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... Southwest, regardless of the size of the community served. In addition, the established airlines' transition to hub-and-spoke systems following deregulation has increased competition at many airports serving small- and medium-sized communities. By bringing passengers from multiple origins (the spokes) to a common point (the hub) and placing them on new flights to their ultimate destinations, these systems provide for more frequent flights and more travel options than did the direct "point to point" systems that predominated before deregulation. Thus, instead of having a choice of a few direct flights between their community and a final destination, travelers departing from a small community might now choose from among many flights by several airlines through different hubs to that destination. Nevertheless, while fares have fallen at the majority of airports, they have risen substantially for travel out of several airports.
Those airports that have experienced the largest fare increases -- over 20 % -- mostly serve small- and medium-sized communities in the Southeast and Appalachia. In contrast to those airports in the West and Southwest that have experienced substantial declines in fares, these airports tend to be dominated by one or two higher-cost airlines. Over the past recent years, a few new entrant airlines have attempted to initiate low-cost, low-fare service in the East; the results have been mixed. In early 1994, for example, Continental Airlines created a separate, low-cost service in the East, commonly referred to as "Calite. " Largely because it grew too rapidly and was unable to compete successfully against User and Delta, Calite failed and was terminated in early 1996. As a result of the loss of competition brought by Calite, the largest fare increases during the first six months of 1995 occurred at airports in the East, primarily at small- and medium-sized communities in North Carolina and South Carolina. Most communities served by airports have more air service today than they did under regulation.
Seventy-eight percent of the small- and medium-sized-community airports have had an increase in the number of departures, and every large-community airport has more departures. Overall, the number of departures has increased by 50 % for small-community airports, 57 % for medium-community airports, and 68 % for large-community airports. In addition, the overall number of available seats has increased for the three airport groups. Measuring the overall changes in air service quality since deregulation is more difficult than measuring the changes in quantity.
Such an assessment requires, among other things, a subjective weighting of the relative importance of several variables that are generally considered dimensions of quality. Such variables include the number of departures and available seats, destinations served by nonstop flights, destinations served by one-stop flights and the efficiency of the connecting service, and jet departures compared with the number of turboprop departures. It can be shown that large-community airports, largely because of their central role in hub-and-spoke networks, have not only had an increase in the number of departures but have also experienced a nearly 25 % increase in the number of cities served by nonstop flights. In addition, while the share of departures involving jets at large-community airports has decreased slightly with the greater use of turboprops, the actual number of jet departures has increased by 47 % for airports serving large communities. For airports serving small- and medium-sized communities, the picture is much less clear. For these airports, hub-and-spoke networks have resulted in more departures and more and better one-stop service.
However, because turboprops provide much of this service that carries passengers to the hubs, small- and medium-sized communities have few destinations served by nonstop flights and relatively less jet service. For small-community airports, for example, the number of cities accessible via nonstop service has declined by 7 % since deregulation while the percentage of departures involving jets fell from 66 % in 1978 to 39 % in 1995. On the other hand, the number of cities accessible via one-stop service has increased by about 10 % and the efficiency of that service has improved substantially as a result of the greater number of departures. Since the 1940 s, the rate of airline accidents in the United States has been declining. Following the introduction of jet aircraft in the late 1950 s, such as the Boeing 707, this long-term decline in the accident rate accelerated.
By the late 1980 s, only a small number of airline accidents occurred each year, and as a result, the rate of decline has slowed in recent years. In addition, the overall accident rate for commuter carriers has declined by 90 % over the last two decades, largely due to more advanced aircraft technology and better pilot training. However, an increase of just one or two accidents in a given year can cause a significant fluctuation in accident rates. It is true that turboprops do not have as good a safety record as the larger jets they replaced in many markets serving small- and medium-sized communities. This fluctuation in accident rates makes it difficult to discern any impact of the increasing use of turboprops on relative safety between airport size. The deregulation of the airline industry has meant that the airlines now control decision making with regard to service entry and exit, pricing, bankruptcies, and to a lesser extent mergers and acquisitions.
Changes in these aspects of the airline industry will be manifested in physical distance differences in the levels of market concentration, employment, service frequencies, enplaned passengers, and fares. By removing regulatory restraints, the airline should reveal dramatic and exaggerated spatial impacts as a direct result of the sudden shift in decision making and control away from regulatory agencies to individual firms, and to the greater likelihood of monopolistic behavior. Under deregulation, carriers have been able to set up operations wherever they deem most appropriate. One of the clearest geographic effects of this change has been the domination of one airline over passenger air transportation in domestic hub centers. Between 1978 and 1993, every domestic hub core except Cleveland experienced an increase in single carrier concentration.
In 12 of the 22 hub cores as of 1992, one carrier accounted for more than 60 percent of their traffic, and 9 hubs. These high levels of concentration at hub cores reflect the increases in both hub-and-spoke operations and industrial consolidation. Once entry and exit regulations were removed and carriers adopted hub-based networks, carriers concentrated traffic, personnel, and infrastructure at key points in their systems. The development of "fortress hubs, " cities where no other carriers were able to establish beachheads of operation, emerged as a key strategy for major airlines facing competitive threats fr! om new entrants into the industry. To the American travelling public, the hub and spoke system is as much a way of life as fast food.
