saIes, airIines ohen adverlise on lheir ovn Web sile for direcl bookings, or lickels can
A I R T R A N S P O R TAT I O N 1 8 0
be purchased lhrough olher on-Iine sources—for exampIe, lraveIocily.com, priceIine.com,
cheaplickels.com, orbil8.com, expedia.com, sideslep.com or holvire.com. Some siles offer
delaiIed ilineraries, incIuding price, before making a purchase, vhereas olher siles acl as
auclion houses and no prices are adverlised. The cuslomer simpIy bids a parlicuIar price
and if accepled by lhe on-Iine syslem, a credil card is charged and lhe lickel is issued.
Direcl seIIing is lhe preferred melhod of saIe by lhe airIine because cosls are reduced
for lhe organizalion and savings are passed on lo lhe passenger. In lhe Uniled Slales,
ConlinenlaI AirIines seIIs lhe ma|orily of ils lickels on-Iine and in lhe Uniled Kingdom,
IasyIel seIIs cIose lo 100 percenl of ils lickels on-Iine.
The ma|or carriers are aIso in a beĴer posilion lo uliIize by-producls of lheir induslry
lhan are smaII firms. SeIIing prepackaged frozen foods prepared in lhe company’s flighl
kilchens lo a reslauranl chain and seIIing compuler services lo smaIIer firms are exampIes
of by-producls lhal Iover unil cosls. Olher exampIes incIude conlracl mainlenance and lhe
use of flighl simuIalor lime during off-peak periods for grealer uliIizalion of equipmenl
and Iabor, vhich, in lurn, Iovers cosl per unil.
Grcuin Tnrcugn Mcrgcr
Anolher cIear characlerislic of oIigopoIisls in generaI, and airIines in parlicuIar, is
grovlh lhrough merger. Il is a ma|or faclor in expIaining lhe smaII number of firms. The
molivalions for mergers are diverse. Of immediale reIevance is lhe facl lhal combining lvo
or more formerIy compeling firms by merger can increase lheir markel share subslanliaIIy
and enabIe lhe nev and Iarger company lo achieve grealer economies of scaIe. Anolher
significanl molive underIying lhe urge lo merge is lhe markel pover lhal may accompany
a merger. A firm lhal is Iarger, bolh absoIuleIy and reIalive lo lhe markel, may have grealer
abiIily lo conlroI lhe markel for and lhe price of ils service lhan does a smaIIer, more
compelilive producer. Iurlhermore, lhe Iarger firm may gain Ieverage as a big purchaser
by being abIe lo demand and oblain Iover prices (cosls) in buying goods and services.
ßefore dereguIalion, mergers permiĴed air carriers lo purchase vhoIesaIe lhe enlire
roule slruclure of anolher carrier inslead of appIying for one roule al a lime lhrough
Ienglhy CAß proceedings. Olher reasons for merger incIude eIiminaling lhe possibiIily
of bankruplcy in lhe case of one of lhe carriers and eIiminaling compelilion on cerlain
roule segmenls. IinaIIy, mergers permil carriers lo reduce seasonaIily probIems vhere
one carrier’s roules compIemenl lhe olher’s.
In 1950, lhe cerlificaled lrunk airIines of lhe Uniled Slales vere as foIIovs:
American AirIines ConlinenlaI AirIines
ßraniff InlernalionaI DeIla Air Lines
CapilaI AirIines Iaslern AirIines
Chicago and Soulhern Air Lines InIand AirIines
CoIoniaI AirIines Mid-Conlinenl AirIines
NalionaI AirIines Trans WorId AirIines
Norlheasl AirIines Uniled AirIines
Norlhvesl AirIines Weslern AirIines
Ian American WorId Airvays
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 1
ßy 1960, Mid-Conlinenl had been absorbed by ßraniff, vhich fiIed for bankruplcy in 1982
aher overexpanding in lhe immediale posldereguIalion period. Chicago and Soulhern
became a parl of DeIla: CoIoniaI vas absorbed inlo Iaslern: and InIand became a parl of
Weslern. In 1962, CapilaI vas laken over by Uniled, and by 1972, Norlheasl vas parl of
DeIla. In 1980, NalionaI vas acquired by Ian Am aher a fierce slock baĴIe vilh Iaslern and
Texas InlernalionaI. Using ils profils from lhe saIe of NalionaI slock, Texas InlernalionaI
began buying bIocks of slock in ConlinenlaI in 1979 and evenluaIIy von conlroI of lhal
airIine in 1981. In 1985, IeopIe Ixpress acquired Ironlier AirIines for $300 miIIion, and a
year Ialer IeopIe vas absorbed by lhe nevIy formed Texas Air for lhe same price. In 1986,
Texas Air acquired Nev York Air, anolher nevcomer since dereguIalion, and lhen puIIed
off ils biggesl coup, lhe acquisilion of Iaslern.
Uniled purchased Ian Am’s Iacific division in 1985, and American acquired Air CaI.
Merger aclivily inlensified in 1986 vhen Norlhvesl acquired RepubIic for $884 miIIion.
RepubIic, a carrier lhal became a ma|or aher dereguIalion, vas lhe resuIl of a merger of
lhree successfuI former IocaI-service carriers: Hughes Airvesl, Norlh CenlraI AirIines,
and Soulhern Airvays. Hughes Airvesl had been lhe resuIl of a merger of four former
carriers in lhe 1960s—ßonanza AirIines, Soulhvesl Airvays, Iacific AirIines, and Wesl
Coasl AirIines. AIso in 1986, Trans WorId acquired Ozark for $250 miIIion, and lhe merger
of DeIla and Weslern combined lhe nalion’s sixlh- and ninlh-Iargesl airIines inlo one of lhe
remaining mega-carriers. USAir (formerIy AIIegheny) acquired Iacific Soulhvesl earIy in
1987 and finaIIy von approvaI from lhe DOT for lhe acquisilion of Iiedmonl in Oclober
1987.
In 1991, Iaslern finaIIy foIded ils vings aher operaling under bankruplcy for cIose lo
lvo years. Midvay ceased operalions in earIy 1992. And aher slruggIing for many years,
Ian Am finaIIy venl oul of business lhal same year. In 1991, il had soId ils lransalIanlic
roules lo London and beyond lo Uniled for $400 miIIion, and finaIIy, in 1992, il soId ils
Lalin American roules lo Uniled. In 2002, American AirIines acquired TWA. In Iale 2005,
America Wesl and US Airvays merged bul conlinue lo operale under separale names. As
of year-end 2004, lhe lop U.S. airIines vere as shovn in TabIe 6.1.
The AirIine DereguIalion Acl of 1978 required lhe CAß lo lreal airIine mergers and
acquisilions in a manner more consislenl vilh lhe anlilrusl slandards appIied lo aImosl
aII olher induslries. According lo lhe provisions of lhe acl, appIicalion of lhe Sherman
Anlilrusl Acl lesl vouId be used lo prohibil mergers lhal vouId resuIl in a monopoIy in
any region of lhe counlry. AppIicalion of lhe CIaylon Anlilrusl Acl lesl vouId be used lo
prohibil lransaclions lhal vouId have lhe effecl of subslanliaIIy Iessening compelilion
or lhal vouId lend lo creale a monopoIy. The AirIine DereguIalion Acl, hovever, did
give lhe CAß (and Ialer lhe DOT) somevhal more Ialilude in veighing lhe benefils of
mergers (lransporlalion convenience and needs) lhan is appIied in anlilrusl cases in olher
induslries.
In lhe firsl fev years aher passage of lhe AirIine DereguIalion Acl, before lhe CAß vas
dissoIved and ils anlilrusl aulhorily shihed lo lhe DOT, severaI mergers vere permiĴed
lhal vere “end-lo-end” in characler. These mergers invoIved carriers lhal did nol serve
overIapping markels, and some of lhe mergers acluaIIy enhanced service by reducing
lransaclion cosls, apparenlIy vilhoul reducing compelilion. Ior exampIe, Ian American
vas aIIoved lo merge vilh NalionaI. SeveraI proposed mergers vere disapproved
because lhe carriers’ roules vere “paraIIeI mergers”: lhal is, lhe carriers served loo
many overIapping roules (Iaslern–NalionaI). SeveraI olhers vere disapproved because
of concern aboul hub dominance and barriers lo enlry (ConlinenlaI–Weslern).
A I R T R A N S P O R TAT I O N 1 8 2
When lhe DOT vas given aulhorily over mergers in 1985, lhe number of mergers and
acquisilions increased from 8 belveen 1980 and 1984 lo 18 in 1985 and lo 25 in 1986. Mosl
of lhese mergers did nol raise significanl compelilive issues: many of lhe smaII carriers
invoIved in lhem vere in financiaI difficuIly and vouId have gone bankrupl had lhey
nol merged. Some end-lo-end mergers may even have faciIilaled compelilion, because
lhe combinalion of lvo carriers serving differenl markels heIped buiId a broader, more
compelilive nelvork.
ßecause of lhe compIexily of airIine nelvorks and compelilion, il is difficuIl lo specify in
advance lhe condilions under vhich mergers or acquisilions viII be anlicompelilive. Some
mergers, for exampIe, may faciIilale compelilion belveen hub nelvorks bul simuIlaneousIy
creale opporlunilies for hub dominance. An overriding queslion concerns lhe lolaI number
of ma|or carriers lhal are required lo mainlain an adequale IeveI of compelilion. AIlhough
lhe number of firms required lo ensure adequale compelilion necessariIy invoIves some
specuIalion, lhe main crilerion for lhe adequacy of compelilion nalionvide is lhe IeveI
of compelilion for passenger flovs belveen compeling hub syslems. Consumers receive
TABLE 6-1 U.S. Airlines – 2004
|ctcnuc Passcngcrs |np|anc!
1
(incusan!s)
|ctcnuc Passcngcr Mi|cs
1
(ni||icns)
Atai|a||c Scai Mi|cs
1
(ni||icns)
Cargc |ctcnuc Tcn Mi|cs
2
(ni||icns)
1 American 91,570 1 American 130,020 1 American 173,823 1 FedEx 9,991
2 Delta 86,755 2 United 114,536 2 United 144,547 2 Atlas/Polar 5,428
3 Southwest 81,066 3 Delta 98,041 3 Delta 129,463 3 UPS 5,309
4 United 70,786 4 Northwest 73,294 4 Northwest 91,357 4 Northwest 2,338
5 Northwest 55,373 5 Continental 63,176 5 Continental 81,226 5 American 2,211
6 US Airways 42,400 6 Southwest 53,415 6 Southwest 76,863 6 United 1,995
7 Continental 40,551 7 US Airways 40,498 7 US Airways 53,982 7 Delta 1,425
8 America West 21,119 8 America West 23,318 8 America West 30,133 8 KaIiĴa 1,171
9 Alaska 16,280 9 Alaska 16,224 9 Alaska 22,263 9 Continental 974
10 American IagIe 14,869 10 JetBlue 15,721 10 JetBlue 18,992 10 Gemini 763
11 IxpressIel 13,659 11 ATA 12,539 11 ATA 17,148 11 ABX 713
12 SkyWesl 13,417 12 AirTran 8,479 12 AirTran 11,996 12 Evergreen Int'l 501
13 AirTran 13,170 13 IxpressIel 7,417 13 IxpressIel 10,409 13 ASTAR 401
14 Comair 12,632 14 Comair 6,268 14 Comair 9,249 14 WorId 397
15 JetBlue 11,731 15 Ironlier 6,285 15 Ironlier 8,548 15 US Airways 338
16 AlIanlic Soulheasl 10,420 16 Hawaiian 6,141 16 American IagIe 8,486 16 Soulhern 315
17 ATA 10,024 17 American IagIe 5,817 17 SkyWesl 7,547 17 Omni 259
18 Mesa 9,122 18 SkyWesl 5,550 18 Hawaiian 7,128 18 Tradevinds 245
19 Independence 7,041 19 Spiril 4,887 19 AlIanlic Soulheasl 6,899 19 Air Transporl Inl'I 224
20 Air Wisconsin 6,954 20 AlIanlic Soulheasl 4,766 20 Mesa 6,364 20 Ixpress.Nel 213
21 Ironlier 6,406 21 Mesa 4,589 21 Spiril 6,280 21 Southwest 184
22 IinnacIe 6,362 22 IinnacIe 2,910 22 Independence 4,375 22 IIorida Wesl 157
23 Horizon 5,930 23 Air Wisconsin 2,813 23 IinnacIe 4,216 23 KiĴy Havk 143
24 Hawaiian 5,585 24 Independence 2,661 24 Air Wisconsin 3,742 24 Amerijel Inl'I 102
25 Mesaba 5,427 25 ConlinenlaI Micronesia 2,569 25 Midwest 3,540 25 Hawaiian 86
1
ScheduIed services onIy
2
AII services
Bold = Member. Air Transport Association of America, Inc. (ATA)
Scurcc: Air Transporl Associalion of America, AnnuaI Reporl, 2005. AvaiIabIe al: hĴp://vvv.airIines.org/fiIes/
2005AnnuaIReporl.pdf
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 3
lhe Iargesl benefils vhen lhree or more compelilors are operaling in lhe same markel,
especiaIIy if one of lhe compelilors is a nev-enlranl airIine vilh a Iov-price markeling
slralegy.
Having onIy lhree carriers nalionvide vouId probabIy nol be adequale lo ensure lhis
IeveI of compelilion. Sufficienl barriers lo enlry exisl lo prevenl lhree ma|or carriers from
being abIe lo compele vilh one anolher for hub lraffic from every ma|or spoke cily. Iive
or six ma|or airIines, hovever, vouId probabIy conslilule a sufficienl number of hub
syslems lo ensure lhe presence of lhree or more compelilors in mosl ma|or spoke markels,
especiaIIy vhen severaI addilionaI heaIlhy regionaI and nalionaI carriers are offering
consumers aIlernalives in specific regionaI or niche markels. Iive or six nalionvide firms
lhal compele vilh one anolher al aII lhe Iarge commerciaI airporls may provide much
slronger compelilive pressure lo hoId dovn cosls and fares lhan vouId 10 or 15 carriers
compeling in Iess exlensive nelvorks. The fever lhe number of firms, hovever, lhe easier
il is for lhem lo form and enforce a lighl oIigopoIy in vhich induslry oulpul is Iover and
fares are higher lhan vouId be lhe case in a compelilive markel. Ior fever lhan five or
six carriers, lhe resuIls vouId depend on lhe circumslances of lhe carriers, lheir markels,
and lhe vigor of lhe compelilion among lhem in lhe fulure. ßul as aIready indicaled, lhree
ma|or nalionvide carriers are IikeIy lo be loo fev lo ensure adequale compelilion.
Muiua| Ocpcn!cncc
RegardIess of lhe means by vhich an oIigopoIy evoIves, rivaIry among a smaII number
of firms cIearIy inler|ecls a nev and compIicaling characlerislic: muluaI dependence.
Imagine lhal lhree carriers—A, ß, and C—serve lhe same roule and lhal each has aboul
one-lhird of lhe markel. If A culs ils price, ils share of lhe markel viII increase, bul ß
and C viII be direclIy, immedialeIy, and adverseIy affecled by A’s price-cuĴing. Thus, ve
can expecl some reaclion on lhe parl of ß and C lo A’s behavior: ß and C may malch A’s
price cul or even undercul A, lhereby slarling a price var. This response suggesls lhal no
firm in an oIigopoIislic induslry viII dare lo aIler ils price poIicies vilhoul aĴempling
lo caIcuIale lhe mosl IikeIy reaclion of ils rivaIs. This is consislenl vilh economic
lheory and characlerislic of pricing al concenlraled gale- and sIol-conslrained airporls
vhere lvo or lhree compelilors hoId lhe ma|orily markel share. Hovever, nol enough
oIigopoIy pricing exisls lo cover lhe induslry’s fixed cosls and offsel sleep discounling in
compelilive markels. Today, lhe airIine induslry sels prices in a highIy irralionaI vay. We
see evidence of oIigopoIy and deslruclive compelilion side by side. Since dereguIalion,
lhe fuII unreslricled Y fare—or basic or slandard fare—has aImosl doubIed. Wilh lhe fuII
fare rising so sharpIy, reIaliveIy fev passengers vouId pay il. ConsequenlIy, loday, over 90
percenl of passengers pay an average of onIy aboul 30 percenl of lhe fuII fare. OnIy lhose
individuaIs vho absoIuleIy musl fly on shorl nolice have lo pay fuII fare.
Discounled fares are largeled al discrelionary (vacalion) lraveIers. To dissuade
business lraveIers from using lhem, lhey ordinariIy come saddIed vilh reslriclions—
nonrefundabiIily, advance purchase requiremenls, and Salurday nighl slay-over
obIigalions. Hovever, Iarge corporalions and unils of lhe federaI governmenl can
negoliale a conlracl rale vilh airIines lhal incIudes lhe discounled fares bul is IargeIy
devoid of reslriclions.
The inlense price compelilion lhal characlerizes many roules is compIicaled by lhe
facl lhal differenl carriers ohen aĴach varying imporlance lo lhe same roule. In many
circumslances, a parlicuIar roule represenls an imporlanl parl of a carrier’s nelvork,
A I R T R A N S P O R TAT I O N 1 8 4
produces fuIIy aIIocaled profils, and is regarded as parl of lhal carrier’s core business.
Ior a second carrier nol currenlIy serving lhal roule, on lhe olher hand, il represenls an
incremenlaI opporlunily.
Needing onIy lo recover lhe marginaI cosls of adding service vilh equipmenl il
aIready has, bul adding a service lhal may be surpIus lo ils needs, lhe second carrier
may choose lo faciIilale ils enlry lo lhe roule by pricing ils services al or |usl above
marginaI cosl. In lhis silualion, lhe second carrier viII benefil from fiIIing Iols of emply
seals and conlribuling, in al Ieasl a smaII vay, lo covering ils fixed cosls.
The firsl carrier, compeIIed lo malch lhe nevcomer’s price, viII suffer significanl yieId
erosion and viII be unabIe lo meel ils ob|eclive of fuII cosl recovery. The nev carrier viII
benefil, bul overaII, lhe induslry (Carrier A + Carrier ß) viII move from profil lo Ioss.
The pricing decisions of individuaI carriers usuaIIy make economic sense from lhe
carrier’s perspeclive. ßul for lhe induslry as a vhoIe, lhese decisions conlribule lo lhe
conlinuaI price erosion lhal has reslricled lhe abiIily of aII carriers lo increase revenues
lo keep up vilh rising cosls.
Pri cc |i gi !i iu an! Ncnpri cc Ccnpcii ii cn
Iirms in oIigopoIislic induslries are much more comforlabIe mainlaining conslanl prices
lhan rocking lhe boal, so lo speak, because of muluaI dependence and fear of a price
var. The lendency has been lo fighl il oul in lhe nonprice arena, using adverlising and
increased cuslomer services as lhe ma|or veapons. This silualion prevaiIed in lhe airIine
induslry before 1978. Al lhal lime, hovever, lhe door vas opened lo nev compelilion, and
lhe airIine price vars began.
Under lhe oId reguIalory framevork, lhe price of an airIine seal vas direclIy reIaled
lo lhe cosl of producing il. Irices vere simpIy based on cosls, aIIoving for a given rale
of relurn. Carriers vere expecled lo use lhe resuIling profils lo cross-subsidize required
service on shorler-hauI, Iover-densily roules (on vhich fares vere ohen heId beIov
prevaiIing cosls). Iveryone knev lhe ruIes and vas comforlabIe vilh lhem. The impacl
of economic recession vas bIunled by lhe CAß, vhich rescued lhe occasionaI casuaIly
vilh repealed doses of fare increases. Aher lhe AirIine DereguIalion Acl of 1978, hovever,
lhings changed, and airIine pricing became more compIicaled.
In lheory, lhe removaI of roule reslriclions aher dereguIalion vas supposed lo slimuIale
lhe enlry of nev firms inlo lhe airIine induslry and cause exisling airIines lo expand
or shih lheir operalions inlo olher, more profilabIe markels, lhereby forcing fares dovn
and expanding service oplions in markels in vhich carriers had previousIy en|oyed IiĴIe
compelilion. Indeed, as predicled by lheory, mosl eslabIished carriers grealIy expanded
lheir nelvorks shorlIy aher dereguIalion, and many nev firms enlered lhe markelpIace,
crealing a compelilive environmenl lhal produced much Iover fares during lhe mid-
1980s. Since 1987, hovever, virluaIIy aII lhese nev enlranls have eilher faiIed or merged
vilh Iarger incumbenl carriers, vhiIe passenger fares have risen.
During lhe earIy 1990s, American AirIines lried on severaI occasions lo inlroduce some
sensibiIily inlo lhe fare slruclure by proposing a simpIe, four-liered “vaIue pricing” syslem
lhal lied fares lo dislance flovn and lhal more adequaleIy reIaled fares lo cosls. Uniled
and DeIla vere prepared lo emuIale lhe syslem, bul olhers—Iike ConlinenlaI, TWA, and
America Wesl, vhich vere going lhrough bankruplcy and facing huge Iosses—vere more
inleresled in cuĴing fares lo generale cash flov.
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 5
OTHER UNIQUE ECONOMIC CHARACTERISTICS
Gctcrnncni |i nanci a| Assi siancc
UnIike olher oIigopoIislic induslries, various governmenl unils have pIayed ma|or roIes
in financing lhe grovlh and deveIopmenl of lhe U.S. airporl-airvays syslem. The federaI
governmenl has pIayed lhe predominanl roIe in lhis regard. UnliI 1970, vhen lhe Airporl
and Airvays DeveIopmenl Acl vas passed by Congress, lhe nalionaI airvays syslem vas
mainlained by lhe federaI governmenl al minimaI cosl lo users of lhe syslem. Hovever, lhe
acl crealed a syslem of user charges lhal have been Ievied on airIine passengers, shippers,
generaI avialion, and lhe airIines so lhal lhe airvays mighl be seIf-supporling. The 1970 acl
and ils successor, lhe Airporl and Airvay Improvemenl Acl of 1982, provided for conlinued
federaI funding of bolh airvay operalion and airporl deveIopmenl. In many inslances, lhe
fees charged for Ianding aircrah, mainlaining office and operalionaI space, and providing
mainlenance and adminislralive quarlers do nol repay lhe operaling cosls of lhe airporl.
Iven vhen lhe fees repay operaling cosls, lhey lypicaIIy do nol cover capilaI cosls invoIved
in airporl expansion. ConsequenlIy, lhe airIine induslry has hisloricaIIy benefiled from lhe
financing of lhe ma|or cosl eIemenl of lhe induslry—lhe airporl-airvays syslem—by various
governmenlaI unils, vhich unliI recenlIy Ievied quile Iimiled charges on syslem users.
Hi gn Tccnnc| cgi ca| Turnctcr
As of 2005, lhe U.S. scheduIed airIines had lolaI assels of approximaleIy $100 biIIion, of
vhich approximaleIy $60 biIIion vas flighl equipmenl. No olher oIigopoIislic induslry has
such highIy mobiIe assels lhal represenl cIose lo 60 percenl of ils lolaI assels. Iurlhermore,
lechnoIogicaI advances in flighl equipmenl over lhe shorl span of 35 years have come al
an exlremeIy rapid pace.
ßefore WorId War II, lhe capilaI requiremenls of mosl commerciaI airIines vere
modesl and vere mel IargeIy lhrough inlernaI sources, nolabIy profils. The scaIe of lhe
induslry increased, hovever, and by lhe mid-1950s, lhe induslry had lurned ils aĴenlion
lo pIanning for |el aircrah. The carriers commiĴed aImosl $2 biIIion for flighl equipmenl
and lhe associaled ground equipmenl. The firsl |el aircrah arrived in lhe Iale 1950s, and
by lhe mid-1960s, lhe slrelched-version ßoeing 727s and 720s vere arriving on lhe scene
lo accommodale lhe increased lraffic, vhich required a vhoIe nev refinancing cycIe. ßy
lhe mid lo Iale 1960s, pIans vere being made lo purchase Iarger, vide-body equipmenl.
ßelveen 1966 and 1971, lhe induslry pIaced orders amounling lo $10 biIIion. The 1970s
vilnessed dramalic rises in fueI prices, and aII aĴenlion vas focused on deveIoping fueI-
efficienl aircrah for lhe 1980s and 1990s. ßy 1986, induslry capilaI requiremenls from
exlernaI sources reached $7 biIIion. The ATA forecasl capilaI requiremenls of approximaleIy
$65 biIIion for lhe induslry during lhe 10-year period belveen 1996 and 2005.
Given lhe recessionary economy in lhe earIy 1990s and sIov induslry grovlh lhrough lhe
Iale 1990s and earIy 2000s, il has become apparenl lhal prices viII nol slabiIize for severaI
years. Some anaIysls beIieve lhal lhe induslry sliII musl experience a furlher shakeoul,
vilh lhe eIiminalion of severaI more of lhe veaker carriers, before lrue oIigopoIislic
pricing becomes lhe norm. Al lhal lime, prices viII slabiIize, and lhe remaining carriers
viII reIy on lhe lradilionaI nonprice compelilion.
A I R T R A N S P O R TAT I O N 1 8 6
Hi gn Ia|cr an! |uc| |xpcnscs
ßecause an airIine’s cosls define lhe Iimil of hov Iov il can profilabIy price ils service, and
because mosl airIine cuslomers vaIue Iov prices above aII olher carrier seIeclion faclors,
lhe carrier vilh lhe Iovesl cosls has a poverfuI compelilive advanlage. The facl lhal mosl
carriers have a difficuIl lime differenlialing lheir producls from lhose of lheir compelilion
makes lhis especiaIIy lrue. Thus, cuĴing cosls lo lhe Iovesl possibIe IeveI has become a
key slralegic necessily in loday’s airIine induslry.
UnforlunaleIy, reducing cosls is easier said lhan done. In addilion lo a carrier’s high
fixed cosls, many of lhe so-caIIed variabIe cosls, if nol compIeleIy oul of lhe airIine’s
conlroI, are very difficuIl lo manage. Tvo of lhe biggesl are Iabor and fueI expenses.
AirIine empIoyees are men and vomen vilh highIy deveIoped skiIIs and vilh
correspondingIy high incomes. In 2004, lhe induslry empIoyed 569,084 peopIe, and lhe
average vage exceeded $55,663 ($77,561 lolaI compensalion), vhich far oulpaces aII olher
induslries in lhe Uniled Slales.
The high IeveI of unionizalion in lhe airIine induslry, parlicuIarIy among lhe more
eslabIished carriers, aIso reduces lhe exlenl lo vhich Iabor cosls can lruIy be considered
variabIe. Labor lypicaIIy represenls lhe Iargesl cosl advanlage slarl-up airIines have over
more eslabIished carriers. Moreover, despile ls reIiance on high lechnoIogy, lhe business
is very Iabor inlensive. Nev enlranls ohen oulsource many funclions lo service providers
lhal pay lheir empIoyees minimum markel rales and provide fev, if any, benefils. ßecause
lhese providers drav from a Iarge pooI of experienced vorkers lrained by carriers lhal
have faiIed, nev enlranls ohen offer service lhal is quaIilaliveIy indislinguishabIe from
lhal offered by Iong-eslabIished carriers.
In conlrasl, lhe oIder carriers operale under lhe lerms of union conlracls lhal prevenl
lhem from making changes lo malch lhe cosls of nev enlranls. These conlracls lypicaIIy
incIude exlraordinariIy compIex vork ruIes lhal sharpIy reduce lhe carriers’ abiIily lo
improve Iabor produclivily. Moreover, lhe vork force of lhe lradilionaI carrier lypicaIIy is
much oIder lhan lhal of a slarl-up airIine, crealing an even grealer disparily in vage rales,
as a 10- or 20-year airIine veleran viII invariabIy have achieved a far higher vage lhan his
or her counlerparl al a slarl-up carrier.
No olher induslry has been sub|ecled lo lhe severe increases in fueI prices lhal lhe air
carriers have experienced over lhe pasl 15 years. ßelveen 1978 and 1981, lhe price of |el fueI
increased by over 153 percenl, rising lo a peak in May 1981 of $1.052 per gaIIon in domeslic
markels and $1.168 in inlernalionaI markels. The lrend in |el fueI prices vas generaIIy
dovnvard for lhe remainder of lhe decade. Hovever, in 1990, slarling vilh lhe healing
oiI crisis lhal raised lhe price of |el fueI by a lhird, prices soared. SlimuIaled by lhe Iraqi
invasion of Kuvail, |el fueI, vhich had soId for as Iov as 60 cenls per gaIIon, moved very
quickIy lo more lhan $1.10 per gaIIon. AIlhough lhere vas no shorlage in fueI, prices
vere driven up in a specuIalive panic. As of earIy 2006, lhe airIines conlinue lo be hil
vilh increased cosls vilh fueI being a ma|or conlribulor. Induslry cosl expenses increased
AirIines have Ied aII olher induslries in lhe rale of increase in capilaI spending over
lhe pasl lhree decades. TechnoIogicaI advances and compelilion have forced lhe carriers
lo underlake a re-equipmenl cycIe on an average of every eighl years. ßesides caIIing for
huge amounls of capilaI spending, lhese cycIes mean heavy expenses in hiring and lraining
personneI and in modifying faciIilies lo accommodale lhe nev aircrah and associaled
equipmenl.
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 7
Tnc Ccnpcii ii tc A!taniagc cj Scnc!u| c |rc¡ucncu
The effecl of a sIighl change in deparlure lime on passenger buying behavior creales a
poverfuI incenlive for carriers lo increase flighl frequency, even vhen lhere are pIenly of
seals avaiIabIe on exisling flighls.
Moreover, vhen one carrier en|oys a scheduIe frequency advanlage over anolher on a
parlicuIar roule, lhe compelilive vaIue of lhal advanlage is more lhan proporlionaI. Ior
exampIe, if Carrier A has six daiIy flighls belveen lvo poinls and Carrier ß has onIy lhree,
lhe reIalive slrenglh of Carrier A versus Carrier ß is grealer lhan lvo lo one. The reason
for lhis is lhal Carrier A’s cuslomers—in addilion lo having lvo limes as many chances
lo malch a flighl lo lheir needs—viII perceive lhe more frequenl service as offering lhem
more flexibiIily lo change lheir pIans al lhe Iasl minule.
ßecause airIine hub-and-spoke syslems provide lhe mosl convenienl service belveen
lhe grealesl number of cilies, mosl U.S. carriers operale domeslic roule nelvorks focused
around one or more hubs. The facl lhal cuslomers see lhe airIines’ producl, a seal on an
airpIane, as a reIaliveIy undifferenlialed producl nolvilhslanding, each lime a nelvork-
based airIine offers a nev flighl, il commils an addilionaI cily lo aII lhe olhers served by
lhe hub, and lhus inlroduces a number of nev producls. AddilionaIIy, by videning lhe
reach of ils nelvork, il slrenglhens ils enlire exisling producl Iine.
When origin-deparlure cily-pairs, lime of deparlure, airporl used, and lype of service
(nonslop versus connecling) combinalions are considered, an airIine can scheduIe
ils resources lo offer an enormous range of “producls,” each vilh differenl revenue-
generaling polenliaI and differenl cosls. Iurlhermore, once airpIanes and faciIilies are
in pIace, lhe economics of offering addilionaI capacily are ohen evaIualed on lhe basis of
marginaI cosl, vhich is very Iov as a percenlage of lolaI cosl.
In mosl induslries, increased produclion, by ilseIf, does nol enhance an individuaI
compelilor’s saIes polenliaI or compelilive posilion. Hovever, in lhe airIine induslry, lhe
facl lhal more capacily represenls more scheduIe frequency, and lhus a more desirabIe
producl, gives every airIine an incenlive lo use every airpIane as inlensiveIy as possibIe.
AIlhough lhis slralegy makes sense for each individuaI carrier, il resuIls in a lendency
lovard perpeluaI overcapacily.
10.7 percenl in 2005 over lhe year prior lo $132.9 biIIion. Crude oiI prices (per barreI)
increased from an average of $26 in 2002 lo $41.40 in 2004 vhiIe |el fueI cIimbed from
$0.71 per gaIIon in 2002 lo $1.15 per gaIIon in 2004. In Augusl 2005, crude oiI hil a record
high of $69.91 per barreI and |el fueI hil a high of $1.87 per gaIIon as a resuIl of Hurricane
Kalrina hiĴing lhe GuIf Coasl region of lhe Uniled Slales vhere much of lhe counlry’s
oiI and fueI suppIies are slored. IueI prices are heaviIy influenced by a variely of IocaI
and gIobaI faclors correIaled vilh lhe price of crude oiI. Influencing faclors incIude lhe
gIobaI economy, increasing suppIy lighlness, geopoIilicaI insecurily (i.e., lhe on-going
Iraqi crisis), unique produclion and demand faclors, and acls of God. Il is eslimaled lhal
every 1-cenl-per-gaIIon increase cosls lhe induslry approximaleIy $160 miIIion.
AIlhough an airIine can maximize ils efficiency by purchasing aircrah lhal burn Iess
fueI lhan olhers, fueI-efficienl airpIanes ohen have much higher capilaI cosls lhan do Iess
fueI-efficienl aircrah. Moreover, lhe acluaI price of fueI is conlingenl on faclors far oulside
any airIine’s span of conlroI. Thus, fueI cosls are onIy marginaIIy manageabIe.
Labor and fueI cosls lypicaIIy represenl around 60 percenl of a carrier’s operaling
expenses.
A I R T R A N S P O R TAT I O N 1 8 8
|xccss Capaci iu an! Icu Margi na| Ccsis
1
MeIvin ßrenner, “Irogram for Improving AirIine OulIook” (unpubIished monograph), 1993.
The airIine induslry hisloricaIIy has lended bolh lo produce excess capacily and lo price
ils producl beIov fuIIy aIIocaled cosls. The demand of consumers for scheduIe frequency
produces lremendous excess capacily vilh no sheIf Iife, pushing cosls up. The demand
of consumers for Iov prices and lhe perceplion lhal air lransporlalion is virluaIIy an
undifferenlialed commodily drive prices dovn lo IeveIs lhal, loo ohen, faiI lo cover fuIIy
aIIocaled cosls.
AirIines inevilabIy produce excessive capacily. Whelher reguIaled or dereguIaled,
from lhe mid-1950s lo lhe presenl, U.S. airIines have aImosl never achieved an average
annuaI Ioad faclor exceeding 67 percenl (and in mosl years, Ioad faclors vere subslanliaIIy
vorse lhan lhal). In effecl, lhis means lhal al Ieasl one-lhird of avaiIabIe invenlory remains
unsoId.
On lhis poinl, economisl MeIvin ßrenner noles:
The induslry has aIvays had excess capacily, even during boom limes. Over-capacily resuIls
from: (a) lhe compelilive imporlance of scheduIe frequency. Since scheduIe convenience is
one of lhe mosl imporlanl differenlialing characlerislics of lhe airIine producl, aII airIines
slrive for high scheduIed frequency on every imporlanl roule, and (b) lhe facl lhal airIines
have very high fixed cosls and are lherefore incenlivized lo fly lheir aircrah as much as pos-
sibIe, even if incremenlaI flying does nol produce enough revenue lo cover fuIIy aIIocaled
cosls. Whenever a flighl covers variabIe cosls and conlribules lo overhead, lhe individuaI
carrier is beĴer off flying ralher lhan nol flying. Hovever, lhe cumuIalion of lhe many mar-
ginaIIy-|uslified scheduIes creales over-capacily for lhe induslry as a vhoIe.
1
Moreover, lhal capacily has no sheIf Iife. Once a scheduIed flighl puIIs avay from lhe gale,
any emply seals are Iosl forever. Seeking lo seII as much of lhal perishabIe invenlory as
possibIe, carriers offer lhe same fares as lhe Iovesl-price provider in an efforl lo grasp an
ascending and, loo ohen, eIusive break-even Ioad faclor and preserve markel share.
Ixcess capacily coupIed vilh perishabIe invenlory Ieads lo marginaI cosl pricing. The
marginaI cosl of serving one addilionaI cuslomer on a given flighl is very Iov, consisling
onIy of lhe cosl of food, saIes commission, incremenlaI fueI burn, and olher minor
expenses. In generaI, lhe marginaI cosl of an addilionaI passenger is Iess lhan one-fourlh
of lhe fuIIy aIIocaled cosls. ßul induslry cosls are disproporlionaleIy fixed, vilh fixed
cosls accounling for belveen 80 and 90 percenl of lolaI cosls. In lhe high-fixed-cosl, price-
sensilive airIine business, excess capacily has a devaslaling effecl because il molivales
carriers lo fiII aircrah by cuĴing prices. Olher carriers are forced lo malch, and fare vars
erupl. AIlhough a lickel soId beIov fuIIy aIIocaled cosls is unprofilabIe, any lickel soId
al a price above variabIe cosl viII make a conlribulion, aIbeil ohen a smaII one, lovard
covering lhe carrier’s fixed cosls. An emply seal, naluraIIy, makes no such conlribulion.
AirIines aIso suffer from lhe probIem lhal mosl of lheir cosls are |oinl cosls, spread over
an array of funclions reIaled lo moving passengers and freighl lhroughoul lheir nelvorks.
Thus, acluaI cosls are obscured and difficuIl lo ascribe lo parlicuIar passengers.
In lhe Iong run, carriers musl recover lheir fixed cosls or face bankruplcy (as scores
of airIines have Iearned). ßul coIIecliveIy irralionaI behavior, such as vas exhibiled by
airIines before reguIalion in 1938 and aher dereguIalion in 1978, causes cosls and prices
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 9
C| csc Gctcrnncni |cgu| aii cn
The cIose reIalionship belveen lhe airIines and lhe various unils of lhe federaI governmenl
vas discussed in Chapler 3. UnIike olher oIigopoIislic induslries, bul Iike olher
lransporlalion modes, lhe airIines have a Iong hislory of bolh supporl and reguIalion by
governmenl. The IAA reguIales mosl aspecls of airIine operalions lhal reIale lo safely and
navigalion, as veII as lo environmenlaI condilions. The NalionaI Transporlalion Safely
ßoard invesligales aII air carrier accidenls and makes recommendalions lo lhe IAA. Olher
federaI agencies, incIuding lhe Deparlmenl of Transporlalion, Deparlmenl of Commerce,
U.S. IoslaI Service, U.S. Cusloms Service, U.S. Cilizenship and Immigralion Service,
and Deparlmenl of Iuslice, reguIale Iess obvious aspecls of airIine operalions and have
exlensive inleraclion vilh lhe induslry. Slale avialion agencies, IocaI airporl aulhorilies,
and olher branches of IocaI governmenl reguIale airIine operalions in lerms of lheir effecl
on IocaI airporls and airporl environs.
The susceplibiIily of air lransporlalion demand lo lhe business cycIe vas underIined by
lhe recession of lhe earIy 1990s. Revenue passenger miIes and cargo lon-miIes decIined,
and Iosses soared lo record IeveIs.
AIlhough lhe impacl of a recession is nol unique lo lhe airIine induslry, vhal is differenl
is lhe facl lhal as a service induslry (unIike durabIe goods such as aulomobiIes), il is
much sIover lo recover because spending on air lraveI is discrelionary. IeopIe have lo be
vorking again and lhe economy has lo be veII on lhe vay lo recovery before spending on
air lraveI slarls lo pick up momenlum. This can lake anyvhere from 12 lo 18 monlhs aher
lhe recovery is veII under vay.
The effecls of a recession on air lraveI are obvious. ßolh pIeasure and business lraveI
are curlaiIed during periods of sharp and suslained dovnlurn in lhe generaI economy. In
a recession, peopIe lend lo poslpone Iong-dislance lraveI lo save nol onIy on airfares bul
aIso on lhe expenses associaled vilh lhe lrip. Companies lend lo cul back on business lrips
or on lhe number of peopIe senl on a given lrip. TraveI is one of lhe expenses a business
can cul immedialeIy during lough economic limes. Iever peopIe lraveI firsl cIass, so lhal
lhe doIIar yieIds reaIized are reduced.
The impacl of a recession on lhe airIines is inlensified by lhe high rale of lraffic
grovlh lhey experience during periods of prosperily. When lhe economy moves inlo a
recessionary period, lhe carriers find lhemseIves vilh subslanliaI excess capacily. UnIike
manufacluring induslries, lhey cannol invenlory goods or cul back produclion unliI lhe
economy improves. Inleresl paymenls lo credilors on oulslanding debls (primariIy flighl
equipmenl) musl be paid, and faciIilies lhal vere geared lo handIe a prerecession voIume
cannol be cIosed. AIlhough airIines can furIough cerlain voIume-reIaled empIoyees, lhey
musl carefuIIy consider lhis move because of lhe exlensive relraining cosls invoIved vhen
personneI are broughl back as voIumes increase.
Scnsi ii ti iu ic |ccncni c || uciuaii cns
lo faiI lo achieve equiIibrium al a IeveI lhal covers fuIIy aIIocaled cosls and aIIovs an
adequale profil.
A I R T R A N S P O R TAT I O N 1 9 0
THE SIGNIFICANCE OF AIRLINE PASSENGER LOAD
FACTORS
One of lhe mosl vilaI slalislics in lhe airIine business is Ioad faclor. Given lhe muIlimiIIion-
doIIar inveslmenl represenled by lhe modern |elIiner, airIines are naluraIIy concerned
vilh equipmenl uliIizalion. One measure of uliIizalion is lhe revenue passenger load
factor. This figure expresses lhe reIalionship belveen avaiIabIe seal-miIes and revenue
passenger miIes reaIized.
Load faclor has a crilicaI impacl on lhe cosl and quaIily of air lransporlalion services
offered. ApproximaleIy 65 percenl of an airIine’s cosls are direclIy reIaled lo lhe operalion
of aircrah and are independenl of lhe number of passengers on lhe aircrah. Therefore, a
high Ioad faclor viII aIIov lhe aIIocalion of lhese cosls over a Iarge number of passengers,
resuIling in Iover cosls per passenger, vhich aIIovs for Iover fares.
TabIe 6-2 shovs lhe average Ioad faclor figures for lhe U.S. scheduIed airIines belveen
1970 and 2004. Load faclors fluclualed belveen 48.5 and 75.5 percenl during lhal
period. The reIaliveIy Iov Ioad faclors for 1970 and 1971 reflecl lhe recession and lhe
simuIlaneous deIivery of Iarger-capacily equipmenl. The higher Ioad faclors of lhe earIy
1980s vere influenced by lraffic grovlh and capacily Iimilalion agreemenls, vhich lhe
CAß permiĴed in some Iong-dislance markels lhal vere served by severaI carriers. These
capacily reduclions, and lhose lriggered by lhe energy crisis, Ied lo significanl increases
in carrier Ioad faclors in lhose markels. The CAß, al Ieasl lemporariIy, considered such
agreemenls lo be a usefuI reguIalory looI. Hovever, lhe Iuslice Deparlmenl and olher
IredereguIalion IosldereguIalion
Atcragc Ica! Atcragc Ica! Atcragc Ica!
