Introduction

By allowing for quick connections between cities, the air transportation industry has benefited customers and the economy as a whole. The economic flows of products, investments, people, and ideas that are the basic drivers of economic progress are enabled by these virtual bridges in the sky. The United States airline industry has evolved over two decades, first under the protection of federal economic control and then, following the Airline Deregulation Act of 1978, under the concept of the free market (Gaggero & Piazza, 2021). Therefore, this report is presented basically to analyze and understand the varied strategies along with case analysis regarding the airline industry in the United States. For accomplishing this purpose the report will be divided into three parts: the first part will contain the industry’s overview; the second part will demonstrate Competitive Forces Analysis of the United States Airline Industry; and the last part will reflect its economic performance.

Overview of the United States Airline Industry

The airline industry in the United States was born and raised during a period of government control and subsidies. Airmail lines maintained by US Army pilots and aircrafts were first administered by the Post Office in 1918. To serve the embryonic airmail service, a primitive transcontinental infrastructure of navigational lights and airfields was created (Cook & Billig, 2017). The Contract Air Mail Act, often known as the Kelly Act for its primary congressional supporter, was approved by Congress in 1925, allowing the Post Office to allocate routes and provide payments to commercial air carriers (Schaltegger & Wagner, 2017). Cost overruns, inefficiencies, and political controversy led to a series of erratic adjustments in the system of route awards and subsidies over the next decade, including a brief and catastrophic return to all-Army service in 1934. Even though the others survived, Eastern was forced to close its doors once the business was deregulated. Most early attempts at passenger service in combination with airmail delivery failed due to poor aircraft performance and cramped accommodations (Sun, Zhang & Wandelt, 2017). With the introduction of new twin-engine airplanes, most notably the Douglas DC-2 and subsequently the ubiquitous DC-3, the nascent airlines were able to provide dependable passenger services with an acceptable degree of comfort. Airline regulation was handed over to the Interstate Commerce Commission as passenger service grew.

Competitive Forces Analysis of the United States Airline Industry

The competitive forces analysis is a powerful tool for analyzing the external environmental condition in which the industry operates. The main reason for using these forces in the airline industry in the USA is that the airline industry has been buffeted strongly by external factors (political, economical, and technological) and due to that the number of passengers has started to decline.

Supplier Power – The power and position of suppliers of the airline industry are quite immense because the three main raw materials of the airline, viz. fuel, aircraft, and labor are affected by the external environment. For example, the price of the fuel causing fluctuations in the global market for oil due to geopolitical factors has increased the supplier power. The labor union often bargain and want to get unreasonable demands and this also has provided suppliers with bargaining power within the US airline industry. The airline industry cannot easily change their supplier as there are few supplier options available to them. Therefore they contribute to a major part of the Airline’s business operations, sustaining their power.

Buyer Power – With the proliferation of online ticketing and distribution systems, customers no longer have to be at the mercy of agents and the intermediaries as the airlines have created policies and systems in which the customers can directly avail the flight tickets. Besides the entry of the low-cost carriers, the resultant competitive pricing has greatly benefited the customers. However, the strict regulation on the demand of the airline industry protects the passengers and the fliers. Now all these types of factors make the airline industry cede power to the consumers and hence the power of customers becomes moderate to high in the US airline industry (Williams 2017).

Entry and Exit Barriers – The airline industry requires huge capital investment while entering the business and even while exiting the sector. As entry into the airline industry needs a higher investment of capital, not everyone can enter the industry as it also requires an adequate amount of expertise and knowledge to enter into the Airline Industry. Similarly, the exit barriers are also subject to regulation as regulators in the USA do not let airlines exit unless they are satisfied that there is a genuine business reason for the same. However, the airline industry leverages the efficiencies and the synergies from the scale of economies, and because of this reason, the entry barriers are high.

The Intensity of Competitive Rivalry – The airline industry in the United States is extremely competitive because of several reasons which include the entry of low-cost carriers, the tight regulation of the industry wherein safety becomes most important, leading to high operating expenses, and the fact that the airlines operate according to a business model that is a bit outdated especially in times of rapid turnover. This is the main reason why low-cost carriers have grounded and contributed to the fierce competition that characterizes the US airline industry.

The Threat of Complementarities and Substitutes – The Airline Industry does not have a threat from the substitutes because premium customers do not necessarily take train or the bus for journeys. Other modes of transportation have minimal impact as substitutes (Hughes-Morgan 2018)

Economic Performance of the United States Airline Industry

5.2 % of the GDP is contributed by the Airline Industry in the U.S.A (Schneider & Maxfield, 2018). The Aviation sector of the U.S.A generates approximately 11 million jobs and provides around $ 1.59 trillion to the economy of the nation (Schaltegger & Wagner, 2017). Airline industry is among the main sources of ensuring the inflow of international currency into the country’s economy. It is directly linked with international trade.

However, at present, the US airline industry has been faced with a significant decline of 13% in revenue due to the outbreak of the COVID-19 pandemic across the globe (Gössling, 2020). The pandemic has affected the travel scenario of the present year and it has put a big question mark on international travel for the next few years too. Due to this most of the airlines are shutting down their businesses permanently as they don’t have any idea of how to recover from the disaster with steadily depleting financial resources. The U.S.A airlines were primarily benefited from their oversea business travels, which have declined due to the pandemic, and business maintenance price has been skyrocketing. It has been predicted that the economic performance would remain low in 2021.

Conclusion

Thus, to sum up, it can be said that the US has an extensive and highly efficient air transportation networking system but its efficacy has been put to stake due to the outbreak of the global pandemic of COVID-19. Since deregulation in 1978, the domestic airline industry in the United States has remained fiercely competitive. In a controlled environment, the majority of cost increases were passed on to customers through a set rate-of-return pricing system. As a result, labor unions gained a lot of clouts, and employees at the major incumbent carriers were paid highly. The incumbent carriers suffered the most as a result of deregulation, and the floodgates opened for newer, more agile carriers with lower cost structures to compete directly with the major airlines. Several bankruptcies occurred, followed by a wave of consolidation, with the fittest carriers surviving and the others being purchased or shut down.

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