Economics and the Airline Industry

A detailed Summary of Economics and the Airline Industry

There are two different major classifications of airlines, legacy carriers such as American Airlines, Delta, and United with hub-and-spoke systems and newer low-cost airlines such as Southwest, JetBlue, and AirTran with point-to-point models (America's airlines, flying on empty, 2005). How they're able to cope with rising costs varies significantly, with the low cost carriers getting the upper hand.

Jet fuel accounts for 12-14% of airlines' costs and is the industry's second-biggest expense after labor. American is paying 91% more for fuel in September 2005 than it did in September 2004 (American cancels some flights on fuel costs, 2005). To cope, this airline

Contrary to popular belief, the low-cost carriers have unions and pay good wages (Eli). For example, Southwest employs the most unionized labor force in the industry and pays average to above-average wages. The competitive weapon of the low-cost carriers is productivity. Southwest has been an innovator in negotiating union agreements that include more-flexible work rules that facilitate greater cross utilization of labor. Thus, labor expense per seat mile is 25% lower than those of legacy airlines. Low-cost carriers also manage the productivity of their aircraft more efficiently. Their point-to-point systems minimize downtime for aircraft and employees. In 2002

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Approximate Word count = 451
Approximate Pages = 2 (250 words per page double spaced)

Category: Miscellaneous

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Economics and the Airline Industry

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