Airline

The word airline can also have these meanings: see Airline (disambiguation).

Industry overview

The scale and scope of airline companies ranges from those with a single airplane carrying mail or cargo, through full-service international airlines operating many hundreds of airplanes in various types. Airline services can be categorized as being intercontinental, intracontinental, regional or domestic and may be operated as scheduled services or charters.

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These variations in the types of airline companies, their operating scope, and the routes they serve, makes analysis of the airline industry somewhat complex. Nevertheless, some patterns have emerged in the last 50 years of experience:

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• The general pattern of ownership has gone from government owned or supported to independent, for-profit public companies. This occurs as regulators permit greater freedom, in steps that are usually decades apart. This pattern has not been completed for all airlines in all regions.
• The demand for air travel services is derived demand. That is, it depends on other things: business needs for cargo shipments, business passenger demand, leisure passenger demand, all influenced by macroeconomic activity in the markets under study. These patterns are highly seasonal, and often day-of-week, time-of-day, and even directionally variable.
• Notwithstanding these demand patterns, the overall trend of demand has been consistently increasing. In the 1950's and 1960's, annual growth rates of 15% or more were common. Annual growth of 5-6% persisted through the 1980's and 1990's. Growth rates are not consistent in all regions, but certainly areas where deregulation provided more competition and greater pricing freedom resulted in lower fares and sometimes dramatic spurts in traffic growth. The U.S., Australia, Japan, Brazil, Mexico, and other markets exhibited this trend.
• The industry is cyclical. Four or five years of poor performance are followed by five or six years of gradually improving good performance. But profitability in the good years is generally low, in the range of 2-3% net profit after interest and tax. It is in this time that airlines begin paying for new generations of airplanes and other service upgrades they ordered to respond to the increased demand. Since 1980, the industry as a whole has not even earned back the cost of capital during the best of times. Conversely, in bad times losses can be dramatically worse.
• As in many mature industries, consolidation is a trend, as airlines form new business combinations, ranging from loose, limited bilateral partnerships to long-term, multi-faceted alliances of groups of companies, to equity arrangements between companies, to actual mergers or takeovers. Since governments often restrict ownership and merger between companies in different countries, we see most consolidation taking place within a country. In the U.S., over 200 airlines have been merged, taken over, or simply gone out of business since deregulation began in 1978. Many international airline managers are actively lobbying their governments to permit greater consolidation, in order to achieve higher economies of scale and greater efficiencies.

Early development of airlines in the U.S.

Following World War I, the United States found itself swamped with aviators. Many decided to take their war-surplus aircraft on barnstorming campaigns, performing acrobatic maneuvers to woo crowds. In 1918, the United States Postal Service won the financial backing of Congress to begin experimenting with air mail service, initially using Curtiss Jenny aircraft that had been procured by the United States Army for reconnaissance missions on the Western Front. The Army was the first to fly these missions, but quickly lost the contract when they proved to be too unreliable. By the mid-1920s, the Postal Service had developed its own air mail network, based on a transcontinental backbone between New York, New York and San Francisco, California. To supplant this service, they offered twelve contracts for spur routes to independent bidders: the carriers that won these routes would, through time and mergers, evolve into Braniff Airlines, American Airlines, United Airlines (originally a division of Boeing), Trans World Airlines, Northwest Airlines, and Eastern Airlines, to name a few.

Related Topics:
World War I - 1918 - United States Postal Service - Congress - Air mail - Curtiss Jenny - United States Army - 1920s - New York, New York - San Francisco, California - Braniff Airlines - American Airlines - United Airlines - Boeing - Trans World Airlines - Northwest Airlines - Eastern Airlines

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Passenger service during the early 1920s was sporadic at best: most airlines at the time were focused on carrying bags of mail. In 1925, however, Ford Motor Company bought out the Stout Aircraft Company and began construction of the all-metal Ford Trimotor, the first successful American airliner. With a 12-passenger capacity, it made passenger service potentially profitable. Air service was seen as a supplement to rail service in the American transportation network.

Related Topics:
Ford Motor Company - Ford Trimotor - Rail

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At the same time, Juan Trippe began a crusade to create an air network that would link America to the world, and he achieved this goal through his airline, Pan American World Airways, with a fleet of flying boats that linked Los Angeles to Shanghai and Boston to London. Pan Am was the only U.S. airline to go international before the 1940s, and quickly became a symbol of the potential of the American airline industry.

Related Topics:
Juan Trippe - Pan American World Airways - Los Angeles - Shanghai - Boston - London

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With the introduction of the Boeing 247 and Douglas DC-3 in the 1930s, the U.S. airline industry was generally profitable, even during the Great Depression. This trend continued until the beginning of World War II.

Related Topics:
Boeing 247 - Douglas DC-3 - Great Depression - World War II

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Early development of airlines in Europe

The first countries in Europe to embrace air transport were France, Germany and the Netherlands. France began an air mail service to Morocco in 1919 that was bought out in 1927, renamed Aéropostale, and injected with capital to become a major international carrier. In 1933, Aéropostale went bankrupt, was nationalized, and became Air France.

Related Topics:
France - Germany - Netherlands - Morocco - 1919 - 1927 - Aéropostale - 1933 - Bankrupt - Air France

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The German airline industry began with Lufthansa in 1926, which, unlike other airlines at the time, became a major investor in airlines in the developing world, founding Varig and Avianca. German airliners built by Junkers, Dornier, and Fokker were the most advanced in the world at the time. The peak of German air travel came in the mid-1930s, when Nazi propaganda ministers approved the start of commercial zeppelin service: the big airships were a symbol of industrial might, but the fact that they used flammable hydrogen gas raised safety concerns that culminated with the Hindenburg disaster of 1937.

