TJC_H2_ECONS_P1_CSQ

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© TJC 2014 2 Answer all questions. Question 1 The Evolution of the US Domestic Airline Industry Figure 1: Annual US Domestic Average Itinerary Fare in 2014 Constant Dollars Source: Bureau of Transportation Statistics, US Table 1: Net Income of US Carriers (in millions of dollars) Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total -9,104 -27,220 18,186 7,691 - 23,750 -2,526 3,666 1,392 364 12,771 Source: Bureau of Transportation Statistics, US Extract 1: Airlines: Who Can Tolerate Them The “big bang” in the airline world was October 24, 1978. On that momentous day, the Airline Deregulation Act was signed into law. Prior to the new law, airlines were governed by the Civil Aeronautics Board (CAB). It sets fares and granted (or not) licenses to airlines for new routes. The system had functioned for over four decades w hen in the early 1970’s, the Arab oil embargo drastically increased fuel prices and the economy su ffered from stagflation. The rate system often subsidised inefficient routes. As airfares were escalating rapidly, congressional pressure mounted to scrap this antiquated bureaucracy. The theory was that an industry once untethered from government shackles would surely thrive under unfettered capitalism. Post 1978, the stampede to compete was fast and furious. The “Act” basically allowed, perhaps encouraged, any sentient being who, satisfied adequate pecuniary requirements and experience, to join the fray. And in the intervening twenty-fi ve year period, 129 enterprising souls did exactly that. By the end of 2003, only 15 of these start-ups remained, with that number much less today. Some of the great entrepreneurial success stories were Southwest, JetBlue, and America West (now merged into US Airways.) Of the twenty-three major and regio