Kwabena Boateng, Kelly Horney, Tony Tosheff and Gokben Yildirir Business Law – Lee September 2, 2010 Airline

Industry – Industry Overview General Industry Description The airline industry in the United States consists of 18 major air carriers and 66 regional carriers with almost 25% of industry market share belonging to Delta, the largest carrier based upon revenues (Corridore). That being said, the airline industry is not only a vital resource for day to day transportation, but it is also a major player in the United States’ economy. Commercial aviation contributes to $1.225 trillion in yearly economic output and $731.5 billion, or 5.2% of U.S. GDP (FAA). In 2009, U.S. airlines employed a total of over 536,000 full-time employees (ATA Economic Report). Since 1978, the airline industry has not been regulated by the federal government, with the exception of safety standards enforced by the Federal Aviation Administration (FAA Economic Impact). This has allowed airlines to finance improvements and innovations themselves, while still providing a high level of safety and ultimately benefiting passengers with lower fares (Barnum). However, that is not to say that the government has not intervened in aiding the industry when it has needed assistance. With performance closely tied to other industries, especially oil, and airlines that dominate large shares of the industry, the regulation debate is slowly gaining momentum. Organization and Structure of the Industry The airline industry in the United States, which includes major, national and retail airlines, had a total annual revenue of $154.7 billion in 2009, down 17% from $186.1 billion in 2008 (Corridore). The industry is segmented into two distinct areas – passenger flights and cargo and mail delivery. Major passenger flight companies include Delta Airlines, American Airlines, and United Airlines with annual revenues of $28 billion, $19.9 billion, and $16.3 billion, respectively (Hoover’s Academic, “AMR Corporation”, “Delta Air Lines, Inc”., “UAL Corporation”). Air operations of express delivery are carried by FedEx ($34.7 billion annual revenue) and UPS ($45.2 billion annual revenue) (Hoover’s Academic, “FedEx Corporation”, “United Parcel Service, Inc.). The airline industry is highly concentrated however, with 50 companies carrying 80% of the industry revenue (Hoover’s Academic, “Airlines” para. 1). The major services comprising the United States airline industry include domestic passenger flights (30%), international passenger flights (25%), domestic cargo flights (20%), international cargo flights (10%), and domestic commuter passenger flights (10%) (Hoover’s Academic, “Airlines” para. 4). Major Industry Associations The airline industry has many associations and regulators. The four largest associations are: • Air Transport Association of America (ATA), founded in 1936, is the United States’ oldest and largest airline trade association. The ATA’s primary goals are to promote safe and secure air travel and to help the airline industry as a whole grow locally, nationally and internationally (ATA Website).

” The ALPA advocates for pilots’ rights primarily by lobbying for legislation that benefit pilots (ALPA Website). Continental and United put the final touches on a merger that will create the world's largest carrier in terms of passenger numbers. Association of Flight Attendants-CWA (AFA) was founded in 1945.S. Occupational Safety and Health Administration (OSHA) was created by Congress in 1970. Airlines have fought similar measures in the past. • • • • Current Industry Conditions Mergers. questions have been raised about the practices used by many airlines to defer or delay maintenance on airliners. 2010). have led to increasing congressional interest in airline passenger consumer issues. leaving little room to make a viable profit (Clark. These mergers address years of overcapacity and staggering financial losses. The ALPA’s motto is “Schedule with Safety. meet a standard of safety requirements (OSHA). Airline experts have long favored consolidation in the industry. including passengers being held in aircraft for eight or more hours awaiting takeoff. it has been discovered that some airline pilots. citing the additional costs and operational hassles. The main goal of this agency is to make sure working conditions in all professions. the government announced in December it will fine airlines $27. The FAA is the main regulating body from the United States Government (FAA Website). not just the airlines. Recent incidents. Cargo Airline Association (CAA) was founded in 1948. However. passengers being stranded by the shutdown of bankrupt air carriers. The CAA represents the needs of airline cargo employees (CAA Website). Additionally. as carriers continue to lobby against rules governing flight delays. arguing that there are too many carriers flying similar domestic routes in the U.75 million for a 100-passenger flight (Levin. airline companies view these mergers as imperative in order to reclaim vitality and profitably in the industry. airline industry is currently going through a period of consolidation. The crowded U. Department of . The goals of the AFA are to see that flight attendants receive increased pay. extensive flight delays and cancellations.S. The FAA’s goal is to make the United States the most safe and efficient aerospace system in the world. mechanics and even the U. Many of the huge U. International (ALPA) is the largest airline pilot union in the world. aircraft safety and maintenance concerns.• Air Line Pilots Association.S. 2010). $100-plus-per-barrel oil prices are some of the more glaring issues which define the current industry conditions. airline bankruptcies. While it's legal under strict guidelines. better benefits and improved on-site safety (AFA Website).500 per passenger for long tarmac delays or $2. as well as deteriorating airline on-time arrival performance.S. ALPA was founded in 1931 and now represents pilots in 38 airlines across the United States and Canada. The airline industry’s main regulatory agencies are: Federal Aviation Administration (FAA) was created in 1958 and became a part of the US Department of Transportation in 1967..

