Deregulation and Competition: Lessons from the Airline Industry

345 Pages·2007·1 MB·English

by  Jagdish N. Sheth

Deregulation and Competition

Deregulation

and

Competition

Lessons from the Airline Industry
Jagdish N. Sheth • Fred C. Allvine
• Can Uslay • Ashutosh Dixit
Copyright © Jagdish N. Sheth, Fred C. Allvine, Can Uslay, and Ashutosh
Dixit, 2007
All rights reserved. No part of this book may be reproduced or
utilized in any form or by any means, electronic or mechanical,
including photocopying, recording or by any information storage
or retrieval system, without permission in writing from the publisher.
First published in 2007 by
Response Books
Business books from SAGE
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Mathura Road, New Delhi 110 044
Sage Publications Inc
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#02-01 Far East Square

Singapore 048763

Published by Vivek Mehra for Response Books, typeset in 10/13
Bookman old style at InoSoft Systems, Noida, and printed at
Chaman Enterprises, New Delhi.
Library of Congress Cataloging-in-Publication Data Available
ISBN: 978-0-7619-3596-4 (HB) 978-81-7829-757-6 (India-HB)
The Sage Team: Sugata Ghosh, Koel Mishra
Contents
List of Tables 7

List of Figures 9

Acknowledgements 11

Prologue 13

1. Flight Plan for Deregulation 19

2. Lost Opportunities 37

3. Development of Fortress Hubs 59

4. Predatory Pricing 81

5. Pacific Southwest Airlines: The First Large

Discount Airline 101

6. Southwest Airlines: Deregulation’s Biggest

Success Story 123

7. The Resurrection of Frontier Airlines 151

8. AirTran Airways: Overcoming Tragedy to

Become an Industry Leader 173

9. JetBlue Airways: The First Luxury Discount

Airline 195

10. Ryanair Leads the Growth of Discounters

in Europe 221

11. Big Response to First Discount Airlines

in Asia 241
6 Deregulation and Competition
12. The Rise and Fall of the Major Airlines

from 1995 to 2004 261

13. Growth of Discount Airlines 283

14. Recommendations for Successful Airline

Deregulation 293

Notes 311

About the Authors 343
List of Tables
3.1 Airline Ticket Information 70

3.2 Sixteen Largest Hub Markets Dominated by

a Single Airline in 1999 76

3.3 Fare Differentials on Routes at Hub

Markets without Low-fare Competitor vs.

Hub Markets with a Low-fare Competitor

(1999) 77

5.1 Airline Passengers Flown between Los

Angeles and San Francisco and Market

Shares of the Respective Airlines 103

6.1 Change in Air Fares and Passengers on

10 Major Routes from Philadelphia

Serviced by Southwest 148

List of Figures
5.1 Soaring Number of Passengers Fly
Pacific Southwest Airlines 112
5.2 Rapidly Increasing Profits of Pacific
Southwest Airlines 112
6.1 States Served by Southwest Airlines,
1984 and 1994 138
6.2 States Served by Southwest Airlines, 2005 139
6.3 Profitability of Southwest Airlines 140
7.1 Profitability of Frontier Airlines 170
9.1 JetBlue Quarterly Net Income, 2000–2005 216
10.1 Ryanair Six-year Ancillary Revenue
Growth 236
10.2 Ryanair Six-year Net Income Growth 238
12.1 Historical Net Income of the Top 5
Discount Airlines 266
12.2 Historical Net Income of the Top 6 Legacy
Carriers 267
12.3 Change in Legacy Airline Costs, October 1,
2001 to December 31, 2003 275
12.4 Change in Low-cost Airline Costs, October
1, 2001 to December 31, 2003 276
12.5 Unit Cost Differential, 1998–2003 277