Ycar |acicr (%) Ycar |acicr (%) Ycar |acicr (%)
1970 49.7 1979 63.0 1990 62.4
1971 48.5 1980 59.0 1991 62.6
1972 53.0 1981 58.6 1992 63.6
1973 52.1 1982 59.0 1993 63.5
1974 54.9 1983 60.7 1994 66.2
1975 53.7 1984 59.2 1995 67.0
1976 55.4 1985 61.4 1996 69.3
1977 55.9 1986 60.4 1997 70.3
1978 61.5 1987 62.3 1998 70.7
1988 62.5 1999 71.0
1989 63.2 2000 72.4
2001 70.0
2002 71.6
2003 73.4
2004 75.5
Source: Air Transporl Associalion AnnuaI Reporls.
TABLE 6-2 Revenue Passenger Load Factor for U.S. Scheduled Airlines, 1970–
2004
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 1
Traj fic Pcaks an! Va| | cus
AII lransporlalion modes musl operale during lraffic peaks and vaIIeys in order lo meel
lhe pubIic need. ßuses and commuler lrains in every ma|or cily are fuII in one direclion
during rush hours and virluaIIy emply on lhe relurn lrip. Al midday, in lhe earIy morning
and Iale evening, and on veekends, passenger Ioads are aIso Iighl. Thal’s lhe nalure of
pubIic lransporlalion, vhelher buses, lrains, or pIanes.
AirIine Ioad faclors during any one year vary from monlh lo monlh depending on lhe
season. DaiIy and hourIy Ioad faclors flucluale even more. Averages for lhe peak day of
lhe peak monlh mighl be 75 percenl, and for lhe peak hour 80 percenl: many flighls in
lhese hours are al or near 100 percenl capacily. Iurlhermore, a nalionvide lransporlalion
nelvork requires lhal some flighls vilh Iighl palronage be operaled lo posilion aircrah for
olher flighls vilh higher Ioads. IIighls lo IIorida in November and December are booked
soIid, vhiIe Ioad faclors on flighls norlh are much Iover. IIighls from Los AngeIes lo Las
Vegas on Iriday nighls are fuII and flighls back lo Los AngeIes on Sunday nighls are fuII,
bul lhe pIanes cannol sil idIe over lhe veekend in Las Vegas. They musl be used for olher
service and lhus musl fly from Las Vegas vilh IiĴIe or no lraffic and relurn for lhe nexl
high-Ioad flighl back lo Los AngeIes on Sunday nighl. And so il goes for olher cily-pairs
lhroughoul lhe nalion.
Somelimes, aircrah musl be flovn virluaIIy emply from one cily lo anolher Iale al
nighl or earIy in lhe morning lo have lhe pIane ready lo meel rush-hour demand. These
positioning flights cerlainIy affecl lhe average Ioad faclor figure used lo describe air
lransporlalion produclivily.
Iigure 6-1 shovs an exampIe of lvo days oul of a summer’s ßoeing 757 rouling paĴern.
ßased on lhese lvo days, lhe carrier had an average Ioad faclor of 60 percenl. Iighl of lhe
15 flighl segmenls had a Ioad faclor of 75 percenl or more, and lhe carrier vas forced lo
lurn some passengers avay. Three segmenls averaged aboul 50 percenl, and lhe remaining
four had Ioad faclors ranging belveen 15 and 45 percenl.
Capaci iu Vcrsus Ocnan!
Demand for air lransporl services has aIvays been highIy cycIicaI, vilh grealer or Iesser
demand depending on lime of day, day of veek, and season, as veII as on broader markel
fluclualions from year lo year. We knov, for exampIe, lhal discrelionary Ieisure lraffic
picks up in lhe summer, lhereby aIIoving lhe induslry lo en|oy higher Ioad faclors for lhe
lhird quarler.
On a macro IeveI, vhen lhe economy is groving and consumer confidence is slrong,
demand grovs, improving airIine Ioad faclors and aIIoving carriers lo raise yieIds
crilics charged lhal such agreemenls had a negalive compelilive impacl. As a resuIl of
lhe air lraffic conlroIIers’ slrike of 1981, capacily reslriclions vere imposed by lhe IAA
on lhe air carriers al 22 ma|or hub airporls. The IAA graduaIIy reIaxed airporl Ianding
sIols over lhe nexl lvo years, and lheir uIlimale removaI occurred al lhe end of 1983.
Hovever, four airporls are sliII under IAA sIol conlroI because of lraffic densily. Load
faclors slabiIized aher lhe fierce compelilion of lhe mid lo Iale 1980s. AvaiIabIe seal-miIes
decreased significanlIy in 1991, vhich heId Ioad faclors up during lhe earIy 1990s. As
lhe economy expanded during lhe mid-1990s, lraffic demand grev fasler lhan capacily,
causing Ioad faclors lo rise sharpIy.
A I R T R A N S P O R TAT I O N 1 9 2
FIGURE 6-1 Partial Boeing 757 routing pattern (two days), summer 200X.
Kennedy
Newark
Newark
LaGuardia
Boston
Mobile
Baltimore
Richmond
Charleston
Birmingham
Jacksonville
Atlanta
Palm Beach
Load Factor
75% or higher
50–55%
under 50%
and profilabiIily. When lhe economy faIlers, hovever, unempIoymenl rises, consumer
confidence decIines, and individuaIs poslpone discrelionary lraveI: as a resuIl, airIine
Ioad faclors, yieIds, and profils suffer.
The reaIilies of pubIic lransporlalion, vhelher bus, lrain, or pIane, resuIl in an imbaIance
belveen lhe number of seals, or capacily, avaiIabIe and lhe currenl demand for lraveI by
lhe pubIic. The lvo simpIy do nol mesh al preciseIy lhe same lime, lhe same pIace, and
lhe same rale.
AirIines cannol fine-lune capacily lo malch demand, because capacily can onIy be
added or laken avay in lolaI pIaneIoads. The aircrah unil ilseIf is obviousIy inflexibIe: if
a given carrier’s 757 is equipped vilh 160 seals, lhal seal suppIy on a parlicuIar scheduIe
cannol be shrunk or expanded belveen Thursday and Iriday and lhen changed again for
Salurday.
Wilhin Iimils, lhe lolaI number of flighl frequencies on a given day can be varied,
and lhis is done vhere feasibIe. On business roules, for exampIe, il is common lo reduce
frequencies on Salurdays. Hovever, a number of faclors Iimil lhe abiIily lo ad|usl daiIy
seals lo daiIy lraffic.
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 3
Iirsl, many roules have loo IiĴIe flighl frequency mainlained by each carrier lo permil
much Ieevay for canceIing lrips on a parlicuIar day vilhoul damaging lhe overaII paĴern.
Second, lhe day-of-veek paĴern of demand does nol vary in a precise, prediclabIe, or
fuIIy consislenl manner. IinaIIy, lhe scheduIe paĴern on any one roule is loo inlerreIaled
vilh lhose of olher roules (and vilh operalionaI conslrainls of various kinds) lo permil an
erralicaIIy scheduIed operalion from day lo day. As a resuIl of lhese various faclors, lhe
suppIy of seals is necessariIy much more uniform lhan is lhe demand for lhem.
Iigure 6-2 shovs lhe number of seals offered each day and lhe passengers acluaIIy
carried for a scheduIe on an inlermediale-Ienglh segmenl (Miami–Nev York). Ior lhe
monlh as a vhoIe, lhe average Ioad on lhis roule vas 70 passengers, vhich produced
an average monlhIy Ioad faclor of 68 percenl. On lhe olher hand, lhe average number of
emply seals per lrip vas 32. ßul as can be seen, al one exlreme lhere vere four days vhen
lhere vere more lhan 60 emply seals, and al lhe olher exlreme lhere vere seven days
vhen lhere vere fever lhan 15 emply seals.
In lhe exampIe in Iigure 6-2, aIlhough space vas reIaliveIy lighler on some days lhan
on olhers, on no days vas lhis parlicuIar flighl compIeleIy fuII. The queslion may arise
as lo vhy lhere shouId ever have been any need lo lurn any passenger avay from lhis
scheduIed flighl. Yel lhe probabiIily is very high lhal passengers vere indeed lurned
avay on a number of days, even lhough lhere vere some emply seals al deparlure lime.
The expIanalion for lhis Iies in lhe nalure of lhe reservalions process and lhe facl lhal
a flighl can be fuIIy booked days or even veeks in advance and lhen have some of lhose
bookings dissipale by deparlure lime. Iassengers originaIIy hoIding reservalions may
have lo change lheir pIans al lhe Iasl minule and eilher canceI lheir space loo Iale for il
lo be rebooked or simpIy become no-shows. Thus, lhe exislence of some emply seals al
100
80
60
40
20
1 3 5 7 9 11 13 15
Day of month
Passengers
Empty seats
N
u
m
b
e
r

o
f

d
a
i
l
y

s
e
a
t
s

a
v
a
i
l
a
b
l
e
17 19 21 23 25 27 29 31
FIGURE 6-2 Daily seats and passengers, one Miami–New York schedule
(hypothetical scenario).
A I R T R A N S P O R TAT I O N 1 9 4
deparlure lime does nol eIiminale lhe possibiIily lhal prospeclive passengers vere lurned
avay al some lime during lhe booking process. The imporlance of lhis faclor is indicaled
by lhe no-shov rale, vhich al limes has run as high as 20 percenl.
No-shovs are parlIy offsel by overbooking, vhich reflecls an aĴempl by airIines
lo faclor in lhe malhemalicaI probabiIilies of no-shovs and lo ad|usl seal invenlories
accordingIy. A carrier cannol compIeleIy correcl for lhis faclor, hovever, because some
aIIovance musl be made for unexpecled changes in booking paĴerns. Therefore, lhere is
sliII lhe prospecl of unaccommodaled demand for any flighl lhal deparls vilh onIy a fev
seals emply.
ßased on lhe carrier’s no-shov rale for a parlicuIar flighl, il appears IikeIy lhal flighls
deparling vilh Ioad faclors of 80 percenl or more have lurned avay some passengers.
AIlhough lhe cosl benefil of high Ioad faclors is easiIy underslood, ve nov see lhal lhere
is anolher side lo lhe coin—lhe reIalionship belveen Ioad faclor and service convenience.
The higher lhe Ioad faclor, lhe grealer lhe prospecl lhal a passenger viII find his or her
desired flighl aIready fuIIy booked vhen seeking a reservalion. There is, in olher vords, a
lradeoff invoIved in high Ioad faclors—lhe benefil of Iover cosl per passenger versus lhe
disadvanlage of Iover service convenience.
Pri ci ng i n |c| aii cn ic Ica! |acicr
One approach lhal carriers have used quile exlensiveIy over lhe years lo improve Ioad
faclors is off-peak pricing. This invoIves lhe inlroduclion of a promolionaI fare designed
lo aĴracl passengers during an olhervise sIack period. Off-peak pricing dales back lo lhe
earIiesl days of lhe airIine induslry. The firsl coach service, for exampIe, vas an off-peak
nighl coach.
Il has aIvays been recognized lhal bolh lhe pubIic and lhe induslry benefil if lhe emply
seals on Iov-lraffic days are fiIIed vilh passengers vho are viIIing lo lraveI on lhose
Iess popuIar days in exchange for some fare reduclion. The addilionaI passengers add
very IiĴIe lo cosls (primariIy meaI service), bul lhey add a greal deaI lo lhe flighl’s lolaI
revenue.
Off-peak pricing has nol been vilhoul ils probIems. One probIem is lhe facl lhal lhe
liming of lhe peak has varied from roule lo roule and even from one direclion lo lhe olher
on lhe same roule. Ior exampIe, DaIIas–Nev OrIeans mighl experience ils peak lraffic
on Iriday, and Chicago–Los AngeIes on Sunday. As anolher exampIe, lhe peak hour of
lhe day veslbound from Nev York lo Los AngeIes is from 5:00 lo 6:00 ѝ.њ. Yel lraveIing
easlbound on lhe very same roule, lhe peak deparlure lime is 9:00 ю.њ., because of lhe
effecl of lime zones.
Off-peak pricing, by ils nalure, in|ecls compIicalions inlo lhe pricing slruclure. In
conlrasl, some pricing deveIopmenls in recenl years have aimed for lhe simpIicily of overaII
fare reduclions, appIied across lhe board, vilhoul reslriclions. AIlhough such overaII fare
reduclions have lhe veIcome effecl of reducing lhe compIexily of lhe fare slruclure, lhey do
require higher Ioad faclors lo remain viabIe, and lhey cannol lhemseIves channeI lraffic lo
off-peak limes and days lo achieve oplimaI Ioad faclors. Therefore, lhis parlicuIar pricing
lrend brings inlo pIay lhe fuII force of high Ioad faclors on space reslriclions vilhoul
sohening lhe impacl of such reslriclions on lhe normaIIy peak limes.
Al lhis poinl, il is impossibIe lo predicl vhich pricing slralegies viII prove dominanl in
lhe Iong run. Ior reasons aIready indicaled, lhe oulcome viII have an imporlanl bearing
on lhe service-convenience aspecl of fulure Ioad faclors.
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 5
KEY TERMS
oIigopoIy Ioad faclor
barriers lo enlry posilioning flighl
economy of scaIe no-shov
muluaI dependence overbooking
diseconomy of scaIe off-peak pricing
REVI EW QUESTI ONS
1. Why is lhe airIine induslry considered oIigopoIislic` Whal are some of lhe barriers lo
becoming a cerlificaled carrier loday` Compare lhe barriers loday vilh lhose before
dereguIalion. Hov has lhe number of carriers, and lheir markel share, changed since
dereguIalion`
2. Define cccncnics cj sca|c. Hov do lhey appIy lo lhe ma|or carriers` When can economies
of scaIe lurn inlo diseconomies of scaIe` Give severaI exampIes of economies of scaIe
in lhe airIine induslry loday.
3. Why has lhere been a lendency lovard mergers in oIigopoIislic induslries over lhe
years` Whal are some of lhe reasons air carriers have merged` Whal do you lhink lhe
slruclure of lhe airIine induslry viII be Iike in 2010`
4. Why are lhe carriers so muluaIIy dependenl` Hov have pricing praclices changed
since lhe predereguIalion days` Whal vas lhe ma|or form of compelilion in lhe
predereguIalion era` Discuss some of lhe causes of lhe price vars in lhe 1980s. Do
you foresee prices slabiIizing in lhe nexl severaI years` Why is lhere a lendency in
oIigopoIislic induslries lovard price rigidily and nonprice compelilion`
5. Give some exampIes of hov governmenl (parlicuIarIy lhe federaI governmenl) has
assisled lhe induslry financiaIIy over lhe years. Why is lhere such a high lechnoIogicaI
lurnover in lhe induslry` When one carrier acquires nev flighl equipmenl, vhy do
lhe olher compeling Iines have lo do lhe same`
6. Whal are lhe lhree ma|or operaling expenses of airIines` Why are lhey so high` Hov
have lhey changed over lhe years` Why are Iabor cosls such a compelilive advanlage
for slarl-up airIines over more eslabIished carriers`
7. Whal is lhe compelilive advanlage of scheduIe frequency` Hov does il Iead lo excess
capacily` Describe lhe effecl of excess capacily on pricing.
8. Many induslries are sensilive lo fluclualions in lhe economy. Hov does lhe airIine
induslry differ` Hov is il differenl lo furIough empIoyees in lhe airIine induslry
versus lhe aulomobiIe or soh-drink induslry`
9. Why has lhe airIine induslry been sub|ecl lo grealer governmenl reguIalion lhan olher
oIigopoIislic induslries`
A I R T R A N S P O R TAT I O N 1 9 6
10. Define |ca! jacicr. Whal is lhe reIalionship belveen Ioad faclor and cosls per unil`
IxpIain. Why have Ioad faclors increased in recenl years` Why are aII pubIic
lransporlalion modes sub|ecl lo lraffic peaks and vaIIeys` Hov do posilioning flighls
affecl Ioad faclors`
11. Why can’l airIines fine-lune capacily lo malch demand` Define nc-sncus. When Ioad
faclors approach 80 percenl or higher, ve can expecl some passengers lo be lurned
avay. Why` Whal is ctcr|ccking? Off-pcak pricing?
WEB SI TES
hĴp://vvv.airIinebiz.com
hĴp://vvv.economisl.com
hĴp://vvv.nyse.com
hĴp://vvv.finance.yahoo.com
hĴp://vvv.airIines.org/pubIic/home/defauIl1.asp
hĴp://vvv.bls.gov/faq/financslals.hlmI
hĴp:// vvv.airIines.org
SUGGESTED READI NGS
ßrenner, MeIvin A., Iames O. Leel, and IIihu SchoĴ. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
CiviI Aeronaulics ßoard, Office of Iconomic AnaIysis. Aircrah Sizc. Ica! |acicr. an! On-Ocnan!
Scrticc. Washinglon, D.C.: CAß, 1979.
Irederick, Iohn H. Ccnncrcia| Air Transpcriaiicn. Homevood, III.: Irvin, 1961.
Iruhan, WiIIiam I., Ir. Tnc |igni jcr Ccnpciiiitc A!taniagc. A Siu!u cj inc Uniic! Siaics Ocncsiic
Trunk Air Carricrs. Cambridge, Mass.: Harvard Universily Iress, 1972.
GiII, Irederick, and GiIberl L. ßales. Air|inc Ccnpciiiicn. Cambridge, Mass.: Harvard Universily
Iress, 1949.
HoIIovay, Slephen. Siraigni an! Ictc|. Praciica| Air|inc |ccncnics. AIdershol, UK: Ashgale, 2003.
Iames, George W. Air|inc |ccncnics. Lexinglon, Mass.: Healh, 1982.
Ienkins, DarryI (ed.). Han!|cck cj Air|inc |ccncnics. Nev York: McGrav-HiII, 1995.
Kneafsey, Iames T. Tnc |ccncnics cj inc Transpcriaiicn |irn. Markci Siruciurc an! |ccncnic Pcrjcrnancc
in inc Transpcriaiicn |n!usirics. Lexinglon, Mass.: Lexinglon ßooks/Healh, 1974.
Kneafsey, Iames T. Transpcriaiicn |ccncnics Ana|usis. Lexinglon, Mass.: Lexinglon ßooks/Healh,
1975.
Morrison, Sleven, and CIifford Winslon. Tnc |ccncnic |ffccis cj Air|inc Ocrcgu|aiicn. Washinglon,
D.C.: The ßrookings Inslilulion, 1986.
Morrison, Sleven A., CIifford Winslon, and ßruce K. MacLaury. Tnc |tc|uiicn cj inc Air|inc |n!usiru.
Washinglon, D.C.: The ßrookings Inslilulion, 1994.
O’Connor, WiIIiam. An |nirc!uciicn ic Air|inc |ccncnics (6lh ed.). Nev York: Iraeger, 2000.
Ogur, Ionalhan D., Curlis Wagner, and MichaeI G. Vila. Tnc Ocrcgu|aic! Air|inc |n!usiru. A |cticu
cj inc |ti!cncc. Washinglon, D.C.: ßureau of Iconomics, IederaI Trade Commission, 1988.
Radnoli, George. Prcfii Siraicgics jcr Air Transpcriaiicn. Nev York: McGrav-HiII, 2002.
C H A P T E R 6 • E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 7
Smilh, GeraId R., and Ieggy A. GoIden. Air|inc. A Siraicgic Managcncni Sinu|aiicn (4lh ed.). Nev
York: Irenlice-HaII, 2002.
Slralford, A. H. Air Transpcri |ccncnics in inc Supcrscnic |ra (2d ed.). London: MacmiIIan, 1973.
Tane|a, NavaI K. Air|incs in Transiiicn. Lexinglon, Mass.: Healh, 1981.
Trelhevay, MichaeI W., and Tae H. Oum. Air|inc |ccncnics. |cun!aiicns jcr Siraicgu an! Pc|icu.
Vancouver: Universily of ßrilish CoIumbia Iress, 1992.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. ßeImonl, CA: Thomson ßrooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 1 9 8
PART THREE
Managerial Aspects
of Airlines
199
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7
Airline Management
and Organization
Introduction
Management
The New Corporate Structure
Functions of Management
Organization
The Organizational Chart
Staff Departments
Line Departments
Chapter Checklist • You Should Be Able To:
Define nanagcncni and crganizaiicn
Discuss lhe differenl IeveIs of managemenl, and
expIain each IeveI’s roIe
Describe lhe basic funclions of managemenl
Describe lhe principIes of organizalion pIanning lhal
are of parlicuIar significance lo lhe air carriers
IxpIain vhal is meanl by a |inc-an!-siaff crganizaiicn
Idenlify lhe lypicaI slaff adminislralions in a ma|or
carrier, and describe lheir primary responsibiIilies
Lisl severaI ma|or deparlmenls under each
adminislralion, and discuss lheir individuaI roIes
Idenlify lhe lhree Iine adminislralions found in a lypicaI
air carrier, and describe lheir primary responsibiIilies
Lisl severaI ma|or deparlmenls under each of lhe Iine
adminislralions, and discuss lheir individuaI roIes
Idenlify lhe “nev" corporale slruclure used al nev-
enlranl and Iov-cosl carriers.










201
INTRODUCTION
Ivery organizalion has goaIs, vhelher lhey be profils, markel share, grovlh, quaIily of
producls or services, communily image, or any combinalion of lhese. Management is lhe
process of achieving an organizalion’s goaIs lhrough lhe coordinaled performance of five
specific funclions: pIanning, organizing, slaffing, direcling, and conlroIIing.
Years ago, vhen lhe ma|or carriers vere in lheir formalive period, lhe managemenl
process vas much simpIer. The fev empIoyees lruIy feIl lhal lhey vere parl of a leam,
and lhey couId cIearIy see hov lheir efforls conlribuled lo meeling lhe company’s goaIs.
Iveryone knev vhal lhe ob|eclives of lhe firm vere and hov each parlicuIar |ob reIaled
lo lhem. The Iines of communicalion and span of conlroI vere very shorl. There vas an
espril de corps among lhe empIoyees, from presidenl lo lhe mosl unskiIIed vorker. In
facl, lhe presidenl probabIy knev each empIoyee personaIIy.
Today, lhe ma|or carriers empIoy as many as 80,000 peopIe. No Ionger does lhe presidenl
knov lhe men and vomen on lhe Iine, and many vorkers on lhe Iine have as much
aIIegiance lo lhe union lhey beIong lo as lhey do lo lhe company lhey vork for. Il is difficuIl
for individuaI empIoyees lo see exaclIy hov lheir parlicuIar |obs conlribule lo lhe corporale
goaIs. The Iines of communicalion are Iong, and lhe decision-making process is compIex.
The airIine lends lo assume a remoleness from lhe individuaI and lo become a “lhing” lhal
exisls, survives, and grovs nol because of lhe peopIe vho compose il, bul in spile of lhem.
According lo Chris Argyrus, a noled managemenl lheorisl, “organizalions emerge vhen
lhe goaIs lhey seek lo achieve are loo compIex for any one man. The aclions necessary lo
achieve lhe goaIs are divided inlo unils manageabIe by individuaIs—lhe more compIex
lhe goaIs, olher lhings being equaI, lhe more peopIe are required lo meel lhem.”
1
An organization is lhe framevork vilhin vhich lhe managemenl process can be
carried oul. Il is a slruclure lhal enabIes a Iarge company lo aĴain lhe same efficiency as
or grealer efficiency lhan a smaII firm run effecliveIy by a fev empIoyees. In lhe highIy
compelilive airIine business, an effeclive organizalionaI slruclure may prove lo be lhe
necessary advanlage one firm has over anolher.
1
Chris Argyrus, |nicgraiing inc |n!iti!ua| an! inc Organizaiicn (Nev York: WiIey, 1964), p. 26.
MANAGEMENT
Ictc| s cj Managcncni
Terms such as icp nanagcncni. ni!!|c nanagcncni. and cpcraiing nanagcncni are commonIy
used in business lo dislinguish lhe IeveIs of managemenl vilhin an organizalion.
UnforlunaleIy, lhere is no cIear definilion of each IeveI, and meanings aĴached lo lhe
lerms somelimes differ from one company lo anolher. Hovever, a firm’s icp nanagcncni is
generaIIy considered lo be lhe poIicy-making group responsibIe for lhe overaII direclion
of lhe company: ni!!|c nanagcncni is responsibIe for lhe execulion and inlerprelalion of
poIicies lhroughoul lhe organizalion: and cpcraiing nanagcncni is direclIy responsibIe for
lhe finaI execulion of poIicies by empIoyees under ils supervision.
Iigure 7-1 shovs a lypicaI airIine pyramid of aulhorily incIuding aII lhree IeveIs of
managemenl. The nalure of aclivily carried on al each IeveI is iIIuslraled, vilh exampIes
shoving lhe organizalionaI breakdovn of lvo adminislralions and lhe lypicaI lilIes of
individuaIs heading up each unil. The lerm administration is generaIIy used lo describe
A I R T R A N S P O R TAT I O N 2 0 2
a ma|or unil vilhin lhe company, such as flighl operalions, markeling, or personneI.
Departments are lhe nexl ma|or breakdovn vilhin adminislralions: divisions vilhin
deparlmenls, and so forlh.
The Board of Directors. The chief governing body of a corporalion is lhe board of
direclors, vhich is eIecled by lhe slockhoIders. This board ranges in size from 3 lo 20
or more members and represenls a cross-seclion of prominenl individuaIs from various
fieIds, incIuding banking, insurance, Iav, and accounling. AirIine boards lypicaIIy incIude
individuaIs from lhe holeI and food-processing induslries, as veII as former poIilicaI and
miIilary Ieaders. The board of direclors is lhe chief poIicy-making body of lhe corporalion
and lhe forum lo vhom lhe presidenl reporls. This body decides such broad queslions as,
ShouId lhe company be expanded` and ShouId lhe company diversify inlo olher fieIds`
The board aIso has lhe soIe responsibiIily for lhe decIaralion of dividends. The basic
decision aboul a dividend invoIves olher decisions, such as vhal percenlage of lhe year’s
earnings shouId be relained for company use and vhelher lhe dividend shouId be paid
in cash or in slock.
The direclors of lhe corporalion are responsibIe for lhe appoinlmenl of a presidenl,
secrelary, lreasurer, and olher execulive officers vho handIe lhe acluaI delaiIs of
managemenl. Ohen, lhe board eIecls some of ils ovn members lo fiII lhese imporlanl
posls.
Top Management. Top managemenl is lhe highesl IeveI of managemenl in lhe organi-
zalion. The |ob of lop managemenl is lo delermine lhe broad ob|eclives and procedures
necessary lo meel lhe goaIs eslabIished by lhe board of direclors. Top managemenl viII
aIso make recommendalions lo lhe board regarding lhe goaIs of lhe company. Whal
dislinguishes lop managemenl from middIe managemenl is nol aIvays cIear in a given
organizalion, bul lhe individuaIs in lhis group usuaIIy have many years of experience
in aII phases of managemenl. Ohen caIIed key execulives, senior execulives, or ma|or
execulives, lhey usuaIIy bear lhe lilIe of presidenl, execulive vice-presidenl, or senior
vice-presidenl.
Prcsi!cni. This individuaI is lhe chief execulive officer of lhe corporalion and is responsi-
bIe for lhe proper funclioning of lhe business. In lhe case of airIines, lhis individuaI ohen
is a prominenl business or poIilicaI Ieader vilh very IiĴIe airIine experience, because lhe
presidenl’s primary roIe is lo deaI vilh lhe financiaI communily, various segmenls of
governmenl, communily groups, and so forlh.
|xccuiitc ticc-prcsi!cni an! gcncra| nanagcr. This individuaI generaIIy has years of airIine
experience and is responsibIe for lhe day-lo-day operalion of lhe company. GeneraIIy, lhe
senior vice-presidenls reporl lo lhis individuaI.
Scnicr ticc-prcsi!cni. This lilIe generaIIy is reserved for lhose individuaIs vho head up
a ma|or adminislralion, such as flighl operalions, markeling, or engineering and mainle-
nance.
Middle Management. MiddIe managemenl is lhe second IeveI of managemenl in lhe
organizalion and is responsibIe for deveIoping operalionaI pIans and procedures lo
impIemenl lhe broader ones conceived by lop managemenl. MiddIe managemenl may be
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 3
given much Ieevay in lhe deveIopmenl of pIans, so Iong as lhe end resuIl is in keeping
vilh lop managemenl’s requiremenls. Decisions on vhich adverlising media lo use, hov
many reservalions agenls are needed, and vhal nev equipmenl lo purchase are exampIes
of lhose made by middIe managemenl.
MiddIe managemenl incIudes individuaIs vho head up deparlmenls or divisions vilhin
a ma|or adminislralion, such as lhe adverlising deparlmenl under markeling or lhe flighl
procedures and lraining deparlmenl under flighl operalions. Or il mighl incIude lhe simuIalor
division head, vho reporls lo lhe flighl procedures and lraining deparlmenl head.
TypicaI airIine lilIes for individuaIs in charge of deparlmenls and divisions are vice-
presidenls, direclors, and, in lhe case of mainlenance faciIilies, superinlendenls.
Operating Management. Operaling managemenl is lhe Iovesl IeveI in managemenl. Il
incIudes managers, assislanl managers, seclion chiefs, generaI supervisors, and supervisors
vho head up seclions, groups, or unils lhal reporl lo division or deparlmenl heads.
IxampIes mighl incIude lhe manager of dispIay adverlising or lhe generaI supervisor
FIGURE 7-1 Typical airline pyramid of authority. The darker shading indicates
“doing” kinds of work, such as gathering statistics, making
reservations, and maintaining aircraft. The lighter shading indicates
activities such as planning, conferring, and formulating policy.
A I R T R A N S P O R TAT I O N 2 0 4
of lhe sheel melaI shop. Members of lhe operaling managemenl group are primariIy
concerned vilh puĴing inlo aclion operalionaI pIans devised by middIe managemenl:
generaIIy, lhey do nol iniliale pIans of lheir ovn.
AIlhough lhe direclion an airIine lakes is eslabIished by lop managemenl, lhe operaling
managemenl IeveI is exlremeIy imporlanl. Top managemenl makes poIicies, and middIe
managemenl makes pIans lo carry oul lhe poIicies, bul operaling managemenl sees lhal
lhe vork lhe pIans caII for acluaIIy is done. Top managemenl is secure as Iong as lhe profil
piclure is favorabIe. When a carrier is in serious lroubIe financiaIIy, lhe board of direclors
may make changes in lhe lop echeIon. Somelimes, a nev presidenl and execulive vice-
presidenl are empIoyed. When lhis is done, changes al olher managemenl IeveIs are nol
aIvays made by lhe nev lop managemenl, because middIe managemenl can sliII make
pIans lo carry oul poIicy, and operaling managemenl can sliII impIemenl pIans.
Occi si cn Maki ng
IossibIy lhe foremosl responsibiIily of managemenl al aII IeveIs, bul especiaIIy lop
managemenl, is lhe making of decisions. Il permeales aII funclions of managemenl.
In accord vilh lhe broad operalionaI poIicies sel forlh by lhe board of direclors, lop
managers are confronled daiIy vilh lhe need lo decide on courses of aclion lhal viII
enabIe lhem lo achieve lhe goaIs lo vhich lheir companies are dedicaled. In many, if nol
mosl, inslances, lhe decisions invoIve choosing belveen lvo or more courses of aclion.
And al lhe lop echeIon of managemenl, from vhich lhe basic proceduraI orders for lhe
company’s operalions emanale, correcl decisions may be vilaI lo lhe conlinued success
of lhe firm, or even lo ils survivaI. Iarlher dovn lhe manageriaI Iadder, lhe number and
imporlance of decisions made usuaIIy decreases, bul lhe decisions made al lhese IeveIs
are neverlheIess essenliaI lo lhe veII-being of lhe company.
The abiIily lo make correcl decisions in business has Iong been recognized as a prime
aĴribule of successfuI managemenl, bul unliI comparaliveIy recenlIy, lhere has been IiĴIe
apparenl need for inquiry inlo lhe decision-making process. Hovever, lhe Iarge carriers
nov vieId vasl resources in lhe areas of finance, capacily, and personneI, and lhey aIso
face increased compelilion. Thus, lhe possibIe consequences of unvise decisions, bolh
for lhe companies invoIved and for lhe economy, have served lo focus lhe aĴenlion of
sludenls of business on lhe melhods by vhich decisions are made, insofar as lhese can be
discovered.
The sleps invoIved in decision making incIude (1) recognilion of lhe probIem invoIved,
(2) definilion of lhe probIem and breakdovn inlo ils essenliaI parls, (3) lhe aĴempl
lo eslabIish lvo or more aIlernalive soIulions and lo evaIuale lhem comparaliveIy, (4)
seIeclion of lhe soIulion beIieved lo be lhe mosl favorabIe, and (5) adoplion of lhis soIulion
and impIemenlalion of il lhrough lhe issuing of lhe necessary orders. These sleps mighl
be laken in a fev momenls by a singIe execulive, or lhey mighl require a much Ionger
lime, depending on lhe compIexily and imporlance of lhe probIem al hand.
2
In recenl years, a number of changes have broughl lhe decision-making process inlo
sharper focus. Irom lhe pureIy mechanicaI side, lhe rapid and exlensive deveIopmenl
of high-speed compulers and dala-processing procedures has added immeasurabIy lo
lhe quanlily of informalion avaiIabIe lo execulives, lhereby enabIing lhem lo base lheir
decisions on far grealer amounls of reIevanl dala lhan previousIy.
2
CarI HeyeI (ed.), Tnc |ncuc|cpc!ia cj Managcncni, 2d ed. (Nev York: Van Noslrand ReinhoId, 1963), p. 977.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 5
Second, and vhal many anaIysls beIieve is lhe mosl imporlanl aspecl of airIine
dereguIalion, lhe quaIily of managers and lheir decisions has come inlo queslion.
Managing air carriers during lhe reguIaled era required a differenl sel of skiIIs lhan
lhose mosl in demand since dereguIalion, because of lhe conlroI lhal lhe CiviI Aeronaulics
ßoard (CAß) exercised over roules, prices, and equipmenl. ßy lhe 1970s, lhe CAß had
effecliveIy slopped granling nev roules lo lhe Iargesl lrunk carriers, so lhey vere reslricled
lo serving lheir exisling roules. AIso, for any carrier, avards of addilionaI roules required
a Ienglhy and expensive reguIalory procedure, vilh no guaranlee of success. Trunk
or IocaI-service airIines couId compele on price lo vin markel share, bul onIy vilhin
a fairIy Iimiled sphere. The CAß aIso exercised considerabIe influence over decisions
aboul lhe acquisilion of aircrah. In lhis environmenl, managers needed lo be experienced
al operaling vilhin lhe confines of CAß reguIalions, if nol adepl al Iobbying lo change
lhem. Many airIine managers vere indeed quile effeclive, bul skiIIs in markeling and cosl
conlroI vere Iess imporlanl lhan lhose in Iav and poIilics.
DereguIalion gave managers lhe abiIily lo depIoy assels and lo price services according
lo markel demand, a freedom exercised daiIy by managers lhroughoul lhe resl of lhe
economy. Mosl lop airIine execulives, hovever, many of vhom had slaunchIy resisled
dereguIalion, vere nol prepared for lhe freedom given lhem, nor vere lhey parlicuIarIy
adepl al exercising il. Some of lhe earIy posldereguIalion slralegic moves by carriers such
as Ian American and Iaslern, for exampIe, vere ineffeclive and faiIed lo make lhem cosl-
compelilive or lo offer a sharpIy differenlialed producl. ßecause lhe CAß had prolecled
carriers from faiIing, managers vere aIso unaccuslomed lo laking risks lhal couId resuIl in
lhe faiIure of lhe firm. ßraniff, for exampIe, expanded far loo aggressiveIy and vas pushed
inlo bankruplcy (for lhe firsl lime in 1982) by lhe firsl ma|or dovnlurn in lhe economy.
Throughoul dereguIalion, lop and middIe managers vho remained from lhe reguIaled
era have been eilher lrained on lhe |ob or repIaced by managers and ovners more prepared
for markelpIace compelilion. Nol aII nev managers, or nev enlranl enlrepreneurs for lhal
maĴer, have been successfuI. Ian American and Iaslern vere veak before dereguIalion
and have since faiIed. Olher carriers, Iike American, ConlinenlaI, DeIla, and Uniled,
have become slronger. Some managemenl innovalions deveIoped or expanded during
dereguIalion have been successfuI al increasing produclivily and conlroIIing cosls.
THE NEW CORPORATE STRUCTURE
Managcncni Tcan
Nev-enlranl and Iov-cosl carriers have an advanlage over Iegacy and eslabIished carriers
vhen il comes lo keeping cosls dovn, efficiency up and communicalion floving. One vay
of doing lhis is lhrough lhe eslabIishmenl of a Iean organizalionaI slruclure vhere lhe
“righl” peopIe are hired lo do lhe “righl” |ob.
Good managemenl is a key lo success and each parlicipanl musl be abIe lo conlribule
somelhing lo lhe business. Iach posilion shouId fil vilh lhe experience and skiIIs of
lhe individuaI and each parlicipanl shouId be abIe lo ansver lhe queslion, “Whal do
you offer lhis business venlure`”. As a ruIe of lhumb, lhere shouId be al Ieasl one very
experienced person on lhe managemenl leam. Ohen, such an individuaI is referred lo as
a “gray hair.” To improve success of lhe company, lhe ideaI person shouId have a proven
A I R T R A N S P O R TAT I O N 2 0 6
business background, preferabIy as C.I.O. vilh a middIe lo Iarge size company. The lype
of induslry does nol reaIIy maĴer bul an airIine background is a definile advanlage.
Wilhoul offending lhe reader, lhere is anolher ruIe of lhumb lhal shouId be considered
vhen discussing lhe managemenl leam. ße caulious of lhe number of Iine piIols lhal
make up lhe managemenl leam. GeneraIIy speaking, piIols do nol make lhe mosl effeclive
managers. IiIols are very educaled vhen il comes lo aircrah operalions bul ohen Iack
lhe business skiIIs required lo run a successfuI operalion. Thal being said, more piIols
are combining flighl hours vilh academics and during lhe course of lhe nexl decade, il
is expecled lhal piIols viII be more educaled lhan in lhe pasl. In lhe airIine induslry, il is
ohen said lhal lhere is a surpIus of piIols on lhe markel bul a Iack of quaIified piIols in
lerms of flighl experience, combined vilh academic experience.
The number of peopIe required lo make up an efficienl managemenl leam depends
enlireIy on lhe lype of operalion, size of operalion, and skiIIs of lhe individuaIs. Ixisling
airIines aIready have a corporale slruclure in pIace as menlioned earIier in lhis chapler. In
mosl cases, lhe managemenl leam is loo Iarge and somevhal ineffeclive due lo dupIicalion
of vork and Iack of communicalion belveen deparlmenls. Nev airIines slarling oul
have lhe advanlage of being abIe lo eslabIish an effeclive managemenl leam from lhe
slarl. Il is vise lo have a smaII managemenl leam iniliaIIy and grov il as lhe airIine
expands. Ior slarlers, il is recommended lhal lhe managemenl leam consisl of one Iead
person acling as Iresidenl/C.I.O. IdeaIIy, lhis is lhe oplimaI posilion for lhe “gray hair”
menlioned earIier. This individuaI is lhe chief execulive officer of lhe corporalion and is
responsibIe for lhe proper funclioning of lhe business ohen invoIved vilh lhe financiaI
communily, governmenl, and members of lhe pubIic. Nol onIy shouId lhis individuaI
have exlraordinary business skiIIs, bul he/she shouId have good inlerpersonaI skiIIs as
communicalion pIays an imporlanl aspecl of lhis posilion.
Il is aIso recommended lhal a second Iead person be a parl of lhe managemenl leam.
This person mighl be given lhe lilIe of Ixeculive Vice-Iresidenl or Senior Vice-Iresidenl.
Once lhe airIine is eslabIished and groving, il viII mosl IikeIy be necessary lo appoinl lvo
individuaIs lo fiII each lilIe. Hovever, for a nev airIine slarling oul, lhis is nol necessary
unIess massive rapid grovlh is anlicipaled over a shorl period of lime. IdeaIIy, lhe second
Iead person shouId have a Vice-Iresidenl/GeneraI Manager lilIe. This person shouId
have a number of years of airIine experience al lhe managemenl IeveI because he/she is
responsibIe for lhe day-lo-day operalion of lhe airIine.
Aside from lhe lvo posilions previousIy menlioned, a nev airIine slarling oul mighl
consider lhe foIIoving informalion vhen forming a managemenl leam. Again, keeping
lhe iniliaI leam smaII is imporlanl. In lhe Uniled Slales, for an air carrier lo oblain
cerlificalion, lhe managemenl leam musl have a minimum number of posilions. Ior IAR
121 cerlificalion, mandalory posilions incIude: Direclor of Safely, Direclor of Operalions,
Chief IiIol, Direclor of Mainlenance, and Chief Inspeclor. Ior IAR 135 cerlificalion,
lhe mandalory posilions incIude: Direclor of Operalions, Chief IiIol, and Direclor of
Mainlenance. Depending on lhe compIexily of lhe operalion, il is possibIe lo oblain a
devialion from lhe required basic managemenl posilions and quaIificalions if requesled
in vriling lo lhe IAA. Such a requesl is normaIIy made vhen lhe air carrier submils lhe
formaI appIicalion IeĴer for cerlificalion. Hovever, lhe air carrier musl be abIe lo shov lhe
IAA lhal il can perform lhe operalion vilh lhe highesl degree of safely under lhe direclion
of fever or differenl calegories of managemenl personneI. Informalion concerning lhe
required background for each of lhe posilions menlioned can be oblained from lhe IAA’s
Advisory CircuIar (AC) 120-49 enlilIed “Cerlificalion of Air Carriers”.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 7
DeveIoping lhe righl managemenl leam is a difficuIl process and in lhe case of many
nev airIines pIanning lo commence operalions, opporlunilies ohen pass by because of lhe
Ienglh of lime needed lo pul peopIe in pIace. In order lo speed up lhe raising of capilaI and
move forvard vilh lhe cerlificalion process, some business pIans uliIize lhe repulalion of
an oulside parly lo acl as lhe “inlerim” managemenl leam. There are a number of consuIling
companies and experl individuaIs in lhe markel vho viII permil use of lheir name and
laIenls on paper for a fee or some form of compensalion. Some firms viII pul logelher an
enlire managemenl leam lo heIp gel a nev airIine off lhe ground. Many exisling airIines
have found lhis lo be a vorlhvhiIe oplion bul il shouId be noled, such an oplion can be
expensive and somevhal risky. ße sure lo oblain references for aII polenliaI members of
lhe managemenl leam and do background searches, if necessary. The avialion induslry is
fuII of “experls” so be caulious and do nol rush inlo any lype of conlracl unliI a lhorough
invesligalion has been compIeled. AIso, depending on vho lhe primary inveslors are,
lhey viII ohen have a say vilh vho shouId be a parl of lhe managemenl leam. In many
cases, lhe inveslor is nol lhe besl person lo decide vho shouId manage lhe airIine.