It has become an almost unquestioned way of travelling; the airlines argue that the system offers convenience and access to city-pairs that might not otherwise be viable markets. To the major US carriers, hub and spoke operation offers not just convenience, but also control. An airline can focus its routes and maintenance operations on its chosen hub airports at the same time as greatly multiplying the number of cities and people it serves. A good hub and spoke operation feeds itself by capturing nearly all of the local market and diverting one-stop traffic from other hubs and airlines. Given that the majors have closed down their smaller hub operations and become entrenched in a few major hubs, most of them are now relying heavily on these so-called fortress hubs for their future prosperity.
But the General Accounting Office is recommending regulatory action to curb hub power, in a report, which brands the hub-and-spoke system as anti-competitive, saying that it is one of the main barriers to competition in several key domestic markets. Moreover, the congressional watchdog points out that at major airports where one carrier accounts for more than 75 per cent of embarkations, fares tend to be higher. In a study of the 43 airports falling under the Federal Aviation Administration's 'large hub' classification, the GAO found fares to be generally 'much higher' in 1995 at the ten airports which are either affected by operational constraints or where one airline accounts for the vast majority of emplacements. Industrial consolidation through mergers, acquisitions, and bankruptcies further facilitated single-carrier concentration in hub cores.
The acquisition of Republic by Northwest in 1986 increased concentration levels in Minneapolis/St. Paul and Detroit, while the TWA-Ozark merger in 1986 did the same for St. Louis. Similarly, Eastern's bankruptcy and subsequent dissolution increased Delta's market share in Atlanta from 58 percent to 83 percent.
By regulating the airline industry, the CAB was able to employ an artificial price support. They regulated fares so that there was not competition amongst the carriers. Once regulatory controls were dropped, the airline industry was able to lower the price of tickets and still make a profit. As the price per ticket dropped, the income effect caused supply to increase. The income effect states that consumers will purchase more goods and services as their income increases. A decrease in the cost per ticket has the effect of increasing the real income.
As supply shifts to the right as a result of better technology, in the form of bigger and faster planes, and lower ticket prices, demand will increase too as stated by the income effect. The CAB has transformed the airline industry by lifting regulations of uniform prices. This was in effect a monopoly for the individual firms. Consumers had only one option, to buy tickets from a firm regulated by the same board as every other are!
ine. When the regulations were lifted, it was similar to adding a considerable number of firms to the industry. Now consumers were able to choose who they would have fly them to their destination and at the with the choice of various prices. In 1971, only about 50 percent of the adult population had flown on a commercial airline. With deregulation and the development of hub systems, the figure in 1993 was higher than 75 percent. The result was that in 1993, nearly 450 million passengers traveled the skies annually, compared with 240 million passengers in 1978.
These 450 million people are being treated to a higher quality of service by a domestic airline work force that has increased in size by 25 percent. Cheaper fares, a larger work force and higher quality service are the results of deregulation. Competition has forced airlines to provide quality service in an efficient manner. Despite the cries of those who wish to re-regulate, the facts illustrate the many improvements in the industry. The deregulation of the airline industry was one of the smartest things the government has ever done to provide a more competitive market in which the consumer wins. The deregulation of the airline industry was most beneficial; !
it caused increased levels of competition amongst firms giving rise to a decrease in passenger airfares and an increase in carriers' airport presence, meanwhile not compromising passenger safety. Bibliography: Berry, Steven T. "Estimation of a Model of Entry in the Airline Industry. " Econometrica, Vol. 60, No. 4. (Jul. , 1992), pp. 889 - 917. Borenstein, Severin. "Hubs and High Fares: Dominance and Market Power in the U. S. Airline Industry. " Rand Journal of Economics, V 20 1989, p 47 - 92. Bradley, Ian and Catherine Price. "The Economic Regulation of Private Industries by Price Constraints. " Journal of Industrial Economics, Vol. 37, No. 1. (Sep. , 1988), pp. 99 - 106.
Cremieux, Pierre-Yves. "The effect of deregulation on employee earnings: pilots, flight attendants, and mechanics, 1959 - 1992. " Industrial and Labor Relations Review. Jan 1996 49 n 2 pp 223 - 242. Evans, William N. , Ioannis N. Kessides. "Localized Market Power in the US. Airline Industry. " The Review of Economics and Statistics.
Volume 75, Issue 1 (Feb 1993), p 66 - 75. Faber man, Edward. "Open skies - United States. (Airline Deregulation Act of 1978). " Commuter Regional Airline News. August 25, 1997 v 15 n 34 p 10 - 20. Glenn, Kelly. "Deregulation has earned its wings. " Insight on the News, Sept 6, 1993 v 9 n 36 p 34 - 8. Goetz, Andrew R.
and Christopher J. Sutton. "The geography of deregulation in the U. S. airline industry. " The Annals of the Association of American Geographers, June 1997 v 87 n 2 p 238 - 262. Spencer, Peter. "Low-fare air safety. (safety records of budget airlines). " Consumers' Research Magazine, July 1997 v 80 n 7 p 43 - 8. Walker, Karen. "Bespoke fortunes. " Airline Business, Jan 1997 v 13 n 1 pp 32 - 5.
Winston, Clifford. "Economic Deregulation: Days of Reckoning for Macroeconomists. " Journal of Economic Literature, Vol. 31, No. 3. (Sep. , 1993), pp. 1263 - 1289.
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