Out Of Control Operating Costs

9 Pages 2187 Words

onsumer. The CAB was disseminated in 1977 leaving the newly autonomous airlines to figure out how to increase efficiency and maintain competitive prices. Subsidies were made to continue service in otherwise non-profitable routes, but were intended to be phased out. In the 1980’s a huge reformation took place and airlines that were ageless to government reliance, were forced into bankruptcy and went out of business.
After the reformation, ticket prices and routes stabilized as the majors split the U.S. pie. Each heavily controlled airports in different sections of the country, called hubs. These hubs were fortresses, fed with people from smaller areas by regional airlines, at which point the majors would carry them from large city to large city. This system, called the hub-and-spoke was not new to the industry, but it was streamlined. The majors counted on under pricing competitors to keep them small or drive them out of business. In addition, the majors heavily controlled airport terminals and gates under long-term leases as well as the newest equipment and larger airplanes. At a point, they would have seemed almost unbreakable. Today we see this is not the case, as most struggle to make a profit.
The majors now realize they must change again but first they have to identify the problems they face. By far the largest problem the larger airline companies face is out of control operating costs. Some of the major contributors in this increase in operating costs are fuel prices, maintenance costs, and increased competition with low cost carriers. These problems began even before the world terror threat had focused on the travel industry. However the rising cost of fuel has been directly related to the problems in the Middle East due to the terrorism threat. Maintenance costs are on the rise due to the aging aircraft, and these costs have been projected to be where they are today. And a formidable component in the major airl...