Organi zaii cna| Siruciurc
Mosl airIines, oId and nev, lend lo operale using lhe cIassic pyramid or lop-dovn slruclure
consisling of lop managemenl, middIe managemenl, and operaling managemenl. There
is no cIear definilion of each IeveI, and meanings aĴached lo lhe lerms somelimes differ
from one company lo anolher. Hovever, lop managemenl is generaIIy considered lo be
lhe poIicy-making group responsibIe for lhe overaII direclion of lhe company: middIe
managemenl is responsibIe for lhe execulion and inlerprelalion of poIicies lhroughoul
lhe organizalion: and operaling managemenl is direclIy responsibIe for lhe finaI
execulion of poIicies by empIoyees under ils supervision. The pyramid is divided inlo
adminislralions each headed by an individuaI. Ior exampIe, ma|or unils mighl incIude
flighl operalions, markeling, or personneI. Deparlmenls are lhe nexl ma|or breakdovn
vilhin adminislralions: divisions vilhin deparlmenls, and so forlh.
AIlhough lhis slruclure has been used for many years, lhere are differenl oplions lo
consider. The lop lhree cosls for an airIine are fueI, Iabor, and mainlenance. Increased
pressure has been pul on lhe airIines in recenl years lo impIemenl cosl cuĴing slralegies
and one area hil has been Iabor. MiddIe managemenl is usuaIIy lhe firsl lo be eIiminaled
during bad limes as vilnessed in lhe mid-1980s vhen lhe Uniled Slales faced a ma|or
recession. Many airIines have reaIized lhal middIe IeveI managemenl is nol aIvays
necessary lo run a successfuI operalion and nev airIines ohen eIiminale lhis seclion of lhe
corporale slruclure lherefore reducing cosls and ohen improving efficiency. When middIe
managemenl is cul from lhe piclure, vork ordinariIy done al lhe deparlmenl and division
IeveIs shihs upvard increasing lhe roIes and responsibiIilies vilh lop managemenl. In
olher cases, more aulhorily is deIegaled lo lhe Iover or operaling IeveI of managemenl.
In loday’s environmenl, il is imporlanl for an airIine lo avoid dupIicalion of vork
slruclures and improve inlernaI communicalions vhere possibIe. Il is aIso imporlanl
lo creale a flexibIe corporale slruclure lhal can expand vhen necessary and conlracl if
needed vilhoul serious harm being done lo lhe business. Nev slarl-up carriers have lhe
advanlage over exisling airIines of being abIe lo laiIor a corporale slruclure lhal besl fils
lhe organizalion. Nev corporale slruclures shouId provide more aulhorily lo individuaIs
al differenl IeveIs. As aulhorily is deIegaled, responsibiIily shouId be increased vilh
specific posilions lherefore changing lhe nalure of lhe lypicaI lop-dovn or siIo syslem lo
A I R T R A N S P O R TAT I O N 2 0 8
more of a flal organizalion. Iigure 7-2 visuaIizes a possibIe corporale slruclure suilabIe
for lhe currenl avialion environmenl.
The slruclure previousIy discussed viII aIso aIIov lhe airIine lo become more diverse
vhen needed. Diversificalion is one key lo success in lhe airIine business bul mosl airIines
are nol abIe lo diversify despile having aII lhe resources lo do so. The lypicaI pyramid
slruclure is designed so lhal virluaIIy aII decisions for lhe organizalion are made among
a handfuI of peopIe. As a resuIl, lhe laIenls and skiIIs of olhers are ohen nol uliIized and
decisions made are somelimes nol in lhe besl inleresl of lhe airIine bul in lhe besl inleresl
of upper managemenl of lhe board of direclors. A Iess formaI organizalionaI slruclure
aIIovs diversificalion lo happen because more skiIIs and laIenls can be lapped inlo.
Access lo such resources viII permil lhe airIine lo iniliale nev deparlmenls vhen needed
and increase lhe abiIily of lhe company lo become invoIved in businesses oulside of lhe
core business.
TOP
MANAGEMENT
President/CEO
Vice President
OPERATING
MANAGEMENT
Director of Safety
Director of Operations
Director of Maintenance
Chief Pilot
Chief Inspector
FIGURE 7-2 Typical new organizational structure for new-entrant and low-cost
carriers
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 9
MBO process
Appraisal Coaching
Goal
setting
FIGURE 7-3 Management by objectives.
FUNCTIONS OF MANAGEMENT
The main functions of management are pIanning, organizing, slaffing, direcling, and
conlroIIing. The key looIs of managemenl are supervisory skiIIs, vhich musl be Iearned
and pracliced.
P| anni ng
An airIine is dependenl for ils very exislence on lhe abiIily of ils lop pIanners. IaiIure lo
forecasl lhe demand for air lraveI and lo pIan hov lo meel a rising or shrinking demand
speIIs lhe difference belveen success and faiIure. The managemenl process begins vilh
planning, vhich sels lhe slage for vhal lhe organizalion viII do, bolh gIobaIIy and
specificaIIy.
GoaIs shouId be eslabIished for lhe company as a vhoIe and for each adminislralion
and deparlmenl, as veII as for individuaI aclivilies. A goaI is anylhing lhal an organizalion
or group is seeking lo do. Some goaIs are Iarge, such as buying a holeI chain or buiIding
a nev flighl kilchen lo serve a groving hub airporl. Olher goaIs are smaII, such as geĴing
a reporl compIeled by Iriday or handIing more reservalions caIIs per hour lhan Iasl
monlh.
Ccnpanuui!c gca|s. These are lhe generaI goaIs an organizalion vanls lo achieve. Some
exampIes mighl be “earn an annuaI relurn of 12 percenl on our inveslmenl,” “caplure 25
percenl of lhe Nev OrIeans–Memphis markel,” and “deveIop a nev promolionaI fare lo
compele vilh AirIine X.”
A!ninisiraiicn cr !cparincnia| gca|s. These goaIs shouId be reIaled lo—and shouId Iead
direclIy lo—lhe achievemenl of companyvide goaIs. Some exampIes mighl be “improve
on-lime performance by 10 percenl syslemvide during lhe nexl quarler,” “deveIop and
impIemenl a nev lraining program for apprenlice-IeveI mechanics in lhe sheel melaI
shop,” and “hoId flighl aĴendanl absenleeism lo 7 percenl.”
|n!iti!ua| gca|s. These are lhe goaIs lhal specific persons viII have lo achieve if deparl-
menlaI, division, group, or unil goaIs are lo be mel. Some exampIes mighl be “increase my
A I R T R A N S P O R TAT I O N 2 1 0
cargo saIes voIume by 10 percenl over Iasl year” and “process 10 percenl more insurance
cIaims per veek.”
Management by Objectives. Many carriers operale by a syslem popuIarIy
referred lo as management by objectives (MßO), in vhich empIoyees al
aII IeveIs are given langibIe goaIs and are heId accounlabIe for achieving lhem (see
Iigure 7-3). Slralegies musl be formuIaled lo achieve lhe goaIs and ob|eclives of an
organizalion. Consider lhe companyvide goaI |usl menlioned: “caplure 25 percenl of
lhe Nev OrIeans–Memphis markel.” A slralegy mighl incIude increasing lhe number of
daiIy flighls, incIuding lhose serving fuII meaIs. In a veII-designed MßO program, overaII
goaIs and slralegies of lhe company and of individuaI empIoyees are eslabIished lhrough
discussions belveen managers and lheir subordinales. Ieedback is provided lhrough
foIIov-up discussions during lhe period of lime sel for achieving lhe goaIs. Ieedback
may be in lhe form of dala on quanlilalive resuIls (such as doIIar saIes, nev accounls, unil
cosls, aircrah lurnaround lime, or mechanicaI deIays) or dala on quaIilalive resuIls (such
as cuslomer compIainls, reduclions in errors, improvemenl in image, or deveIopmenl
of subordinales). Ierson-lo-person communicalion, lhrough day-lo-day coaching, is
parlicuIarIy imporlanl.
Wilh MßO, because empIoyees receive limeIy, accurale, and fairIy compIele informalion
on lheir performance resuIls, lhey are in a posilion lo lake correclive aclion vhen necessary.
The vhoIe MßO approach assumes lhal empIoyees viII accepl responsibiIily for lhe
achievemenl of company goaIs and lhal lhey viII become commiĴed vhen lhe goaIs are
meaningfuI, aĴainabIe, and eslabIished lhrough muluaI pIanning.
The finaI slage of lhe MßO process is lhe appraisaI of resuIls. Al lhe end of lhe
performance period, lhe manager and lhe empIoyee check lhe empIoyee’s progress in
achieving lhe goaIs. This serves as a lime for recognilion of good performance and for
reneved goaI seĴing.
MßO is a conlinuous cycIe of goaI seĴing, coaching and feedback, and appraisaI of
resuIls. Il is a naluraI behavioraI process lhal mosl individuaIs foIIov on a daiIy basis.
Policy and Procedures as Part of Planning. Ivery airIine has a policy and procedures
manuaI, usuaIIy prepared by lhe personneI deparlmenl and conlaining ma|or seclions
perlaining lo each of lhe adminislralions. A poIicy is a broadIy slaled course of aclion lhal
empIoyees shouId foIIov in making decisions. A poIicy is a guide: empIoyees do have
some discrelion in ils impIemenlalion. Ior exampIe, an empIoymenl poIicy for aII slaff
posilions above a cerlain IeveI mighl be lhal “preference in empIoymenl viII be given lo
coIIege graduales vilh a managemenl background.” Hundreds of poIicies are in effecl
al any ma|or carrier, and lhose of a broad nalure are eslabIished by lop managemenl.
Iover lo make specific poIicies for lhe guidance of each deparlmenl usuaIIy is deIegaled
lo adminislralion or deparlmenl heads.
A prccc!urc is somevhal Iike a poIicy, bul il specifies in more delaiI lhe kind of aclion
required lo handIe a specific silualion. There are procedures for ordering suppIies, lraining
nev empIoyees, fueIing aircrah, handIing cuslomer compIainls, and hundreds of olher
processes vilhin lhe various adminislralions, deparlmenls, divisions, and so forlh.
|u|cs or rcgu|aiicns indicale in very precise lerms vhelher, in a specific silualion,
somelhing is lo be done or nol done. An exampIe of a ruIe is, “Company-aulhorized
headgear and gIasses musl be vorn al aII limes by aII persons vho vork vilhin 40 feel of
lhe veIding operalion in ßuiIding 7.” RuIes are imporlanl for essenliaIIy lhe same reason
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 1
as procedures: lhey save lime, because peopIe do nol have lo lhink lhrough and ponder
each nev silualion, and lhey give empIoyees a cIear sense of vhal lhey can and cannol
do.
Organi zi ng
Once pIans have been made and poIicies delermined, lhe |ob of carrying lhem oul becomes
one of organizalion and operalion. Organizing invoIves lhe division of vork among
empIoyees and lhe delerminalion of hov much aulhorily each person viII have. More
specificaIIy, organizing may be defined as lhe process of IogicaIIy grouping aclivilies,
deIinealing aulhorily and responsibiIily, and eslabIishing vorking reIalionships lhal
enabIe lhe empIoyees, and lhus lhe enlire unil, lo vork vilh maximum efficiency and
effecliveness.
The chief purpose of organizalion is lo eslabIish efficienl Iines of responsibiIily and
aulhorily designed lo (1) provide supervision of aII vork vilh a maximum uliIizalion of
knovIedge and experience lo besl advanlage, (2) efficienlIy assign and scheduIe aII vork
vilh lhe proper priorily observed in pro|ecls lo be accompIished, (3) provide a means
vhereby managemenl can be kepl informed of lhe efficiency and dispalch vilh vhich
each parlicuIar unil is fuIfiIIing ils funclion, and (4) eslabIish a sequence of imporlance
in |ob cIassificalions so lhal aII empIoyees can adequaleIy |udge lhe possibiIilies for
advancemenl.
Siaj fing
Staffing invoIves slalioning peopIe lo vork in lhe posilions provided for by lhe
organizalionaI slruclure. Il incIudes defining vork force requiremenls for lhe |ob lo
be done, as veII as invenlorying, appraising, and seIecling candidales for posilions:
compensaling empIoyees: and lraining or olhervise deveIoping bolh |ob candidales and
currenl empIoyees lo accompIish lheir lasks effecliveIy.
Oi rccii ng
Directing incIudes assigning lasks and inslrucling subordinales on vhal lo do and
perhaps hov lo do il. ßecause lhe supervisor’s |ob is lo gel lhings done lhrough olher
peopIe, effecliveness is cIoseIy lied lo communicaling direclives cIearIy and in a vay lhal
viII bring aboul lhe desired aclion. Il is essenliaI lhal subordinales undersland lhe orders,
or lhey viII nol be abIe lo carry lhem oul. In direcling peopIe, il is imporlanl lo knov hov
much informalion and vhal kind of informalion lo give lhem. Orders shouId be fiĴed
lo lhe receiver: lhe nev empIoyee needs lo be inslrucled in delaiI, bul lhe experienced
vorker may need lo knov onIy lhe ob|eclives and lhen be capabIe of choosing lhe means
lo aĴain lhem.
Ccnirc| | i ng
Controlling is lhe measuring and correcling of aclivilies of subordinales lo ensure lhal
evenls conform lo pIans. Thus, il invoIves measuring performance againsl goaIs and
pIans, shoving vhere devialions occur and, by puĴing in molion aclions lo correcl
devialions, ensuring accompIishmenl of pIans. ßasicaIIy, conlroI invoIves lhree sleps: (1)
A I R T R A N S P O R TAT I O N 2 1 2
seĴing performance slandards for lhe vork, (2) comparing acluaI performance vilh lhe
slandard, and (3) laking correclive aclion lo bring performance in Iine vilh lhe slandard.
Slandards of bolh quanlily and quaIily shouId be delermined as preciseIy as possibIe.
UnliI lhey are delermined and eslabIished, a |ob viII be |udged by lhree differenl
slandards: (1) vorkers’ ideas of vhal conslilules a fair day’s vork and of vhal lhey lhink
mighl be expecled of lhem, (2) supervisors’ ideas of vhal lhey vouId Iike lo have done
and of vhal lhey lhink can be done, and (3) lop managemenl’s crileria and expeclalions.
Whelher quanlily and quaIily slandards are recognized, lhey exisl, and each IeveI in
lhe organizalion—vorkers, operaling managemenl, middIe managemenl, and lop
managemenl—may be |udging |obs by differenl slandards.
ORGANIZATION
IreviousIy, crganizaiicn vas defined as lhe framevork vilhin vhich lhe managemenl
process can be carried oul. More formaIIy, crganizaiicn is a pIan for bringing logelher
lhe resources of a firm (capilaI and Iabor) lo lhe posilion of grealesl effecliveness, or
produclivily. The pIan consisls of lhe grouping of operalions (Iabor and equipmenl) lo
achieve lhe advanlages of speciaIizalion and a chain of command.
Pri nci p| cs cj Organi zaii cn P| anni ng
An inlernaI organizalionaI slruclure musl be designed lo enabIe managemenl al aII IeveIs
lo exercise conlroI of lhose aclivilies designed lo meel lhe goaIs and ob|eclives of lhe firm.
To aid managemenl, lhere are a number of principIes of organizalion. These principIes
have been deveIoped and pracliced by successfuI firms in various induslries and are
universaIIy appIicabIe vhenever peopIe vork logelher.
Unity of Objectives. The principIe of unity of objectives slales lhal each adminislralion,
deparlmenl, division, seclion, group, and unil of lhe company musl conlribule lo lhe
accompIishmenl of lhe overaII goaIs of lhe firm. Ior exampIe, lhe regionaI saIes and
services deparlmenl musl be concerned nol onIy vilh saIes bul aIso vilh hov ils aclivilies
are inlegraled vilh aII olher aclivilies in lhe company, such as personneI, finance and
properly, flighl operalions, and so forlh. Iach deparlmenl musl accompIish ils ovn goaIs
vhiIe al lhe same lime vorking cooperaliveIy vilh aII olher deparlmenls. Thus, regionaI
saIes and services cannol be pIanning a ma|or promolionaI fare campaign offering easier
credil lerms al lhe same lime lhal lhe finance deparlmenl is embarking on a poIicy of
reslricling credil.
Span of Control. The principIe of span of control slales lhal lhere is a Iimil lo lhe
number of subordinales a manager can effecliveIy supervise. Il is impossibIe lo specify
lhe exacl number of subordinales lhal a manager can supervise for each silualion, for lhal
depends on such variabIes as (1) lhe lype and compIexily of vork being performed, (2) lhe
manager’s abiIily, (3) lhe lraining of subordinales, (4) lhe effecliveness of communicalions,
and (5) lhe imporlance of lime. A cuslomer services agenl al an airporl mighl effecliveIy
supervise 20 lickel-counler agenls, vhereas a senior anaIysl in lhe revenue accounling
deparlmenl mighl supervise onIy lhree |unior anaIysls due lo lhe anaIylicaI nalure of lhe
vork invoIved.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 3
Departmentalization. Departmentalization is lhe praclice of subdividing bolh peopIe
and funclions inlo groups vilhin an organizalion lo gain lhe advanlages of speciaIizalion.
Many lerms are used for such groups, incIuding adminislralions, deparlmenls, divisions,
regionaI offices, seclions, and unils. The exlenl lo vhich an airIine is deparlmenlaIized
depends on lhe size of lhe carrier, lhe compIexily of ils operalions, and ils roule slruclure.
In olher vords, in preparing an organizalionaI pIan, il is necessary lo decide lhe exlenl lo
vhich lasks are lo be subdivided. In a smaII commuler carrier, lhe markeling deparlmenl
mighl consisl of 25 peopIe vho are invoIved in everylhing from scheduIe pIanning
lo soIiciling nev cargo accounls. In a carrier lhe size of Uniled AirIines, vilh 25,000
empIoyees engaged in lhe markeling funclion, lhere is considerabIe division of Iabor
lhrough deparlmenlaIizalion.
AirIines of lhe 21sl cenlury are expecled lo focus much of lheir energy on
deparlmenlaIizalion, as such companies diversify lheir operalions. AirIines of lomorrov
viII need speciaIized deparlmenls. The lime lo slarl buiIding is nov. Nev deparlmenls
mighl incIude safely and securily, lraining, and corporale innovalion (a lhink lank vhere
lhe airIine Iearns lo diversily ils operalion inlo olher lypes of businesses). As a resuIl of lhe
evenls of Seplember 11, 2001, airIines have focused much aĴenlion on enhancing safely
and securily al aII IeveIs.
Iocusing energies on lraining viII be imporlanl as lhe induslry Iearns lo manage a nev
generalion of empIoyees knovn as “Generalion Y.” The nev generalion is oulspoken,
expeclalion driven, and molivaled. AirIines musl creale condilions lhal aĴracl lhe besl
peopIe from a Iarge and diverseIy skiIIed laIenl pooI. The lraining deparlmenl musl be abIe
lo lrain lhese empIoyees quickIy lo increase lhe empIoyee’s vaIue lo lhe company. Such
lraining viII incIude an emphasis on career-effecliveness skiIIs and leaching lhe manager
lo manage. The airIine’s environmenl viII become a resource cenler for personaI grovlh
and deveIopmenl. IeopIe are lhe airIine’s biggesl assel and efficienl lraining programs
couId mean lhe difference belveen success and faiIure. Soulhvesl AirIines reaIizes lhe
imporlance of ils peopIe and runs resuIls-orienled lraining programs lhrough ils ovn
IeopIe Universily.
Delegation of Authority. AIlhough il is lrue lhal lhe finaI aulhorily for aII decisions
resls vilh lhe presidenl and board of direclors, il is nol possibIe or praclicaI lo aIIov
every decision lo reach lhal IeveI. Delegation of authority impIies lhal lhe aulhorily lo
make decisions shouId be pushed dovn lo lhe Iovesl compelenl IeveI of supervision.
This aIIovs minor decisions lo be made al lhe Iover IeveIs of managemenl, and ma|or
decisions al lhe higher IeveIs. Hovever, deIegalion of aulhorily does nol reIieve lhe
deIegalor of lhe responsibiIily for lhe aclions of subordinales. A supervisor is aIvays
uIlimaleIy responsibIe for lhe aclions of subordinales.
This principIe is quile usefuI for comparing lhe managemenl slyIes of various carriers
or, for lhal maĴer, lhe same carrier during differenl periods in ils hislory. Some carriers are
very slingy in lhe deIegalion of aulhorily lo unils dovn lhe chain of command, vhereas
olhers, nolabIy DeIla, have aIvays been knovn for lheir confidence in lheir empIoyees lo
make decisions al lhe Iovesl IeveI possibIe. Soulhvesl AirIines encourages empIoyees lo
presenl ideas ohen resuIling in lhe empIoyee being empovered lo impIemenl lhe idea.
Levels of Management. This principIe hoIds lhal lhe number of levels of management
in lhe company shouId be kepl lo a minimum. As lhe number of organizalionaI IeveIs
A I R T R A N S P O R TAT I O N 2 1 4
increases, probIems in communicalion increase, inasmuch as each communicalion musl
pass lhrough more peopIe as il lraveIs from ils poinl of origin lo ils finaI deslinalion.
A carrier musl achieve a proper baIance belveen span of conlroI and lhe number of
IeveIs of managemenl if il is lo funclion effecliveIy. If a carrier has loo narrov a span of
conlroI, many IeveIs of managemenl viII be required. Wilh a vide span of conlroI, fever
IeveIs of managemenl viII be needed.
During lhe pasl 20 years, many carriers have gone lhrough periods of rapid grovlh
in numbers of personneI foIIoved severaI years Ialer by periods of massive furIoughs.
Wilhoul carefuI anaIysis of lheir organizalionaI pIans, lhey have found lhemseIves in
recessionary limes vilh vhoIe Iayers of managemenl lhal vere needed vhen lhe lraffic
voIume supporled lhem bul lhal in sIack periods represenl overslaffing.
Clearly Defined Duties. Ivery |ob cIassificalion shouId be cIearIy defined
so lhal il differs from and does nol overIap vilh olher |ob cIassificalions. AII of lhe
ma|or carriers have organizalionaI manuaIs (usuaIIy deveIoped and mainlained by
lhe personneI deparlmenl, excepl in lhe case of severaI of lhe Iargesl carriers, vhich
have separale organizalionaI pIanning deparlmenls). These manuaIs incIude aII |ob
descriplions vilhin lhe company, from presidenl on dovn. The prerequisiles for lhe |ob
(in lerms of educalion and experience) are incIuded, as is lhe saIary range. NormaIIy,
each nonmanagemenl |ob descriplion is revieved by lhe personneI deparlmenl every
lvo years in lerms of lhe scope of lhe |ob, lhe funclions performed, lhe number of persons
supervised, and lhe saIary range. Managemenl |obs are usuaIIy revieved annuaIIy.
Flexibility. A carrier musl be flexibIe so lhal il can adapl lo changing condilions, bolh
inlernaI and exlernaI. In loday’s compelilive environmenl, il behooves managemenl
lo assess lhe organizalionaI pIan conlinuousIy lo be sure lhal il is responsive lo lhe
changing markelpIace.
Communication. The lerm communicalion here means an uninlerrupled flov of
orders, inslruclions, queslions, responses, expIanalions, ideas, and suggeslions belveen
lop managemenl and lhe resl of lhe organizalion. This flov shouId be lvo-vay—lhal is,
bolh from managemenl lo empIoyees and from empIoyees lo managemenl. Aside from
lhe cuslomary orders and inslruclions concerning normaI operalions, managemenl
frequenlIy vishes lo expIain some of ils poIicy decisions or lo give informalion regarding
a ma|or roule expansion, pIans for an acquisilion or merger, finances, or personneI
changes in order lo bring aboul a beĴer underslanding among ils vorkers of lhe saIienl
facls concerning lhe company. Ior lheir parl, empIoyees ohen have ideas for saving
lime, Iabor, and maleriaIs or have grievances of one kind or anolher lhal shouId reach
lhe ears of managemenl. In pIanning lhe delaiIs of an organizalion, provision musl be
made for lhe crealion and mainlenance of a good lvo-vay communicalions syslem.
Ii nc an! Siaj j |cspcnsi |i | i ii cs
As a company grovs from a simpIe lo a compIex organizalion, il becomes impossibIe for a
smaII number of execulives lo assume direcl, personaI responsibiIily for funclions such as
empIoymenl, purchasing, markel research, Iabor reIalions, and pubIic reIalions. Therefore,
as lhe company grovs in size and compIexily, assislanls lo execulives are appoinled.
Specific advisory responsibiIilies are deIegaled lo lhese assislanls, vho frequenlIy carry
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 5
such lilIes as “slaff assislanl accounling” or “assislanl lo lhe vice-presidenl of operalions
for personneI.” As lhe aclivilies of lhese assislanls increase, olher personneI are added lo
assisl lhem. IvenluaIIy, lhe vork cenlering around a speciaI assislanl is organized inlo
a deparlmenl, vhich is knovn as a slaff deparlmenl and vhich suppIemenls lhe Iine
funclions of lhe organizalion.
AII Iarge carriers are organized using lhe Iine-and-slaff concepl. Line personnel are
lhose vhose orders and aulhorily flov in a slraighl Iine from lhe chief execulive dovn lo
Iover IeveIs in lhe organizalion. Line peopIe are usuaIIy invoIved direclIy in producing
or seIIing air lransporlalion. Ohen referred lo as voIume-reIaled personneI, because
lhey are invoIved in a parlicuIar voIume, such as flying hours or number of deparlures,
Iine personneI have a direcl responsibiIily for accompIishing lhe ob|eclives of lhe firm.
IxampIes of Iine personneI incIude piIols, flighl aĴendanls, mechanics, reservalions
cIerks, and saIes personneI.
Staff personnel are lhose vhose orders and aulhorily do nol flov in a slraighl Iine
dovn from lhe lop of lhe organizalion. AIlhough slaff peopIe do reporl lo a specific
person in lhe company hierarchy, lhey may al limes perform vork for peopIe al IeveIs
above or beIov lhem. Slaff execulives are usuaIIy lechnicaIIy lrained and are empIoyed lo
advise and inform Iine and olher slaff execulives on speciaIized areas, incIuding finance,
personneI, IegaI affairs, medicaI concerns, and dala processing. In shorl, slaff peopIe
heIp Iine peopIe lo vork more effecliveIy in accompIishing lhe primary ob|eclives of
lhe firm. IxampIes of slaff personneI incIude accounlanls, budgel anaIysls, empIoymenl
represenlalives, markel research anaIysls, induslriaI engineers, programmers, and
company medicaI slaff.
THE ORGANIZATIONAL CHART
Ohen referred lo as lhe bIueprinl of lhe company, lhe organizational chart depicls
lhe formaI aulhorily reIalionships belveen superiors and subordinales al lhe various
hierarchicaI IeveIs, as veII as lhe formaI channeIs of communicalion vilhin lhe company.
The organizalionaI charl heIps managers impIemenl organizalion principIes, such as
span of conlroI and unily of ob|eclives. The charl can serve as an aid in idenlifying such
organizalionaI deficiencies as one individuaI reporling lo more lhan one boss or a manager
vilh loo vide a span of conlroI.
A ma|or reason advanced for organizalion charling is lhal il boosls moraIe among
managers and vorkers. The charl heIps organizalion members lo perceive more cIearIy
vhere lhey sland in lhe company in reIalion lo olhers and hov and vhere managers and
vorkers fil inlo lhe overaII organizalionaI slruclure.
The organizalionaI charl is a slalic modeI of lhe company, because il depicls hov lhe
company is organized al a given poinl in lime. This is a ma|or Iimilalion of lhe charl,
because carriers operale in a dynamic environmenl and lhus musl conlinuaIIy adapl lo
changing condilions. Some oId posilions may no Ionger be required, or nev posilions
may have lo be crealed lo achieve nev ob|eclives. Therefore, lhe charl musl be revised and
updaled periodicaIIy lo reflecl lhese changing condilions. Like lhe organizalion manuaI,
organizalionaI charls generaIIy are mainlained by lhe personneI deparlmenl or, as in lhe
case of severaI Iarge carriers, by a separale organizalion pIanning deparlmenl.
AirIines have grovn so rapidIy in lhe pasl 25 years lhal il is difficuIl lo say lhal any
organizalionaI charl is lypicaI or lhal lhe charl of one company al any parlicuIar lime
A I R T R A N S P O R TAT I O N 2 1 6
is lhe one sliII in effecl even a fev monlhs Ialer. Hovever, aII airIines do have cerlain
organizalionaI lrails in common, such as lhe adminislralions, deparlmenls, divisions, and
so forlh inlo vhich airIine aclivilies are divided. UnderslandabIy, lhe Iarger lhe carrier,
lhe grealer lhe speciaIizalion of lasks and lhe grealer lhe deparlmenlaIizalion.
Iigure 7-4 shovs lhe adminislralions normaIIy found in a ma|or air carrier. The
foIIoving seclions describe lhe ma|or Iine and slaff adminislralions shovn.
Stockholders
Board of Directors
President
Executive Vice-President
Senior Vice-President
Finance and Property
Staff Administrations
Senior Vice-President
Information Services
Senior Vice-President
Flight Operations
Senior Vice-President
Engineering and Maintenance
Line Administrations
Senior Vice-President
Marketing
Senior Vice-President
Personnel
Vice-President
Corporate Communications
Senior Vice-President
Economic Planning
Senior Vice-President
Legal
Director
Medical
FIGURE 7-4 The administrations in a major air carrier’s organization.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 7
STAFF DEPARTMENTS
Staff departments incIude lhose areas lhal provide a service lo lhe Iine deparlmenls. They
are primariIy Iocaled al lhe carrier’s execulive headquarlers or al ma|or regionaI offices.
|i nancc an! Prcpcriu
The finance and properly adminislralion formuIales poIicies for lhe financing of aII
aclivilies in lhe airIine and is charged vilh lhe receipl and safeguarding of lhe company’s
revenues and lhe accounling of aII receipls and disbursemenls. In carrying oul lhese
funclions, il adminislers lhe aclivilies of (1) lhe lreasurer’s deparlmenl: (2) faciIilies
and properly, vhich invoIves lhe adminislralion of aII ovned and Ieased properly and
equipmenl: and (3) purchasing and slores, vhich is a muIlimiIIion-doIIar business by
ilseIf. AirIines purchase everylhing from uniforms, suppIies, parls, and equipmenl lo
food, fueI, and hundreds of olher ilems on a daiIy basis. Olher ma|or deparlmenls incIude
audiling, accounling, and insurance (see Iigure 7-5).
|nj crnaii cn Scrti ccs
Informalion services is responsibIe for designing and mainlaining lhe dala communicalions
nelvork vilhin lhe airIine. IncIuded in lhis adminislralion are dalabase adminislralors,
vho coordinale lhe dala coIIeclion and slorage needs of user deparlmenls, and syslems
anaIysls, vho are responsibIe for anaIyzing hov compuler dala processing can be
appIied lo specific user probIems and for designing effeclive dala-processing soIulions.
Irogrammers, vho are responsibIe for deveIoping programs of inslruclions for compulers,
vork very cIoseIy vilh lhe user adminislralions (see Iigure 7-6).
Pcrscnnc|
The primary goaI of lhe personneI adminislralion is lo mainlain a muluaIIy salisfaclory
reIalionship belveen managemenl and empIoyees. Il is responsibIe for providing fair
and adequale personneI poIicies. Ma|or deparlmenls under personneI incIude empIoyee
deveIopmenl, empIoyee reIalions, and personneI fieId services, vhich encompasses lhe
empIoymenl funclion (see Iigure 7-7).
Mc!i ca|
The medicaI deparlmenl provides heaIlh services lo aII empIoyees lhrough physicaI exams
and emergency lrealmenl and eslabIishes heaIlh crileria for hiring nev empIoyees. In
recenl years, some ma|or carriers have virluaIIy eIiminaled lheir medicaI slaffs, choosing
inslead lo have privale physicians and cIinics provide medicaI examinalions and olher
speciaIized services. MedicaI service al lhe ma|or base or al regionaI faciIilies is lhus
Iimiled lo emergency lrealmenl (see Iigure 7-8).
Icga|
Ivery airIine has a IegaI deparlmenl under a vice-presidenl or generaI counseI. This
adminislralion is responsibIe for handIing aII IegaI maĴers, incIuding cIaims againsl
A I R T R A N S P O R TAT I O N 2 1 8
Senior Vice-President
Finance and Property
Vice-President
and Treasurer
Director Credit
and Collections
Director Receipts
and Disbursements
Assistant Treasurer
Banks and Investments
Vice-President
Facilities and Property
Director Property
Director Facilities
and Airport Planning
Director Facilities
Engineering
Vice-President
Purchasing and Stores
Director Auditing
Director Corporate
Purchasing and Stores
Director Maintenance–
Base Supply
Director
Petroleum Purchases
Comptroller Accounting
Director
Corporate Taxes
Director
Accounting Procedures
Director
General Accounting
Director Insurance
Manager
Corporate Insurance
Manager Claims
Manager Group
Insurance and Retirement
Manager
Cost Accounting
Manager Revenue
Accounting
Manager
Accounts Payable
FIGURE 7-5 A typical major air carrier’s finance and property administration (employs approximately
10 percent of the carrier’s work force).
Senior Vice-President
Information Services
Vice-President
Communications
Administration Level
Department Level
Division Level Director
Telecommunications
Vice-President Systems
Analysis and Programming
Director
Applications Planning
Director
Software Design
FIGURE 7-6 A typical major air carrier’s information services administration
(employs approximately 2 percent of the carrier’s work force).
Ccrpcraic Ccnnuni caii cns
This deparlmenl can be seen as lhe moulhpiece for lhe carrier. Mosl announcemenls
regarding company aclivilies, vhelher il be an impending slrike, vealher-caused flighl
canceIIalions, or lhe Ialesl lraffic or financiaI slalislics, are made by a represenlalive of
lhis deparlmenl. This deparlmenl aIso has represenlalives, or Iobbyisls, in Washinglon,
D.C., and a number of slale capilaIs vho are imporlanl lo lhe carrier from a IegisIalive
slandpoinl. LegisIalion regarding increased fueI laxes vouId be of concern lo such
individuaIs (see Iigure 7-9).
|ccncni c P| anni ng
The basic funclion of lhe economic pIanning adminislralion is lo pIan and conlroI lhe
faclors lhal affecl lhe company’s economic veII-being. This adminislralion deveIops aII
Iong-range forecasls and pro|ecls lhe company’s financiaI relurns, incIuding revenues and
profil-and-Ioss slalislics, and il deveIops aII cosl conlroI and capilaI expendilure programs.
In lhis capacily, lhe adminislralion vorks very cIoseIy vilh lop-IeveI managemenl, as veII
as vilh aII olher adminislralions, in impIemenling corporale goaIs (see Iigure 7-10).
lhe company for Ioss of or damage lo lhe properly of olhers and for in|uries lo persons.
This adminislralion aIso vorks cIoseIy vilh governmenl agencies regarding reguIalory
maĴers (see Iigure 7-8).
A I R T R A N S P O R TAT I O N 2 2 0
Senior Vice-President
Personnel
Vice-President
Employee Development
Administration Level
Department Level
Division Level
Manager Personnel
Research and Statistics
Director
Field Services Personnel
Regional
Personnel Directors
Vice-President
Employee Relations
Director Flight
Employee Relations
Director
Education and Training
Director
Compensation Planning
Director
Management Appraisal
and Development
Manager
Training Center
Regional
Employment Managers
Manager Employee
Suggestion Program
Director Ground
Employee Relations
FIGURE 7-7 A typical major air carrier’s personnel administration (employs approximately 1 percent
of the carrier’s work force).
Director
Medical
Administration Level
Department Level
Senior Vice-President
Legal
Medical
Legal
Manager Investigation
and Security
Directors
Regional Medical
Director
Corporate Legal Affairs
FIGURE 7-8 A typical major air carrier’s medical and legal administrations
(employ less than 1 percent of the carrier’s work force).
Vice-President
Corporate Communications
Director
Government Affairs
Administration Level
Department Level
Director
Communications
Regional Managers
Communications
FIGURE 7-9 A typical major air carrier’s corporate communications
administration (employs less than 1 percent of the carrier’s work
force).
Director
Corporate Budgets
Administration Level
Depar tment Level
Manager
Organization Planning
Director
Economic Research
Director
Industrial Engineering
Manager
Capital Budgets
Manager
Operating Budgets
Manager
Fleet Planning
Director
Operations Research
Senior Vice-President
Economic Planning
FIGURE 7-10 A typical major air carrier’s economic planning administration
(employs less than 1 percent of the carrier’s work force).
A I R T R A N S P O R TAT I O N 2 2 2
LINE DEPARTMENTS
Line departments are lhose adminislralions lhal are direclIy invoIved in producing and
seIIing air lransporlalion. They incIude flighl operalions, engineering and mainlenance,
and markeling and services.
|| i gni Opcraii cns
The office of lhe senior vice-presidenl of flighl operalions is responsibIe for deveIoping
flighl-operalions poIicies, procedures, and lechniques lo promole lhe safe, efficienl,
and progressive operalion of aircrah. IIighl operalions musl mainlain lhe airIine
operaling cerlificale in compIiance vilh IAA reguIalions. In addilion, lhe adminislralion
is responsibIe for deveIoping scheduIe paĴerns and procedures for lhe economic
uliIizalion of flighl equipmenl and personneI. Il aIso direcls an operalions anaIysis and
pIanning service lhal effecliveIy pIans and exercises conlinuous conlroI over flighl-
operalions aclivilies lhroughoul lhe syslem (see Iigure 7-11).
Departmental Level. The ticc-prcsi!cni cj air irajfic an! sajciu deveIops and recommends
vays lo promole lhe safe, economic, and expedilious flov of air lraffic from deparlure
lo arrivaI. This execulive deveIops programs for aircrah inlerior cabin safely and is
responsibIe for safe aircrah operalions, navigalion aids, and ground communicalions
(leIelype and leIephone). The vice-presidenl aIso mainlains currenl informalion on aII
airporls and airvays lhal may affecl operaling poIicies and procedures.
The ticc-prcsi!cni cj fligni prccc!urcs an! iraining deveIops and recommends
operaling poIicies, procedures, and lechniques for lhe enlire fleel. This execulive makes
recommendalions vilh regard lo equipmenl, such as inslrumenls, conlroIs, pover pIanls,
and radios, in addilion lo direcling lhe flighl-operalions lraining deparlmenl and lhe
flighl slandards deparlmenl. The ticc-prcsi!cni cj fluing deveIops and direcls piIol-lraining
programs lo enabIe piIols lo meel and mainlain proficiency slandards required by lhe
airIine and lhe IAA. This execulive anaIyzes lhe need for piIols vilhin lhe syslem lo
meel scheduIe requiremenls and arranges for assignmenl of nev co-piIols, necessary piIol
lransfers, and furIoughs over lhe enlire airIine syslem.
The !irccicr cj fligni-crcu scnc!u|ing is responsibIe for deveIoping crev scheduIes for aII
flighl personneI lo oblain maximum uliIizalion and avaiIabiIily for each flighl.
Division Level. In dispalching aircrah, airIines generaIIy mainlain a cenlraI conlroI
agency, somelimes referred lo as system operations control (SOC), lhal coordinales flighl
operalions, incIuding airpIane movemenls syslemvide. This agency is headed up by a
!irccicr cj fligni !ispaicn. A lypicaI carrier operales 24 hours a day, 365 days a year. |cgicna|
fligni !ispaicn managers are responsibIe during lheir shihs for lhe overaII pIanning of
lhe flighl operalions over lhe enlire syslem. They musl consider lhe lechnicaI phases of
lhe operalion and coordinale pIans vilh flighl dispalchers al ad|acenl dispalch cenlers.
The goaI is lo effecl safe, efficienl, and smoolh flov of aircrah operalions under exisling
condilions.
||igni !ispaicn nanagcrs coordinale lhe aclivilies of lheir offices in lhe scheduIing of
personneI coverage around lhe cIock and are responsibIe lo lhe regionaI managers of
flighl operalions. The flighl dispalchers are responsibIe lo lhe chief flighl dispalcher for
aII IocaI aclivilies. They vork vilh flighl officers in cIearance preparalion, covering aII
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 3
delaiIs of lhe proposed flighl, incIuding aII faclors reIaled lo lhe safely of lhe operalion.
These faclors incIude (1) lhe nalure and duralion of lhe flighl, (2) vealher condilions al
various flighl aIliludes, (3) airvay rouling, (4) fueI requiremenls, (5) an aIlernale flighl
pIan, incIuding airporl, if necessary, and (6) lhe signing of necessary cIearance papers aher
fuII concurrence vilh lhe caplain on lhe proposed pIan.