Related Topics:
Lufthansa - 1926 - Varig - Avianca - Junkers - Dornier - Fokker - 1930s - Nazi - Zeppelin - Airship - Hindenburg - 1937

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In 1919 KLM was founded, still the oldest carrier operating under its original name. The first flight transported two english passengers from Schiphol, Amsterdam to London in 1920. Since the Netherlands is a small country with few potential passengers, KLM has depended heavily on transfer-passengers and was one of the first to introduce the hub-system to facilitate easy connections.

Related Topics:
1919 - KLM - Schiphol - Amsterdam - London - 1920 - Netherlands

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United Kingdom's flag carrier during this period was Imperial Airways, which became BOAC (British Overseas Airlines Co.) in 1939. Imperial Airways used huge Handley-Page biplanes for routes between London, the Middle East, and India: images of Imperial aircraft in the middle of the Rub'al Khali, being maintained by Bedouins, are among the most famous pictures from the heyday of the British Empire.

Related Topics:
United Kingdom - Imperial Airways - BOAC - 1939 - Handley-Page - Biplane - London - Middle East - India - Rub'al Khali - Bedouin - British Empire

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Development of airlines post-1945

As governments met to set the standards and scope for an emergent civil air industry toward the end of the war, it was no surprise that the U.S. took a position of maximum operating freedom. After all, U.S. airline companies were not devastated by the war, as European companies and the few Asian companies had been. This preference for "open skies" operating regimes continues, within limitations, to this day.

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World War II, like World War I, brought new life to the airline industry. Many airlines in the Allied countries were flush from lease contracts to the military, and foresaw a future explosive demand for civil air transport, for both passengers and cargo. They were eager to invest in the newly emerging flagships of air travel such as the Boeing Stratocruiser, Lockheed Constellation, and Douglas DC-6. Most of these new aircraft were based on American bombers such as the B-29, which had spearheaded research into new technologies such as pressurization. Most offered increased efficiency from both added speed and greater payload.

Related Topics:
Boeing Stratocruiser - Lockheed Constellation - Douglas DC-6 - B-29 - Pressurization

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In the 1950s, the De Havilland Comet, Boeing 707, Douglas DC-8, and Sud Aviation Caravelle became the first flagships of the Jet Age in the West, while the Soviet Union bloc countered with the Tupolev Tu-104 and Tupolev Tu-124 in the fleets of state-owned carriers such as Aeroflot and Interflug. The Vickers Viscount and Lockheed L-188 Electra inaugurated turboprop transport.

Related Topics:
De Havilland Comet - Boeing 707 - Douglas DC-8 - Sud Aviation Caravelle - Soviet Union - Tupolev Tu-104 - Tupolev Tu-124 - Aeroflot - Interflug - Vickers Viscount - Lockheed L-188 Electra

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The next big boost for the airlines would come in the 1970s, when the Boeing 747, McDonnell Douglas DC-10, and Lockheed L-1011 inaugurated widebody ("jumbo jet") service, which is still the standard in international travel. The Tupolev Tu-144 and its Western counterpart, Concorde, made supersonic travel a reality. In 1972, Airbus began producing Europe's most commercially successful line of airliners to date. The added efficiencies for these aircraft were often not in speed, but in passenger capacity, payload, and range.

Related Topics:
Boeing 747 - McDonnell Douglas DC-10 - Lockheed L-1011 - Tupolev Tu-144 - Concorde - Airbus

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With deregulation in the U.S. beginning in 1978, barriers to entry were lowered for new entrants. Typically, a new wave of start-ups would enter during downturns in the normal 8-10 year business cycle. At that time, they find aircraft, financing, hangar and maintenance services, training all relatively inexpensive, and laid off staff from other companies eager and willing to take a job with the new company.

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Alas, as the business cycle returned to normalcy, major airlines were able to dominate their routes through aggressive pricing and additional capacity offerings, often swamping the new startup. Only America West Airlines Airline has remained as a significant survivor from this new entrant era as dozens, even hundreds, have gone under.

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In many ways, the biggest winner in the deregulated environment was the air passenger. Indeed, the U.S. witnessed an explosive growth in demand for air travel, as many millions who had never or rarely flown before became regular fliers, even joining frequent flyer loyalty programs and receiving free flights and other benefits from their flying. New services and higher frequencies meant that business fliers could fly to another city, do business, and return the same day, for almost any points in the country. Air travel's advantages put intercity bus lines under pressure, and most have withered away.

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By the 1980's, almost half of the total flying in the world took place in the U.S., and today the domestic industry operates over 2,500 daily departures nationwide.

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Toward the end of the century, a new style of low cost airline was seen, offering a consistent, often high-quality product, using new aircraft models, at a price that was well-received. JetBlue, AirTran Airways, and other companies represented a serious challenge to legacy carriers, as their counterparts in Europe, Canada, and Asia did to legacy carriers in those regions. Their commercial viability also represented a serious cost threat to employees at legacy airlines, as they set the standard for wage rates in the industry that were a fraction of the prevailing wage.

Related Topics:
Low cost airline - JetBlue - AirTran Airways

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Thus the last 50 years of the airline industry have varied from reasonably profitable, to devastatingly depressed. As the first major market to deregulate the industry, U.S. airlines have experienced more turbulence than almost any other country or region. Today, airlines representing approx. 1/2 of total U.S. seat capacity are operating under Chapter 11 bankruptcy provisions.

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