Unit 4 Assignment

Chapter 7 Study Questions: 1, 4, 6, 7 on pages 249 and 250.

Q1. Discuss the ways in which air carriers compete with each other. How have
regulatory changes affected this competition?
There isn't much competition for passengers or freight from other channels for airlines.
When moving people or freight across great distances in a hurry, air carriers have an
edge. Airlines face competition from vehicles for the transportation of people as well as,
to a lesser extent, from trains and buses. They also compete with motor carriers to
some extent for the transportation of higher-value manufactured products.
Despite the modest number of carriers, there is fierce competition among them for
customers' attention and business. As previously mentioned, in 1978, the regulation
governing passenger air carriers was drastically lowered, and new airlines began
operating on certain routes (or markets), boosting competition.
Additionally, already-existing carriers enhanced their market coverage, which greatly
boosted intramodal rivalry in several markets. 86 percent of the overall operating
revenue was shared by the top 10 airlines. Additionally, carriers may have surplus
capacity (too many flights and seat miles on a route) and make an effort to draw
customers by selectively cutting costs to fill the vacant seats. Average passenger rates
dropped from $382.42 to $380.69 for the first quarters of 2013 and 2014. The Airline
Deregulation Act (ADA), which was passed into law on October 28, 1978, deregulated
the aviation sector.
The fundamental goal of the legislation was to end governmental regulation and let
market forces take control of the deregulated passenger air transport sector. Prior to the
legislation, all domestic air travel was governed by the federal Civil Aeronautics Board
(CAB), which determined routes, timetables, and price controls. However, this law
disbanded that organization.
Q4. What is the role of the government in air transportation? Include both
economic and safety regulations in your answer?
A government organization provides funding for the terminals (airports) used by air
carriers. Through landing fees, rent and lease payments for space, fuel taxes, and taxes
on aircraft registration, the carriers cover the cost of using the airport. The cost of air
travel and air freight is also subject to tax. For passenger transportation, terminal fees
are becoming more and more typical.

Ample airport facilities are necessary for the expansion and development of air
transportation. Therefore, it is the federal government's duty to provide financial support
to the states for the construction of airport infrastructure in order to ensure the
sustainability of air transportation.
The obligation for running and maintaining the airports falls on the different state and
local governments. The Federal Aviation Agency oversees, regulates, and hires air
traffic controllers who oversee airplanes while they are in the air. The FAA is
responsible for overseeing stringent safety rules. For pilots, acceptable flight procedures
and permitted working hours are laid down. Exams on safety rules and specified
procedures are required of both mechanics and pilots. The right procedures must be
followed by flight attendants during takeoff and landing, according to FAA regulations.
The federal government set up the Department of Homeland Security and the
Transportation Security Administration (TSA) to oversee and control security for
travelers and cargo in the aviation industry.
Q6. What is the current situation of labor within the air industry? Are unions a
major factor? How does skill level vary within the industry? Do you think this
situation is similar to other modes? If so, which one(s)? Explain why?
Many people with a range of expertise are employed in the aviation industry, including
management, ground crew, and aircrew. The FAA regulates the kind of flying activities
and the working hours of pilots. Pilots and mechanics are required to be licensed and to
complete operations and safety exams. The plane rating of the pilot affects their pay.
Airlines with and without unions have different pay scales, with unionized workers often
making more money.
The skill levels of other personnel are comparable to those of automobile and rail
carriers, although pilots have greater competence levels than operators in other modes.
The abilities needed and performance responsibilities of airline clerical and ramp staff
are comparable to those of rail and motor carriers.
7. Do air carriers have economies of scale at any level? Economies of density?
Discuss and support your answer with examples?
The utilization of bigger aircraft can result in certain scale economies. However, there
must be enough demand in a market to support the effective use of larger aircraft;
otherwise, this might become more expensive. The motor carrier sector resembles the
airline sector the most. On particular routes during specific times of the year, carriers
may replace smaller equipment. This might possibly increase the load factor. This is not
feasible, though, as many planes go on many legs, and a jet of that size has to be
positioned at a particular city for a voyage requiring that amount of capacity.

Chapter 8 Study Questions: 2, 3, 6, 9 on pages 279 and 280.

Q2. The pipeline industry has approximately 100 companies, as compared to the
motor carrier industry with more than 50,000. What are the underlying economic
causes for this difference, given the fact that they both carry approximately the
same volume of intercity ton-miles?
The quantity of transported tonnes and the amount of money made are in stark contrast.
Here, the relatively small share of the total intercity income given to all pipeline carriers,
which is detailed later in this chapter, reflects the low rates of the pipeline. In contrast to
motor carriers, who generate more than 75% of the overall income in the transportation
industry, the pipelines generate just around 4% of that amount.
Q3. The typical pipeline company has high fixed costs. What economic factors
account for this situation? What advantages and disadvantages does their cost
structure present?
The pipeline sector has a high percentage of fixed costs and a low capital turnover rate.
The owners of the pipeline are required to provide their own right-of-way by acquiring or
leasing property, building the pipeline, and placing pumping stations along the right-of-
way. Property taxes, depreciation amortizations, investment returns, and preventative
maintenance are a few of the factors that contribute to the high fixed-to-variable
expenditure ratio. The high amount of fixed expenses is a result of both the right-of-way
charges and the terminal facilities for pipelines. The pipeline terminals are also
responsible for paying property taxes and depreciation that are related to the right-of-
way.
Q6. Water carriers played a dominant role in the transportation system of the
United States in the 18th and 19th centuries. Why has their relative position
declined during the 20th century? Are they still an important component of the
total transportation system? Why or why not?
Rail offers fierce competition with tariffs that are relatively competitive. Rail fares also
decreased at this time, which was a reflection of market competition, particularly
intermodal competition. The service drawbacks of the water carriers mentioned in the
text also come into play in this situation.
It is clear that during the previous ten years, the role of water carriers in the American
transportation system has diminished. The shift in the U.S. economy from primary
manufacturing to services and technology is partly responsible for the reduction in water
transportation. Water transportation has also been influenced by the emphasis on
logistics and supply chain management as a result of businesses switching to carriers
that provide better service (e.g., motor carriers to offset other costs such as carrying
cost for inventory, warehousing cost, packaging cost, etc.).
The two other forms of transportation—rail and pipelines—are the main competitors for
water carriers. Railroads and water carriers compete for the transportation of dry bulk
commodities including grain, coal, and ores. For instance, both rail and water carriers
may transport grains from the Midwest to New Orleans (export trade). The Mississippi
and Missouri River systems may be used by water carriers to connect the plain states
with New Orleans. Large volumes of grain are transported using both modes throughout
this transportation route.
To transfer coal out of the coal-producing areas of Pennsylvania, West Virginia, and
Kentucky, rail and water carriers are in fierce competition with one another. The Ohio
and Mississippi Rivers, as well as export markets, may be used by the water carriers to
deliver coal to southern domestic consumption destinations (utilities). Water carriers and
railways fight for the transportation of grain, ores, and coal on the Great Lakes. Grain
and iron ore from Minnesota, Michigan, and Wisconsin are transported via the Saint
Lawrence Seaway to ports on the Atlantic and Gulf of Mexico or to export markets, or
across the Great Lakes to other Great Lakes ports.
Q9. Intermodal competition is more intense than intramodal competition for water
carriers. Why?
The following factors make inter-model rivalry for water carriers more fierce than
intramodal competition: In the world of water transportation, there are not many carriers.
There is little intra-modal rivalry, and there is no motivation to compete inside the sector
since water carriers' willingness to adapt to changes is so predictable.