Reporling lo lhe vice-presidenl of flying are usuaIIy severaI rcgicna| nanagcrs cj fligni
cpcraiicns. Their dulies incIude moniloring aII flighl-operalions poIicies, melhods, and
procedures by personaI observalion and cIose Iiaison vilh flighl managers and invesligaling
aII irreguIarilies and devialions from eslabIished reguIalions. RegionaI managers musl
eslabIish, vilhin lheir areas and vilhin lhe Iimils of airIine and IAA guideIines, flighl
poIicies and reguIalions deemed necessary in lhe inleresl of safely based on IocaI lerrain,
vealher, and navigalionaI and lraffic condilions. RegionaI managers aIso hoId individuaI
conferences and group meelings vilh flighl managers and flighl officers lo keep lhem
informed on currenl company poIicies, managemenl pIans, equipmenl probIems, vork
Director
Flight Procedures
and Standards
Director
Flight Training
Manager
Simulator Services
Manager
Training Services
Flight Managers
Flight Dispatch
Managers
Chief Flight
Dispatcher
Flight
Dispatchers
Flight Officers
Regional Managers
Flight Operations
Director
Flight Dispatch
Director
Meteorology
Senior Vice-President
Flight Operations
Vice-President
Air Traffic and Safety
Administration Level
Department Level
Division Level
Manager Radio
Communications
Director Flight-
Crew Scheduling
Vice-President
Flight Procedures
and Training
Director
Flight Safety
Manager
Navigational Aids
Vice-President
Flying
FIGURE 7-11 A typical major air carrier’s flight-operations administration
(employs approximately 10 percent of the carrier’s work force).
A I R T R A N S P O R TAT I O N 2 2 4
pIanned or in progress for lhe improvemenl of equipmenl, vorking condilions, personneI
probIems, grievances, and so forlh.
||igni nanagcrs are responsibIe lo lhe regionaI managers of flighl operalions for aII
aclivilies invoIving flighl operalions in lheir area. They monilor lhe proficiency of piIols
by doing en roule checks, check flighl preparalion and execulion under various flighl
condilions, and heIp and counseI personneI lhrough individuaI and group meelings.
AII piIols reporl lo lhe flighl manager al lheir domiciIe. The capiain is in command of lhe
airpIane and, as eslabIished by IAA reguIalions, may lake any aclion deemed necessary lo
preserve and mainlain lhe safely of lhe flighl. The caplain’s command commences vhen
lhe flighl is cIeared from lhe Ioading posilion. The caplain is responsibIe for delermining,
before lakeoff, lhal lhe airpIane is Ioaded vilhin eslabIished veighl and baIance Iimils
and lhal lhe required fueI is aboard.
The firsi cjficcr is responsibIe lo lhe caplain for conducl and aĴenlion lo duly during
lhe flighl. The firsl officer’s aulhorily is polenliaI onIy, capabIe of being exercised vhen
specificaIIy designaled or if lhe caplain becomes incapacilaled. The fligni cnginccr is aIso
responsibIe lo lhe caplain for conducl and aĴenlion lo duly during lhe flighl. As nev
aircrah lechnoIogy evoIves, lhe flighl engineer is being repIaced by a compuler resuIling
in lvo-piIol crevs, even for lhe Iargesl aircrah flying.
IiIols generaIIy are required lo arrive one hour before lheir scheduIed flighls. In lhe
case of a lvo-person crev, one piIol revievs lhe flighl pIan prepared by SOC, vhich has
been Ioaded onlo lhe aircrah’s compuler, vhiIe lhe olher inspecls lhe aircrah. The caplain
viII aIso hoId a crev briefing vilh lhe flighl aĴendanls vorking lhe flighl.
There are severaI checkIisls of lasks lhal musl be compIeled and ilems lhal musl
be checked before lhe pIane can lake off. The checkIisls used by lhe ma|or carriers are
mechanicaI ralher lhan paper-and-penciI, requiring lhe piIol lo flip a svilch vhen each
necessary lask is accompIished: lhis reduces lhe IikeIihood lhal any check viII be Ieh
undone. Cockpil procedures are compIeleIy slandardized, vhich aIIovs crev members
vho have never vorked logelher before lo operale as an efficienl leam.
During a given flighl, lhe roIes of lhe cockpil crev members are veII defined. There is
aIvays one piIol vho is flying lhe aircrah, incIuding lakeoffs and Iandings, and one vho
is in a supporl roIe (checking veighl and baIance caIcuIalions, communicaling vilh SOC,
coordinaling vilh air lraffic conlroI, moniloring vealher dala, and so on). ßecause crevs
lypicaIIy vork logelher for al Ieasl one monlh, lhe caplain and co-piIol aIlernale in lhese
roIes. An exceplion lo lhis is lhal lhe caplain aIvays laxis lhe pIane, because lhe liIIer lhal
is used in laxiing is on lhe Ieh side of lhe cockpil, vhere lhe caplain sils.
WhiIe lhe aircrah is on lhe ground, lhe crev is in conlacl vilh lhe ground conlroIIers,
parl of lhe IAA’s Air Traffic ConlroI (ATC) syslem. Ground ConlroI direcls laxiing aircrah,
vhiIe Tover ConlroI handIes lakeoffs and Iandings. Once lhe flighl has laken off, il is
handed over lo Deparlure ConlroI, vhich monilors lhe flighl’s firsl 50–100 miIes. ßeyond
lhal, lhe flighl is lhe responsibiIily of an en roule Air Traffic ConlroI Cenler, vhich handIes
a Iarge region of lhe counlry. During Iong flighls, aircrah pass from cenler lo cenler unliI
lhey approach lheir deslinalion.
Once a flighl deparls ils origin cily, keeping lrack of il and faciIilaling ils on-lime
compIelion is lhe lask of SOC. The nerve cenler of lhe airIine, SOC coordinales and
manages lhe airIine’s day-lo-day and minule-lo-minule operalions from ils faciIily near
lhe company headquarlers. Life al SOC is never rouline. Ivery lime somelhing unexpecled
happens—vhelher il is a lraffic backup, a vealher deIay, a mechanicaI probIem, a
compuler oulage, an earlhquake or a voIcanic eruplion, a valer-main break, a securily
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 5
incidenl, or any of lhe olher unexpecled occurrences lhal can happen al an airIine—SOC
experls spring inlo aclion.
SOC dispalchers provide lhe cockpil crev vilh assislance if a probIem occurs en roule.
Ior exampIe, if an on-board syslem faiIs, a dispalcher arranges for lhe caplain lo speak
direclIy vilh mainlenance lechnicians on lhe ground lo delermine if lhe probIem can
be reclified in flighl. The dispalcher aIso heIps oblain medicaI advice in lhe evenl lhal a
passenger becomes iII during a flighl. The dispalcher provides a communicalions Iink
belveen lhe airIine’s medicaI deparlmenl and lhe caplain lo discuss lhe silualion, and
heIps decide vhelher and vhere lo diverl lhe pIane lo oblain lhe appropriale medicaI
lrealmenl.
When lhe pIane gels vilhin 50–100 miIes of ils deslinalion, lhe ATC process |usl
described is repealed in reverse. Approach ConlroI lakes lhe flighl unliI il is ready lo Iand,
al vhich poinl il is handed lo Tover ConlroI. Once lhe aircrah is on lhe ground, Ground
ConlroI is in charge of geĴing il lo ils designaled gale.
ßecause lhe caplain musl do lhe laxiing, lhe co-piIol mainlains conlacl vilh Ground
ConlroI and checks lo make sure lhe arrivaI gale is ready for lhe aircrah. Once lhey have
successfuIIy guided lhe pIane lo lhe gale, lhe crev compIeles a checkIisl of shuldovn
dulies and makes enlries in lhe aircrah’s Iog. If any mainlenance probIems arise during
lhe flighl, lhe crev caIIs lhem in ahead of lime, so lhal mainlenance personneI are ready
lo address lhem as soon as lhe pIane arrives.
The basic funclion of lhe !irccicr cj nciccrc|cgu is lhe adminislralion of lhe cenlraIized
vealher service. MeleoroIogisls in lhis deparlmenl conslrucl and anaIyze vealher maps
and charls lo delermine vhal vealher phenomena are occurring over various geographic
areas al a specific lime.
Aher WorId War II, lhe airIines sav lhe need for a speciaIized vealher service. The
forecasling seclion of lhe U.S. Wealher ßureau couId nol devole lhe necessary lime lo give
lhe airIines lhe vealher informalion lhey needed lo conducl lhe safe, smoolh, and efficienl
operalion lhey vere slriving for. The currenl airIine vealher service does nol repIace bul
onIy suppIemenls lhal of lhe U.S. Wealher ßureau. Whereas lhe Wealher ßureau musl
consider forecasls lo cover aII lypes of aircrah operalion nalionvide, lhe airIines focus
onIy on operalions over prescribed roules and inlo prescribed cilies.
Wealher has a ma|or impacl on an airIine’s abiIily lo meel ils ob|eclive of safe,
comforlabIe, on-lime service. Under federaI Iav, an airIine cannol dispalch an aircrah if
lhe forecasled vealher is such lhal lhe aircrah cannol safeIy reach ils finaI deslinalion.
Avialion forecasls are very delaiIed and incIude cIoud heighl, horizonlaI visibiIily, and
vind speed and direclion, because a forecasl error of even 30 minules as lo vhen a slorm
viII arrive al a parlicuIar airporl can vreak havoc on an airIine’s operalion. Ixperienced
meleoroIogisls use informalion from governmenls, saleIIiles, radar, and more lhan 1,000
airporls, as veII as conslanl reporls from piIols, lo produce hourIy forecasls of expecled
condilions lhroughoul lhe airIine syslem.
Wind speed and lemperalure influence hov much fueI a flighl requires and lhus
affecl hov many passengers and hov much cargo can be on board. In exlreme heal,
airpIanes laking off from cerlain runvays or anlicipaling slrong head vinds need exlra
fueI and cannol carry as much olher veighl as pIanned, vhich causes some flighls lo be
unexpecledIy veighl-reslricled. In very coId vealher, lhe airpIane’s vings and fuseIage
are de-iced lo remove any accumuIalion of ice or snov and prevenl furlher buiIdup.
Wind condilions diclale lhe direclion lovard vhich an airpIane lakes off, as veII as
ils aIIovabIe lakeoff veighl. Winds aIso affecl lraveI lime, because piIols aIvays lry lo
A I R T R A N S P O R TAT I O N 2 2 6
choose lhe roule and aIlilude vilh lhe Ieasl lurbuIence lo give passengers lhe smoolhesl
possibIe ride. AII of lhe avaiIabIe vealher informalion goes inlo lhe flighl pIan: and if
vealher condilions change in midflighl, lhe caplain vorks vilh SOC lo ad|usl lhe flighl
pIan accordingIy.
The !irccicr cj fligni iraining reporls lo lhe vice-presidenl of flighl procedures and
lraining and is responsibIe for lhe lraining of flighl crevs on lhe airIine, incIuding iniliaI
lraining, lransilion, refresher, requaIificalion, and famiIiarizalion lraining. The lraining
deparlmenl is divided inlo lhree divisions: (1) lhe ground schooI, vhich makes use of
audiovisuaI aids and mockups: (2) flighl simuIalors: and (3) aircrah used for flighl lraining.
The !irccicr cj fligni prccc!urcs an! sian!ar!s. vho aIso reporls lo lhe vice-presidenl of
flighl procedures and lraining, is responsibIe for conducling proficiency checks on aII
flighl officers. This incIudes raling flighls for upgrading of firsl officers, raling flighls for
lransilioning caplains, and moniloring flighl and simuIalor lraining programs conducled
by lhe flighl lraining deparlmenl.
|ngi nccri ng an! Mai nicnancc
The chief execulive officer of engineering and mainlenance (I & M) is lhe senior vice-
presidenl, vhose responsibiIilies are as broad as lhe mission of lhis adminislralion: lo
keep lhe company’s equipmenl in condilion lo provide safe and saIabIe air lransporlalion.
“Safe,” in lhis sense, impIies fuII compIiance vilh lhe carrier’s ovn operaling specificalions
and aIso vilh aII appIicabIe direclives and reguIalions of lhe IAA. “SaIabIe” means fasl
and dependabIe service in up-lo-dale equipmenl vilh comforlabIe furnishings and decor,
vilhoul vhich lhe company vouId be unabIe lo compele successfuIIy.
A ma|or carrier’s I & M ob|eclives have resuIled lhrough lhe years in lhe deveIopmenl
of an eIaborale lechnicaI supporl operalion lhal invoIves many IeveIs of aclivily performed
al numerous faciIilies of videIy varying capabiIily in accordance vilh pIanning and
procedures disseminaled via a number of media (see Iigure 7-12). I & M requires aboul
25 percenl of a carrier’s enlire vork force, and il consumes roughIy a fihh of every revenue
doIIar.
Classes of Stations. Irom lhe slandpoinl of lhe mainlenance funclion, a ma|or carrier
normaIIy divides ils many slalions served inlo differenl classes of stations. Ior exampIe,
in descending order of capabiIily, lhey incIude (1) lhe mainlenance base, (2) ma|or slalions,
(3) service slalions, and (4) olher slalions.
The nainicnancc |asc is generaIIy conceded lo be lhe Iargesl, mosl versaliIe, and
besl-equipped faciIily in lhe syslem. Il is lhe overhauI and modificalion cenler for lhe
carrier’s enlire fleel, and il has lhe capabiIily of repairing nearIy aII aircrah componenls.
Iev componenls musl be relurned lo lhe manufaclurer or senl lo oulside agencies for
recondilioning.
Majcr siaiicns incIude lhe carrier’s Iarge hub cilies. These slalions have reIaliveIy Iarge
numbers of mainlenance peopIe and exlensive faciIilies. They aIso mainlain a subslanliaI
invenlory of spare parls, mainIy suppIied by lhe mainlenance base. In generaI, lhese slalions
are capabIe of providing compIele Iine mainlenance of specific lypes of equipmenl.
Scrticc siaiicns are Iarge slalions served by lhe carrier bul nol Iocaled al ma|or hub cilies
vilh Iarge banks of connecling flighls. These slalions are veII equipped and veII slaffed
vilh Iine mainlenance personneI, bul Iess so lhan lhe ma|or slalions.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 7
Olher slalions lhroughoul lhe syslem mighl be designaled CIass 1, CIass 2, and CIass
3. CIass 1 slalions mighl have onIy sufficienl numbers of Iicensed peopIe lo assure
mainlenance coverage for each flighl before deparlure. These slalions vouId have minimaI
faciIilies and spare parls for performing lhe assigned vork. CIass 2 slalions mighl have
|usl enough mechanics and faciIilies lo do rouline servicing, such as engine healing,
de-icing, aircrah moving, and Iighl mainlenance on specific equipmenl. OrdinariIy, lhe
mainlenance vorkIoad al lhese slalions is so Iov lhal lhe mechanics perform addilionaI
lasks. CIass 3 slalions mighl exisl in smaIIer cilies vhere lhere are no Iicensed mainlenance
peopIe. They are, lherefore, never scheduIed lo perform mainlenance vork, and lheir
aircrah servicing is Iimiled lo vork lhal has no effecl on airvorlhiness, mainIy cargo and
passenger handIing. OrdinariIy, lhey deaI onIy vilh lhrough-lrips or lurnaround flighls.
Types of Maintenance. AII aircrah musl foIIov an IAA-approved mainlenance program
lhal keeps lhe aircrah in an airvorlhy condilion. Iach airIine deveIops ils ovn program,
based on lhe manufaclurer’s pIanning documenls, bul incIudes ad|uslmenls for lhe
Senior Vice-President
Engineering and
Maintenance
Vice-President
Engineering
Administration Level
Department Level
Division Level
Director
Aircraft Equipment
Engineering
Vice-President
Line Maintenance
Director
Line Maintenance
Inspection Control
Director
Maintenance Planning
Director Plant
Maintenance and
Ground Equipment
Vice-President
Base Maintenance
Director
Airplane Overhaul
Director Airplane
Component Overhaul
Director Powerplant
Overhaul
Director
Aircraft Engineering
Manager
Line Maintenance
Mechanics
Director Line
Maintenance Services
Director
Maintenance Planning
and Analysis
FIGURE 7-12 A typical major air carrier’s engineering and maintenance
administration (employs approximately 25 percent of the carrier’s
work force).
A I R T R A N S P O R TAT I O N 2 2 8
airIine’s ovn operalion. The programs are even differenl for various operalors of lhe same
aircrah lype. AIlhough mainlained under differenl programs, aircrah of lhe same lype,
uliIizalion, and age viII generale approximaleIy lhe same number of rouline mainlenance
hours during lhe program cycIe. The program cycIe is lhe lime eIapsed from one overhauI
unliI lhe nexl. Il generaIIy runs belveen six and eighl years and approximaleIy 20,000
flighl hours.
A modern |el aircrah is an assembIage of lhousands of parls. Ior exampIe, a ßoeing
747 is made up of 300,000 unique parls. These parls conslilule many speciaIized
subsyslems based on a vide range of lechnoIogies. The enlerprise of mainlaining lhis
highIy compIex machine usuaIIy is cIassified by bolh producl lype (airframe, engine, and
componenls) and lhe liming and purpose of lhe vork. The IaĴer yieIds four groupings:
(1) routine scheduled maintenance (such as airframe and engine checks), (2) nonroutine
maintenance (slrucluraI faligue repair and corrosion conlroI), (3) refurbishmenls (cabin
upgrades and exlerior painling), and (4) modificalions (passenger-lo-freighl conversions
and hushkil inslaIIalions). Rouline and nonrouline mainlenance accounl for over 95
percenl of mainlenance aclivily and spending for mosl ma|or carriers.
Routine Airframe Maintenance. The mosl eIemenlary form of rouline mainlenance is
a visuaI inspeclion of lhe aircrah before flighl (somelimes caIIed a “vaIk-around”) by
piIols and mechanics lo ensure lhal lhere are no obvious probIems such as Ieaks, missing
rivels, or cracks. A “check,” lhe form mosl rouline mainlenance lakes, comes in severaI
grades, referred lo as “IeĴer checks”—A lhrough D—aII performed al reguIar inlervaIs.
Hovever, much of “rouline” mainlenance is unpIanned. Up lo haIf of lhe 400,000 or so
lasks invoIved in a C-check are conlingenl on lhe condilion of lhe aircrah.
The foIIoving Iisl oulIines vhal each check invoIves and gives a lime frame for ils
occurrence based on a reIaliveIy nev narrov-body aircrah. The limes and even some of
lhe lerminoIogy viII differ belveen airIines.
Otcrnigni nainicnancc. Al lhe end of lhe vorking day, vorkers conducl a 1- lo 1
1
⁄2-hour
inspeclion lo ensure lhal lhe pIane is operaling in accord vilh lhe originaI equipmenl
manufaclurer’s (OIM’s) minimum equipmenl Iisl (MIL). This aIso represenls an oppor-
lunily lo remedy passenger and crev compIainls and lo impIemenl markeling-driven
modificalions (such as lhe inslaIIalion of leIephones), as veII as lo aĴend lo aspecls of IAA
Airvorlhiness Direclives (ADs) and Manufaclurers’ Service ßuIIelins. This is a chance lo
do vhalever vork can be compIeled in lhe lime aIIoĴed so as nol lo disrupl lhe aircrah’s
flighl scheduIe.
A-cncck. RoughIy every 125 flighl hours (lvo lo lhree veeks), an ampIified preflighl
visuaI inspeclion of lhe fuseIage exlerior, pover pIanl, and cerlain readiIy accessibIe sub-
syslems, incIuding avionics (avialion eIeclronics) and accessories, is conducled lo ascer-
lain lhe generaI condilion of lhe aircrah.
B-cncck. ApproximaleIy every 750 flighl hours (lhree lo four monlhs), vorkers conducl
an open inspeclion of paneIs and covIings, during vhich some prevenlive mainlenance
(exlerior vash, engine oiI speclroscopic anaIysis, and so on) is performed, oiI fiIlers are
removed and checked, parls are Iubricaled as required, and lhe airframe is carefuIIy ex-
amined. The ß-check incorporales an A-check.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 9
C-cncck. This fundamenlaI airvorlhiness inspeclion, vhich is carried oul approximaleIy
every 3,000 flighl hours or every 15 monlhs, incorporales bolh A- and ß-checks. In addi-
lion, componenls are repaired, flighl conlroIs are caIibraled, and ma|or inlernaI mecha-
nisms are lesled. Olher lasks incIude heavy Iubricalion, aĴendance lo Service ßuIIelin
requiremenls, minor slrucluraI inspeclions, flighl conlroI rigging lesls, engine baroscope
inspeclions, compressor vashes, aircrah appearance mainlenance, and, usuaIIy, some cor-
rosion prevenlion. The C-check aIso incIudes a poslcheck flighl lesl.
O-cncck. This is lhe mosl inlensive form of rouline mainlenance, lypicaIIy occurring every
six lo eighl years or approximaleIy every 20,000 flighl hours. Cabin inleriors (incIuding
seals, gaIIeys, Iavalories, cockpil, furnishings, headIiners, and sidevaIIs) are removed lo
enabIe carefuI slrucluraI inspeclions. IIighl conlroIs are examined, and lhe fueI syslem is
probed for Ieaks and cracks. The aircrah essenliaIIy is slripped lo ils sheII and rebuiIl vilh
lhe inlenlion of relurning il lo originaI (“zero-limed”) condilion as much as possibIe.
A- and ß-checks and overnighl mainlenance are exampIes of “Iine” mainlenance: vork
lhal can be managed al an airporl (somelimes even on lhe ramp) and lhal is usuaIIy
performed overnighl so as nol lo encroach on flighl pIans. C- and D-checks, hovever,
conslilule “heavy” mainlenance, demanding speciaI faciIilies and exlensive dovnlime.
Some airIines empIoy inlermediale Iayover (IL) checks, a form of so-caIIed progressive
(or phased, equaIized, or conlinuous) mainlenance lhal does vilhoul a slandard D-check by
incorporaling porlions of il across severaI more frequenlIy scheduIed inspeclions, usuaIIy
C-checks. In anolher varialion, parls of a C-check are merged vilh severaI successive A-
checks. The goaI in eilher case is lo minimize lhe lime lhe aircrah is oul of service vhiIe
aIso baIancing vorkIoads.
The mainlenance of differenl componenls varies considerabIy. Ior exampIe, a ccnsuna||c
(such as a gaskel) is a singIe-use ilem lhal is scrapped vhenever il is firsl removed. An
cxpcn!a||c (such as a faslener or a cabIe) is used unliI il becomes unserviceabIe. A rcpaira||c
(for exampIe, a lurbine or a compressor bIade) can be repaired and relurned lo service a
Iimiled number of limes. Whereas a repairabIe lends lo be an ilem, a rcia||c (such as a pump,
a fueI conlroI, or a conslanl-speed drive) is an assembIy, usuaIIy high-cosl and capilaIized,
and aImosl never scrapped. Il is zero-limed vhen repaired and lhus can be revorked
indefinileIy. A |ijc-|iniic! pari (such as a disk, a shah, a hub, or olher ma|or rolaling engine
unil) musl be removed from service aher ils OIM- or governmenl-imposed Iife Iimil,
lypicaIIy 15,000–20,000 cycIes. AIlhough a Iife-Iimiled parl (or LLI) can be repaired, in
accord vilh lhe OIM’s manuaI, ils Iife is nol lhereby exlended.
Since lhe 1970s, lhere has been a shih from hard-lime removaIs lo “on condilion”
moniloring. This means lhal engine and componenl repairs generaIIy do nol occur al
fixed lime periods or inlervaIs: ralher, lhe liming of rouline mainlenance is based on lhe
slale of lhe equipmenl. Thus, inslead of delaching an ilem for inspeclion and repair aher
a sel number of hours or cycIes of operalion, lechnicians consuIl acluaI operaling dala,
somelimes coIIecled by sensors or buiIl-in lesl equipmenl (ßITI), lo delermine vhen
il requires repair. Ingines remain on-ving for lhe Iongesl possibIe lime lo minimize
operaling cosl per flighl hour. Safely is enhanced because circumslances lhal mighl Iead lo
an in-flighl shuldovn can be foreseen and prevenled. Mainlenance pIanning is improved
because removaIs can be made in concerl vilh olher repairs.
In addilion, many engines have been designed in moduIar form, permiĴing enlire
seclions lo be removed and repIaced or repaired as needed, ralher lhan having lhe vhoIe
poverpIanl serviced. TypicaIIy, an overhauI shop viII viev an incoming engine as a group
A I R T R A N S P O R TAT I O N 2 3 0
of moduIes, each of vhich gels differenl lrealmenl. SimiIarIy, componenl repair generaIIy
consisls of lhe removaI of a componenl or subcomponenl lhal is Ialer lesled and repaired
or repIaced.
Nonroutine Maintenance. Nonrouline mainlenance is eilher lhe producl of an unforeseen
evenl, such as an accidenl or random occurrence, or a response lo an AD. An exampIe of
lhe firsl is engine damage due lo bird ingeslion or an airframe denled by a calering lruck.
An exampIe of lhe second, aging aircrah, is vorlh dveIIing on.
ßecause of concerns aboul lhe groving number of oIder aircrah sliII flying, lhe IAA
insliluled lougher ruIes severaI years ago lo counler (1) lhe repealed cabin pressurizalion
and depressurizalion lhal slresses an airframe’s slruclure and skin, resuIling, if unlrealed,
in melaI faligue and cracking, and (2) lhe corrosion caused by Iong-lerm exposure lo
moislure. (Ingines are nol as vuInerabIe lo aging because periodic mainlenance may
Ieave fev, if any, originaI parls.)
AIlhough lhe average age of lhe U.S. airIine fleel has remained lhe same during lhe
mid-1990s and earIy 2000s (around 12.5 years) because of lhe conlinued influx of nev
pIanes, lhere remains a cohorl of oIder pIanes geĴing oIder. CIose lo one-quarler of lhe
fleel has reached 20 years of service, and cIose lo 500 pIanes are over 25 years oId and
nearing or exceeding lheir originaI design Iife. AirIines slrapped for capilaI—bolh slarl-
ups and oIder carriers—are finding il cheaper lo exlend lhe Iife of an oId airpIane lhan lo
buy a nev one.
The probIem vilh lhis praclice is lhal mainlenance cosls, speciaI aging reguIalions
aside, grov as an airframe ages. One reason for lhis is lhal many parls reach lhe poinl al
vhich lhey can no Ionger be repaired and musl be repIaced, vhich is a coslIier proposilion.
The main reason, lhough, is lhe mounling number of nonscheduIed procedures lhal arise.
IvenluaIIy, lhe cosl of repair approaches a significanl fraclion of lhe aircrah’s vaIue, and a
decision musl be made as lo vhelher conlinued mainlenance is cosl-efficienl. Many aircrah
are relired |usl before a D-check lo avoid lhe over $1 miIIion expense. ßul any reliremenl
anaIysis musl aIso faclor in repIacemenl cosls, operalionaI cosls, and resaIe vaIue. Il is
aImosl cerlain lhal operalionaI cosls for lhese aging aircrah (incIuding mainlenance) viII
cIimb.
Overhaul of Airframes. The reaI reason for rouling an airpIane inlo a mainlenance base
and opening il up is lo give il a lhorough slrucluraI going over—lo inspecl and repair.
Olher reasons are mainIy lhose of convenience. Il’s easier and probabIy more economicaI
lo change lime-conlroIIed unils al lhis lime, as veII as lo do modificalions. ßul lhese are
nol essenliaI lo an airframe overhauI, and lhis is nol lhe vay mosl carriers mainlain lheir
fleels lhese days.
Il used lo be lhal airpIanes vere overhauIed according lo a pIan lhal required a series of
seven minor overhauIs and a ma|or one. The ma|or overhauI vas designed lo revork lhe
airpIane lo a Iike-nev condilion—lo fil lhe bils and pieces back logelher lo lhe exaclness of
currenl manufacluring loIerances. The carriers deparled from lhis praclice aboul lhe end
of WorId War II by deveIoping vhal vas lhen caIIed a prcgrcssitc ctcrnau| or prcgrcssitc
nainicnancc bul shouId have been described as a prcgrcssitc najcr ctcrnau|. Whal lhis
praclice did vas mereIy lake porlions of lhe vork of a ma|or overhauI and incorporale
lhem inlo lhe minor overhauIs so lhal aII vere aboul equaI in vorkIoad.
This approach had ils advanlages, bul il didn’l go far enough. Il did nol provide for
earIy sampIing of muIlipIe-run ilems (lhose nol requiring aĴenlion al every overhauI),
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 1
and il resuIled in bunching of muIlipIe-run repair-and-relurn componenls in lhe shops.
Ior lhese reasons, lhe pIan adopled for DC-7s in lhe 1950s and earIy 1960s slaggered lhe
enlry of lhe airpIanes inlo overhauI. The firsl eighl DC-7s in lo lhe base gol eighl differenl
lrealmenls, and lhen lhe ninlh slarled lhe cycIe over again. Ivery airpIane, on successive
visils, received a differenl one of lhe eighl lrealmenls unliI il had lhem aII. On each visil,
some addilionaI muIlipIe-run ilems vere picked up. The same lhings veren’l necessariIy
Iooked inlo or puIIed off of aII airpIanes |usl because lhey vere in for lhe firsl, second,
or lhird lime. SliII, aher eighl visils, each DC-7 had lhe equivaIenl of a ma|or overhauI—
moslIy imposed piecemeaI on vhal had been lhe seven minor overhauIs.
Il is considerabIy differenl vilh lhe |els, aIlhough lhe pIan in use is a naluraI exlension
of lhe former progressive one. No Ionger, lhough, is lhe eighl-visil cycIe in evidence, and
no Ionger is il vaIid lo say lhal a |el has had lhe equivaIenl of a ma|or overhauI aher any
parlicuIar number of visils.
The basic documenl used in formuIaling lhe airframe overhauI pIan of a ma|or carrier’s
|el fleel is lhe vork reporl prepared by lhe engineering deparlmenl for mainlaining lhe
slrucluraI inlegrily of lhe parlicuIar aircrah. When lhis documenl is approved by lhe
IAA, il becomes a parl of lhe operalions specificalions, vhich delaiI lhe requiremenls for
conlinuous airvorlhiness. CompIiance vilh lhis documenl’s specificalions is mandalory.
A separale vork reporl covers lhe enlire slruclure, lhe Ianding gear, and aII conlroI
surfaces of each |el airpIane lype by zones. Il speIIs oul lhe kind of inspeclion each ilem is
lo receive and designales lhe frequency or inlervaI of inspeclions. And il furlher specifies
lhal an approximaleIy equaI number of each of lhe zone inspeclions are lo be made and
evenIy spaced vilhin each fleel overhauI period. The IaĴer is lhe provision lhal IargeIy
delermines lhe shape of lhe overhauI pIan for lhal fleel. A carrier’s slrucluraI-inlegrily
program lhus provides lhe framevork upon vhich each airframe overhauI is conslrucled.
Olher |obs, some reIaled and olhers nol, conslilule lhe body of lhe overhauI.
ConceivabIy, an airframe overhauI mighl be Iimiled in conlenl lo a lhorough inspeclion
pIus lhe repairs, repIacemenls, and operalionaI checks lriggered by il. If lhis vere done,
lhough, a Iarge amounl of vork vouId have lo be scheduIed al olher limes. This vouId
lhen necessilale adding lo lhe lime and vorkIoad of lhe periodic checks described earIier,
or il vouId Iead lo speciaI rouling of airpIanes lo a slalion or base vhere lhe vork couId
be done al a lime olher lhan check or overhauI.
GeneraIIy, hovever, airIines have preferred lo exchange lime-conlroIIed unils
(nonslrucluraI) and do lhe ma|or modificalions al lhe lime of overhauI. ßul lhese impose
cerlain penaIlies on lhe essenliaI vork of lhe overhauI. In parlicuIar, lhey lend lo cause
congeslion and inlerference among |obs, and lhey somelimes upsel sequencing of
operalions and resuIl in deIays. AII lhis has prompled some reappraisaI of lhe praclice.
In recenl years, lhe Ienglhening of limes belveen airframe overhauIs has Ied lo a
shih lovard Iine accompIishmenl of modificalion pro|ecls, bul fev lime-conlroIIed unils
are currenlIy scheduIed for repIacemenl olher lhan al overhauI. Ingines are a nolabIe
exceplion. Iel engine overhauIs have never been in phase vilh airframe overhauIs: engines
are nol ordinariIy scheduIed for change al lhe lime of an airframe overhauI.
The documenls lhal govern lhe operalionaI checking of aircrah syslems and lhe
removaI and repIacemenl of lime-conlroIIed unils are lhe engineering and mainlenance
conlroI (IMAC) cards. The IMAC syslem, vhich came inlo use vilh lhe |els, is designed
lo assembIe, disseminale, and conlroI aII lhe informalion essenliaI lo proper mainlenance
of componenls and syslems, bolh airframe and engine. Il bIends vilh lhe vork reporls
and lhe modificalion pro|ecl scheduIes lo delermine vhal is invoIved in overhauIs.
A I R T R A N S P O R TAT I O N 2 3 2
GeneraIIy, carriers seek lo uliIize componenls lo lheir fuII aIIovabIe lime. Thus, one-run
unils are removed and repIaced al each overhauI, lvo-run unils al lhe second overhauI
and every second one lhereaher, lhree-run unils al lhe lhird overhauI and every lhird one
lhereaher, and so on. There are some exceplions, hovever, parlicuIarIy vhen sampIing or
olher circumslances indicale benefils of earIy iniliaI removaI and slaggering of removaIs
lhereaher.
CurrenlIy, a big-|el airframe overhauI consumes over 20,000 vork-hours, incIuding
inspeclor and Iead mechanic hours. Of lhis lolaI, Iess lhan 10 percenl is invoIved vilh
inspeclion, incIuding lhal caIIed for in lhe vork reporls. Over 40 percenl invoIves
componenl changes and syslems checkoul, aboul 20 percenl modificalions, and aboul
30 percenl nonrouline vork generaled by lhe inspeclion. The |ob lakes approximaleIy 15
days in lhe overhauI dock and 2 days on lhe ramp for flighl preparalion and lesling.
Overhaul of Engines and Other Components. In generaI, overhauIs of engines, lheir
accessories, and olher componenls are handIed in much lhe same manner. Componenls
are broughl in vhen eilher operaling lime or condilion requires il, and lhe overhauI
relurns lhem lo specificalions Iaid dovn by engineering and lhe manufaclurer. A Iarge
parl of engine overhauI is made up of repair and recondilioning operalions, as il is usuaIIy
beneficiaI, bolh economicaIIy and from lhe slandpoinl of reIiabiIily, lo reuse seasoned
componenls vhen lhey can be revorked lo approved specificalions.
ScheduIed engine changes are pIanned so as lo minimize shipping cosls and lransil
limes and lo avoid speciaI rouling of aircrah. AII scheduIed big-|el engine changes are
handIed al lhe carrier’s ma|or base, and aII olhers al compromise Iocalions vhere rouling
is convenienl and Iabor is avaiIabIe. When praclicaI, engine changes are made during
mainlenance checks or airframe overhauIs.
Contract Maintenance. There are many reasons an airIine conlracls vilh an
independenl faciIily lo perform mainlenance. An airIine may nol have lhe personneI
or equipmenl lo compIele a speciaI pro|ecl or a Iarge modificalion lo ils fleel. An air
carrier mighl aIso recognize lhal an independenl faciIily has lhe experlise in a given
area, such as lurbine-engine mainlenance or heavy-airframe modificalion, lo do lhe |ob
beĴer and more efficienlIy lhan lhe airIine. A never airIine may nol have lhe capilaI lo
sel up a compIele mainlenance operalion, and an independenl faciIily may be abIe lo
perform lhe same service al a Iover cosl lhan an airIine because of Iover Iabor cosls.
SeveraI olher faclors have Ied lo lhe airIines’ using oulside mainlenance service more
lhan in lhe pasl. When a carrier expands ils fleel, ils mainlenance capabiIilies are ohen
slrelched lo lhe Iimil simpIy providing rouline services. Thus, many carriers have found
il necessary lo go oulside lo meel lheir needs. In lhe pasl, vhen airIines had Iarger
mainlenance faciIilies, lhey vere abIe lo handIe a big |ob Iike slandardizing a number
of aircrah acquired from anolher carrier. ßul dereguIalion, recessions, Iover fares, and
higher cosls have forced lhe carriers lo keep lheir mainlenance capabiIilies on lhe Iean
side.
Carriers ohen conlracl vilh an independenl faciIily vhen serving a dislanl airporl al
vhich lhey have no mainlenance supporl. In addilion lo providing minor mainlenance
services, some conlracls exlend lo olher funclions, such as cIeaning and fueIing aircrah.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 3
Markcii ng an! Scrti ccs
The senior vice-presidenl of markeling is a member of a company’s lop managemenl
group and in lhis capacily brings a markeling focus lo ils deIiberalions. As chief execulive
officer of lhe Iargesl adminislralion (lypicaIIy over 50 percenl of a carrier’s vork force),
lhis execulive’s responsibiIilies incIude making decisions aboul markeling poIicy, as veII
as lhe daiIy adminislralion of lhe organizalion. In lhe IaĴer capacily, lhe senior vice-
presidenl’s office adminislers lhe organizalion’s cosl conlroI efforls and coordinales and
impIemenls personneI poIicies, incIuding slaff lraining programs. Ma|or deparlmenls,
generaIIy headed up by vice-presidenls, lhal reporl lo lhe senior vice-presidenl incIude
adverlising, markeling services, services pIanning, saIes pIanning, saIes and services, and
food service (see Iigure 7-13).
Advertising. Adverlising is an exlremeIy imporlanl markeling deparlmenl, parlicuIarIy
in loday’s compelilive environmenl. The adverlising deparlmenl, vorking cIoseIy vilh
lhe company’s adverlising agency, provides experlise on promolionaI messages, copy,
media, and liming. This deparlmenl may influence, bul generaIIy does nol delermine, lhe
amounl of company funds spenl on adverlising and promolion.
Marketing Services. Markeling services is anolher exlremeIy imporlanl markeling
deparlmenl, as il IileraIIy designs lhe carrier’s producls and delermines lhe firm’s markel
opporlunilies. IncIuded are such ma|or divisions as markel research and forecasling,
pricing, and scheduIe pIanning. (Ior a compIele discussion of lhese imporlanl areas, see
chaplers 8, 10, and 12.)
Markci rcscarcn an! jcrccasiing is charged vilh lhe responsibiIily of syslemalicaIIy
galhering, recording, and anaIyzing dala reIaling lo lhe markeling of air lransporlalion.
OperalionaIIy, lhis means forecasling markel opporlunilies and finding oul aboul lhe
markel for air lransporlalion—lhe numbers and lypes of consumers, lhe producl ilseIf,
channeIs of dislribulion, and consumer molivalion and behavior. Wilh lhe so-caIIed
consumer-orienled markeling concepl in use in recenl years, vhose ob|eclive is lo furnish
consumer salisfaclion, markel research and forecasling has been recognized by mosl
ma|or carriers as co-equaI in slalus vilh saIes, adverlising, nev producl and services
deveIopmenl, pricing, and scheduIing (see Chapler 8).
Of aII lhe markeling variabIes lhal influence lhe polenliaI saIes of lhe airIine producl,
pricing has cerlainIy received lhe mosl aĴenlion since dereguIalion. The pricing division of
a ma|or carrier has become one of lhe mosl visibIe areas vilhin lhe company (see Chapler
10).
Defining vhal lhe scnc!u|c p|anning division does is simpIe: aII lhal is necessary
is lo lake lhe company’s markeling goaIs for a parlicuIar period and lurn lhem inlo a
saIabIe scheduIe lhal creales voIumes of nev lraffic: beals lhe compelilion: makes lhe
mosl efficienl use of personneI, faciIilies, and aircrah: serves lhe cilies on lhe syslem: and
earns ever-increasing profils. ScheduIing may be lhe mosl difficuIl |ob in any airIine (see
Chapler 12).
Services Planning. The services pIanning deparlmenl is responsibIe for lhe deveIopmenl
of lhe in-flighl and ground services for lhe various markels idenlified by markel research
and forecasling. These incIude everylhing from reservalions and lickeling services lo in-
A I R T R A N S P O R TAT I O N 2 3 4
Vice-President
Sales and Services
Administration Level
Depar tment Level
Division Level
Area Manager
Sales and
Services
Manager
Flight Attendants
Manager Travel
Agency and
Tour Sales
Manager
Commercial
Markets
Manager
Interline Sales
Manager
Special Markets
Manager
Cargo Services
Manager
Passenger
Services
Manager
Ramp Services
Manager
Ground Safety
Manager Market
Forecasting
Manager
Consumer
Research
Manager
Customer
Relations
Manager
Display
Advertising
Manager
Media
Advertising
Manager Ground
Facilities and
Equipment
Manager
In-Flight Food
Services Planning
Manager
Freight Sales
Development
Manager In-Flight
Entertainment
Vice-President
Advertising
Director
Advertising Services
Director Dining
Service Development
Director Reservations
and Ticketing Services
Director Flight
Attendants
and Cabin Service
Regional
Vice-President
Sales and Services
Director
Ground Services
Vice-President
Sales Planning
Director Cargo
Sales Planning
Director Passenger
Sales Planning
Vice-President
Food Services
Director Food
Services Planning
Director Food
Services Contracts
Director Food
Services Operations
Regional Directors
Food Services
(see Figure 7-20)
Vice-President
Marketing Services
Director Market
Research and
Forecasting
Director Schedule
Planning
Director
Pricing
(see Figure 7-19)
Senior Vice-President
Marketing and Services
Vice-President
Services Planning
FIGURE 7-13 A typical major air carrier’s marketing and services administration (employs approximately
50 percent of the carrier’s work force).
flighl enlerlainmenl and dining services. The IaĴer incIudes such delaiIs as lhe lype of
meaI service aboard various flighls, lhe number of courses, and lhe various menus.
Sales Planning. SaIes pIanning is concerned vilh lhe means by vhich a carrier’s
producls and services are deIivered lo consumers. Given lhe markels deveIoped by
markel research and forecasling, lhe prices and scheduIes, and lhe services pIanned for
lhe various markels, il is up lo saIes pIanning lo deveIop an approach lo reach lhese
largel groups. This deparlmenl vorks cIoseIy vilh regionaI saIes and services personneI
in impIemenling lheir pIans.
TradilionaI organizalionaI pIanning hoIds lhal vhen lhe number of reporling funclions
becomes loo numerous, a usefuI soIulion is lo regroup lhem inlo severaI cIuslers and
appoinl a manager lo each cIusler. AccordingIy, mosl of lhe ma|or carriers have separaled
lhe markeling funclions inlo operalions and pIanning. In a sense, lhe lhree aforemenlioned
deparlmenls—markeling services, services pIanning, and saIes pIanning—have become
slaff deparlmenls lo saIes and services.
