The air transport industry is one of the most highly competitive in the world despite significant barriers to entry arising from the large capital outlays required to purchase, operate and maintain aircraft. As demand for international air travel has increased, alliances have been formed among domestic carriers as well as among international carriers. The result is that the market as a whole underwent a period of consolidation in the late 1990s which brought new pressure to bear on government regulators, and which prompted some critics of the industry to call for increased regulation. This research examines the airline industry, planning within the industry, and policy implications.
The airline industry is capital intensive, with the result that entry and exit into the market is difficult. Because of this, domestic American carriers are publicly held corporations who use their stockholder equity as a primary source of funds. In the international market, carriers are often run by the government, or by organizations which have strong government ties and which operate as pseudo-government entities outside the realm of traditional government agencies. Even in the United States and in a "deregulated" environment, the government has a strong role in the regulations governing airlines, with the result that air carriers must abide by a large number of rules that determine their structure and ability to compete (Nelms 26).
Since deregulation in the late 1970s, the industry has foundered with numerous companies going out of business and many others consolidating their operations. Some analysts have defined the industry as "profitless," which was an accurate statement for all but a few airlines during the late 1980s and early 1990s (Slywotzky 114). Those airlines 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 whi...