A Note on the US Airline Industry

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Case Details:

Case Code : BSTR139
Case Length : 24 Pages
Period : 2001-2004
Organization : Varied
Pub Date : 2004
Teaching Note :Not Available
Countries : U.S.A
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Analysts said that after September 11, the US airline industry had entered a new phase that was far more challenging than any other phase in its lifecycle. They said airlines would be forced to look at their operations and make significant changes, which would result in a transformation of the industry itself. They believed that the industry would eventually have fewer airlines and these would operate with greater efficiency and offer better services.

Early History

In 1903, the Wright brothers5 undertook the first successful flight in history. This marked the origin of the airline industry. In the early 1900s, planes in the US were mainly used to transport mail between places and were operated by the US Postal Service. With the service becoming popular, the Postal Department began giving out contracts to private airline companies to transport mail. The Kelly Airmail Act, 1925, provided private airlines with the opportunity to function as mail carriers, by allowing them to take part in a competitive bidding system. These private carriers, through the airmail revenue, could then expand into carrying other forms of cargo, including passengers.

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To augment their revenues from carrying mail, some of the airline companies began offering their services to passengers as well. Although people were initially wary of flying, the trend soon caught on and proved very profitable.

Keeping in mind the increased air traffic, the US government passed the Air Commerce Act in 1926, which allowed Federal regulation of air traffic. In 1927, Charles Lindbergh, who was a mail pilot, successfully completed a solo flight across the Atlantic, sparking a massive interest in flying among the general public. With an increasing number of people showing a willingness to fly, several air transport companies began to be set up. (In the late 1920s and early 1930s, the parent organizations of American, United, Delta, and Pan Am6 were set up.) Federal regulation of traffic created chaotic conditions as there were no standard rules and systems in place to govern air traffic, and airline and passenger safety soon became major concerns...

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5] Wilbur and Orville Wright were the first to fly successfully on a machine called the Wright Flyer in December 1903, at Kitty Hawk in North Carolina.

6] Pan American Airways was one of the most successful US airlines on overseas routes. It was set up in the late 1920s, by Juan Trippe, a former navy pilot. After experiencing major problems post deregulation, it collapsed into bankruptcy in 1991 and was eventually liquidated.


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