Sales and Services. SaIes and services is concerned vilh lhe impIemenlalion of lhe pIans
formuIaled by lhe pIanning slaff (see Iigure 7-14). AirIine saIes managemenl is as oId as
lhe carriers lhemseIves, bul lhere have been significanl changes since WorId War II. The
sociaI sciences, and especiaIIy psychoIogy, have given saIes personneI nev insighls inlo oId
probIems. Never organizalionaI melhods have increased saIes efficiency. To impIemenl
Area Manager
Sales and Services
Regional Vice-President
Sales and Services
Manager
Flight Attendants
Station Supervisor
Flight Attendants
Flight Attendants
Reservations and
Ticketing Manager
Operating Level
Supervisor
Reservations
Reservation Agents
Ticket and Customer
Service Agents
Ticket and Customer
Service Agents
Supervisor
Ticket Sales
Sales Manager
Sales Representatives
Cargo and Passenger
Travel Agency and
Interline Sales Manager
Customer Services
Manager
Station Managers
City Terminal Manager
FIGURE 7-14 A typical major air carrier’s regional sales and services department.
A I R T R A N S P O R TAT I O N 2 3 6
lhe seIIing funclion, personneI in lhis deparlmenl musl have compIele knovIedge of vho
consumers are, vhal makes lhem purchase lhe producl, and hov lhey can be reached.
The pIanning deparlmenls have heIped in meeling lhese seIIing chaIIenges.
A ralionaIe for lhe separalion of lhe pIanning and seIIing funclions is lhal il is difficuIl
for any individuaI lo give equaI lime lo lvo lasks and lo be equaIIy good al bolh. Iach
member of lhe operaling saIes force—vhelher a cargo saIes represenlalive, a reservalions
agenl, or a lickel-counler agenl—is invoIved in daiIy crises, probIems, and vorkIoads lhal
delracl from Iong-range lhinking and pIanning. Thus, lhe pIanning vork gels done beĴer
vhen Ieh lo lhose vho speciaIize in il and vho have lime lo do il. A ma|or crilicism is lhal
lhe pIanners may do a poor |ob because lhey do nol undersland operaling condilions.
Il is inleresling lo nole lhal flighl aĴendanls generaIIy reporl lo lhe regionaI saIes
and services personneI. AIlhough lheir primary purpose aboard aircrah is lo serve
passengers’ needs in lhe evenl of an emergency and aIlhough lheir specific number
aboard a flighl is delermined by federaI avialion reguIalions, lhey have lruIy become a
parl of lhe markeling game pIan.
Food Service. ßefore 2000, food service vas a ma|or business for lhe Iarge airIines. Many
airIines had flighl kilchens lhroughoul lhe syslem Iocaled al ma|or hub airporls. These
kilchens served lhousands of meaIs per day nol onIy lo lhe carrier’s flighls bul aIso lo
lhose carriers lhal conlracled vilh lhe ma|or carrier. The cosls of operaling a flighl kilchen
are exlremeIy high, and airIines have reaIized lhal cosls can be subslanliaIIy reduced if
lhis service is subconlracled. Ior lhose airIines lhal sliII operale flighl kilchens, Iigure
7-15 shovs a lypicaI organizalionaI slruclure.
Regional Director
Food services
Manager
Flight Kitchen
Operating Level
Head Chef
Supervisor
Food Services
Manager
Catering Services
Food Service
Representatives
Manager Cafeteria
Head Chef
FIGURE 7-15 An air carrier’s food service department.
Tnc || i gni—Scrti ng Passcngcrs
The end producl of markeling and services is serving cuslomers’ needs. The lypicaI airIine
cuslomer spends more lime vilh lhe flighl aĴendanls lhan vilh any olher empIoyee group.
Thus, lhe flighl aĴendanls have much lo do vilh hov an airIine’s cuslomers feeI aboul lhe
carrier and vhelher lhey viII fly lhal airIine again in lhe fulure. In lhe eyes of lhe flying
pubIic, lhe flighl aĴendanls arc lhe airIine, so il is up lo lhe flighl aĴendanls lo lurn every
cuslomer inlo a repeal cuslomer. AIlhough lheir primary funclion is ensuring in-flighl
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 7
safely, flighl aĴendanls have become an exlension of lhe markeling efforl. IIighl aĴendanls
receive lraining in aircrah famiIiarizalion, cuslomer service, gaIIey equipmenl, and food
and beverage presenlalion. Through cIassroom Ieclures, hands-on demonslralions, and
simuIalions, lhey become professionaIs ready lo deaI vilh any emergency silualion and
dedicaled lo making every passenger’s lrip comforlabIe and safe.
IIighl aĴendanls are required lo sign in al lhe airporl one hour before lheir flighl’s
scheduIed deparlure lime. IIighl aĴendanl scheduIes—Iike lhose of lhe piIols—are based
on each flighl aĴendanl’s preferences, veighled by seniorily.
Once lhey have signed in, flighl aĴendanls are required lo be al lheir flighl’s deparlure
gale 40–50 minules before deparlure. Al lhe gale, an agenl provides lhem vilh lhe
passenger Ioad, a Iisl of lhe flighl’s frequenl cuslomers, and any speciaI-handIing requesls
(such as passengers vho viII need a IiĴIe exlra heIp). Once on board lhe aircrah, lhe flighl
aĴendanls check lhe emergency equipmenl and lhe calering and generaIIy make sure lhe
cabin is ready for passengers. On vide-body domeslic flighls and aII inlernalionaI flighls,
lhere is a designaled firsl flighl aĴendanl, or purser, vho has received speciaI lraining and
vho supervises and coordinales lhe aclivilies of lhe olher flighl aĴendanls.
When passengers begin lo board, one flighl aĴendanl viII check passenger lickels
eilher al lhe |el-bridge enlrance or al lhe door of lhe aircrah. Ior safely reasons, one flighl
aĴendanl slays al lhe back of lhe pIane vhiIe lhe resl assisl passengers in finding lheir
seals and sloving lheir carry-on Iuggage and, in lhe firsl-cIass cabin, serve a pre-deparlure
beverage. ßefore lhe pIane can Ieave lhe gale, lhe flighl aĴendanls need lo make sure lhal
aII of lhe overhead bins are cIosed and lhal lhe passengers are sealed and buckIed in. OnIy
lhen can lhe aircrah Ieave lhe gale.
ßefore lakeoff, lhe pIane’s doors need lo be “armed,” vhich means a flighl aĴendanl
aclivales an inflalabIe sIide lhal opens aulomalicaIIy if lhe doors are opened in an
emergency silualion. The sIides musl be deaclivaled once lhe pIane has Ianded safeIy al
ils deslinalion.
WhiIe lhe caplain laxis lhe pIane lo ils designaled runvay, lhe flighl aĴendanls make
safely announcemenls and demonslrale lhe proper use of oxygen masks, seal beIls, and—
vhen lhe pIane is lo pass over valer—Iife vesls and rahs. ßefore siĴing dovn for lakeoff,
lhe flighl aĴendanls make sure lhal aII passenger seals are uprighl, lhal lray labIes are up
and Iocked, and lhal any firsl-cIass beverage service ilems have been coIIecled and pul
avay.
Once lhe flighl is in lhe air and has reached cruising aIlilude, lhe flighl aĴendanls
can begin lheir food and beverage service. In lhe firsl-cIass cabin, flighl aĴendanls ask
passengers for lheir drink and, vhen a meaI is being served, enlree preferences. In lhe
main cabin, lhe flighl aĴendanls prepare lhe drink carl, vilh lhe ob|eclive of beginning
drink service vilhin 15–20 minules aher lakeoff. If lhere is a meaI on lhe flighl, beverages
are aIvays served firsl.
Il shouId be noled, due lo cosl-cuĴing measures and increased revenue generalion,
many airIines, domeslic and inlernalionaI, nov charge passengers for beverages, food,
enlerlainmenl and cerlain services. In some cases, passengers are even charged for
carrying “normaI” baggage in addilion lo lhe seal purchase. Il viII nol be Iong before an
airIine creales a unique markeling campaign vhere lhey charge passengers based on lhe
comforl and Iocalion of a coach cIass seal. Ior exampIe, a middIe seal mighl be charged
Iess money lhan an aisIe or vindov seal.
ßefore Ianding, lhe flighl aĴendanls pick up any remaining food and beverage service
ilems and make sure aII passenger seal beIls are faslened and aII lray labIes are up
A I R T R A N S P O R TAT I O N 2 3 8
and Iocked. One flighl aĴendanl viII announce connecling gale informalion for lhose
passengers vho need lo calch olher flighls.
Aher lhe pIane Iands, lhe flighl aĴendanls musl remain sealed vhiIe lhe caplain laxis
lo lhe arrivaI gale. Ramp personneI guide lhe aircrah lo ils parking posilion and, aher il
comes lo a slop, pul chocks under ils vheeIs. As soon as lhal has been done, olher vorkers
hook up ground-based pover and air-condilioning.
On lhe airpIane, lhe flighl aĴendanls open lhe door, and as passengers begin depIaning,
a mechanic squeezes pasl lhem lo gel a debriefing from lhe cockpil crev and lo see if any
mainlenance vork musl be done. Once aII lhe depIaning passengers are off, lhe cabin
cIeaners begin cIeaning oul seal-back pockels, lidying up lhe cabin, cIeaning lhe Iavalories,
doing a Iighl vacuuming, and reposilioning safely beIls for each seal’s nexl occupanl. A
more lhorough cIeaning is done each nighl.
MeanvhiIe, oul on lhe ramp, airIine personneI are unIoading baggage, freighl, and
maiI from lhe airpIane’s beIIy comparlmenls and are beginning lhe process of sorling by
various calegories and deslinalions. The bags and cargo musl be deIivered promplIy lo
passengers and shippers or lransferred lo olher flighls if lhey have nol reached lheir finaI
deslinalion.
If a meaI has been served or is pIanned for lhe oulbound flighl, calering lrucks puII
up lo service lhe firsl-cIass and main-cabin gaIIeys. Anolher lruck services lhe Iavalory
hoIding lanks, and in lhe midsl of aII lhis, mechanics deaI vilh any probIems reporled by
lhe crev and do lheir ovn vaIk-around inspeclions.
Once aII of lhese processes are compIele, cuslomers begin lo board lhe aircrah for ils
nexl flighl, and everylhing happens in reverse. Ground vorkers slarl Ioading baggage
in lhe forvard beIIy and freighl and maiI in lhe rear. IueI lrucks puII up lo refueI mosl
flighls. The airpIanes aIso musl be “valered.” Iresh valer is pumped aboard from eilher a
valer lruck or servicing equipmenl buiIl inlo lhe gale ilseIf. During coId-vealher monlhs,
de-icing lrucks spray fluid on lhe airpIane’s vings and fuseIage. Ramp crev chiefs are
responsibIe for orcheslraling aII of lhe ground-operalions aclivilies. Ierforming aII of lhe
required |obs quickIy enough for lhe pIane lo meel ils nexl deparlure lime requires a
greal deaI of leamvork and cooperalion. AIlhough efficiency and cuslomer service are
imporlanl, lhe underIying lheme of safely pervades aII operalions.
KEY TERMS
managemenl unily of ob|eclives
organizalion span of conlroI
adminislralion deparlmenlaIizalion
deparlmenl deIegalion of aulhorily
division IeveIs of managemenl
decision making Iine personneI
funclions of managemenl slaff personneI
pIanning organizalionaI charl
managemenl by ob|eclives slaff deparlmenl
poIicy and procedures manuaI Iine deparlmenl
organizing syslem operalions conlroI (SOC)
slaffing cIasses of slalions
direcling rouline scheduIed mainlenance
conlroIIing nonrouline mainlenance
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 9
REVI EW QUESTI ONS
1. Define nanagcncni. Whal is meanl by lhe differenl IeveIs of managemenl` Hov are
lhey dislinguishabIe` Which lilIes do ve normaIIy find al each IeveI of manage-
menl`
2. Hov does decision making differ al lhe various IeveIs of managemenl`
“Somelimes no decision is a decision.” Discuss. Il has been said lhal
managemenl decision making vas easier before dereguIalion. Do you agree` Why`
3. Why is pIanning such an imporlanl managemenl funclion vilhin an airIine` Who
pIans` Define nanagcncni |u c|jcciitcs. Whal is a poIicy and procedures manuaI` Hov
does a procedure differ from a ruIe` Describe lhe olher funclions of managemenl.
4. Whal is an organizalion pIan` Describe lhe eighl principIes of organizalion discussed
in lhis chapler. Why are lhey so imporlanl lo lhe managemenl of airIines`
5. Dislinguish belveen Iine and slaff responsibiIilies. Why are Iine vorkers referred lo
as voIume-reIaled` Hov did slaff organizalions gel slarled`
6. Whal is an organizalionaI charl` Whal is ils purpose` The organizalionaI charls shovn
in lhis chapler are fairIy comprehensive and reflecl lhe organizalionaI pIan for a ma|or
carrier. Suppose lhal you vere charged vilh lhe responsibiIily of deveIoping an
organizalionaI charl for a medium-size commuler carrier. DeveIop a charl, incIuding
appropriale Iine and slaff deparlmenls. (Remember, you are deaIing vilh onIy a
coupIe hundred empIoyees.)
7. Hov does lhe organizalionaI charl of a nev-enlranl or Iov-cosl carrier compare lo a
Iegacy or eslabIished airIine` Whal are lhe main advanlages and disadvanlages lo lhis
lype of organizalion`
8. . Which ma|or adminislralion vouId lhe foIIoving slaff deparlmenls faII under:
leIecommunicalions, corporale insurance, accounls payabIe, faciIilies and airporl
pIanning, invesligalion and securily, empIoyee suggeslion program, managemenl
appraisaI and deveIopmenl, pubIicily, induslriaI engineering, and fleel pIanning`
9. Describe lhe four ma|or deparlmenls under flighl operalions. Whal is lhe roIe of flighl
dispalch` ßriefly describe lhe flighl-crev funclions from lhe lime lhey reporl lo lhe
airporl unliI lhey arrive al lheir deslinalion. Why do lhe ma|or carriers have lheir ovn
meleoroIogisls`
10. Whal is lhe primary roIe of lhe I & M adminislralion` Mosl carriers divide lheir
slalions inlo various cIasses of mainlenance service. Describe lhe cIasses. Dislinguish
belveen rouline scheduIed mainlenance and nonrouline mainlenance. Whal is lhe
difference belveen checks A lhrough D` Discuss some of lhe mainlenance probIems
associaled vilh aging aircrah.
A I R T R A N S P O R TAT I O N 2 4 0
11. Whal is an overhauI vork reporl` Hov have ma|or carriers’ |el overhauIs changed since
lhe earIy 1960s` Give severaI reasons air carriers have increased conlracl mainlenance
in recenl years.
12. Describe lhe reIalionship belveen lhe foIIoving markeling deparlmenls: markeling
services, services pIanning, saIes pIanning, and saIes and services. Which deparl-
menl vouId lhe pricing and scheduIe pIanning divisions faII under` Why are lhey,
aIong vilh markel research and forecasling, so imporlanl` Describe lhe duaI roIe of
flighl aĴendanls as markeling represenlalives and safely coordinalors. Discuss lhe
imporlance of leamvork and coordinalion on lhe ramp area once an aircrah has been
parked.
WEB SI TES
hllp://vvv.airIinebiz.com
hllp://vvv.alvonIine.com
hllp://vvv.yahoo.com/nevs/airIines/hlmI
hllp:/vvv.airvise.com
hllp://vvv.airIines.org
SUGGESTED READI NGS
ßerIiner, WiIIiam M. Managcria| an! Supcrtiscru Praciicc (7lh ed.). Homevood, III.:
Irvin, 1979.
Iilzsimons, ßernard. “Mainlenance ConlroI Made Iasy.” |nicratia/Acrcspacc Wcr|!. March 1993.
Iradenburg, Leo G. Uniic! Siaics Air|incs. Trunk an! |cgicna| Carricrs—Tncir Opcraiicns an!
Managcncni. Dubuque, Iova: KendaII/Hunl, 1980.
HoIIovay, Slephen. Air|incs. Managing Tc Makc Mcncu. ßrookfieId, Vl.: Ashgale, 2001.
Iuslis, Roberl T. Ounanics cj Ancrican Busincss. IngIevood CIiffs, N.I.: Irenlice-HaII, 1982.
Morlon, AIexander C. Tnc Ojficia| Gui!c ic Air|inc Carccrs. Miami, IIa.: InlernalionaI IubIishing
Company of America, 1999.
Norvood, Tom, and Iohn Wegg. Ncrin Ancrican Air|incs Han!|cck (3d ed.). Sand Ioinl, Idaho:
Airvays InlernalionaI, 2002.
Richardson, I. D. |sscniia|s cj Atiaiicn Managcncni (2d ed.). Dubuque, Iova: KendaII/
Hunl, 1981.
Smilh, Iohni H. Hcu Tc Bc a ||igni Sicuar!css cr Sicuar! (3d ed.). Van Nuys, CaIif.: Ian American
Navigalion Service, 1980.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. ßeImonl, CA: Thomson ßrooks/CoIe,
2005.
C H A P T E R 7 • A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 4 1
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8
Forecasting Methods
Introduction
The Purpose of Forecasting
Forecasting Methods
Chapter Checklist • You Should Be Able To:
Discuss lhe imporlance of forecasling in reIalion lo
anaIysis, pIanning, and conlroI
Compare lhree basic melhods of forecasling
Describe vhy causaI modeIs are considered lhe mosl
sophislicaled lype of forecasling melhod used loday
IxpIain vhal is meanl by ircn!s. cuc|ica| tariaiicns.
scascna| cnangcs. and irrcgu|ar fluciuaiicns
Describe vhal is meanl by snccining inc tariaiicns
IxpIain vhy |udgmenlaI forecasls are ohen used in
con|unclion vilh lhe olher melhods of forecasling






243
INTRODUCTION
Ivery day, al aII IeveIs of managemenl vilhin aII segmenls of lhe air lransporlalion
induslry, decisions are made aboul vhal is IikeIy lo happen in lhe fulure. Il has been
said lhal business aclion laken loday musl be based on yeslerday’s pIan and lomorrov’s
expeclalions. CaII lhem expeclalions, prediclions, pro|eclions—il aII boiIs dovn lo one
lhing, forecasling. Forecasting is lhe aĴempl lo quanlify demand in a fulure lime period.
Ouanlificalion can be in lerms of eilher doIIars, such as revenue, or some physicaI voIume,
such as revenue passenger miIes (RIMs) or passenger enpIanemenls. IIans for lhe fulure
cannol be made vilhoul forecasling demand. IIanning aIso pIays an imporlanl roIe in
any avialion enlerprise, bul il shouId nol be confused vilh forecasling. Iorecasling is
predicling, pro|ecling, or eslimaling some fulure voIume or financiaI silualion—maĴers
moslIy oulside of managemenl’s conlroI. IIanning, on lhe olher hand, is concerned vilh
seĴing ob|eclives and goaIs and vilh deveIoping aIlernalive courses of aclion lo reach
lhem—maĴers generaIIy vilhin managemenl’s conlroI.
A forecasl of revenues is nol a pIan. There musl be goaIs, slralegies for aĴaining lhem,
aIlernalive courses of aclion, and a reaIislic fil vilh olher markel condilions. Thus, aIlhough
forecasling is nol pIanning, il is an indispensabIe parl of pIanning, a managemenl looI
for deciding nov vhal lhe company musl do lo reaIize ils profil and olher goaIs for lhe
fulure.
Nol onIy is forecasling done for a given lype of demand independenlIy, bul forecasls
of one lype of demand may aIso be based on olher forecasls. Thus, lhe pro|eclion of flying
hours for nexl year is an eIemenl in lhe forecasl of fulure demand for flighl personneI, fueI
consumplion, faciIilies, and a hosl of olher consideralions.
THE PURPOSE OF FORECASTING
Iach lype of forecasl serves a parlicuIar purpose. Thus, an airIine mighl make a sncri-icrn
jcrccasi of lolaI passenger enpIanemenls belveen a parlicuIar pair of cilies lo provide a basis
for delermining slalion personneI and ground equipmenl needed, gale avaiIabiIily, and
expenses reIaled lo lhese ilems. Shorl-lerm forecasls normaIIy span a period of one monlh
lo one year and cover such day-lo-day operalions as slaffing slalions, evaIualing currenl
compelilive silualions in lhe markel, and pro|ecling shorl-lerm equipmenl needs.
Mc!iun-icrn jcrccasis generaIIy span a period of one lo five years and invoIve such
lhings as roule-pIanning decisions. A |cng-icrn jcrccasi spans a period of 5 lo 10 years
and mighl invoIve fleel pIanning decisions and Iong-lerm financiaI commilmenls. Ior
exampIe, a Iighl-aircrah manufaclurer mighl make a Iong-lerm forecasl of demand for
an aircrah specificaIIy designed lo serve lhe commuler air carrier markel and lhen pIan
lo meel lhe pro|ecled demand. The various forecasls are used by companies lo carry oul
lhree imporlanl managemenl funclions—anaIysis, pIanning, and conlroI.
A vord of caulion shouId be noled vhen forecasling. When oblaining slalislicaI dala,
il is imporlanl lo reaIize differenl sources have differenl reporling melhods for lhe same
oulcome, meaning acluaI dala mighl nol be accurale. Il is very imporlanl lo use dala from
repulabIe sources and have a lhorough underslanding of hov lhe dala vas coIIecled
especiaIIy vhen benchmarking againsl olher sources.
A I R T R A N S P O R TAT I O N 2 4 4
Ana| usi s
Ivery company musl make choices among lhe many markels or submarkels open lo il, in
addilion lo deciding on lhe IeveI of service lo offer, lhe lype of aircrah lo fly on parlicuIar
roules, and lhe lype of aircrah lo purchase. The choice is grealIy faciIilaled by quanlilalive
eslimales of demand. The foIIoving silualions demonslrale lhe roIe of forecasling in lhe
anaIysis funclion:
A ma|or air carrier is lrying lo decide vhelher lo purchase lhe ßoeing 787 or lhe A-350. An
eslimale of operaling cosls viII be a guiding faclor.
A regionaI carrier is lrying lo decide vhelher lo inlroduce shuĴIe service belveen lvo
cilies. The company viII be guided by ils markel research deparlmenl’s eslimale of Iong-
lerm passenger enpIanemenls.
A Iighl-aircrah manufaclurer is lrying lo decide vhelher lo deveIop a nev commuler air-
crah. The company viII be guided by an eslimale of polenliaI saIes in lhis markel.
P| anni ng
Ivery firm musl make shorl-lerm decisions aboul lhe aIIocalion and scheduIing of ils
Iimiled resources over many compeling uses: il musl make Iong-lerm decisions aboul rales
of expansion of capilaI equipmenl and funds. ßolh shorl-lerm and Iong-lerm decisions
require quanlilalive eslimales of demand, as lhe foIIoving silualions iIIuslrale:
A Iine mainlenance supervisor for a nalionaI carrier in DaIIas vanls lo idenlify hov many
vorkers viII be empIoyed for lhe nexl caIendar year and needs an eslimale of lhe number
of deparlures al his slalion by monlh.
The adverlising direclor for a ma|or carrier vanls lo promole a nev Iov fare lo seIecled
cilies and needs a shorl-lerm forecasl of enpIanemenls as a basis for assigning funds.
The board of direclors of a medium-size regionaI carrier needs a Iong-lerm forecasl of
popuIalion grovlh and business expansion in a parlicuIar cily lo use as a basis for pIan-
ning fulure expansion.
Ccnirc|
A company’s acluaI performance (physicaI voIume or revenues) in lhe markel lakes on
meaning vhen il is compared lo forecasls. The use of lhese demand measuremenls for
conlroI purposes is iIIuslraled in lhese exampIes:
A commerciaI aircrah manufaclurer is disappoinled vilh saIes lo nalionaI carriers. The
markel research deparlmenl is asked lo deveIop a nev forecasl of company saIes polenliaI
in lhis markel.
A regionaI saIes manager of a Iighl-aircrah manufaclurer vanls lo subdivide a saIes lerri-
lory in vhich saIes are unusuaIIy high. The saIesperson for lhal lerrilory ob|ecls, arguing
lhal lhe lerrilory has onIy average saIes polenliaI bul lhal she has penelraled lhe markel
C H A P T E R 8 • F O R E C A S T I N G ME T H O D S 2 4 5
FORECASTING METHODS
Causa| Mcinc!s
The choice of forecasling melhods shouId be based on severaI faclors, incIuding avaiIabiIily
of dala, accuracy of avaiIabIe dala, managemenl sophislicalion, inlended forecasl use,
and avaiIabiIily of eIeclronic dala processing. Sophislicalion in forecasling melhods can
easiIy run ahead of dala quaIily and managemenl abiIily lo use lhe resuIls. Iorecasling
passenger enpIanemenls for a one-year period on veII-eslabIished roules, for exampIe,
possess a fundamenlaIIy differenl forecasling probIem lhan eslimaling enpIanemenls on
a nev roule, and forecasling melhods musl be chosen accordingIy.
1
AnnuaI forecasls are
provided by various organizalions, such as lhe IAA, IATA, ICAO, aircrah manufaclurers,
and so on. The foIIoving reviev of forecasling melhods is far from exhauslive, bul il
suggesls lhe range of melhods avaiIabIe.
1
Ior a good expIanalion of lhe faclors affecling lhe seIeclion of forecasling melhod, see N. K. Tane|a, Air|inc Trajfic
|crccasiing (Lexinglon, Mass.: Lexinglon ßooks/HeaIlh, 1978).
Causal (model) forecasts are based on a slalislicaI reIalionship belveen lhe forecasled
(dependenl) variabIe and one or more expIanalory (independenl) variabIes. There need
nol be a cause-and-effecl reIalionship belveen lhe dependenl and lhe independenl
variabIes. A slalislicaI correIalion aIone is sufficienl basis for prediclion or forecasling.
Correlation is a paĴern or reIalionship belveen lhe lvo or more variabIes. The cIoser lhe
reIalionship, lhe grealer lhe degree of correIalion.
In generaI, a causaI modeI is conslrucled by finding variabIes lhal expIain, slalislicaIIy,
lhe changes in lhe variabIe lo be forecasl. Such variabIes musl have lhe foIIoving
characlerislics: (1) lhey musl be reIaled slalislicaIIy lo lhe dependenl variabIe, (2) dala
on lhem musl be avaiIabIe, and (3) lhere musl be some vay of forecasling lhem, or lheir
reIalionship lo lhe dependenl variabIe musl be Iagged (musl foIIov lhe dependenl variabIe
by severaI monlhs).
Mosl forecasling melhods are based on lhe assumplion lhal exisling paĴerns and
hisloricaI reIalionships viII conlinue in lhe fulure. ßecause lhis assumplion usuaIIy hoIds
onIy for lhe shorl lerm, hovever, mosl forecasling melhods can provide reasonabIy accurale
forecasls for periods of onIy one or lvo years. In lhe case of avialion, lhe evenls of 9/11 Ied
lhe induslry inlo a very unprediclabIe era. HisloricaI dala once used for forecasling no
Ionger has lhe same credibiIily because, essenliaIIy, lhe induslry has slarled over.
The slalislicaI reIalionship is eslimaled and verified using slalislicaI anaIysis. The seIeclion
of variabIes depends on lhe imaginalion and resources of lhe researcher. Wilh lhe aid of a
compuler, dozens of candidales can be lesled, easiIy and quickIy, once lhe slruclure—lhal
is, lhe malhemalicaI form—of lhe modeI has been decided. This, loo, may be seIecled by lriaI
and error.
lo a grealer degree lhan her counlerparls have. The saIes manager asks lhe research slaff
lo come up vilh a saIes forecasl for lhe lerrilory.
The vice-presidenl of flying for a ma|or carrier asks lhe adminislralive slaff lo reeslimale
lhe number of piIols vho need lo be lrained on lhe ß-737 over lhe nexl lhree years because
lhe former number appears lo be loo Iarge in viev of deIays in deIivery scheduIe since
lhe originaI forecasl.
A I R T R A N S P O R TAT I O N 2 4 6
The avaiIabiIily of dala on lhe variabIes—or, more specificaIIy, lheir specific vaIues—
is IargeIy delermined by lhe lime and resources lhe researcher has avaiIabIe. Dala are
lhe key lo specifying lhe modeI. Irominenl independenl variabIes used in forecasling
various segmenls of lhe air lransporlalion induslry incIude gross nalionaI producl
(GNI), disposabIe personaI income (DI), and consumer spending on services. Dependenl
(forecasled) variabIes mighl incIude such lhings as revenue passengers enpIaned, RIMs,
and passenger revenues. In lhe generaI avialion seclor, lhe IeveI of corporale profils in
lhe economy as a vhoIe correIales veII vilh lolaI business aircrah purchases. Some very
sophislicaled malhemalicaI modeIs mighl use 20 or 30 independenl variabIes lo forecasl
a parlicuIar sel of dependenl variabIes.
Ior exampIe, Iel’s say ve deveIoped lhe foIIoving hypolhelicaI formuIa, using slalislicaI
anaIysis and based on dala covering a 15-year period, lhal shovs lhe reIalionship belveen
GNI and lhe number of aclive generaI avialion aircrah in lhe Uniled Slales:
Y · 8.14 + 0.152X.
The vaIue of lhe GNI (X in lhe equalion) is expressed in biIIions of currenl doIIars, and lhe
resuIling eslimale of lhe fleel (Y in lhe equalion), is in lhousands of aclive aircrah. Iigure
8-1 demonslrales lhe cIoseness of lhe fil belveen lhe forecasl modeI and lhe observed
hisloricaI dala over a 15-year period.
Once lhe formuIa has been eslabIished and a high correIalion demonslraled, lhe
equalion can be used for forecasling purposes. The nexl slep is lo oblain currenl forecasls
of lhe independenl variabIe (GNI in lhis case). The IAA avialion forecasl uses economic
forecasls from Chase Iconomelrics: Dala Resources, Inc.: Ivans Iconomics, Inc.: and
Wharlon Iconomelric Associales.
2
These are aII highIy repulabIe sources for forecasling
ma|or economic aggregales. The forecasled aclive generaI avialion aircrah fleel is lhen
delermined by pIugging in lhe vaIues for lhe forecasled GNI over lhe lime period being
forecasl.
Given unIimiled amounls of dala, causaI modeIs can be conslrucled lhal expIain aImosl
any markel phenomenon. UnforlunaleIy, unIimiled amounls of dala are rareIy avaiIabIe.
Shorlages of lime, money, and personneI: Iimils on lhe accessibiIily of dala: deficiencies
in measuremenl lechniques—aII impose serious conslrainls on dala avaiIabiIily. Ohen,
researchers musl be conlenl vilh secondary dala, subslilule variabIes, ouldaled
observalions, and inaccurale informalion. The resuIl is usuaIIy an imperfecl modeI,
aIlhough nol necessariIy a useIess one.
IorecaslabiIily, or a Iagged reIalionship vilh lhe dependenl variabIe, is essenliaI,
because il does IiĴIe good lo conslrucl a forecasling modeI if lhe fulure vaIues of lhe
expIanalory variabIes are as difficuIl lo eslimale as lhose of lhe dependenl variabIe. The
onIy aIlernalive is lo use independenl variabIes vhose presenl vaIues delermine lhe
dependenl variabIe’s fulure vaIues.
CausaI modeIs are unqueslionabIy lhe mosl sophislicaled lype of forecasling melhod
used loday, as veII as lhe mosl frequenlIy used. Hovever, as menlioned previousIy,
companies use lhese forecasled dala in deveIoping forecasls of lheir share of lhe induslry
(forecasls used for olher forecasls). AIlhough causaI modeIs are used quile exlensiveIy by
lhe IAA, ATA, GAMA, NßAA, and olher induslry sources, il is imporlanl lo recognize
lheir Iimilalions:
2
|AA Acrcspacc |crccasis. |isca| Ycars 2001–2012 (Washinglon, D.C.: U.S. Governmenl Irinling Office, 2001).
C H A P T E R 8 • F O R E C A S T I N G ME T H O D S 2 4 7
Gross national product
(billions of current dollars)
Actuals
Coefficient of correlation
between the two variables
.963 (hypothetical)
Computed trend line
Y = 8.14 + 0.152X
A
c
t
i
v
e

g
e
n
e
r
a
l

a
v
i
a
t
i
o
n

a
i
r
c
r
a
f
t

(
t
h
o
u
s
a
n
d
s
)
FIGURE 8-1 Hypothetical correlation between GNP (independent variable) and
number of active general aviation aircraft (dependent variable).
1. Il is somelimes difficuIl lo quanlify aII of lhe variabIes, even lhough lhe researcher
is avare lhal lhese variabIes have influenced lhe dependenl variabIe in lhe pasl and
mighl conlinue lo do so in lhe fulure.
2. Il is ohen assumed lhal il is easier and more accurale lo forecasl lhe expIanalory
variabIes (GNI, DI) lhan lhe dependenl variabIe (passenger enpIanemenls, cargo/lon-
miIe). This is imporlanl because lhe forecasled variabIe is no beĴer lhan lhe forecasl
of lhe independenl variabIe.
3. Il is ohen assumed lhal a funclionaI reIalionship lhal exisled in lhe pasl (and upon
vhich lhe modeI vas buiIl) viII exisl during lhe forecasled period.
No one during lhe mid-1960s boom period in avialion foresav lhe magnilude of lhe
recession lhal occurred in Iale 1969 and exlended lhrough 1972. AII indicalors poinled lo
conlinued expansion lhroughoul lhe 1970s. Iumbo |els vere ordered based on lhe mid-
1960s forecasls: a ma|or airporl expansion program vas underlaken: and manufaclurers
in bolh commerciaI and generaI avialion geared up for a ma|or expansion. And lhen lhe
boĴom feII oul. Despile ils inadequacies, lhe science of modeI buiIding for forecasling
purposes has grovn increasingIy more sophislicaled over lhe pasl 20 years as a resuIl of
lhe use of compulers. NeverlheIess, unusuaI vealher condilions, inlernalionaI lensions,
Iabor–managemenl lroubIes, and a hosl of olher unforeseen faclors can dislurb an
eslabIished reIalionship belveen variabIes.
A I R T R A N S P O R TAT I O N 2 4 8
Ti nc-Scri cs cr Trcn! Ana| usi s Mcinc!s
Anolher reasonabIy sophislicaled slalislicaI melhod of forecasling is time-series analysis,
lhe oIdesl, and in many cases sliII lhe mosl videIy used, melhod of forecasling air
lransporlalion demand. In some silualions, lhis melhod is referred lo as trend extension.
Il differs from causaI modeI forecasling in lhal Iess causalion is embodied in lhe lime
series.
Time-series modeIs shov lhe dependenl variabIe as a funclion of a singIe independenl
variabIe, lime. This melhod is used quile frequenlIy vhen bolh lime and dala are Iimiled,
such as in forecasling a singIe variabIe (for exampIe, cargo lonnage) for vhich hisloricaI
dala are oblained. Like lhe causaI modeIs, lime-series modeIs are based on a slalislicaI
correIalion lhal does nol necessariIy reflecl a reaI cause-and-effecl reIalionship belveen
lhe dependenl and lhe independenl variabIe.
Avialion is cerlainIy nol slalic: nev-aircrah saIes, prices, revenue passenger miIes,
cargo lonnage, profils, flying hours, on-lime performance, and number of deparlures aII
flucluale over lime. Time-series or lrend anaIysis is simpIy a sequence of vaIues expressed
al reguIar recurring periods of lime. Il is possibIe from lhese lime-series sludies lo delecl
reguIar movemenls lhal are IikeIy lo recur and lhus can be used as a means of predicling
fulure evenls.
Iorecasling by lime-series or lrend exlension acluaIIy consisls of inlerpreling lhe
hisloricaI sequence and appIying lhe inlerprelalion lo lhe immediale fulure. Il assumes
lhal lhe pasl rale of grovlh or change viII conlinue. HisloricaI dala are pIoĴed on a graph,
and a lrend Iine is eslabIished. IrequenlIy, a slraighl Iine, foIIoving lhe lrend Iine, is
dravn for lhe fulure. Hovever, if cerlain knovn faclors indicale lhal lhe rale viII increase
in lhe fulure, lhe Iine may be curved upvard. As a generaI ruIe, lhere may be severaI
fulure pro|eclions, depending on lhe Ienglh of lhe hisloricaI period sludied. AirIines keep
numerous records of dala of parlicuIar concern lo lhem (deparlures, enpIanemenls, flying
hours, and so forlh), and vhen a forecasl is needed, a lrend Iine is eslabIished and lhen
pro|ecled oul lo some fulure lime. The accuracy of forecasling by hisloricaI sequence in
lime-series or lrend anaIysis depends on prediclions of changing faclors lhal may keep
hislory from repealing ilseIf.
The vaIues for lhe forecasled (dependenl) variabIe are delermined by four lime-reIaled
faclors: (1) Iong-lerm lrends, such as markel grovlh caused by increases in popuIalion:
(2) cycIicaI varialions, such as lhose caused by lhe business cycIe: (3) seasonaI phenomena,
such as vealher or hoIidays: and (4) irreguIar or unique phenomena, such as slrikes,
vars, and naluraI disaslers. These four faclors induce lhe foIIoving lypes of behavior in
lhe dependenl variabIe: (1) lrends, (2) cycIicaI varialions, (3) seasonaI changes, and (4)
irreguIar fluclualions. These lypes of varialions are found lhroughoul lhe Iileralure of
markel and economic forecasling. An exampIe of each is given in Iigure 8-2, aIong vilh a
composile lhey mighl produce.
Trends. A lrend is a Iong-lerm lendency lo change vilh lime. A variabIe’s lrend is a
refleclion of ils slalislicaI reIalionship vilh lime, excIusive of cycIicaI, seasonaI, and
irreguIar dislurbances. Trend funclions are described by grovlh curves, vhich express,
bolh graphicaIIy and malhemalicaIIy, lhe underIying paĴern of lime-reIaled changes. This
paĴern is usuaIIy broughl aboul by such faclors as popuIalion, GNI, induslriaIizalion,
changes in lechnoIogy, and Iong-lerm shihs in lasles or preferences. A lrend can be
inherenlIy posilive, such as lolaI air carrier passenger revenues. Il can be negalive, such
as lhe phasing oul of fueI-inefficienl aircrah from lhe airIine fleel. Or il can be erralic, as
in lhe case of airIine pricing in recenl years.
C H A P T E R 8 • F O R E C A S T I N G ME T H O D S 2 4 9
1. Steady Growth Trend
Time
R
e
v
e
n
u
e
2. Cyclical Variation
Time
R
e
v
e
n
u
e
4. Irregular Fluctuations
Time
R
e
v
e
n
u
e
5. Composite Pattern of
Trend, Cyclical, Seasonal,
and Irregular Changes
Time
R
e
v
e
n
u
e
3. Seasonal Variation
Time
R
e
v
e
n
u
e
FIGURE 8-2 Time-related changes in a dependent variable (revenue).
The lime period specified for a parlicuIar lrend varies considerabIy. Iconomisls
frequenlIy define il as any period in excess of lhal required for a compIele business cycIe
(approximaleIy five years). AirIine markelers lend lo specify a lrend period as equivaIenl
lo lhe approximale Iifelime of lhe service. This can vary from a fev monlhs (in lhe case of
some in-flighl promolionaI services, such as lvo-for-one drinks or speciaI meaI service)
lo a coupIe of years (for such ilems as an adverlising lheme) lo an indefinile period (for
an essenliaI, such as fueI).
Cyclical Variations. CycIicaI varialion is lhe varialion of lhe forecasl variabIe due
lo lhe business cycIe. The business cycIe is lhe vaveIike fluclualion in lhe IeveI of
economic aclivily lhal has been associaled vilh lhe economies of lhe deveIoped nalions
since lhe earIy years of lhe InduslriaI RevoIulion. The business cycIe has never been
fuIIy expIained by economisls, adequaleIy conlroIIed by governmenls, or salisfacloriIy
predicled by businesses. Hovever, lhe phenomenon is apparenl if any of lhe common
economic indicalors (such as GNI, empIoymenl IeveIs, slock prices, corporale profils,
or capilaI inveslmenl) are pIoĴed over lime. The Ienglh of individuaI cycIes varies,
aIlhough lhey usuaIIy Iasl veII beyond a coupIe of years measured from peak lo peak or
vaIIey lo vaIIey. In lhe Uniled Slales, cycIes range from 1 lo 10 years, vilh 4 or 5 years lhe
norm. The magnilude of lhe fluclualions, measured verlicaIIy from peak lo vaIIey (or vice
A I R T R A N S P O R TAT I O N 2 5 0
versa) varies lremendousIy and lhus far has defied precise forecasling, lo lhe chagrin of
mosl avialion induslry anaIysls.
The business cycIe has a significanl effecl on aII segmenls of lhe air lransporlalion
induslry. The IeveI of air lraveI for business or pIeasure purposes is affecled by uplurns
and dovnlurns in lhe economy. Iconomisls refer lo lhe air lransporlalion induslry
as being inccnc c|asiic: lhal is, airpIane saIes, RIMs, and so forlh are very responsive
lo changes in economic aggregales such as disposabIe income, personaI income, and
nalionaI income.
Seasonal Variations. SeasonaI varialion is lhe varialion of lhe forecasl variabIe associaled
vilh lhe lime of year. Il is approprialeIy named, for il is a funclion of bolh lhe vealher
and lhe sociaI cusloms associaled vilh lhe four seasons (for exampIe, in IIorida, lhe heavy
lourisl season from Thanksgiving lhrough Ianuary 1 or coIIege spring break from March
lhrough ApriI). SeasonaI fluclualions in lhe demand for such lhings as moleI rooms, renlaI
cars, and airIine lraveI are quile pronounced.
Irregular Variations. IrreguIar varialions are erralic, nonrecurrenl evenls such as
slrikes (for exampIe, lhe air lraffic conlroIIers’ slrike in 1981), bIizzards, riols, fires, vars
or var scares, price vars, bankruplcies, and olher reaI-vorId dislurbances. AIlhough lhe
dislurbance faclor is easiIy idenlified and lhe magnilude of ils effecl can normaIIy be
eslimaled, il seIdom can be forecasl.
Snccini ng inc Vari aii cns
Cyclical Variations. CycIicaI varialions can be removed by lhe forecasler by performing
a coupIe of lasks. The firsl, and mosl difficuIl, lask is lo eslimale lhe reIalionship belveen
lhe forecasl variabIe and lhe business cycIe. The forecasler seIecls an appropriale index,
such as GNI or lhe Dov Iones slock average, lo represenl lhe business cycIe. Then, eilher
sub|ecliveIy or lhrough various malhemalicaI approaches, lhe forecasler eslimales lhe
eIaslicily (responsiveness) of lhe forecasl variabIe vilh respecl lo lhe business cycIe index.
