which did prosper during this period, such as Southwest, did so by understanding the market better than the competition, and by defining service quality in a narrow way which enabled them to effectively market to their particularly niche.
For nearly the entire history of the commercial airline industry, it was one of the most heavily regulated industries in the country. Government regulations determined which carriers had access to which markets, which routes were approved and not approved, and what rate structures were permitted (Flint 59). Airlines were controlled in much the same way that utilities were, with companies having to petition for rate increases. As a result, airlines themselves were run in a manner similar to utilities, with large airlines subsidizing money losing routes with their money-making routes.
Entry into the airline industry under regulation was difficult. Not only did prospective entrants have to be able to raise enough capital to purchase or lease aircraft, but the government had to approve the entrance into specific markets. Often, the government would approve attractive new routes only if carriers (either new or proposed) would also take on less profitable rural routes. New companies had difficulties competing under these types of conditions, and the number of new carriers per year before deregulation was significantly lower than the number of new carriers after deregulation, a trend which has continued throughout the 1990s and which is expected to continue into the next century (Poling 1).
Because rates were approved by the government, price was not the primary competitive factor in the regulated environment. Instead, airlines would compete on service and image. Any carrier could transport a passenger from point A to point B; it was up to the marketing effort to single out one airline's service, or baggage handling record or on-time performance. Since airlines could charge different prices ...