. 2010). 2010). 2010). For every dollar increase in the price of jet fuel -. This is of concern to the airline industry. (Mouawad.A.A. shrinking profits. Investigators cited delayed maintenance on its stabilizer system (Cohn.Transportation are increasingly concerned about safety because of the frequencies and reasons some airlines have used to delay needed repairs to aircraft (Cohn. Deferred maintenance has been cited as a contributing cause in a number of accidents.both the domestic and international airline industry incurs an additional $445 million in fuel expenses (American Transport Association. 2010). including the crash of an Alaskan Airlines MD-83 in 2000 off California which killed 83.S.2 million for maintenance violations on its MD-80 jets that led to the cancellation of thousands of flights in 2008. 2010). Energy Information Administration. they remain significantly above year-earlier levels. Oil prices are predicted to trend even higher in response to an increased demand as the world shakes off the recession (U. While prices have eased a bit recently.a derivate product of crude oil -. The airline industry is cyclical and sensitive to a number of key drivers. The Federal Aviation Administration said Thursday that it planned to fine American Airlines $24. the most prominent of which is the world price of crude oil. as it will directly increase the cost of fuel purchase. It would be the largest penalty imposed by the F.

American Transport Federal Aviation Administration (FAA). Delta Air Lines. 210. Retrieved August 30.> Barnum. A. from <http://www. (2010). (2010. Federal Aviation Administration.faa. from INVESTIGATION: 'Deferred Maintenance' causing concern in the airline industry: http://www. 2010.” Standard & Poors Industry Surveys. Jim. from http://www. April 30).library. 2010.jhu. -into-%22deferred-maintenance%22-in-airline-industry Corridore. ( “When America Flies.” 19 August Air Transport Association (ATA).gov> Hoover’s Academic. “Airlines: Industry Profile. 2010. 29 August 2010. 18 September 1998.jhu. from American Transport Association: http://www. Economy.jhu. 2010. A. (2010. 29 August 2010.airlines. Retrieved August 31. It Works: 2010 Economic Report. http://premium. Financial Data.cargoair. 2010. International . ABC News.abcactionnews. August) Association of Flight Retrieved August 30.proxy1.proxy1. Financial Data.xht ml?ID=ffffrfftrfkthjfrhc&ticker=AMR Hoover’s Academic. from <http://www. Cargo Airline Association. http://premium. Retrieved August> Clark. from Airlines. AMR Corporation.C.xhtml? ID=173 Hoover’s Academic.xht ml?ID=ffffrfccxffjstcxkt&ticker=DAL . Retrieved August 30. (McGuireWoods LLP) “What Prompted Airline Deregulation 20 Years Ago? What Were the Objectives of that Deregulation and How Were They Achieved?” Presentation to the Aeronautical Law Committee of the Business Law Section of the International Bar Association at its Annual Meeting in Vancouver. May 20). Industry ionReport.hoovers. John W. Retrieved August 31. Retrieved August 31.” December 2009.alpa. 29 August 2010. (2010). 17 June 2010.airlines. Continental and United close in on merger Cohn. “The Economic Impact of Civil Aviation on the U. B.Sources Cited Air Line Pilots Association. from <http://www.aspx Air Transport Association of America. from The Guardian UK: http://www. ATA Monthly Jet Fuel Cost and Consumption Report .edu/subscribe/co/fin/factsheet. (2010). Retrieved August 31.

com/travel/flights/2010-02-16-tarmac-delays_N.nytimes. (2010). FedEx Corporation.Hoover’s Academic. Financial Data. (2010). Proposes Record $24 Million Fine Against American Airlines. J. http://premium. http://premium. UAL Inc. from http://www. 2010. 2010. 2010.S.xht ml?ID=ffffrrhtffcxyctfyc&ticker=UAUA Hoover’s Academic.jhu. United Parcel Service. Retrieved August Retrieved August 30.jhu. Energy Information Administration.xhtml?ID=ffffrfhhtffyrcrskf&ticker=FDX Hoover’s Academic.doe.hoovers. Financial Data. A.usatoday. from The New York Times: http://www. August 10).edu/subscribe/co/fin/factshee ( from USA Today Website: http://www. Financial Data. USA Today: Tarmac rules get flights dropped.xht ml?ID=ffffcfcxyffjssrjxr&ticker=UPS Levin. Retrieved August 30. 29 August 2010. February 10). from U.hoovers. (2010). F. Retrieved August 31. fromhttp://premium.A.osha. 29 August 2010. Short Term Energy Outlook.proxy1. (2010. ( . 2010.htm Mouawad.proxy1.html Occupational Safety and Health U. August 26).hoovers.A.jhu. Energy Information Administration: http://www. 29 August 2010.S.proxy1.

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