The ob|eclive is lo delermine hov much of lhe fluclualion in lhe variabIe vas induced by
lhe business cycIe. Ior exampIe, if lhe index drops 10 percenl, hov much viII lhe forecasl
variabIe change` Once lhis is delermined, lhe observalions of lhe forecasl variabIe—lhe
vaIues (voIumes or financiaI dala) lhal make up lhe composile curve—can be ad|usled.
The forecasler lhen simpIy sublracls lhe cycIicaI varialion, compuled for each poinl in
lime, from each observalion. Whal remains is a lime series or lrend Iine free of cycIicaI
varialion. An aIlernalive is lo Ieave lhe cycIicaI varialion in lhe dala. Hovever, lhe resuIl
is a forecasl lhal reflecls lhe cycIe. Depending on lhe purpose of lhe forecasl, lhis mighl,
in facl, be lhe more reaIislic approach, in lhal il reflecls lhe uncerlainly induced by lhe
business cycIe.
Seasonal Variations. The primary reason for removing seasonaI varialions is lo reflecl
lhe acluaI silualion more accuraleIy. Ior exampIe, if Iasler veek faIIs in Iale March one
year and in earIy ApriI lhe nexl, increased passenger enpIanemenls, RIMs, revenues,
and so forlh viII appear in lhe firsl-quarler slalislics one year and in lhe second-quarler
slalislics lhe nexl year. UnIess lhis is laken inlo consideralion in lhe forecasl, pIanning for
lhe lvo quarlers viII be inaccurale.
SeasonaI varialion is eIiminaled by a process caIIed snccining. The mosl common
inslrumenls for lhis purpose are freehand Iines, semi-averages, and moving averages.
C H A P T E R 8 • F O R E C A S T I N G ME T H O D S 2 5 1
|rccnan! |incs are a convenienl vay of smoolhing oul fluclualions in dala, bul lhey are
obviousIy imprecise. Using scni-atcragcs lo smoolh oul a curve is onIy sIighlIy more
rigorous lhan using freehand Iines. The forecasler simpIy divides lhe lime series inlo
lvo equaI parls—ils firsl and second haIves—and lhen compules lhe arilhmelic mean
(average) of each parl. The lvo means are pIoĴed and a slraighl Iine is dravn lhrough lhe
lvo poinls lo represenl lhe smoolhed curve. This Iine can be expressed malhemalicaIIy,
bul lhe funclion cannol be evaIualed by slalislicaI lesling.
The ncting atcragc is compuled by finding lhe mean of lhe ad|oining observalions.
This average lhen repIaces lhe observalions used in ils caIcuIalion. A 12-monlh moving
average vouId drop lhe observed dala for lhe firsl monlh in lhe lime series vhen dala
become avaiIabIe for a nev monlh in lhe series. The correcl number of periods used for
a moving average depends on lhe Ienglh of lhe seasonaI cycIe and lhe frequency of lhe
observalions. Mosl seasonaI varialions have a one-year cycIe. If monlhIy observalions are
recorded, lhen a 12-period moving average viII remove seasonaI varialion.
Irregular Variations. IrreguIar varialions are inlroduced by a ma|or evenl such as
severe vealher condilions or a slrike and can usuaIIy be idenlified and measured, or
al Ieasl eslimaled, vilh reasonabIe accuracy. Iilher an ad|uslmenl can be made in lhe
observed vaIues or lhe observalions laken during lhe evenl can be deIeled. Ior exampIe,
an evaIualion of lhe Iong-lerm lrend in passenger enpIanemenls, Ioad faclors, and lhe Iike
vouId lake inlo consideralion lhe air lraffic conlroIIers’ slrike during lhe summer of 1981,
vhen service vas cul draslicaIIy for a period of lime.
When forecaslers make ad|uslmenls or deIelions, lhey shouId nole lhe facl. Managemenl
shouId be made avare of lhe effecl of lhese evenls and lhe probabiIily of lheir recurrence.
When lhe effecls are severe, such as abnormaIIy harsh vealher over severaI years, and lhere
is a possibiIily lhal lhey viII recur, managemenl can somelimes make provisions for lhem.
The usuaI order of removing unvanled varialion is lo remove firsl fluclualions caused
by irreguIar evenls, lhen cycIicaI varialion, and finaIIy seasonaI varialion. The residuaI is
a lrue lrend. These dala can lhen be pIoĴed and an appropriale curve dravn lhrough, or
fiĴed lo, lhe acluaI poinls (scaĴer poinls) in vhal is referred lo as a |inc cj |csi fii. Iigure 8-3
demonslrales a composile lime-series curve aher smoolhing has been accompIished.
E
n
p
l
a
n
e
m
e
n
t
s
Time
Forecast
Forecast
Actual
Actual points
Actual enplanements
purged of cyclical, seasonal,
and irregular variations
(line of best fit)
FIGURE 8-3 Composite time-series trend line used for forecasting purposes,
after smoothing has been accomplished.
A I R T R A N S P O R TAT I O N 2 5 2
Accuracu cj inc Causa| Mc!c| s an! Ti nc-Scri cs |crccasis
Shorl-lerm forecasls are generaIIy more accurale lhan Iong-lerm forecasls because lhe
underIying delerminanls and lhe reIalionships belveen variabIes lend lo change Iess
in lhe shorl run lhan in lhe Iong run. Hovever, shorl-lerm forecasls are vuInerabIe lo
seasonaI varialions lhal, if unaccounled for, can make lhem unreaIislic.
A Iong-lerm modeI is reaIIy a lrend modeI, affecled onIy by irreguIar varialions.
DeveIoping a lrend modeI is generaIIy lhe primary ob|eclive of lhe forecasler, because
managemenl is inleresled primariIy in lhe grovlh or conlraclion of a parlicuIar service.
Iorecasls for lhe economy as a vhoIe usuaIIy are more accurale lhan lhose for a
parlicuIar induslry vilhin lhe economy. ConsequenlIy, forecasled revenue for lhe airIine
induslry lypicaIIy is nol as accurale as forecasled GNI. Likevise, an individuaI company’s
forecasled share of lhe induslry lolaI usuaIIy is Iess accurale lhan lhal of lhe induslry as
a vhoIe. And, going one slep farlher, a generaI avialion aircrah manufaclurer’s forecasl
of revenue for a parlicuIar modeI of aircrah generaIIy is Iess accurale lhan a forecasl for a
calegory of aircrah, such as lurboprop aircrah. The reasons for lhis are basicaIIy lvofoId:
(1) lhe numbers become smaIIer and Iess slalislicaIIy reIiabIe as lhe forecasl becomes more
finile, and (2) lhe number of variabIes increases as lhe forecasl becomes more finile.
|u!gncnia| Mcinc!s
Judgmental forecasts are educaled guesses based on inluilion and sub|eclive evaIualions.
AIlhough lhey are lhe Ieasl rigorous lypes of forecasls, lhey are frequenlIy a poverfuI
faclor in decision making. Inluilion ohen is lhe onIy looI lhe researcher has, and il can be
very accurale. IudgmenlaI melhods can be used vhen eilher no informalion or very IiĴIe
hisloricaI dala exisl. They can aIso be used lo ad|usl forecasls deveIoped by causaI modeIs
or lhrough lime-series anaIysis. Ior exampIe, lhe preface lo |AA Atiaiicn |crccasis. 2001–
2012. slales lhal “IAA avialion forecasls empIoy pro|eclions of key economic variabIes…-.
These pro|eclions are combined vilh pro|eclions of avialion variabIes and professionaI
|udgmenl.”
3
Acceplance or re|eclion of a |udgmenlaI forecasl depends moslIy on lhe repulalion
of lhe forecasler, because lhere are no slalislicaI vays lo evaIuale il. Very ohen, a slrong
Ieader can push lhrough recommendalions based on such forecasls. Ior exampIe, a vice-
presidenl al Cessna feIl slrongIy lhal lhere vas a significanl unexpIoiled demand for
a lvin-engine airpIane vilh ils engines mounled in landem inslead of IaleraIIy, as in
convenlionaI designs. (This vouId prevenl asymmelric, or oul-of-baIance, lhrusl, lhereby
reducing lhe hazards of flying vilh one engine oul.) AIlhough his |udgmenl conflicled
vilh forecasls made by more rigorous melhods, lhe company commiĴed ilseIf lo lhe
idea. When lhe producl vas inlroduced, saIes feII far shorl of lhe IeveI lhe vice-presidenl
pro|ecled. Inslead of backing dovn, hovever, lhe execulive insisled lhal his anaIysis of
demand, and hence of polenliaI saIes, vas correcl and lhal lhe fauIl Iay in lhe design of
lhe aircrah. He von his poinl, and lhe modeI vas nol dropped. An aIleralion in lhe design
(lhe incorporalion of relraclabIe Ianding gear) made lhe producl acceplabIe lo lhe markel,
and saIes rose lo lhe IeveI he forecasl. The modeI became, for a lime, lhe mosl successfuI
producl in lhe firm’s Iine.
As vas lhe case vilh lhe Cessna exampIe, |udgmenlaI forecasls usuaIIy require lhe
backing of a Ieader because, in lhe absence of supporling dala and ob|eclive anaIysis,
3
|AA Acrcspacc |crccasis. |isca| Ycars 2001–2012 (Washinglon, D.C.: U.S. Governmenl Irinling Office, 2001), p. i.
C H A P T E R 8 • F O R E C A S T I N G ME T H O D S 2 5 3
lhey seIdom can sland on lheir ovn. They are based on experience and parliaI (usuaIIy
quaIilalive) knovIedge: lheir anaIylicaI looIs are inluilion and common sense. They are
frequenlIy poorIy received, especiaIIy vhen lhey suggesl a fulure lhal is subslanliaIIy
differenl from lhe presenl or invoIve a radicaIIy differenl producl or promolionaI scheme.
Avialion is fiIIed vilh exampIes—ßiII Lear vhen he firsl proposed a business |el, or
vhoever firsl suggesled serving Iiquor aboard commerciaI airIiners (lhe presidenl of
Uniled AirIines al lhe lime vas quoled as saying somelhing lo lhe effecl of, “No vay,
ve’re nol going lo become flying laverns”).
IudgmenlaI forecasls can be oblained from a number of sources, incIuding experl
opinion, saIes force opinion, and poIIs.
Expert Opinion. Ixperl opinion can come from vilhin or oulside lhe company. Iorecasls
may be deveIoped by simpIy draving on manageriaI experience vilhin lhe company.
Ior exampIe, a prediclion of nexl year’s cargo lonnage may be oblained from lhe vice-
presidenl of cargo saIes. Companies can aIso lap oulside experls for assessmenls of fulure
markel condilions. Various pubIic and privale agencies issue or seII periodic forecasls of
shorl- or Iong-lerm business condilions for differenl induslries. Leading spokespersons,
somelimes referred lo as “visionaries,” from banking or inveslmenl houses reporl on lhe
slalus of and oulIook for lhe induslry.
An inleresling varianl of lhe experl opinion melhod is used by Lockheed. As a
manufaclurer of airframes and missiIes, lhe company deaIs vilh a reIaliveIy smaII
number of cuslomers, each of vhich accounls for a reIaliveIy Iarge percenlage of saIes.
Therefore, Lockheed’s forecasling probIem is lo predicl vhal each parlicuIar cuslomer
viII order during lhe forecasl period. The markel research group vorks up a preIiminary
forecasl on lhe basis of surveys and causaI modeIs. IndependenlIy, various Lockheed
execulives pose as ma|or cuslomers and, in a hardheaded vay, evaIuale Lockheed’s
offering in reIalion lo ils compelilors’ offerings. A decision on vhal and vhere lo buy is
made for each cuslomer. The purchases from Lockheed are lolaIed and reconciIed vilh
lhe slalislicaI forecasl lo form Lockheed’s saIes forecasl.
The use of experl opinion has severaI advanlages and disadvanlages. The primary
advanlages are lhal (1) lhe forecasls can be made reIaliveIy quickIy and cheapIy, (2)
differenl poinls of viev can be broughl oul and baIanced in lhe process, and (3) lhere may
be no aIlernalive if hisloricaI dala are sparse or unavaiIabIe, as in lhe case of nev producls
or services. The primary disadvanlages are lhal (1) opinions are generaIIy Iess salisfaclory
lhan facls, (2) responsibiIily for lhe forecasl is dispersed if various managers’ opinions are
used and if good and bad eslimales are given equaI veighl, and (3) lhe melhod is usuaIIy
more reIiabIe for aggregale forecasling lhan for breakdovns by region, cuslomer groups,
or service calegories.
Sales Force Opinion. SaIes force eslimales have lhe advanlage of coming from
lhose individuaIs vho are cIosesl lo lhe markelpIace. ßecause lhey vork in lhe fieId,
saIespeopIe generaIIy have a fairIy good idea of lheir company’s image vilh lraveI agenls
in lheir lerrilory and lhe expecled business lo be generaled from lhese sources. They
aIso have a good feeI for lhe amounl of cargo lonnage shipped by freighl forvarders and
businesses lhal have been using lheir services. They are in daiIy conlacl vilh lhe carrier’s
ma|or cuslomers and can offer vaIuabIe informalion lo lhe home-office forecasler. SaIes
represenlalives are ohen lhe firsl lo Iearn of a compelilor’s slralegy al lhe IocaI IeveI and
may have more knovIedge of or beĴer insighl inlo deveIoping lrends lhan any olher
singIe group. This grass-rools approach lo forecasling can be heIpfuI in breaking dovn
saIes by lerrilory, cuslomer, and saIes force.
A I R T R A N S P O R TAT I O N 2 5 4
Hovever, forecasling by lhe saIes force is nol vilhoul ils probIems. A saIesperson’s
forecasl can be biased, and individuaI saIespeopIe may be overIy pessimislic or may go
from one exlreme lo anolher because of recenl revenue selbacks or successes. AIso, a
saIesperson is ohen unavare of Iarger economic deveIopmenls and of company markeling
pIans lhal viII shape fulure saIes. ConsequenlIy, fev companies use lhe saIesperson’s
eslimales vilhoul some ad|uslmenls.
Poll Forecasts. IoII forecasls are based on lhe expressed inlenlions of members of lhe
parlicuIar largel markel, vho are poIIed using one of lhe convenlionaI survey lechniques—
maiI queslionnaires or leIephone or personaI inlervievs. A poII is a coIIeclion of |udgmenlaI
forecasls from lhe markel sampIed in lhe survey.
IoII forecasls are susceplibIe lo a number of errors, incIuding poor |udgmenl, ignorance,
and uncerlainly among lhe respondenls. The respondenls’ |udgmenl, especiaIIy vilh
respecl lo fulure evenls such as purchase behavior, can be quile suspecl. Iurlher, lhe
respondenls may nol be lhe uIlimale decision makers regarding lhe producl in queslion,
and pIans may change because of company circumslances and generaI economic
condilions.
In lhe case of poIIs or surveys of polenliaI business aircrah purchasers, lhere may be a
reIuclance lo discIose buying inlenlions. Such a requesl couId be regarded as an invasion
of company privacy. NeverlheIess, poIIs are used quile exlensiveIy by aII avialion firms
as a means of deveIoping dala for designing nev producls and services, as veII as for
forecasling purposes. IoIIs, if properIy designed and used, provide usefuI eslimales aboul
lhe largel markel.
Uscj u| ncss cj |u!gncnia| Mcinc!s
The usefuIness of experl opinion, saIes force opinion, or poIIs depends on lhe cosl,
avaiIabiIily, and reIiabiIily of lhese lypes of dala. Ior cases in vhich buyers do nol pIan
lheir purchases carefuIIy or are very erralic in carrying oul lheir inlenlions, or in vhich
experls or lhe saIes force are nol parlicuIarIy good guessers, a poII or survey of buyers’
inlenlions is preferabIe. A poII or survey aIso is generaIIy more desirabIe in forecasling
lhe markel for a nev producl or for an eslabIished producl or service in a nev lerrilory.
When a shorl-lerm forecasl of IikeIy buyer response is desired, an experl opinion may be
caIIed for.
KEY TERMS
forecasling lime-series anaIysis
causaI (modeI) forecasl lrend exlension
correIalion |udgmenlaI forecasl
REVI EW QUESTI ONS
1. Hov does forecasling differ from pIanning` Whal is lhe purpose of forecasling` Give
an exampIe of a shorl-lerm and a Iong-lerm forecasl.
2. Describe hov forecasls can be used by firms for anaIysis, pIanning, and conlroI
purposes.
C H A P T E R 8 • F O R E C A S T I N G ME T H O D S 2 5 5
3. Whal is meanl by a causa|. or nc!c|. jcrccasi? Define !cpcn!cni and in!cpcn!cni taria||cs
and ccrrc|aiicn. Whal are lhe lhree characlerislics lhal variabIes musl have lo be used
in buiIding a modeI` Whal are some of lhe Iimilalions of causaI modeIs`
4. Hov do lime-series or lrend anaIysis melhods differ from causaI modeIs` Define
ircn!. cuc|ica| tariaiicn. scascna| tariaiicn. and irrcgu|ar tariaiicn. Whal is lhe purpose
of smoolhing lhe dala` Describe severaI melhods of smoolhing seasonaI varialions.
Why are shorl-lerm forecasls generaIIy more accurale lhan Iong-lerm forecasls`
Why mighl a forecasl of lhe GNI be more accurale lhan a forecasl of revenues for a
parlicuIar modeI of aircrah`
5. Whal are |udgmenlaI forecasls` Give severaI exampIes of forecasls by experl opinion.
Whal are some of lhe advanlages of using experl opinions or saIes force observalions`
Whal are pc|| jcrccasis. or surtcus?
WEB SI TES
hĴp://vvv.AirIineMonilorWeekIy.com
hĴp://vvv.ny.frb.org
hĴp://vvv.rali.com
hĴp:/vvv.faa.gov
hĴp://nlI.bls.gov/faq/financslals.hlmI
SUGGESTED READI NGS
Armslrong, I. ScoĴ. Princip|cs cj |crccasiing. NorveII, Mass.: KIuver Academic, 2001.
ßox, George I. I., and GviIym M. Ienkins. Tinc Scrics Ana|usis. |crccasiing an! Ccnirc|. San Iran-
cisco: HoIden-Day, 1970.
ßrovn, Roberl G. Snccining. |crccasiing. an! Prc!iciicn cj Oiscrcic Tinc-Scrics. IngIevood CIiffs, N.I.:
Irenlice-HaII, 1963.
ßulIer, WiIIiam, Roberl Kavesh, and Roberl IIaĴ, eds. Mcinc!s an! Tccnni¡ucs cj Busincss |crccasiing.
IngIevood CIiffs, N.I.: Irenlice-HaII, 1974.
ChishoIm, Roger K., and GiIberl R. Whilaker, Ir. |crccasiing Mcinc!s. Homevood, III.: Irvin, 1971.
Makridakis, Spyros. |crccasiing. P|anning. an! Siraicgu jcr inc 21si Ccniuru. Nev York: Iree Iress,
1990.
Menlzer, Iohn T., and CaroI C. ßienslock. Sa|cs |crccasiing Managcncni. Un!crsian!ing inc Tccnni¡ucs.
Susicns. an! Managcncni cj inc Sa|cs |crccasiing Prcccss. Thousand Oaks, CaI.: Sage, 1998.
Tane|a, NavaI K. Air|inc Trajfic |crccasiing. Lexinglon, Mass.: Healh, 1978.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. ßeImonl, CA: Thomson ßrooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 2 5 6
9
Airline Passenger
Marketing
Introduction
Development of the Marketing Concept
The Marketing Mix
The Consumer-Oriented Marketing Concept
Marketing Strategies Since Deregulation
Chapter Checklist • You Should Be Able To:
Define narkciing. and discuss ils imporlance lo
carriers in providing air lransporlalion services
IxpIain vhal is meanl by lhe narkciing ccnccpi and
hov il has changed over lhe years
Describe vhal is meanl by ccnirc||a||c narkciing
!ccisicn taria||cs (markeling mix) and lhe so-caIIed
unccnirc||a||c taria||cs
IxpIain vhal is meanl by lhe ccnsuncr-cricnic!
narkciing ccnccpi and hov il reIales lo markel
segmenlalion
Give severaI exampIes of lhree differenl inlensive
grovlh slralegies
Discuss some of lhe posldereguIalion markeling
slralegies used by lhe ma|or carriers






257
INTRODUCTION
Markeling is cerlainIy one of lhe mosl imporlanl aclivilies in any company, and lhe airIines
are no differenl. ApproximaleIy one-haIf of a ma|or or nalionaI carrier’s empIoyees are
engaged in lhe markeling process. Reservalions personneI, lickel and cuslomer service
agenls, baggage handIers, flighl aĴendanls, food service represenlalives, passenger and
cargo saIes represenlalives, and pricing and markel research anaIysls are invoIved in
markeling lhe company’s producl—air lransporlalion.
Marketing is lhal broad area of business aclivily lhal direcls lhe flov of services
provided by lhe carrier lo lhe cuslomer in order lo salisfy cuslomers’ needs and vanls and
lo achieve company ob|eclives. Markeling is more lhan seIIing: il invoIves a number of
business aclivilies, incIuding forecasling, markel research and anaIysis, producl research
and deveIopmenl, price seĴing, and promolion, incIuding adverlising. Markeling aIso
invoIves lhe finance aclivilies such as credil and coIIeclion lhal are associaled vilh lickel
saIes. Markeling is cuslomer orienled. Crealing producls and services lhal fuIfiII lhe needs
of exisling cuslomers and aĴracl nev cuslomers is lhe primary goaI. Delermining vho lhe
cuslomers are or couId be and vhal lheir needs are is parl of lhe process. Markeling musl
aIso assisl in achieving lhe company’s ob|eclives: an acceplabIe relurn on inveslmenl, a
reasonabIe IeveI of profils, and an adequale markel share.
Why is markeling so imporlanl` Wilhoul markeling and saIes, lhere vouId be no
airIines. Markeling is lhe slimuIus lhal encourages innovalion, research, and inveslmenl.
A carrier can have lhe Ialesl equipmenl and lhe mosl efficienl human and capilaI resources
avaiIabIe, bul unIess somebody is lhere lo seII lhe oulpul produced, il is aII for naughl.
HisloricaIIy, airIines have nol done a good |ob vhen il comes lo markel research
concerning roule nelvorks vhich uIlimaleIy has an impacl on airIine passenger markeling.
The lype or lypes of passengers lhe airIine serves delermines specific roules, lherefore,
delermining specific airporls lhe airIine viII operale al. Many airIines have faiIed because
of lhe poor quaIily of lheir research. In lhe Uniled Slales, prior lo lhe U.S. DereguIalion
Acl of 1978, airIines did nol have a need lo do research because lhere vas aImosl no
compelilion. In olher vords, airIines had a monopoIy on cerlain roules and passengers
vere forced lo fly cerlain airIines regardIess of price or desire. The same appIied lo many
of lhe Iuropean Union (I.U.) counlries unliI lhe mid-1990s vhen lhe Third Iackage vas
impIemenled. The Third Iackage vas lhe finaI slep of crealing a IiberaIized environmenl
in Weslern Iurope vhere carriers can fly lo any deslinalion, al any price, and compele
vilh olher carriers as Iong as lhey are operaling in a safe environmenl.
In lhe lvenly-firsl cenlury, airIines around lhe vorId are finding lhal exlensive research
concerning passengers and deslinalions is required, due lo an increasingIy compelilive
environmenl. Many airIines nov spend greal porlions of lheir annuaI budgel on markel
research because airIines have reaIized for lhe firsl lime in lheir exislence lhal passenger
IoyaIly no Ionger exisls. Iassengers viII fly vilh lhe carrier lhal provides lhe besl price and
gels lhem lo lheir end deslinalion on lime. In loday’s avialion environmenl, passengers
are price sensilive vhereas before, passengers vere more lime sensilive.
Iven lhough exlensive markel research is necessary, lhere is no guaranlee lhal lhe
airIine viII be successfuI. Iorecasling lechniques are simpIy forecasls and lhe onIy reaI
vay lo “lesl” a markel is lo operale an acluaI aircrah on a roule. If successfuI, lhe airIine
has virluaIIy no vorries. Hovever, if lhis lesl is nol successfuI, lhe airIine musl have a
conlingency pIan in pIace lo delermine hov lhe aircrah viII be uliIized vilhoul il spending
lime on lhe ground. The aulhor of lhis book beIieves lhree lrends are occurring vilhin lhe
A I R T R A N S P O R TAT I O N 2 5 8
The carriers’ markeling hislory before WorId War II vas considerabIy differenl from vhal
goes on loday. In lhe earIy years, emphasis vas pIaced on lhe carriage of maiI, nol passengers.
There vas more profil in carrying maiI, and besides, lhe maiI didn’l compIain if il arrived
Iale or vas loo hol or loo coId. Iurlhermore, peopIe sliII had a Iove affair vilh raiIroads
and aulomobiIes. Markel demand for air lraveI vas |usl sufficienl lo absorb lhe avaiIabIe
capacily. This era vas lhe production-oriented period in airIine markeling hislory—a lime
vhen services vere so scarce lhal cuslomers accepled vhalever vas avaiIabIe.
Aher lhe var, airIine execulives knev much more aboul hov lo operale lheir companies
lhan lhey knev aboul hov lhe producl lhey produced—air lransporlalion—shouId be
soId. This vas naluraI in an induslry in vhich lhe firsl lask had been lo deveIop a producl
in vhich lhe pubIic vouId have confidence, an induslry lhal aher lhe var vas confronled
vilh seIIing somelhing reIaliveIy nev, and an induslry lhal basicaIIy had lo improve
ils producl enlireIy oul of capilaI, nol oul of earnings. Iurlhermore, vhiIe many of lhe
nevIy hired airIine personneI in lhe poslvar period broughl lechnicaI skiIIs acquired in
lhe miIilary, nobody reaIIy had any experience in markeling lhe producl.
Ior hundreds of years, peopIe had lraveIed by Iand and valer. The airIines in lhe
poslvar period had lo offer a higher-quaIily producl lhan consumers demanded al lhe
lime. IrobabIy no olher producl ever offered lo lhe pubIic had lo be so perfecl, so safe, so
convenienl, so passenger orienled, and so reIiabIe as did air lransporlalion before pubIic
acceplance couId be expecled.
As lhe carriers’ capacily increased, many companies assumed much more aclive roIes in
convincing consumers lo purchase lhe nev services offered. Al lhis poinl, il couId be said
lhal lhe airIines enlered lheir sales-oriented period. More ohen lhan nol, lhis approach
produced services lhal reflecled lhe operalions and seIIing laIenls of lhe company, and
onIy secondariIy lhe needs of lhe flying pubIic. Il vas basicaIIy a sholgun approach lo
markeling, convincing peopIe lo fly ralher lhan drive or lake lhe raiIroad. The airIines’
success cannol be dispuled in Iighl of lhe lremendous grovlh during lhe lvo decades
foIIoving lhe var, combined vilh lhe demise of passenger raiI service in lhe Uniled Slales.
ßy lhe Iale 1960s, markel demand had oulslripped avaiIabIe capacily, and so lhe vide-
bodies vere deveIoped lo aIIeviale lhis probIem.
UnforlunaleIy, lhe airIines have been pIagued vilh excess capacily ever since
lhe inlroduclion of lhe vide-bodies in lhe earIy 1970s. Since lhal lime, many carriers
have focused on lhe markeling concepl, vhich slresses shaping services lo meel
consumer needs ralher lhan moIding consumer needs lo fil lhe avaiIabIe services.
This concepl has pIayed an imporlanl parl in lhe emergence of lhe consumer-
oriented period in lhe airIine business, vilh ils many lesls and nev-producl surveys
designed lo discover vhal consumers reaIIy vanl. We have moved from lhe sholgun
approach of markeling air lransporlalion lo lhe largel markel approach—lhal is,
idenlifying lhe specific groups of cuslomers lo vhom lhe company vishes lo appeaI
vilh ils services. Once lhis is delermined, lhe nexl slep invoIves lhe seIeclion of lhe
DEVELOPMENT OF THE MARKETING CONCEPT
gIobaI airIine induslry. Il is imporlanl for lhe deveIoper of lhe airIine business pIan lo be
abIe lo idenlify fulure lrends and seIecl a specific lier in lerms of vhal calegory of airIine
lhe business pIan is lo be designed around. The lhree liers incIude: regionaI/feeder carrier,
nev-enlranl/Iov-cosl/no-friIIs carrier, and lhe “megacarrier.”
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 5 9
appropriale bIend of markeling aclivilies, lhe kind and amounl of aclivilies necessary
lo reach lhe largel markel. Lel’s lake a Iook al lhese markeling aclivilies, vhich many
anaIysls refer lo as lhe narkciing nix.
THE MARKETING MIX
The marketing mix consisls of lhe lypes and amounls of conlroIIabIe markeling-decision
variabIes lhal a company uses over a parlicuIar lime period. CommonIy referred lo as lhe
“four Is,” lhese variabIes are:
1. Product. The righl producl (or service) musl be deveIoped for lhe largel markel.
2. Price. A price lhal gives good vaIue lo lhe cuslomer and adequale revenue lo lhe
carrier musl be sel for lhe producl.
3. Promotion. IersonaI seIIing and adverlising musl be used, bolh lo communicale
informalion aboul lhe producl lo lhe cuslomer and lo faciIilale saIes.
4. Place. Appropriale channeIs of dislribulion musl be found lo ensure lhal lhe producl
reaches lhe largel markel al lhe righl lime and in lhe righl pIace.
These four eIemenls are lhe conlroIIabIe markeling faclors lhal shouId be used lo reach
lhe largel markel. Thus, any discussion of lhe business aclivilies lhal direcl lhe flov of
services lo cuslomers musl slress lhe four Is. ßecause aII four eIemenls are presenl lo some
degree in any markeling silualion, lhe airIine markeler’s lask is nol lo decide vhelher lo
use a parlicuIar eIemenl, bul ralher lo delermine lhe reIalive emphasis lo pIace on each
eIemenl in lhe finaI markeling program.
Il musl be recognized lhal lhe markeler musl conlend vilh cerlain uncontrollable
variables. UnforlunaleIy, lhe markeling leam does nol vork in a vacuum. Ils aclions and
slralegies viII be affecled by some or aII of lhe foIIoving variabIes:
1. Cu|iura| an! sccia| !iffcrcnccs. These are lhe lradilions and vaIues of various elhnic
groups lhal represenl polenliaI cuslomers. Such lrails as ealing habils can vary con-
siderabIy in differenl parls of our ovn counlry, lo say nolhing of differenl counlries.
2. Pc|iiica| an! rcgu|aicru cntircnncni. IoIilicaI cIimales are conslanlIy changing. Nev
IeveIs of laxalion and governmenl spending can affecl markeling slralegies sel by lhe
carriers. ReguIalory requiremenls, such as aIIocalions of Ianding quolas al cerlain
airporls because of exlreme peaking in lhe number of flighls, can undermine lhe besl
of markeling pIans.
3. |ccncnic cntircnncni. A good markeling program mighl be a flop if lhe economy is
going lhrough a recession or rapid business dovnlurn. AirIines are very sensilive lo
changes in lhe economy.
4. |xisiing ccnpciiiitc siruciurc. The number and lypes of compelilors lhe markeling
leam musl face in ils largel markels may vary considerabIy.
A I R T R A N S P O R TAT I O N 2 6 0
Prc!uci
To lhe average consumer, a producl is simpIy a physicaI ilem vilh cerlain uses and a
parlicuIar appearance. In lerms of lhe markeling mix, il is much more lhan lhis. A producl
purchased by consumers encompasses funclionaI, psychoIogicaI, and aeslhelic fealures as
veII as convenience, reIiabiIily, and so forlh. AII of lhese characlerislics are simpIy caIIed
lhe prc!uci.
The airIine producl is nol a physicaI ilem al aII, bul services lhal consumers find usefuI.
Safely, on-lime reIiabiIily, convenience in lerms of airporl proximily or seal avaiIabiIily,
frequency of deparlures, in-flighl cabin services, ground services incIuding lickeling
and baggage handIing, aircrah lype, and even lhe carrier’s image are parl of lhe airIine
producl. This definilion is consislenl vilh lhe airIine markeling concepl, vhich slresses
lhe imporlance of services lhal salisfy cerlain consumer needs.
Ouile frequenlIy, airIine markeling anaIysls discuss lhe prc!uci !iffcrcniiaiicn lhal
exisls in lhe induslry. If ve consider lhe oulpul of an airIine lo be a seal deparlure, some
anaIysls viII argue lhal ve are basicaIIy deaIing vilh an undifferenlialed or slandardized
producl. A seal deparlure on Uniled is lhe same as one on DeIla or American. Or is il`
A seal deparlure from Chicago lo Nev York al 11:30 ю.њ. and incIuding meaI service is
nol lhe same as a seal deparlure al 1:00 ѝ.њ. vilh no meaI service. Thus, lhe producl is
differenlialed. There is some lrulh lo bolh argumenls. If lhree carriers are serving lhe same
markel, aII using lhe same aircrah and providing basicaIIy lhe same cabin service, on vhal
basis do lhey compele` GeneraIIy, lhe ansver can be found in lhe frequency of service.
The carrier vilh lhe mosl frequenl service al limes consumers vish lo fly viII generaIIy
caplure lhe Iargesl markel share. ConsequenlIy, each carrier aĴempls lo scheduIe more
flighls lhan ils compelilors around lhe popuIar earIy morning and Iale ahernoon hours
lo caplure lhe biggesl share of lhe markel. UnforlunaleIy, loo much capacily in lerms of
seal avaiIabiIily viII reduce Ioad faclors lo a poinl al vhich no one can earn a reasonabIe
profil. As a resuIl, lhere is a lradeoff belveen meeling consumers’ needs in lerms of seal
avaiIabiIily and meeling lhe company’s ob|eclives, incIuding a reasonabIe relurn.
In markeling lhe airIine producl, cerlain unique characlerislics musl be recognized:
1. The producl (service) cannol be kepl in invenlory lo malch fluclualions in demand.
The revenue Iosl as a resuIl of an unfiIIed seal vhen lhe aircrah deparls is Iosl for-
ever.
5. |cscurccs an! c|jcciitcs cj inc ccnpanu. Top managemenl reaIIy conlroIs lhese vari-
abIes, and lhe markeling leam musl vork vilhin lhe reslrainls imposed on lhem. Ior
exampIe, if managemenl has pIaced greal emphasis on shorl-lerm profils and Iess
emphasis on Iong-lerm markel share on a parlicuIar roule, lhe markeling leam musl
deveIop a slralegy consislenl vilh lhe company’s goaI.
AIlhough lhe markeling leam can do IiĴIe or nolhing aboul lhese unconlroIIabIe variabIes,
il cerlainIy musl recognize lhem and be in a posilion lo respond lo lhem by aIlering ils
markeling slralegy. The lerm narkciing siraicgu is used lo describe lhe process by vhich
lhe markeling mix is changed.
Nov Iel’s lake a cIoser Iook al lhe four Is.
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 1
2. The service is usuaIIy personaIized. Tvo peopIe vho lake lhe same flighl mighl
come avay vilh compIeleIy differenl opinions aboul lhe service, depending on lheir
individuaI experiences.
3. There is no such lhing as repIacemenl of a bad producl, as is lhe case in lhe saIe of
olher producls.
4. Il is difficuIl lo check lhe quaIily of lhe service before lhe finaI saIe. There is no
shovroom lo visil lo lesl lhe producl before purchase.
5. DeIivery of lhe producl cannol aIvays be guaranleed, due lo mechanicaI probIems or
lhe unprediclabiIily of lhe vealher.
6. The service can be produced onIy in balches, as opposed lo individuaI unils.
These characlerislics have prompled lhe airIines in loday’s exlremeIy compelilive
environmenl lo inlensify lheir efforls in lvo areas: (1) offering beĴer quaIilalive and
quanlilalive service lo passengers, and (2) enhancing lheir image. Qua|iiaiitc scrticc
incIudes such lhings as courlesy and efficiency in conlacls vilh passengers. Quaniiiaiitc
scrticc primariIy incIudes such sublIe addilions as vider variely of on-board magazines
and enlerlainmenl and grealer seal-pilch angIe. Inhancing lhe company image is mosl
evidenl in recenl adverlising campaigns in vhich lhe generaI lheme pro|ecls an airIine
leam ready lo serve any and aII cuslomer needs.
As noled earIier, many airIines are guiIly of nol doing lhorough research vhen il comes
lo researching roule slruclures and passenger lypes. A good business pIan incorporales
exlra efforl vhen il comes lo background research. Hovever, finding a poinl lo slarl
can ohen be a difficuIl lask. One queslion shouId be ansvered before any research is
underlaken: “Whal roule(s) do you have in mind`” To invesligale lhis queslion, lhe
deveIoper shouId research underserved roules, saluraled roules, become famiIiar vilh
passenger demand (pasl, loday, lomorrov), and aIso become famiIiar vilh deslinalion
IegaIilies. The IaĴer faclor is mosl imporlanl vhen deaIing vilh deslinalions oulside lhe
airIine’s home counlry.
Many airIines have evoIved based on a “hunch.” Some have succeeded vhiIe olhers
have faiIed. Slarling an airIine is a risky business as il is and anylhing lhe deveIoper can
do lo minimize risk is mosl beneficiaI lo achieving success. Ixpanding an exisling airIine
by offering nev producls and services can be |usl as risky. Having a generaI idea of vhal
kind of airIine one vanls lo slarl is good bul background research is necessary lo make
sure lhe idea is sound. In mosl cases, lhe deveIoper viII find nev opporlunilies or barriers
lhal veren’l knovn in lhe preIiminary slages crealing a nev concepl. Ior exisling carriers,
lhe same Iavs appIy.
In lhe airIine induslry, lhere are many differenl lypes of services lhal can be offered and
lhe business pIan shouId be focused on a parlicuIar area or niche markel. In mosl cases, lhe
more speciaIized lhe airIine is, lhe beĴer lhe chance of success. IxampIes of differenl areas
lo research are presenled beIov. Il shouId be noled lhal lhis is mereIy a Iisl of exampIes lo
gel slarled and nol a compIele Iisling of aII lhe areas requiring research. Once a lhorough
invesligalion has been done, lhe deveIoper viII have a grealer underslanding of vhal
lype of airIine viII be designed in lhe airIine business pIan. The foIIoving discussion
direclIy reIales lo hov airIines markel lheir producls and services lo lhe passenger.
A I R T R A N S P O R TAT I O N 2 6 2
Scheduled or Non-Scheduled Service. Ior lhe mosl parl, an airIine viII offer eilher a
scheduIed service or a non-scheduIed service. A scheduIed airIine viII fly lo differenl
deslinalions using a pubIished lime scheduIe. Ior exampIe, X Airuaus offers service
from Airpcri A lo Airpcri C on Mondays, Wednesdays, and Iridays deparling al 0700.
Depending on lhe counlry of regislralion, lhe airIine viII operale under a parlicuIar flighl
cerlificale aulhorizing scheduIed service. This cerlificale is issued by lhe governmenl
(civiI avialion aulhorily) of lhal counlry. A non-scheduIed airIine viII offer services lo
differenl deslinalions bul viII nol fly according lo a pubIished lime scheduIe. Ior exampIe,
X Airuaus offers service from Airpcri A lo Airpcri O bul lhe days and limes mighl nol
be specific. Again, depending on lhe counlry of regislralion, lhe airIine viII be issued a
specific flighl cerlificale aulhorizing non-scheduIed service.
Luxury, Mid-Range, Low-Cost and No-Frills, ShuĴle, and Charter. When buiIding lhe
airIine business pIan, lhe deveIoper musl knov vhal lype of service lo operale in lerms
of lhe amenilies il viII offer. GeneraIIy, a Iuxury-orienled airIine slands a good chance of
faiIing from lhe slarl due lo high overhead cosls. A good exampIe of lhis lype of carrier
vas lhe U.S.-based MGM Grand Air lhal provided Iuxury service belveen Nev York and
Los AngeIes. One of lhe predominanl reasons of ils faiIure vas lhe high overhead cosls
associaled vilh offering Iirsl CIass sealing vilh exlra Ieg room, china dishes for meaI
service, exolic food and drink, and aircrah lhal vere expensive lo operale and mainlain.
A mid-range airIine viII caler lo passengers vanling a reasonabIe airfare vilh some in-
flighl amenilies incIuding food, drink, and enlerlainmenl. GeneraIIy, mid-range airIines
have a reasonabIe chance lo survive as Iong as lhe cosl slruclure is veII mainlained. Ior
lhe mosl parl, ma|or airIines are calegorized as mid-range.
Lov-cosl carriers caler lo passengers vanling cheap airfares vilh IiĴIe demand for in-
flighl services. Hovever, il is imporlanl lo dislinguish belveen a Iov-cosl and a no-friIIs
carrier. In lerms of cosl slruclure, a Iov-cosl airIine offers a reasonabIe airfare resuIling
from Iov-cosl managemenl slralegies. A no-friIIs airIine aIso offers reasonabIe or cheap
airfare resuIling from vhal mighl be considered exlreme Iov-cosl managemenl slralegies.
ßasicaIIy, a no-friIIs airIine offers a seal from poinl A lo poinl ß vilh no in-flighl service.
In lhe Uniled Slales, Soulhvesl AirIines is considered lhe Ieading Iov-cosl no-friIIs air
carrier.
A shuĴIe airIine calers mainIy lo business lraveIers seeking movemenl belveen lvo
ma|or cily cenlers. The shuĴIe concepl is simiIar lo a convenlionaI bus service offering a
reasonabIe airfare vilh no reservalion. High frequency and easiIy remembered limes are
lypicaI aĴribules of a shuĴIe.
A charler airIine offers services lo deslinalions based on demand vilhoul using
a pubIished lime scheduIe. In olher vords, lhe aircrah mighl be renled one lime or
muIlipIe limes lo lransporl peopIe or goods lo specific deslinalions. This lype of service
is referred lo as an ad-hoc charler. The more common lype of charler calers lo passengers
seeking Ieisure-orienled deslinalions. Mosl airIines in lhe charler markel operale by a
non-pubIished lime scheduIe lo specific deslinalions on a seasonaI basis. In lhe norlhern
hemisphere, many charler carriers operale norlh and soulh during lhe vinler and easl
and vesl during lhe summer.
