Deregulation Of The Airline Industry Essay

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Deregulation of the air transport industry significantly changed the market conditions all over the world and permanently affected airline competition (Morrison and Winston (1986), Burghouwt and Hakfoort (2001)). Sustainability of airline business model was questioned once the market became open and competition began to strengthen. Only those airlines that were able to react promptly and adjust to the emerging conditions had a chance to sustain profitably and retain their market position.
Since deregulation, air transport services in the US and the EU are performed by airlines which are privately owned and their goal is to maximize their respective profits. In such an environment, passengers have more options when it comes to the choice of
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In the years following the deregulation, two main network structures became dominant, hub-and-spoke among full service airlines, and point-to-point, among low cost carriers (LCCs). Network designing implies that an airline has to make decisions about markets that it will serve, how to serve those markets, what the consequences of rerouting the flows through the hub are, etc. From passengers’ point of view, it would be ideal if an airline offers the nonstop services between any points that correspond to O&D demand matrix. In reality, many markets do not have sufficient demand to support nonstop service or high frequency nonstop service, so the result is that an airline has to make decisions how to design its network (to offer direct service, connecting service or not serve the market at all). Making these decisions means finding good balance between serving different market segments and meeting economic interests of an airline. Of course, the impact of the competition should not be neglected …show more content…
These new parameters add to the previous competitive model from Flores-Fillol research (2009) in a sense to improve the airline product as perceived by passengers and they are: stochastic delay, load factor and route length. Stochastic delay measures the passenger delay in time caused by inability to book the seat on the preferred flight, due to all seats are filled. By introducing this parameter, it is possible to manage seat accessibility by controlling load factor and have direct influence on the service quality. The higher the average load factor on a flight is, the lower the seat accessibility is likely to be. Therefore, there would be more of passengers wanting, but unable to book a desired flight, that results in revenue loss for an airline. Beside stochastic delay and revenue, the load factor has direct influence on airline costs, too, in a way that higher load factor generates lower costs per passenger and vice versa. The importance of introducing the route length as a parameter that drives the network strategy is seen in its impact on airline operating costs because unit costs generally fall as route length increases. Therefore, the defined parameters ensure that the chosen network structure attains two goals - profit maximization and targeted level of service, taking into account

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