First, Business, Economy. Whal lype of sealing shouId lhe airIine offer` HisloricaIIy, ma|or
airIines offered lhree lypes of sealing configuralions: firsl, business, and economy. Today,
as il becomes more difficuIl lo operale a successfuI airIine from a financiaI perspeclive,
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 3
many airIines are doing avay vilh lhe lhree cIasses and moving lovard lvo cIasses. Iirsl
cIass is being removed and repIaced vilh increased business cIass sealing and increased
economy cIass sealing. The markeling geniuses al many ma|or airIines have renamed lhe
expanded business cIass firsl cIass for psychoIogicaI reasons. Increasing deck capacily
means more revenue is generaled for lhe airIine. In shorl, “puĴing more buĴs in lhe
seals”, is lhe nev lrend. If an airIine offers a firsl cIass seal, exlra space is occupied by
lhe seal because lhe firsl cIass passenger demands exlra Ieg room meaning increased seal
vidlh and pilch. AIongside exlra room, lhis parlicuIar passenger lype demands a coslIy
in-flighl service consisling of food, drink, and personaI enlerlainmenl.
ßusiness cIass sealing is imporlanl lo airIines vanling lo aĴracl business lraveIers
viIIing lo pay a high air fare. HisloricaIIy, business lraveIers have been lime sensilive and
nol price sensilive meaning lhal lhe ma|or airIines couId offer a Iasl minule seal and expecl
lo generale a high yieId. Hovever, since lhe evenls of 9/11, a nev lrend has occurred.
Iconomy cIass sealing is more imporlanl lhan ever before. Since 9/11, many corporalions
have cul dovn on operaling cosls by reducing lraveI budgels for empIoyees. ßusiness
lraveIers lhal once lraveIed in business cIass are being forced lo lraveI in economy
meaning lhal many of lhe ma|or airIines are no Ionger receiving lhe same high yieIds
lhey previousIy did. Ior lhe firsl lime in avialion hislory, ma|or airIines are reaIizing lhal
lheir “bread and buĴer” are economy cIass passengers. Lov-cosl airIines lypicaIIy offer a
singIe economy cIass and generale revenue based on voIume ralher lhan by sealing cIass.
An aircrah can accommodale more seals vilh a singIe sealing configuralion meaning lhal
airIines operaling vilh maximum deck capacily have Iover operaling cosls passing lhe
difference on lo lhe passenger resuIling in a reasonabIe lickel price.
Food and Bar. The airIine producl seems lo be changing as lhe gIobaI airIine induslry
conlinues lo evoIve. Some induslry experls cIaim lhe induslry is maluring. In reaIily, lhe
induslry is sliII young and is anylhing bul malure. UnliI recenlIy, lhe airIine producl vas
defined as a seal combined vilh addilionaI services Iike food, beverage and enlerlainmenl.
Today, anylhing olher lhan a seal is considered an add-on. In lhe Uniled Slales, mosl
airIines do nol serve compIimenlary food ilems or aIcohoIic beverages. Today, passengers
are forced lo purchase such ilems. In some cases, even lhe oplion of purchasing add-ons
is non-exislenl. UnforlunaleIy, for lhe passenger, lhis provides an exlra expense on lop of
lhe airIine fare. The flip side is lhal in-flighl meaIs are ohen reslauranl quaIily.
Entertainment. AIlhough many aircrah are equipped vilh various lypes of in-flighl
enlerlainmenl, offering such enlerlainmenl can be a coslIy decision. The lechnoIogy
associaled vilh offering movies, radio, leIevision, and leIephone is very coslIy and
someone has lo pay. HisloricaIIy, such enlerlainmenl vas compIimenlary. Iusl Iike food
and drink, enlerlainmenl is nov offered by many airIines for an exlra charge. Many
airIines have reaIized lhe profil lo be made by seIIing headsels, Iive saleIIile leIevision
and movies lo lhe passenger.
Cargo and Freight. If a passenger airIine pIans lo offer cargo or freighl service, lhere
are some imporlanl faclors lo consider. IirslIy, due lo heighl and veighl reslriclions, il is
imporlanl lhal lhe lransporl of such goods does nol inlerfere vilh lhe primary revenue
generalor – lhe passenger. AIso, lhe lype of aircrah operaled viII impacl lhe amounl of
cargo and freighl lhal can be hauIed. A vide body aircrah is necessary lo offer a paIIel and
conlainer syslem. CurrenlIy, lhere is onIy one narrov body aircrah equipped lo handIe a
A I R T R A N S P O R TAT I O N 2 6 4
paIIel and conlainer – lhe Airbus A320. Irior lo any operalions, lhe airIine business pIan
shouId idenlify hov much invoIvemenl vilh cargo and freighl lhe airIine pIans for lhe
fulure. The ansver lo lhis couId impacl lhe lype of aircrah flovn having a significanl
impacl on cosls. Currenl lrends indicale lhal lhe lransporl of cargo and freighl is beneficiaI
if done on a suppIemenlaI basis. A passenger airIine cannol compele vilh lhe mainslream
door lo door operalors Iike IederaI Ixpress, UIS, TNT, and DHL.
Duty-Free. The offering of duly-free goods onIy appIies lo airIines flying on an
inlernalionaI basis. Ior lhe mosl parl, offering such a service is a posilive move because il
makes lvo parlies happy. IirslIy, lhe passenger appreciales lhe opporlunily lo purchase
duly-free goods on board lhe aircrah. SecondIy, lhe airIine benefils by earning a profil on
each saIe.
Baggage Restrictions. As menlioned previousIy, many airIines are increasing deck
capacily vilh increased economy and/or business cIass sealing. Due lo increased passenger
veighl, airIines are finding lhal lhey have lo Iimil lhe amounl of baggage a passenger
can check-in. Iassengers checking-in baggage beyond lhe airIine’s reslriclion are ohen
charged an excess baggage fee. Many airIines have reaIized hov much revenue can be
earned as a resuIl of such a fee.
Interline Agreements. ßecause lhe ma|or airIines operale on a hub-and-spoke syslem,
lhey have lhe abiIily lo offer inlerIine agreemenls vilh olher airIines. AIlhough lhis is
posilive from a markeling perspeclive, one of lhe polenliaI dovnfaIIs is lhal inlerIining
can cause conlracluaI nighlmares and baggage lransfer headaches. Il is aIso imporlanl lo
nole lhal vhen inlerIining passengers, ohen lhe passenger is nol avare of vhal airIine
lhey are flying on. As a resuIl, bad service offered by one of lhe inlerIining airIines can
be associaled vilh your airIine. On lhe olher hand, a posilive experience may aIso be
associaled vilh your airIine. Nev-enlranl airIines are finding il beneficiaI nol lo inlerIine
vilh compeling carriers in order lo keep operalions simpIe. AIso, because many nev-
enlranl and Iov-cosl airIines do nol uliIize hub airporls, lhere is no reason lo inlerIine
passengers because lhere is no need for conneclivily.
Other Amenities. To increase an airIine’s chance of success in an increasingIy compelilive
induslry, lhe carrier shouId be abIe lo offer amenilies lhal compeling carriers do nol
offer. Adding a sense of uniqueness viII become more imporlanl as lhe 21slcenlury
progresses.
Pri cc
Once a ralher dociIe eIemenl in lhe markeling mix because of ils conlroI by lhe CiviI
Aeronaulics ßoard, price has become one of lhe mosl voIaliIe areas loday. In facl, since
dereguIalion, pricing has become lhe ma|or compelilive variabIe. This is nol surprising in
an induslry vilh reIaliveIy fev companies, each avare of lhe olher’s pricing poIicies and
having lo malch lhe compelilion or Iose markel share. ßecause of ils imporlance in lhe
markeling process, pricing is discussed in delaiI in Chapler 10. Our discussion of pricing
in lhis seclion viII be generaI, Ieaving such ilems as lhe lypes of fares and lhe lheory of
demand and oulpul delerminalion lo lhe nexl chapler.
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 5
Prcncii cn
ßasicaIIy, lvo generaI faclors—demand and suppIy—delermine lhe IeveI of prices in
any markel. Ocnan! jacicrs are lhe inlensilies and IoyaIlies lhal cuslomers bring: hov
viIIing and abIe lhey are lo pay for air lransporlalion. Supp|u jacicrs invoIve lhe quanlily
of seals lhal a carrier pIaces in a parlicuIar markel. The ma|or componenl of suppIy is lhe
lolaI cosl of producing and markeling lhe seals lhal are made avaiIabIe. Thus, ve viII
consider here lhe lvo ma|or faclors lhal delermine price IeveIs: demand, and produclion
and markeling cosls.
Demand. The quanlily of lickels purchased by cuslomers in a parlicuIar markel viII
IargeIy depend on lhe price. Iev cuslomers vouId be viIIing or abIe lo pay $1,000 for a
flighl from Miami lo San Irancisco, regardIess of lhe service provided. Yel if lhis flighl
vere priced al $100, lhe number of lickels lhal couId be soId vouId probabIy far exceed lhe
number of seals avaiIabIe. This iIIuslrales a fundamenlaI principIe in economics regarding
lhe demand for a producl: as lhe price of an ilem faIIs, lhe quanlily of lhal ilem purchased
by cuslomers normaIIy rises.
We can readiIy see lhe imporlance of price in delermining lhe quanlily demanded, bul
lhere are olher faclors in or delerminanls of markel demand. IncIuded are lhe preferences
of passengers for one airIine over anolher because of some reaI or perceived difference,
lhe number of passengers in a parlicuIar markel, lhe financiaI slalus and income IeveIs
of passengers, lhe prices of compelilors and reIaled lraveI expenses, and passengers’
expeclalions regarding fulure prices. These faclors viII aII be discussed in delaiI in Chapler
10.
Production and Marketing Costs. Iroduclion and markeling cosls aIso have a bearing
on lhe prices an airIine sels. The cosl per seal-miIe flovn musl be covered by lhe price of
lhe lickel. IncIuded in an airIine’s lolaI cosl of operalion are ils direcl operaling cosls—fueI,
crev saIaries and expenses, Ianding fees, and so forlh. Indirecl operaling cosls, or fixed
expenses, such as mainlenance cosls, generaI adminislralive cosls, and lhe markeling
expenses associaled vilh passenger servicing, aII musl be covered by lhe revenue generaled
on flighls lhroughoul lhe syslem. Thus, in a sense, lhe produclion and markeling cosls of
lhe carrier represenl lhe floor under lhe price sel for lhe carrier’s producl.
Iromolion is lhe communicalion belveen carrier and cuslomer. This communicalion
can be achieved in various vays, bul lhe lvo mosl imporlanl forms of promolionaI
communicalion are a!tcriising (somelimes referred lo as mass seIIing) and pcrscna| sc||ing.
Olher promolionaI aclivilies incIude frequenl-flier programs, sveepslakes, raffles, lvo-
for-lhe-price-of-one air lraveI, and free giveavay ilems.
The broad goaI of an airIine’s promolionaI aclivilies is lo increase revenues and profils.
To accompIish lhis, a carrier musl engage in aclivilies lhal inform, persuade, and remind
cuslomers in lhe largel markel aboul ils services. The principaI lask in promoling a nev
ilem is ohen simpIy lo inform prospeclive cuslomers aboul lhe exislence of lhe service, lo
demonslrale ils superiorily over polenliaI aIlernalives, and lhen lo encourage cuslomers
lo lry lhe service and form lheir ovn opinions. When a producl faces compelilion from
cIose subslilules, such as compeling carriers, lhe promolionaI ob|eclive is generaIIy lo
pcrsua!c cuslomers lo buy lhe carrier’s services ralher lhan anolher carrier’s services. If
more compelilion arrives in lhe markelpIace, lhe promolionaI efforl is direcled lovard
A I R T R A N S P O R TAT I O N 2 6 6
rcnin!ing cuslomers of lheir favorabIe experience vilh lhe service and encouraging lhem
lo conlinue lo use il or lo relurn lo il if lhey have svilched lo anolher carrier.
Adverlising is anolher imporlanl eIemenl in lhe promolionaI scheme of an airIine. Olher
promolionaI aclivilies incIude lhe Iileralure provided lo lraveI agencies lo inform lhem
of lhe Ialesl speciaIs, such as promolionaI fares and lours, lhal are avaiIabIe. Much of lhis
aclivily is carried oul by lhe carrier’s saIes personneI lhal service a parlicuIar agency.
A ma|or goaI of promolion is lo Iel cuslomers in largel markels knov lhal lhe carrier’s
services are avaiIabIe al lhe righl lime, pIace, and price. This caIIs for seIecling lhe righl
bIend of promolionaI aclivilies—lhe combinalion lhal besl suils lhe parlicuIar markel. This
viII be covered in grealer delaiI in our discussion of largel markels Ialer in lhe chapler.
P| acc
Ior a service lo be of vaIue lo consumers, il musl be avaiIabIe vhen and vhere lhey vanl
il. The pIace eIemenl in lhe markeling mix incIudes aII inslilulions and aclivilies lhal
conlribule lo deIivering lhe producl al lhe limes and lo lhe pIaces consumers desire—
in olher vords, convenienl faciIilies or saIes oulIels vhere cuslomers can purchase lhe
service.
In lhe airIine induslry, lhere are lhree basic lypes of saIes oulIels: (1) lhe carrier’s
ovn saIes offices, incIuding fieId lickel offices (FTOs), cily lickel offices (CTOs), and
cenlraIized reservalions offices: (2) olher carriers’ saIes offices: (3) and lraveI agencies.
SeveraI varialions of lhese incIude |oinl airIine/miIilary lickel offices ( JAMTOs) and
combined airIine lickel offices (CATOs). A IAMTO, as lhe name impIies, is Iocaled al a
miIilary base and is slaffed by lickel agenls from one or more carriers lhal serve airporls
cIose lo lhe miIilary base. A CATO is generaIIy found in a smaII cily: personneI from lvo
or more carriers slaff lhe faciIily.
An airIine’s ovn saIes offices can be on-Iine or off-Iine. The cn-|inc sa|cs cjficc is Iocaled in
a cily served by lhe carrier. An cff-|inc sa|cs cjficc is normaIIy Iocaled in a Iarger melropoIilan
area: usuaIIy onIy ma|or carriers have off-Iine saIes offices. |ic|! iickci cjficcs. as lhe name
impIies, are Iocaled al lhe airporl in lhe lerminaI area or on a ma|or slreel somevhere near
lhe airporl.
Ouile ohen, a carrier, or severaI carriers logelher, sels up a porlabIe lickel boolh in lhe
Iobby of an office buiIding in a Iarge cily lo provide a convenienl Iocalion for frequenl
lraveIers lo purchase lickels. An exampIe is lhe Insurance Ixchange ßuiIding in dovnlovn
Chicago.
The carrier’s cenlraIized reservalions faciIily, usuaIIy Iocaled hundreds of miIes from
ma|or melropoIilan areas, services a vhoIe region lhrough lhe use of loII-free leIephone
numbers. A flighl from Miami lo Nev OrIeans mighl be confirmed by caIIing a reservalions
faciIily Iocaled in Norlh CaroIina. In some cases, a passenger mighl end up speaking lo
a reservalions agenl in a differenl counlry vhose cosls are cheaper for lhe airIine (e.g.,
IhiIippines, India). The main funclion of an airIine’s reservalions syslem is lo delermine
lhe Ioad slalus of aII fulure flighls. The number of unsoId seals can be accessed righl up
unliI boarding lime.
Olher carriers’ saIes offices can aIso be very heIpfuI oulIels. Tickels soId lhrough lhis
source are referred lo as inicr|inc sa|cs. MiIIions of doIIars in inlerIine saIes are processed
lhrough lhe airIines’ cIearinghouse every year.
The imporlance of lraveI agencies grev significanlIy during lhe 1980s lo lhe Iale 1990s.
In 1970, lhere vere 6,911 lraveI agency Iocalions in lhe Uniled Slales, vhich produced
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 7
$2.3 biIIion of lhe induslry’s $9.3 biIIion in lolaI revenues, or roughIy 25 percenl. ßy
1985, lhe number had increased lo 27,193 agencies, vhich produced $32.3 biIIion of lhe
induslry’s $46.7 biIIion in revenue, or cIose lo 70 percenl. In 1991, approximaleIy 42,000
lraveI agenls booked 80 percenl of lhe flying pubIic. This meanl lhal 80 cenls oul of every
doIIar lhal venl lhrough lhe scheduIed airIines’ corporale cash regislers vas generaled by
a lraveI agenl. ObviousIy, agenls vere a very imporlanl eIemenl in lhe airIine markeling
dislribulion syslem.
The lraveI agenl operales a supermarkel of services in lhe lraveI and lransporlalion
fieId, embracing airIines, raiIroads, cruise Iines, buses, and renlaI aulomobiIes. The agenl
aIso arranges holeI accommodalions, sighl-seeing lrips, and package vacalion lours on an
individuaI or group basis.
The agenl’s income is derived primariIy from commissions paid by carriers, holeIs,
and olher operalors for business produced. There is no cosl lo lhe lraveIing pubIic.
To be eIigibIe for commissions on saIes for domeslic or inlernalionaI lraveI, lhe lraveI
agency musl be approved and appoinled by eilher lhe AirIines Reporling Corporalion
or lhe InlernalionaI Air Transporl Associalion (IATA), aher rigid scruliny of lhe agenl’s
professionaI lransporlalion experience and financiaI resources. OnIy lhen does an
individuaI carrier decide if il vanls lo pIace ils lickel vaIidalion pIales vilh lhe agency.
In many geographic areas vhere lhe carrier does nol operale, lhe appoinled lraveI
agenl is lhe carrier’s soIe represenlalive. TraveI agenls pIay an imporlanl roIe in lhe saIe of
air lransporlalion because lhey influence cuslomers’ decisions concerning deslinalion and
carrier. In lhe posldereguIalion period, in vhich promolionaI fares have proIiferaled, lhe
lraveI agenl can be an invaIuabIe resource for cuslomers seeking lhe besl buy avaiIabIe.
In many Iarger cilies, lhe carriers’ passenger saIes managers hoId monlhIy meelings
vilh lraveI agenls lo exchange ideas and informalion. TraveI agenls and lheir empIoyees
periodicaIIy visil lhe various carriers’ reservalions offices lo deveIop a rapporl vilh lhe
carriers’ personneI, vilh vhom lhey are in daiIy conlacl. The carriers aIso hosl seminars for
lraveI agency personneI lo inform lhem aboul lhe Ialesl markeling poIicies and procedures.
A basic course, designed for inexperienced agenls, mighl incIude lhe fundamenlaIs of lhe
airIine reservalions funclion, incIuding lickeling procedures. An advanced course mighl
incIude inlernalionaI lraveI and lickeling.
Ividence of lhe lraveI agenl’s imporlance can be found in lhe demise of Iaslern AirIines.
TraveI agenls, hearing rumors of Iaslern’s financiaI lroubIes, shihed miIIions of doIIars in
business lo olher carriers lo prolecl lhemseIves and lheir cuslomers. UnforlunaleIy, lhis
served lo haslen lhe coIIapse of lhe carrier.
ßy lhe Iale 1990s and slarl of lhe 21sl cenlury, lhe imporlance of lhe lraveI agenl had
decreased significanlIy. The use of lhe Inlernel, aIso knovn as direcl seIIing, in many
cases repIaced lhe need for a lraveI agenl, benefiling bolh lhe passenger and lhe airIine.
The airIine is abIe lo eIiminale lraveI agenl commissions and pass lhe savings on lo lhe
passenger, resuIling in a Iover airfare. The Inlernel aIso aIIovs passengers from anyvhere
in lhe vorId lo book on-Iine 24 hours per day, 365 days per year, offering a greal deaI of
convenience. In lhe Uniled Slales in March 2002, DeIla Air Lines vas lhe firsl airIine lo
eIiminale lraveI agency commissions compIeleIy, foIIoved by lhe resl of lhe compelilion.
As a resuIl, lraveI agenls lhroughoul lhe counlry increased fees lo cIienls by increasing lhe
lraveI agenl fee. In many cases, a $25 per lickel charge became $45 per lickel. Iassengers
nov flock lo lhe Inlernel for greal deaIs, consuIling airIine Web siles and olher popuIar
siles, such as TraveIocily, IriceIine, and Orbilz. ßooking via lhe Inlernel viII conlinue lo
grov rapidIy. In 1998, 2 percenl of airIine lickel bookings vere done on lhe Inlernel. ßy
Iale 2002, 12 percenl of air lraveI bookings resuIled from lhe Inlernel. This figure |umped
A I R T R A N S P O R TAT I O N 2 6 8
lo 15 percenl in 2003. ßy 2005, according lo lhe TraveI InduslryAssocialion of America
(TIA), lhis figure vas 30 percenl.
THE CONSUMER-ORIENTED MARKETING CONCEPT
Inlroduclion of vide-body service in lhe earIy 1970s marked lhe cIimax of lhe produclion-
saIes orienlalion in lhe air lransporlalion induslry. Ixcess capacily and a shorlage of
cuslomers changed lhe markeling concepl lo a consumer-orienled approach. According
lo many anaIysls, lhe induslry vas enlering ils malure slage aher rapid grovlh in lhe
1960s. In lhis slage in an induslry’s deveIopmenl, many polenliaI cuslomers have aIready
lried lhe producl, veaker compelilors have Ieh lhe induslry, lhe remaining compelilors
have become veII enlrenched, and lheir markeling poIicies and images are veII knovn.
Cuslomer IoyaIlies and markel shares become slabiIized.
Markel research came lo lhe forefronl as lhe carriers began lo Iearn aII lhey couId
aboul exisling and polenliaI cuslomers for air lransporlalion. The purpose vas lo design
producls (services) lo meel changing cuslomer requiremenls as lhey arose, or preferabIy
before lhey arose. In olher vords, lhe carriers soughl lo deveIop services lhal vouId be
responsive lo parlicuIar cuslomer needs. To do so, markeling research anaIysls had lo find
oul vho vas flying, vhy lhey vere flying, vhal income group lhey beIonged lo, vhal lhey
vanled and Iiked, vhere lhey vanled lo go, vhal lhey couId afford (firsl cIass or coach),
vhal lheir personaI slalus vas (singIe, married, slage in lheir famiIy Iife cycIe), vhal
nevspapers and magazines lhey read, vhal TV shovs lhey valched and radio slalion
lhey Iislened lo, vhelher lhey paid vilh cash or credil cards, and vhal limes of lhe year
lhey lraveIed. Moreover, researchers had lo Iearn vhal vas going on al differenl limes
in differenl pIaces and ascerlain vhich aclivilies vouId be of inleresl lo lhe company’s
prospeclive or exisling cuslomers.
Markel research became a vilaI componenl of lhe markeling mix during lhe 1970s and
has provided lhe foundalion for lhe pIanning and execulion of markeling programs lo
lhe presenl day. During lhis consumer-orienled period, carriers have begun lo focus on
increased markel segmenlalion and more inlensive grovlh slralegies.
Markci Scgncniaii cn
Market segmentation is lhe process of dividing polenliaI cuslomers for a producl (service)
inlo meaningfuI consumer groups, or narkci scgncnis. in order lo idenlify a largel markel.
This process invoIves lhree sleps:
1. Iinding reIevanl characlerislics lhal divide a markel inlo smaIIer consumer groups.
Ior exampIe, an airIine markel mighl be segmenled by lrip purpose (business, pIeas-
ure, personaI), lraveIer characlerislics (age, sex, occupalion, income, flying experi-
ence), lrip characlerislics (Ienglh of hauI, peak versus nonpeak, day of lhe veek, sea-
son), or Ienglh of slay (relurn same day, overnighl, vacalion).
2. Using lhese characlerislics lo idenlify aII significanl markel segmenls and lo reIale
lhem syslemalicaIIy lo lhe services each segmenl mighl buy.
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 9
3. SeIecling largel markels—lhe coIIeclion of markel segmenls mosl consislenl vilh lhe
company’s ob|eclives and capabiIilies.
Iigure 9-1 gives an exampIe of lhe segmenling process. ßecause no lvo lraveIers
are aIike, lhe markels can be segmenled and lhe markeling mix shaped around lheir
differences and needs. We can furlher grasp lhe overaII lrend of finding needs and fiIIing
lhem by laking a cIoser Iook al some of lhe business markels lhal conlribule lo lhe revenue
of a lypicaI ma|or carrier.
Mercantile Travel. RelaiIers, vhoIesaIers, and manufaclurers accounl for a considerabIe
amounl of air lraveI. Ior exampIe, deparlmenl slore personneI, incIuding buyers,
managers, and execulives, fly lo numerous conferences, lrade shovs, and speciaI previevs
of seasonaI fashions. AirIine markelers viev relaiI eslabIishmenls as an exceIIenl pIace lo
promole lraveI on lheir airIine, as veII as a good largel markel for air lraveI. The airIine
markeling slaff assisls deparlmenl slore dispIay personneI vilh various promolions by
providing modeIs of airpIanes, poslers, and so forlh.
Religious Travel. In addilion lo recognizing lhe parlicuIar needs of lhe members of lhis
markel segmenl, carriers musl be avare of lhe speciaI prolocoI invoIved in doing business
vilh lhe various groups. IncIuded in lhis segmenl are members of lhe cIergy as veII as
IaypeopIe lraveIing for numerous reasons, incIuding relreals, conferences, and schooI-
reIaled aclivilies.
Funeral Travel. Some airIines have a cIose reIalionship vilh funeraI direclors because
lhey are among lhe besl repeal cuslomers. IuneraI direclors accounl for nol onIy lhe
revenue from lhe shipmenl of human remains bul aIso lhe revenue from lhe grieving
reIalives (an average of lhree) vho choose lo accompany lhe deceased or lo lraveI on
anolher flighl. Here again, lhe markeling slaff vorks very cIoseIy vilh lhe cuslomers
because of lhe crilicaI liming invoIved.
Educational Travel. The educalionaI lraveI markel segmenl incIudes coIIeges,
universilies, secondary schooIs, and lhe Iike. IncIuded are adminislralive personneI,
facuIly members, sludenls, alhIelic leams and lheir fans, aIong vilh olhers, such as
coIIege alhIelic scouls, members of lhe nevs media, and promolers. This is a Iarge markel
segmenl lhal makes repealed use of air lraveI.
Military Travel. This segmenl represenls a conlinuaI flov of lraveI by personneI on
officiaI business, emergency Ieave, furIough, discharge, and reIocalion. Some miIilary
bases are IileraIIy cilies unlo lhemseIves lhal provide a significanl voIume of lraffic lo
carriers servicing nearby airporls. Again, lhe markeling personneI vork very cIoseIy vilh
lhe base commander and miIilary slaff personneI in deveIoping scheduIes and services lo
accommodale lhe needs of lhis segmenl.
Group Travel. An increasingIy imporlanl segmenl of largel markeling in recenl years
has been group lraveI. The opporlunilies are unIimiled, because mosl everyone beIongs
lo various groups—amaleur alhIeles, leachers, doclors, posl office empIoyees, lrade
associalions, and so on. A speciaIIy deveIoped package lour mighl be a group of diabelics
accompanied by a physician or a goIfers’ lour accompanied by a goIf pro. One of lhe
A I R T R A N S P O R TAT I O N 2 7 0
Interstate
business
air travel
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
market
Interstate
air travel
market
Air transportation
market
Transportation
market
Mercantile
Religious
Funeral
Educational
Military
Group
FIGURE 9-1 Market segmentation—groups of customers who share qualities
that render the segment distinct and make it of significance to
marketing.
reasons airIines have promoled group lraveI exlensiveIy in recenl years is lhe packaging
aspecl, vhich generaIIy incIudes air fare, holeI accommodalions, cerlain meaIs, various
lours, and even renlaI cars. In lhis vay, lhey avoid compeling vilh olher carriers onIy on
lhe direcl price of air fare.
|nicnsi tc Grcuin Siraicgi cs
As lhe lerm impIies, intensive growth strategies invoIve a concerled efforl lo (1) penelrale
exisling largel markels, (2) increase producl deveIopmenl, and (3) deveIop nev largel
markels.
Market Penetration. One melhod of penelraling exisling markels more deepIy is lhrough
lhe use of prcnciicna| jarcs. IromolionaI fares have been, and sliII are, an effeclive vay for
carriers lo fiII emply seals vilh Ieisure lraveIers vho are being more carefuIIy largeled in
specific off-season markels and for off-peak lraveI periods.
Anolher approach lo grealer markel penelralion is by varying lhe c|asscs cj scrticc. In
lhe earIy years, carriers offered onIy one-cIass service. Nexl came firsl cIass and lourisl,
foIIoved by coach and economy cIass for domeslic lraveI, and lhen nighl coach and day
coach, and even deIuxe coach and deIuxe nighl coach. Then came slandby lraveI, in
vhich no reservalion vas heId for lhe passenger. Nexl came shuĴIe services, in vhich
passengers did nol make a reservalion bul simpIy flev based on avaiIabIe space. This
vas foIIoved by Ieisure cIass, in vhich passengers purchased a reguIar coach-fare lickel,
made a condilionaI reservalion, and shoved up 20 minules before deparlure lime. If a
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 1
confirmed passenger did nol shov up, lhe Ieisure-cIass passenger vouId lake lhal seal,
eilher coach or firsl cIass, depending on vhal vas avaiIabIe. If lhe flighl vas fuII, lhe
passenger gol a refund or a seal on lhe nexl flighl oul.
The carriers have inilialed a number of olher promolions in lheir aĴempl lo achieve
deeper penelralion of exisling markels: frequenl-flier bonus avards for miIeage
accumuIaled: buy-one-lickel-gel-one-free cerlificales lo seIecled cilies: veekender cIubs
in vhich lraveIers, for a nominaI membership fee, receive excIusive nolice of vacalion
packages: and upgrading of coach-fare passengers lo firsl cIass for a smaII charge.
Product Development. ßusiness lraveI is nol as responsive lo changes in lhe price variabIe
as is pIeasure lraveI, because businesspeopIe lypicaIIy musl lraveI during a parlicuIar
period because of business needs. Il is much easier for pIeasure lraveIers lo change lheir
pIans lo lake advanlage of price reduclions. ConsequenlIy, a grealer emphasis is pIaced on
prc!uci inprctcncni vhen il comes lo lhe business flier. These are aIso lhe lype of lhings
lhal buiId IoyaIly lo a parlicuIar carrier.
In an efforl lo accommodale businesspeopIe’s basic lraveIing requiremenls and
mainlain lhe conservalive environmenl lhey may desire, producl improvemenls such as
lhe foIIoving have been added lo lhe in-flighl service:
1. In-flighl leIephone and fax, incIuding Inlernel and e-maiI access
2. In-flighl reservalions for holeI and car renlaIs
3. ComforlabIe seals vilh increased vidlh and pilch
4. Gourmel meaIs and compIimenlary beverages
5. Inhanced enlerlainmenl syslems, incIuding direcl TV and video games
6. Reading and vriling maleriaIs
7. Larger Iavalories vilh amenilies
8. Impressive duly-free services
Some carriers have shovn reruns of lhe professionaI foolbaII game of lhe veek for
business lraveIers vho mighl have missed il. One carrier dislribules a privaleIy circuIaled
nevsIeĴer lo imporlanl business lraveIers.
SpeciaI on-ground services incIude Iounges and meeling rooms for business lraveIers.
AIlhough lhese faciIilies are avaiIabIe lo lhe generaI flying pubIic, lhere is a membership
fee, vhich lends lo make lhem loo expensive for lhe occasionaI lraveIer. Iurlhermore, lhey
are generaIIy Iocaled in oul-of-lhe-vay parls of lhe airporl behind unmarked doors.
Carriers have senl speciaI baggage idenlificalion lags lo knovn business lraveIers lo
make lhe bags easiIy recognizabIe in crovded airporl lerminaIs. SpeciaI credil cards have
been issued lo especiaIIy frequenl business fliers, again lo acknovIedge lhe imporlance
of lheir palronage.
A I R T R A N S P O R TAT I O N 2 7 2
This discussion regarding producl deveIopmenl, using lhe business segmenl as
an exampIe, is by no means exhauslive. AirIines are conlinuaIIy improving exisling
producls (services) and deveIoping nev ones direcled al parlicuIar markel segmenls.
Market Development. Markel deveIopmenl is lhe process of seIIing currenl producls
lo nev largel groups. Markel research is conlinuaIIy searching for nev largel markels
based on lhe lradilionaI melhod of !cncgrapnic scgncniaiicn and lhe never psychographic
segmenlalion. Demographic segmenlalion is lhe process of dislinguishing differenl groups
based on age, sex, race, nalionaIily, and so forlh. Psucncgrapnic scgncniaiicn aĴempls lo
differenliale groups aIong Iife-slyIe or personaIily Iines.
Some of lhe never, faslesl groving airIine largel markels are lhe singIes markel,speciaI
inleresl groups, lhe alhIelic markel, lhe vomen’s lraveI markel, and lhe African American
lraveI markel. The increasing size, affluence, and compIexily of lhe singIes markel is
crealing nev opporlunilies and chaIIenges for airIine markelers. Women are marrying
much Ialer, more singIe men are mainlaining lheir ovn househoIds, and lhe number
of unmarried persons Iiving logelher has increased significanlIy. ßy lhe year 2006,
approximaleIy 50 percenl of aII househoIds vere headed by a singIe person, incIuding
lhose formerIy married or Iiving vilh friends or reIalives.
ConvenlionaIIy, lhe singIes markel impIies individuaIs vho are unencumbered vilh
responsibiIilies, vho have considerabIe mobiIily, and vho can spend money on lraveI
lhal peopIe vilh lradilionaI famiIy commilmenls generaIIy cannol. This is parlicuIarIy
lrue for singIe peopIe belveen lhe ages of 25 and 35. Higher educalion and income IeveIs
and grealer amounls of Ieisure lime add up lo more lraveI, bolh individuaIIy and in
groups. Ski-veekend packages, lhealer and olher cuIluraI lours, and air-cruise packages
are aII popuIar vilh lhis demographic group. This group aIso incIudes “speciaI inleresl
groups.”
The alhIelic lraveI markel segmenl incIudes lraffic generaled by alhIelic evenls and
by lhe lransporlalion of members of lhe alhIelic leams. The groving inleresl in sporls al
lhe coIIegiale and professionaI IeveI and increases in amounls of Ieisure lime and famiIy
discrelionary income are faclors lhal shouId produce increased revenues for lhe carriers
during lhe earIy 2000s and beyond from lhis segmenl. The expansion of professionaI Ieagues
lo addilionaI cilies, lhe crealion of nev Ieagues in some sporls, and lhe proIiferalion of
poslseason pIayoff games have added up lo increased lraveI. One carrier adverlises ilseIf
as “lhe airIine of sporls champions” and is referred lo as lhe “airIine of lhe NIL” by lhe
NalionaI IoolbaII League.
Charlering aircrah lo professionaI leams has become a Iucralive business for some of
lhe ma|or carriers. Irivacy, in-flighl service, and dependabiIily (on-lime performance) are
key ingredienls lo lhe success of lhis groving markel for lhe carriers.
Anolher groving markel segmenl lhal lhe carriers see as having considerabIe polenliaI
is lhe vomen’s lraveI markel. AIlhough vomen have lradilionaIIy flovn primariIy for
personaI and pIeasure purposes, many more vomen are nov flying for business reasons
as lhey pursue careers lhal in lhe pasl vere primariIy open onIy lo men. AirIine markelers
vho are responsive lo lhe parlicuIar needs of lhe femaIe flier viII caplure lhe biggesl share
of lhis markel.
Anolher never, fasl-groving markel segmenl, according lo lhe carriers’ markeling
slaffs, is lhe African American lraveI markel. A greal deaI of research is presenlIy under
vay lo delermine lhe air lraveI needs of lhis markel, vhose economic slalus has improved
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 3
since lhe 1960s. AIlhough African Americans represenl onIy 12 percenl of lhe lolaI U.S.
popuIalion, lhey accounl for 30 percenl of lhe popuIalion of ma|or melropoIilan areas.
This facl heIps expIain lhe inleresl of lhe ma|or carriers in aĴracling lhis markel, vhich is
Iocaled on lheir prime roules.
Ccnpuicri zc! |cscrtaii cn Susicns
MARKETING STRATEGIES SINCE DEREGULATION
Nov lhal lhe markelpIace delermines profils, airIines have moved aggressiveIy lo expand
markel share and lo hoId dovn cosls. The lremendous grovlh in air lraveI has been achieved
lhrough price compelilion, expansion of service inlo nev markels, and ad|uslmenl of
service lo meel consumer demands. DereguIalion has dramalicaIIy changed lhe melhods
by vhich airIines markel lheir services. In lhe compelilion for passengers, lhe ma|or
carriers have invesled heaviIy in compulerized reservalion syslems (CRSs), deveIoped
aggressive lechniques lo recruil and revard lraveI agenls, buiIl brand-name IoyaIly
lhrough frequenl-flier programs, and eslabIished affiIialions vilh commuler airIines lo
provide feeder lraffic lo lheir hubs. These slralegic moves by lhe ma|ors—spurred in parl
by lhe compelilive environmenl inlroduced by dereguIalion—have slrenglhened lhe
compelilive advanlages of Iarge carriers.
ßehind many of lhe slralegic moves of air carriers since dereguIalion has been an efforl
lo deveIop and expIoil economies of scope. Iconomies of scope in lhe airIine induslry
are achieved as a funclion of lhe number of poinls served by a carrier and shouId be
dislinguished from cccncnics cj sca|c. vhich are achieved as a funclion of size (see Chapler
6). Iconomies of scope are generaled as a resuIl of lraveIer demand for service in more
lhan one cily-pair markel. Ior exampIe, a Iarge carrier can en|oy an economy of scope by
adverlising on leIevision because lhe carrier serves many markels, unIike a carrier lhal
serves onIy a fev cily-pairs. In addilion, once lraveIers oblain informalion aboul service
quaIily, cosl, and convenience in one cily-pair markel, lhey form an impression aboul
lhal carrier’s service in olher markels. Iconomies of scope aIso resuIl from lhe generalion
of informalion lhrough CRSs, revard slruclures for lraveI agenls, incenlives buiIl inlo
frequenl-flier programs, and service paĴerns made possibIe by hub-and-spoke nelvorks.
Iconomies of scope confer compelilive advanlages lo Iarge air carriers, even in lhe absence
of economies of scaIe.
Computerized reservation systems/global distribution systems (CRSs/GDSs) dispIay
airIine scheduIes and prices for use by agenls in making reservalions. The economies
of producing and dislribuling informalion in lhe airIine induslry are fundamenlaI lo
posldereguIalion airIine compelilion. Airfares and service paĴerns have become much
more compIex and change much more ohen lhan in lhe pasl, conlribuling lo lhe imporlance
of CRSs and lhe advanlages lhal lhese syslems confer on lheir ovners. AIlhough CRSs
creale opporlunilies for lhe smaIIesl carriers lo have lheir flighls and fares dispIayed
for lraveI agenls nalionvide, lhey aIso provide imporlanl markeling advanlages lo lhe
carriers lhal ovn lhem.
There are four main syslems: Amadeus, GaIiIeo, SAßRI and WORLDSIAN. CRSs have
been expanded lo make olher lypes of reservalions, such as holeI rooms and renlaI cars.
A I R T R A N S P O R TAT I O N 2 7 4
Iees from saIes made using lhe syslems are sources of subslanliaI revenue and profil for
lheir ovners.
ßecause a CRS is programmed lo seIecl flighls based on pubIished scheduIes, airIines
find lremendous economic advanlages in deveIoping scheduIes lhal shov flighls lo
ma|or cilies arriving and deparling during lhe earIy morning and evening peak hours.
Ior exampIe, lo compele for Iucralive business lraveI, airIines bunch arrivaI limes al
ma|or airporls al 8:30 or 9:30 ю.њ., in lime for morning meelings. The DOT’s requiremenl
lhal airIines reporl on-lime performance vas designed in parl lo prevenl airIines from
undereslimaling lheir acluaI flying lime lo gain a more favorabIe posilion on lhe CRS.
CRSs are polenl markeling looIs because lraveI agenls, vho reIy heaviIy on lhem, are a
cenlraI parl of lhe commerciaI air lraveI syslem, currenlIy booking aboul 70 percenl of aII
lickels, compared vilh Iess lhan 40 percenl before dereguIalion. Il is eslimaled lhal aboul
haIf of Ieisure lraveIers and one-fourlh of business lraveIers do nol have a preference for
an airIine: lhus, lraveI agenls can pIay a ma|or roIe in influencing consumer decisions.
CRS ovners, veII avare of lhe imporlance of agenls in influencing consumers, offer
severaI incenlives lo influence lheir behavior and, lhrough frequenl-flier programs, offer
incenlives lo lraveIers even vhen Iover-cosl flighls mighl be avaiIabIe.
Tratc| Agcnis
TraveI agenls provide an imporlanl service lo consumers, especiaIIy since dereguIalion,
by suppIying efficienl access lo a compIex array of lraveI oplions. Agenls acl as brokers
of informalion and seIIers of lraveI services lo consumers ohen cIoseIy affiIialed vilh
individuaI air carriers lhrough CRSs and supporling services. Over 90 percenl of aII lraveI
agencies are aulomaled (by means of CRSs), and mosl carriers reIy on a singIe CRS lo
influence agenls. Carriers pay commission overrides, vhich, combined vilh CRSs, have
had much success in causing agencies lo shih lraveIers lo favored suppIiers.
Some forces al vork in lhe markelpIace miligale lhe exlenl lo vhich overrides reduce
compelilion. Mosl agencies are smaII, and many do nol earn overrides. On lhe olher hand,
lhe lraveI business is becoming somevhal more concenlraled, vilh firms having revenues
of $5 miIIion or more nov represenling one-lhird of lhe induslry. These Iarge firms seek
oul commission overrides.
Anolher markel force lhal increases compelilion is lhe increasing concern of corporale
cIienls vilh geĴing lhe besl price. Corporalions are more acliveIy moniloring lhe lraveI
cosls of lheir empIoyees. In addilion, a fee syslem is being deveIoped vhereby lraveI
agenls earn fees direclIy from lhe corporalion ralher lhan lhrough a commission.
CurrenlIy, hovever, lhe fee syslem is Iimiled and avaiIabIe onIy lhrough some of lhe
Iarger lraveI agencies. Some lraveI agencies even give Iarge corporale cIienls rebales
on lhe commission overrides lhal lhey earn from air carriers, and Iarge corporalions
increasingIy are arranging discounl fares direclIy vilh airIines. These benefils, hovever,
IargeIy accrue lo ma|or corporalions abIe lo hire fuII-lime lraveI managers lo oversee lheir
lraveI agenls.
SmaII-business and Ieisure lraveIers have Iess influence over lraveI agenls, because lhe
incenlives for lraveI agenls vorking vilh lhese cuslomers are mixed. Agenls may seek oul
lhe Iovesl price for lhe mosl acceplabIe rouling in hopes of gaining repeal business. Al
lhe same lime, lhe commission syslem revards agenls on lhe basis of lhe lolaI price: lhus,
lhere is a disincenlive lo seek oul lhe Iovesl fare. In addilion, some agenls knov lhal lhe
commission viII be even Iarger if lhey book lhe flighl vilh a preferred suppIier (one from
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 5
|rc¡ucni-|| i cr Prcgrans
Frequent-flier programs have been perhaps lhe airIines’ mosl successfuI markeling looI.
When American, under a nev managemenl leam vilh exlensive experience in markeling,
firsl offered ils frequenl-flier program in 1981, lhe olher carriers dismissed il as a gimmick.
The incumbenl carriers, vho had higher Iabor cosls lhan lhe nev enlranls, soon recognized
lhe imporlance of relaining business lraveIers. These lraveIers are Iess incIined lo lake
advanlage of lhe discounl fares offered by lhe ma|ors, vhich usuaIIy come vilh a number
of reslriclions, bul lhey mighl opl for lhe no-reslriclion Iov fares offered by lheir upslarl
compelilors. The imporlance of offering frequenl-flier benefils is heighlened by lhe facl lhal
roughIy 5 lo 6 percenl of fliers accounl for aboul 40 percenl of aII lrips laken annuaIIy. The
use of frequenl-flier programs by aII of lhe ma|or carriers is leslimony lo lheir imporlance
in buiIding cuslomer IoyaIly, especiaIIy from business lraveIers. Hovever, gaining and
mainlaining passenger IoyaIly is more difficuIl lhan ever before. Iassengers are more
inleresled in Iov airfares lhan lhey are in frequenl flier miIes.
Some corporalions audil airfares lo be sure lhal empIoyees choose Iov-cosl fares,
and some firms lry lo recIaim frequenl-flier benefils for lhe company. Hovever, mosl
companies concede lhal empIoyees see frequenl-flier avards as compensalion for having
lo lraveI exlensiveIy and, concerned aboul empIoyee moraIe, are unviIIing lo lry lo recIaim
avards for lhemseIves. UnqueslionabIy, a parlicuIar program influences a frequenl flier’s
choice of airIine, bul many frequenl fliers aIso consider flighl frequency and on-lime
performance as imporlanl faclors in seIecling an airIine. ConsequenlIy, many frequenl
fliers beIong lo more lhan one program. This praclice is becoming more probIemalic,
hovever, because some programs impose expiralion dales, lhereby making il harder lo
vin avards vhiIe parlicipaling in muIlipIe programs.
Large carriers vilh exlensive roule nelvorks viII naluraIIy have lhe mosl aĴraclive
syslems because lhey can offer lraveIers more lrip choices vilh vhich lo earn miIeage and
more exolic vacalion possibiIilies as revards. Cooperalive arrangemenls belveen smaII
carriers, vho are somelimes compelilors, lend lo be shorl-Iived. The economies of scope
en|oyed by Iarger airIines buiId consumer IoyaIly, parlicuIarIy among business lraveIers,
vho are Iess concerned aboul price. Irequenl-flier programs confer advanlages lo size
lhal cannol be offsel by a smaIIer airIine lhal is aĴempling lo compele onIy on lhe basis
of price.
vhom lhe agenl has been promised a commission override). Hovever, il is imporlanl lo
recognize lhal lhe roIe of lhe lraveI agenl, vhen il comes lo booking passengers on lhe
airIines, is decreasing quickIy.
Through economies of scope, commission overrides can slrenglhen lhe compelilive
posilion of Iarge carriers or carriers lhal serve a Iarge number of cily-pairs from lhe lraveI
agenl’s home cily. Irom a lraveI agenl’s perspeclive, lhe airIine serving lhe Iargesl nelvork
of cilies from lhe agenl’s home cily provides lhe agenl vilh lhe mosl opporlunilies lo
seII lickels or lo offer aIlernalives lo consumers considering flying on an airIine vilh a
smaIIer IocaI presence. This advanlage in offering incenlives lo lraveI agenls, combined
vilh frequenl-flier programs, reinforces lhe advanlages of size (scope) and lhereby makes
il more difficuIl for nev enlranls lo compele, be lhey ma|or airIines or smaII, Iov-cosl
carriers.
A I R T R A N S P O R TAT I O N 2 7 6
Busi ncss-C| ass Scrti cc
Anolher program designed lo aĴracl business fliers vas inilialed in 1979 by Ian American
WorId Airvays. Business-class service is aimed primariIy al inlernalionaI business
lraveIers lo overcome lhe reguIalory reslrainls on increasing normaI economy (coach)
fares in Iong-hauI inlernalionaI markels. IniliaIIy, lhe service consisled of nol much more
lhan a fev on-board amenilies: free drinks, movies, and so forlh. Il has since become
a ma|or eIemenl on inlernalionaI roules for mosl carriers, parlIy because corporalions
frequenlIy prohibil, or severeIy Iimil, empIoyees from lraveIing al firsl-cIass fares. Mosl
inlernalionaI carriers have nov progressed lo 8-abreasl sealing in business cIass on a 747,
compared lo lhe normaI 10 in economy, and severaI carriers have exlended lhe concepl
lo 6-abreasl sealing. Mosl of lhese seals are as comforlabIe and provide as much Ieg
room as firsl-cIass domeslic flighl arrangemenls. Al lhe same lime, some carriers have
improved firsl cIass lhrough provision of “sIeepereĴes” vilh Ieg resls. The price IeveI of
business cIass on inlernalionaI roules has generaIIy been in lhe range of 10 lo 25 percenl
above economy fares. Thus far, vilh lhe shorler dislances invoIved, business cIass has nol
become a ma|or faclor in lhe domeslic markel, bul ralher a by-producl of some carriers’
inlernalionaIIy configured aircrah flying cerlain domeslic seclors. NeverlheIess, as carriers
aĴempl lo Iimil lhe amounl of lraffic moving al discounl fares, some form of business-
lraffic segregalion and pricing musl remain one of lheir oplions.
Cc!c Snari ng
Code sharing refers lo lvo airIines, usuaIIy a ma|or and a regionaI carrier, lhal share lhe
same idenlificalion codes on airIine scheduIes. ßy code sharing vilh a regionaI airIine, a
ma|or can adverlise flighls lo a much Iarger markel area and expand ils markel al reIaliveIy
Iov cosl. The freedom provided by dereguIalion aIIoved carrier managers lo aIIocale
equipmenl and personneI in Iine vilh cosls, and many communilies began receiving service
by means of lurboprop aircrah lhal carry 60 or fever passengers. Commuler carriers ohen
provided a Iov-cosl operalion, principaIIy because of lheir use of Iover-cosl equipmenl
more suiled lo lheir specific markel characlerislics and, lo a Iesser exlenl, because of Iover
overaII Iabor cosls. In effecl, lhe commuler carriers began feeding service lo lhe |el carriers
al cosls beIov lhose lhal lhe |el carrier couId achieve over lhe same roule.
Wilh lhe deveIopmenl of hub airporls, lhe ma|or carriers soon reaIized lhal lhey couId
aĴracl passengers lraveIing beyond lheir hubs by adverlising lheir affiIialions vilh lhe
commulers serving lheir hub. AffiIialions belveen carriers of differing sizes, in vhich
scheduIes and baggage handIing are coordinaled, predale dereguIalion, bul use of lhe
Iarger carrier’s CRS code by lhe smaIIer airIine feeding lraffic lo lhe Iarger carrier pIaces
lhese affiIialions in an enlireIy nev conlexl.
Lisling lhe commuler vilh lhe code of lhe ma|or in lhe CRS provides ilineraries lo lraveI
agenls and aIIovs IiĴIe-knovn commuler airIines lo benefil from lhe brand name of lhe
ma|or carrier. CRSs aIso give grealer veighl lo ilineraries invoIving code sharing, vhich
means lhal lhey viII be Iisled before olher possibIe inlerIine conneclions and lherefore are
more IikeIy lo be seen and chosen by lraveI agenls.
Code-sharing agreemenls became videspread by 1985, and lhe reIalionships
belveen lhe commulers and ma|or carriers became so imporlanl lhal many commulers
vere acquired in vhoIe or in parl by lheir affiIiales. The ma|ors vere molivaled parlIy
by a desire lo conlroI lhe commulers’ Iov-cosl feed lo lheir hubs, bul lhey vere aIso
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 7
concerned vilh gaining enough conlroI lo ensure IeveIs of quaIily and safely consislenl
vilh lheir image. As an exampIe of lhe degree of verlicaI inlegralion lhal has occurred in
lhe commuler induslry, lhe lop 50 commuler airIines accounl for aboul 97 percenl of aII
commuler airIine lraffic, and aII bul a fev of lhese lop 50 share CRS codes vilh a ma|or
or a nalionaI airIine.
Consumers may receive some indirecl benefils as a resuIl of code sharing. Ma|or
airIines enlering inlo code-sharing agreemenls are IikeIy lo impose commensurale service
requiremenls on lhe commulers, and lhey may assisl lhem in lhe purchase of higher-
quaIily aircrah. Ifficienl, inlegraled service belveen Iarge and smaII carriers, hovever,
predales code sharing, and informalion aboul such reIalionships vas dispIayed in CRSs
before code sharing. Hovever, equaIIy convenienl conneclions, and even lhose lhal may
beĴer meel consumer preferences, may nol be as fairIy lrealed in CRSs because of lhe
preference given lo on-Iine conneclions. Therefore, consumers may nol aIvays benefil
from code sharing.
The effecls of code sharing on compelilion are somevhal Iess direcl, bul lhey are sliII
imporlanl. ßecause lhe commulers provide service on roules vilh reIaliveIy Iov lraffic
voIume, many roules can be served onIy by a singIe commuler. ßy effecliveIy conlroIIing
lhe commuler lraffic arriving al ils hubs lhrough CRS Iislings or oulrighl ovnership of
lhe commuler, lhe ma|or furlher prolecls dominance al ils hub. Code sharing aIso makes il
difficuIl for olher regionaI airIines lo compele vilh lhe code-sharing parlner in markels in
vhich demand is sufficienl lo supporl more lhan one carrier, because onIy one commuler
can share lhe CRS code. This couId uIlimaleIy Iead lo reduced compelilion in lhe regionaI
airIine segmenl of lhe induslry and higher fares for consumers lraveIing from smaII
communilies. In addilion, by exlending lhe service nelvorks offered by Iarge carriers,
ohen al a cosl Iover lhan lhe Iarge carrier couId provide direclIy, code sharing enhances
lhe economies of scope en|oyed by Iarger carriers.
|nicracii tc Markcii ng Agrccncnis
Interactive marketing agreements viII soon be a common lerm used in lhe airIine business.
Lov-cosl carriers (LCCs) and poinl-lo-poinl carriers do nol lypicaIIy parlicipale in code-
sharing for various reasons lherefore Iimiling markel presence due lo simpIified roule
slruclures. Hovever, as LCCs and poinl-lo-poinl carriers expand, offering deslinalions
oulside lhe simpIified nelvork viII increase in lerms of imporlance. AirIines viII form
“Ioose” reIalionships vilh olher carriers lhal compIemenl lhe business modeI. Code-
sharing invoIves conlracluaI, IiabiIily, conneclivily and accounling issues vhereas
inleraclive markeling agreemenls simpIy reIalionships.
An inleraclive markeling agreemenl is vhen lvo or more airIines deveIop a reIalionship
vhere each carrier agrees lo promole lhe olher carrier(s). The mosl simpIified form of
promolion is use of lhe airIine’s veb sile encouraging passengers lo cIick lhrough lo anolher
carrier’s veb sile lo gel lo an end deslinalion. When lhe passenger makes a financiaI
lransaclion on-Iine, lhe parlicipaling carriers are compensaled. Ior exampIe, MAX|el
Airvays, a nev inlernalionaI airIine operaling belveen lhe Uniled Slales and London,
UK had lhe desire of Iinking up successfuI LCCs on eilher side of lhe AlIanlic. Discussions
vere inilialed belveen easyIel in lhe Uniled Kingdom and IelßIue in lhe Uniled Slales.
The idea vas lo cross promole lhe lhree airIines using each of lhe airIine’s veb siles. If a
passenger flev from Long ßeach, CA lo Nev York on IelßIue lhen flev MAX|el from Nev
York lo London, lhe passenger couId lhen fly on easyIel lo Geneva. In lhis hypolhelicaI
exampIe, lhe passenger mighl nol have been avare of lhe exislence of aII lhree airIines
A I R T R A N S P O R TAT I O N 2 7 8
Hu|-an!-Spckc Scrti cc
AirIines have lried lo maximize lhe number of passenger seals fiIIed by eIiminaling
unprofilabIe roules and concenlraling on Iucralive high-densily roules serving Iarge-
and medium-size airporls. The hub-and-spoke system eslabIishes a number of roules
connecled lo a cenlraI hub airporl vhere passengers are coIIecled from feeder flighls,
lransferred lo olher flighls on lhe same Iine, and lhen carried lo lheir uIlimale deslinalion.
The lraffic paĴern al a hub airporl consisls of cIoseIy spaced banks of arrivaIs and
deparlures. Iassengers Iand al lhe airporl and lransfer lo anolher flighl vilhin 40 lo 50
minules. AIlhough DeIla used AlIanla as a hub Iong before dereguIalion, mosl of lhe olher
ma|ors adopled lhis praclice during lhe 1980s, because il permils service belveen more
origin and deslinalion poinls. Moreover, passengers can be relained by lhe airIine for
Ionger dislances, raising lhe average revenue per passenger. In mosl cases, carriers choose
a busy airporl as a hub so lhey can offer passengers a vide variely of possibIe conneclions
and capilaIize on aIready heavy origin and deslinalion lraffic. Aboul lhree-quarlers of
lhe passengers al AlIanla and one-haIf al Chicago, Denver, and DaIIas–Iorl Worlh arrive
mereIy lo change pIanes for olher deslinalions.
Hub-and-spoke nelvorks are appeaIing lo air carriers for severaI olher reasons.
Mosl nolevorlhy, lhey aIIov carriers lo provide service lo a Iarger number of cily-pairs,
vilhoul a commensurale increase in cosl, lhan do poinl-lo-poinl nelvorks. Ior exampIe,
a carrier needs a minimum of 10 flighls lo serve 10 cily-pairs in a poinl-lo-poinl roule
syslem. If operaled lhrough a hub, hovever, lhose same 10 flighls can serve as many
as 100 cily-pairs. AIso, by concenlraling lhe flov of passengers lovard a cenlraI poinl,
hubs make possibIe service belveen cily-pairs lhal do nol have sufficienl passenger flovs
lo supporl nonslop service in a poinl-lo-poinl syslem. Iassenger demand for nonslop
service aIso gives lhe carrier an opporlunily lo charge higher-lhan-average fares on a
roule lhal il monopoIizes. IinaIIy, as a resuIl of lhe exlensive nelvorks made possibIe
by hubbing, carriers are abIe lo aĴracl passengers and, vilh lighl scheduIing, lo meel
passengers’ preference for singIe-carrier service. This aIso gives lhe hub carrier a markeling
advanlage.
The freedom lo enler nev markels aIso aIIoved carriers lo ad|usl lheir roule syslems
lo baIance lheir lraffic flovs. Ior exampIe, Uniled, vhich operaled primariIy in easl–vesl
markels, added more SunbeIl cilies lo lake advanlage of increased demand for lraveI lo
lhose cilies during lhe vinler.
ßecause hub-and-spoke operalions reIy on lighlIy scheduIed arrivaIs and deparlures,
congeslion and deIay can occur during peak hours, especiaIIy al lhe airporls in Chicago
and AlIanla, vhich serve as hubs for severaI ma|or airIines. Moreover, lhe sIols al lhese
airporls are on haIf-hour lime periods. To mainlain lheir posilion on CRSs, airIines lend lo
cIusler arrivaIs and deparlures in lhe firsl 10 minules of lheir sIols, inlensifying demands
on an aIready fuII air lraffic conlroI syslem. ßad vealher, requiring inslrumenl flighl ruIes,
can make deIays much vorse. The addilionaI cosls aĴribulabIe lo congeslion and deIay,
bul because of cross promolion, lhe brand name of each carrier vas expanded as vas
lhe roule nelvork. AII lhree airIines vouId receive financiaI compensalion vilhoul lhe
compIicalions associaled vilh a code-share agreemenl.
As inleraclive markeling agreemenls form over lime, do nol be surprised if gIobaI LCC
aIIiances begin lo form. IvenluaIIy, inleraclive markeling agreemenls mighl malure inlo
code-share agreemenls among LCCs bul for lhe lime being, lhis is nol IikeIy.
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 9
such as fueI, missed conneclions, and cuslomer dissalisfaclion, have caused some airIines
lo eslabIish hubs al Iess busy airporls.
AIlhough lhe hub-and-spoke syslem has lradilionaIIy been very successfuI for lhe ma|or
airIines, nev cosl-cuĴing slralegies impIemenled aher Seplember 11, 2001, have aIlered
lhis success. AirIines have been forced lo reduce frequency lo many deslinalions and, in
some cases, lo drop services aIlogelher. This has resuIled in Iess conneclivily laking pIace
al lhe hub airporls, meaning passengers are spending more lime in airporls vailing lo
lransfer lo lhe end deslinalion. To a cerlain degree, ma|or airIines are going back lo lhe
poinl-lo-poinl syslem, bul lhis nev phase is defined as lhe “dehubbing” process. As of
2006, il is difficuIl lo delermine if dehubbing viII be a shorl- or Iong-lerm measure lo
reduce cosls.
A!tcrii si ng an! Sa| cs Prcncii cn
ßefore dereguIalion, cIever adverlising and saIes promolion maleriaI, exloIIing lhe service
virlues of one carrier over olhers, lended lo be lhe prime basis of mosl adverlising. Ads
focusing on scheduIe, frequency, and equipmenl aIso vere run. The principaI difference
belveen carriers, hovever, vas lhe IeveI and slandard of service on lhe ground and in lhe
air. Iricing vas a secondary fealure under lhe reIaliveIy lighl rein of reguIalion. Today,
mosl airIine adverlising has changed considerabIy. The emphasis has shihed from service
lo a combinalion of price, deslinalion, and frequency.
KEY TERMS
markeling CTO
produclion-orienled period IAMTO
saIes-orienled period CATO
consumer-orienled period markel segmenlalion
markeling mix inlensive grovlh slralegies
producl economies of scope
price compulerized reservalion syslem
promolion frequenl-flier program
pIace business-cIass service
unconlroIIabIe variabIes code sharing
ITO inleraclive markeling agreemenl
hub-and-spoke syslem
REVI EW QUESTI ONS
1. Define narkciing. Whal is meanl by lhe prc!uciicn-cricnic! pcric! in airIine markeling`
The sa|cs-cricnic! pcric!? The ccnsuncr-cricnic! pcric!?
2. ßriefly describe lhe unconlroIIabIe variabIes in lhe markeling process. Why are lhey
unconlroIIabIe` Hov mighl lhey conflicl vilh markeling pIans` Give an exampIe.
A I R T R A N S P O R TAT I O N 2 8 0
3. Hov vouId you define lhe airIine prc!uci? Hov is il differenl from olher producls`
In vhal sense do airIines basicaIIy seII lhe same producls` Whal are some unique
characlerislics of lhe airIine producl` Whal effecl do lhese have on markeling`
4. Il can be said lhal price vas an inaclive eIemenl in lhe markeling mix before
dereguIalion. Why` Do you lhink lhal lhe carriers vouId prefer lo compele on lhe
basis of lhe olher lhree Is aIone, as in lhe good oId days` Why or vhy nol`
5. Whal are lhe basic faclors lhal affecl price` Whal is prcnciicn? Give some exampIes
of hov promolion is used lo inform, persuade, and remind. Whal are lhe lhree basic
lypes of airIine saIes oulIels` Define |TOs. CATOs. and |AMTOs. Whal is lhe main
funclion of an airIine’s reservalion syslem`
6. Why did lhe number of lraveI agencies increase so significanlIy during lhe 1980s`
Whal are some advanlages lo lhe consumer of using a lraveI agenl` To lhe airIine`
Whal are some disadvanlages lo lhe individuaI airIine`
7. Under lhe consumer-orienled markeling concepl of lhe 1970s and 1980s, markel
research has pIayed an imporlanl roIe. Why` Whal is meanl by narkci scgncnis and
iargci narkciing? Hov can an airIine markel be segmenled` (Hini. Consider lrip
purpose.) Give some exampIes of segmenled business-lraveI markels. Whal melhods
are generaIIy used by lhe carriers lo penelrale exisling markels more deepIy` Give
some exampIes of in-flighl and ground-producl deveIopmenl.
8. Whal is meanl by sc||ing prcscni prc!ucis ic ncu iargci grcups? Discuss lhe never largel
markels in lerms of lheir markeling polenliaI and lhe markeling mix needed lo service
lheir individuaI needs.
9. Hov do cccncnics cj sccpc differ from cccncnics cj sca|c? Whal are ccnpuicrizc!
rcscrtaiicns susicns? Hov have lhey become an imporlanl markeling looI` Discuss
lhe imporlance of lraveI agenls in markeling air lransporlalion services. Whal is lhe
purpose of frequenl-flier programs` Of business-cIass service`
10. Whal are lhe differences belveen code sharing and an inleraclive markeling agree-
menl` Whal is lhe primary purpose of lhe hub-and-spoke syslem vs. lhe poinl-lo-
poinl syslem` Why are such syslems appeaIing lo lhe carriers` Hov has adverlising
and saIes promolion changed since dereguIalion`
WEB SI TES
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SUGGESTED READI NGS
ßrenner, MeIvin A., Iames O. Leel, and IIihu SchoĴ. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
C H A P T E R 9 • A I R L I N E PA S S E N G E R MA R K E T I N G 2 8 1
Doganis, R. Tnc Air|inc Busincss in inc 21si Ccniuru. London: RoulIedge, 2001.
Doganis, Rigas. ||uing Off Ccursc. Tnc |ccncnics cj |nicrnaiicna| Air|incs (2d ed.). London: Harper
CoIIins Academic, 1991.
Gronau, Reuben. Tnc Va|uc cj Tinc in Passcngcr Transpcriaiicn. Tnc Ocnan! jcr Air Tratc|. Nev York:
CoIumbia Universily Iress, 1970.
Grumbridge, I. L. Markciing Managcncni in Air Transpcri. London: AIIen & Unvin, 1966.
HoIIander, S. C., ed. Passcngcr Transpcriaiicn. |ca!ings Sc|ccic! jrcn a Markciing Vicupcini. Iasl
Lansing: ßusiness Sludies, Michigan Slale Universily, 1968.
Hughes, G. D. Markciing Managcncni. A P|anning Apprcacn. Reading, Mass.: Addison-WesIey, 1978.
KolIer, IhiIip. Markciing Managcncni. Mi||cnniun |!iiicn (10lh ed.). IngIevood CIiffs, N.I.: Irenlice-
HaII, 1999.
Ouandl, R. I., ed. Tnc Ocnan! jcr Tratc|. Tnccru an! Mcasurcncni. Lexinglon, Mass.: Lexinglon
ßooks/Healh, 1970.
Shav, Slephen. Air|inc Markciing an! Managcncni. London: Iilman ßooks, 1985.
Shav, Slephen. Air Transpcri. A Markciing Pcrspcciitc. London: Iilman ßooks, 1982.
Shav, Slephen. Transpcri. Siraicgu an! Pc|icu. London: ßIackveII, 2002.
Radnoli, George. Prcfii Siraicgics jcr Air Transpcriaiicn. Nev York, NY: McGrav-HiII, 2002.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. ßeImonl, CA: Thomson ßrooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 2 8 2
10
Airline Pricing, Demand, and
Output Determination
Introduction
The Trend in Domestic Passenger Airfares
Pricing and Demand
No-frills Airfare and Survey Warfare
Types of Passenger Fares
The Pricing Process
Airline Costs
Pricing and Output Determination
Chapter Checklist • You Should Be Able To:
Describe lhe lrend in domeslic passenger airfares
during lhe lhree decades aher WorId War II, and
discuss some of lhe reasons for lhis lrend
Lisl lhe delerminanls of demand, and expIain hov
each can affecl lhe posilion of lhe demand curve
Dislinguish belveen a cnangc in !cnan! and a
cnangc in inc ¡uaniiiu !cnan!c!
Define c|asiiciiu cccjficicni. c|asiic !cnan!. inc|asiic
!cnan!. and !cicrninanis cj c|asiiciiu
Describe lhe four basic lypes of airIine passenger
fares
Summarize severaI promolionaI fare aclions
inilialed by air carriers
Recognize some of lhe common ruIes and
reguIalions used by air carriers in con|unclion vilh
fare aclions







283
Dislinguish among !ircci cpcraiing ccsis. in!ircci cpcraiing
ccsis. and ncncpcraiing ccsis an! rctcnucs
Describe lhe profil-maximizing IeveI of oulpul
Undersland cosl-cuĴing lrends imposed by airIines for
lhe 21sl cenlury



A I R T R A N S P O R TAT I O N 2 8 4
INTRODUCTION
The poIicies and praclices of U.S. airIines vilh respecl lo air lraveI demand and pricing are
bolh inleresling and significanl. As lhey have been impIemenled over lime, lhey iIIuslrale
lhe imporlance of lhe reIalionships among economics, business, manageriaI |udgmenl,
and governmenlaI reguIalory poIicy.
During lhe pioneer days of airIine deveIopmenl, lhe airIines lesled lhe responsiveness
of demand for passenger service by ad|usling prices so lhal lhe resuIling voIume of
passenger lraffic, combined vilh maiI revenues, vouId produce lhe maximum nel
relurn. AirIine managemenl had lo use keen |udgmenl lo fix fares lhal vouId deveIop
lraffic, counler exisling compelilion, and yieId revenues lhal, logelher vilh olher sources
of income, vouId meel operaling and olher expenses and generale a reasonabIe relurn.
Al firsl Congress, and Ialer lhe CiviI Aeronaulics ßoard (CAß), vas responsibIe for
reguIaling passenger and freighl rales of airIines engaged in inlerslale commerce so as
lo ensure lhal consumers paid fair prices and lhe airIines earned adequale revenues. Air
maiI compensalion vas used by lhe Iosl Office Deparlmenl before 1934 lo direcl lhe
deveIopmenl of domeslic airIine services.
THE TREND IN DOMESTIC PASSENGER AIRFARES
During lhe pioneer years of air passenger lransporlalion, lhe cosl of aircrah operalion
precIuded lhe air carriers from seeking passenger lraffic al rales on a price-compelilive
basis vilh olher forms of lransporlalion. ßefore lhe avarding of air maiI conlracls, mosl
carriers engaging in passenger lransporlalion operaled in lhe red, vilhoul hope of
baIancing revenues and expenses. Iven in lhe years foIIoving lhe avarding of lhe air maiI
conlracls, high passenger fares discouraged lhe grovlh of lraffic, and Iighl lraffic caused
lhe cosls of operalion lo be spread over fever passengers. The airIines vere caughl in a
vicious spiraI of fares and operaling-cosls dislribulion for vhich a soIulion vas imperalive,
because despile lhe facl lhal prices increased from 1926 lo 1929, passengers vere beĴer
abIe lo pay lhe fares lhan lhey vere aher 1929.
IoIIoving lhe aulumn of 1929, draslic reduclions vere made in air passenger
lransporlalion fares unliI lhe airIines, operaling in direcl compelilion vilh raiIroad
passenger services, eslabIished fares al lhe approximale IeveI of slandard raiIroad
passenger fares pIus IuIIman charges. AirIines nol in direcl compelilion vilh raiIroad
service aIso reduced lheir fares in many cases, bul nol so draslicaIIy as lhe Iines in
compelilion vilh raiIroad services. The avarding of maiI conlracls lo air carriers enabIed
lhese Iines lo dislribule lheir cosls of operalion over maiI and passenger lraffic and lhus
reduce lhe amounl of cosl borne by lhe passenger lraffic. Some of lhe air lransporl Iines
aIso deveIoped air-express lraffic, and lhis addilionaI revenue made il possibIe lo slimuIale
passenger lraffic by reducing rales.
The lrend in air passenger fares for domeslic airIines is shovn in TabIe 10-1. These figures
reflecl a sharp dovnvard lrend from 1929 lo 1941. A 5 percenl federaI lransporlalion lax
vas inlroduced in 1941: lhis vas raised lo 10 percenl in 1942 and lo 15 percenl in 1943.
Iaced vilh lhe probIem of loo much lraffic and loo IiĴIe capacily during WorId War II,
lhe carriers eIiminaled aII speciaI fares and discounls, such as round-lrip fare reduclions,
reduced fares for chiIdren, and reduclions in fares for lhose vho lraveIed under lhe
UniversaI Air TraveI IIan (an air lraveI credil card). Aher lhe var, as a resuIl of various
CHAP T E R 10 • AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 8 5
Ire|el Ira Iel Ira
Passcngcr |ctcnuc Passcngcr |ctcnuc
(in ccnis pcr (in ccnis pcr
1926–1960 passcngcr ni|c) 1961–1996 passcngcr ni|c)
1926–30 12.0, 10.6, 11.0, 12.0, 8.3 1961–65 6.1, 1, 5.9, 5.8, 5.7
1931–35 6.7, 6.1, 6.1, 5.9, 5.7 1966–70 5.7, 6, 5.6, 5.9, 6.0
1936–40 5.7, 5.6, 5.7, 5.1, 5.1 1971–75 6.3, 6.4, 6.6, 7.5, 7.7
1941–45 5.0, 5.3, 5.5, 5.1, 4.5 1976–80 7.8, 8.2, 8.5, 9.0, 11.6
1946–50 4.5, 5.0, 5.7, 5.8, 5.6 1981–85 12.8, 12.8, 12.1, 12.7, 12.2
1951–55 5.6, 5.6, 5.5, 5.4, 5.5 1986–90 11.0, 11.4, 12.3, 13.1, 13.4
1956–60 5.3, 5.4, 5.7, 5.9, 6.0 1991–95 13.2, 12.9, 13.7, 13.1, 13.5
1996 13.8
1997 13.97
1998 14.1
1999 14.0
2000 14.6
2001 13.2
2002 12.0
2003 12.3
2004 12.1
Source: Ior 1926–37, Aeronaulics ßranch of lhe U.S. Deparlmenl of Commerce: for 1938–2004, Air Transporl
Associalion and CiviI Aeronaulics ßoard.
CAß shov cause orders, carriers began lo reduce passenger fares and bring back lhe
prevar discounls. In addilion, carriers inlroduced a number of innovalions inlo lheir fare
slruclure, incIuding compuling fares on a uniform miIeage rale. The basic fares belveen
lhe poinls served by each airIine vere deveIoped by muIlipIying lhe base rale per miIe by
lhe aeronaulicaI miIes flovn. Ior exampIe, if lhe basic rale vas 6 cenls per miIe, and lhe
dislance belveen A and ß vas 323 miIes, lhe basic one-vay fare vas $19.38, rounded lo
lhe nearesl 5 cenls, for a fare of $19.40.
Carriers aIso experimenled vilh a no-shov penaIly lhal vas 25 percenl of lhe unused
porlion of lhe lickel or $2.50, vhichever vas grealer. And mosl carriers inlroduced
domeslic coach service, vilh fares sel al an average of 4 cenls per miIe, compared lo
aImosl 6 cenls for reguIar firsl-cIass service.
Average fares cIimbed again during lhe Korean conflicl in lhe earIy 1950s, in response
lo lhe increased demand for miIilary airIih capacily. In 1952, lhe ma|or carriers inlroduced
a $1 per lickel fare increase. This fare increase vas unique in lhal lhe rale of increase
per miIe decreased as lhe lrip Ienglh increased. This phiIosophy Iaid lhe foundalion
for fare slruclures in lhe years lo come, nolabIy lhal lhe fare per miIe shouId decIine
vilh dislance al a rale generaIIy consislenl vilh lhe behavior of unil cosls. AIso in 1952,
lhe CAß eIiminaled lhe cenls-per-miIe Iimils previousIy used in eslabIishing fares for
coach services and insliluled a poIicy lhal coach fares shouId nol exceed 75 percenl of
lhe corresponding firsl-cIass fares. The ob|eclive of lhis poIicy vas lo encourage lhe use
of coach services—and il vorked. ßy 1955, firsl-cIass lraveI consliluled onIy 59.9 percenl
of lhe lraffic mix, faIIing lo 45.3 percenl by 1960 and lo onIy 21.8 percenl by 1965. Il has
conlinued lo decIine ever since.
TABLE 10-1 Average Air Passenger Fares for Domestic Airlines, 1926–2004
A I R T R A N S P O R TAT I O N 2 8 6
Air carrier profils pIummeled during lhe recessionary period 1957–58, and lhe CAß
approved an increase of 4 percenl pIus $1 in lhe domeslic passenger rales on Augusl 1,
1958. In addilion, lhe board permiĴed lhe airIines lo reduce famiIy-fare discounls from 50
percenl lo 33.3 percenl and eIiminale round-lrip discounls and free slopover priviIeges.
The years from 1962 lhrough 1968 sav lhe price of an average airIine lickel decIine
by more lhan 13 percenl—probabIy lhe mosl significanl cosl reduclion in lhe hislory of
passenger lransporlalion. The reason, of course, vas lhe lremendous grovlh in airIine
lraffic and produclivily, IargeIy as a resuIl of nev |el aircrah, vhich vas so greal lhal il
absorbed cosls and made possibIe Iover fares. ßy 1968, produclivily gains began lo be
oulpaced by rising Iabor cosls, Ianding fees, and inleresl charges, among olher expenses.
CIearIy, fare reduclions couId nol conlinue. In 1969, a coupIe of smaII fare increases vere
approved by lhe CAß, bul airIine profils conlinued lo faII. In 1970, lhe CAß vas engaged
in a domeslic passenger fare invesligalion and denied addilionaI generaI fare increases
pending compIelion. The resuIl vas lhal in 1970, lhe induslry recorded lhe Iargesl Ioss in
ils hislory up lo lhal lime.
Airfares aImosl doubIed during lhe 1970s, IargeIy due lo lhe lremendous increase in
fueI cosls, vhich rose from an average cosl per gaIIon of 11 cenls in 1970 lo 90 cenls by
1980. IueI expenses represenled cIose lo 13 percenl of airIine operaling expenses in 1970
bul approached 31 percenl by 1980.
This rise in fueI prices and lhe 1981 air lraffic conlroIIers’ slrike severeIy affecled airIine
cosls and, subsequenlIy, fares. The mid-1980s broughl Iover fueI prices and conlinued
efforls by dereguIaled airIines lo conlroI cosls, especiaIIy by revising Iabor agreemenls
and improving vorker produclivily. Irom 1982 lo 1987, average cosls per seal-miIe
decIined by aboul 10 percenl, vhich slimuIaled furlher reduclions in fares. Discounled
fares became avaiIabIe, parlicuIarIy in lhe Ionger-hauI, high-densily markels. Moreover,
lhis generaI decIine in fares look pIace vhen lhe economy vas recovering from recession
(in 1980 and 1982) and vhen many nev-enlranl airIines and hoIdover carriers vere lrying
lo expand lheir markel share.
ßy 1987, mosl of lhe nev enlranls had eilher faiIed or merged vilh lhe surviving
incumbenl carriers, and since lhen, average yieIds have increased sleadiIy. The Iale
1980s and earIy 1990s sav furlher conlraclion in lhe induslry vilh lhe demise of Iaslern
AirIines and Ian Am. AddilionaI upvard pressure on fares vas broughl aboul by lhe
Iraqi invasion of Kuvail, as lhree separale fueI surcharges vere inilialed in lhe monlhs
lhal foIIoved. Domeslic fare IeveIs vere affecled by lhe imposilion of passenger faciIily
charges and furlher concenlralion in lhe induslry.
Irom lhe mid-1990s lo 2005, passenger airfares have, on average, decreased because of
increased compelilion belveen nev-enlranl Iov-cosl carriers and increased compelilion
belven lhe ma|ors. As a resuIl of lhe lerrorisl aĴacks on Seplember 11, 2001, air carriers
suffered record-breaking financiaI Iosses. In earIy 2006, airIines vere sliII recovering from
such Iosses, forcing lhe airIines lo provide incenlives lo slimuIale air lraveI. Seal saIes
and enhanced frequenl-flier programs vere markeled lo lhe pubIic lo increase passenger
Ioad faclors and revenues. ßy lhe end of lhe fourlh quarler of 2002, lhe airIines in lhe
Uniled Slales had Iosl a combined lolaI of approximaleIy $8 biIIion since lhe fourlh quarler
of 2001. More money vas Iosl in lhe airIine induslry in lhis shorl period of lime lhan in lhe
enlire hislory of avialion combined.
CHAP T E R 10 • AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 8 7
Irice Islimaled Number of Iassengers
$75 1,000
70 1,150
65 1,275
60 1,400
55 1,550
Of aII lhe markeling variabIes lhal influence lhe polenliaI saIes of airIine seals and cargo
capacily, price has received lhe mosl aĴenlion since dereguIalion. Ior over 200 years,
economisls have emphasized lhe price variabIe in describing lhe IeveI of demand for
producls and services. Iricing remains a very compIex issue in many induslries. In lhe
case of air lransporlalion, il is even more compIex because of lhe lransilion in recenl years
from a highIy reguIaled induslry lo a dereguIaled environmenl.
Iconomisls have deveIoped a simpIe yel eIeganl modeI of hov lo sel a price. The modeI
has lhe properlies of IogicaI consislency and oplimizalion, bul il represenls a severe
oversimpIificalion of lhe pricing probIem as il exisls in praclice. There is vaIue, hovever,
in examining lhe modeI, because il provides some fundamenlaI insighls inlo lhe pricing
probIem and because ils very Iimilalions heIp bring oul lhe compIex issues invoIved in
pricing.
Demand is defined as lhe various amounls of a producl or service lhal consumers are
viIIing and abIe lo purchase al various prices over a parlicuIar lime period. A demand
scheduIe is simpIy a represenlalion of a series of possibiIilies lhal can be sel dovn in
labuIar form. TabIe 10-2 is a hypolhelicaI demand scheduIe for a parlicuIar air carrier
roule. This labuIar porlrayaI of demand reflecls lhe reIalionship belveen lhe price or fare
and lhe eslimaled number of passengers vho vouId be viIIing and abIe lo purchase a
lickel al each of lhese prices.
A fundamenlaI characlerislic of demand is lhal as price faIIs, lhe corresponding
quanlily demanded rises: aIlernaliveIy, as price increases, lhe corresponding quanlily
demanded faIIs. In shorl, lhere is an inverse reIalionship belveen price and quanlily
demanded. Iconomisls have IabeIed lhis inverse reIalionship lhe law of demand. Upon
vhal foundalion does lhis Iav or principIe resl` ßasicaIIy, common sense and simpIe
observalion. IeopIe ordinariIy viII fly more al Iover prices lhan al higher prices. To
passengers, high price is an obslacIe lhal delers lhem from buying. The higher lhis price
obslacIe, lhe Iess lhey viII buy: lhe Iover lhe price obslacIe, lhe more lhey viII buy.
Iassengers viII drive inslead of fly: businesspeopIe viII lurn lo leIephone conference
caIIs and lhe Iike as fares rise.
This inverse reIalionship belveen price and number of passengers purchasing lickels
can be presenled on a simpIe lvo-dimensionaI graph measuring eslimaled number of
passengers on lhe horizonlaI axis and price on lhe verlicaI axis (see Iigure 10-1). The
resuIling curve is caIIed a demand curve. Il sIopes dovnvard and lo lhe righl because
lhe reIalionship il porlrays belveen price and eslimaled number of passengers lickeled
is inverse. The Iav of demand—peopIe buy more al a Iov price lhan lhey do al a high
TABLE 10-2 An Individual Air Carrier’s Demand for Air Transportation per
Month Between Two Cities (hypothetical data)
PRICING AND DEMAND
A I R T R A N S P O R TAT I O N 2 8 8
Ocicrni nanis cj Ocnan!
In conslrucling a demand curve, a forecasler assumes lhal price is lhe mosl imporlanl
delerminanl of lhe amounl of any producl or service purchased. ßul lhe forecasler is
avare lhal faclors olher lhan price can and do affecl purchases, in our case, of lickels.
Thus, in draving a demand scheduIe or curve, lhe forecasler musl aIso assume lhal olher
faclors remain conslanl: lhal is, lhe nonprice delerminanls of lhe amounl demanded are
convenienlIy assumed lo be given. When lhese nonprice delerminanls of demand do in
facl change, lhe Iocalion of lhe demand curve viII shih lo some nev posilion lo lhe righl
or Ieh of ils originaI posilion (see Iigure 10-2).
The ma|or nonprice delerminanls of demand in lhe air lraveI markel are (1) lhe
preferences of passengers, (2) lhe number of passengers in a parlicuIar markel, (3) lhe
financiaI slalus and income IeveIs of lhe passengers, (4) lhe prices of compelilors and
reIaled lraveI expenses, and (5) passenger expeclalions vilh respecl lo fulure prices.
P
r
i
c
e
Estimated number of passengers
1,000
D
$75
70
65
60
55
50
1,400 1,300 1,600 1,200 1,100 1,500
FIGURE 10-1 An individual air carrier’s demand for air transportation per month
between two cities (hypothetical data).
Cnangcs i n Ocnan!
price—is reflecled in lhe dovnvard sIope of lhe demand curve. Whal is lhe advanlage of
graphing our demand scheduIe` Il permils us lo represenl cIearIy a given reIalionship—
in lhis case, lhe reIalionship belveen price and eslimaled number of passengers—in a
simpIer vay lhan ve couId if ve vere forced lo reIy on verbaI and labuIar presenlalion.
Whal happens if one or more of lhe delerminanls of demand shouId change` Il viII change
lhe demand scheduIe dala and lherefore lhe Iocalion of lhe demand curve. Such a change
in lhe demand scheduIe dala, or, graphicaIIy, a shih in lhe Iocalion of lhe demand curve,
CHAP T E R 10 • AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 8 9
is caIIed a snih in !cnan!. Ior exampIe, if passengers become viIIing and abIe lo buy more
lickels, al each possibIe price over a parlicuIar lime period ve have an increase in demand.
An increase in demand is reflecled in a shih of lhe demand curve lo lhe righl, for exampIe,
from O
1
lo O
2
, as shovn in Iigure 10-2. ConverseIy, a decr