Final Exam



TheEconomic Impact on U.S. Aviation

Theexuberance and ingenuity of the U.S. air carriage system invigoratesour economy. The U.S. air carrier industry is equally vibrant andinnovative. Air transportation delivers an important basis forbusinesses through which people connect and re-connect, henceboosting economic growth and development.


Macroeconomicsis a branch of economics that deals with the study of the behaviourof the aggregate economy. Unlike microeconomies that focuses onindividual economic units such as firms and individual consumers,macroeconomics deals with agregate phenomena such as national income,inflationrates, changes in unemployment levels, price stability, economicgrowth, among others others (Veseth,1980).Inaddition, macroeconomics tackles the role of fiscal and monetarystrategies as tools of macroeconomic stabilization in influencingeconomic performance through manipulations of investment andconsumption levels (Krugman &amp Wells, 2009).


NationalIncome is a term that defines the cumulative value of a country’soutput. This value considers the value of new goods and servicesproduced within a given period of time usually one year. There arebasically two main methods that have been developed to measurenational income: The income approach and expenditure approach. Eachof these methods should basically arrive at the same value of thenational income. The size of a country’s national income is howeveraffected by various factors such as, availability of resources,technical knowhow and political stability, terms of trade and foreigninvestments among others Brezina, (2012).

Determinationof national income


In thismethod of income determination, we sum up all the income receivedfrom factors of production. These factors of production include land,labour, entrepreneurs and capital. We therefore add up rent fromownership of land, wages and salaries received from labour, profitsfrom entrepreneurship and interest from capital. Therefore, Nationalincome = rent + wages + profits + interest. Here we only includeincome originating from production of goods and services and ignoreall transfer payments.


Thismethod involves summing up all the amount spent on the final goodsand services at the market prices. These expenditures includePrivateConsumption Expenditure, investment expenditure, governmentexpenditure and net exports. To avoid the problem of double counting,the following are excluded in this approach: money spent on transferpayments, amount spent on purchase of second hand goods, amount spenton the purchase of intermediate goods and expenditure on old shares.The componentsof expenditure approach have been deeply explained under thecomponents of GDP Brezina,(2012).

Factorsaffecting national income

Availabilityof resources.

Differentcountries have different endowments of resources such as naturalresources, human resources and financial resources. The more acountry is rich in quality resources the larger the size of itsnational income. Most countries that are endowed with resources suchas oil, fertile soils, minerals, favorable climates and adequatehuman resource are known to be financially stable and having a bignational income.


Mostof developing nations have a big labor force but with inadequatetechnical knowledge and skills. Poor technical expertise, implies lowlevels of innovation and invention hence low standards of living anda small national income.


Politicalstability and peace encourages expansion of entrepreneurial ventures.A country where war terrorism and revolution is a threat instils fearand no confidence of investing which results into retarded economicperformance.

Termsof trade

Favorableterms of trade that promotes both domestic and international areessential in promoting economic performance and increasing the sizeof national income. Import restrictions such as increased importtariffs and quotas discourage international trade. This implies thatfewer goods and services are exported relative to amount of goodsimported. Thus a smaller size of national income.


Acountry engaged in foreign investment allows it to obtain productsfrom the debtor country without necessarily giving other goods andservices in return. Given two countries with a similar amount ofnational income, the country engaged in foreign investment willautomatically have a bigger national income.

Inflationand price stability

Inflationoccurs when there is a sustained increase in the price of goods andservices over time. This means that the purchasing power of money isconstantly falling. Inflationary effects are felt when there are toomuch money in the economy chasing after few goods and services. Thatis, price levels are increasing. The primary measure of inflation isthe Consumer Price Index (CPI) which measures the relative change inthe price of basic goods and service over time Brezina,(2012).In the case where the price of goods and services are constantlyfalling, the economy is said to suffer from deflation. Based on CPIthe monthly inflation rates in United States as at May this yearstood at about 1percent which is an increase by 0.2 percent sinceApril. However, this is a manageable size of inflation. Countriesexperiencing very high rates of inflation are said to havehyperinflation which signals that their economy is almost collapsing. Inflation is useful in determining how healthy a given economy is.This implies it should be an objective of every government to ensurethat inflation rate stands a manageable size and the economy is notat the risk of collapsing.


Pricestability implies that the average change in price levels is constantover a period of time. In other words, there is no fluctuations inprice levels. In case a country is suffering from inflation ordeflation then the prices are said to be unstable. Price instabilityhave different impact on people. Take for instance creditors anddebtors. In case of inflation debtors gain while creditors lose. Whenthere is sustained increase in price levels the value of money fall.However, debtors refund the same amount of money but in terms ofpurchasing power this amount of money is less since it cannot buy thesame amount of goods and services it could purchase during the timeof lending Brezina,(2012).

Anothergroup of people who lose during increasing price levels, are thesalaried persons and fixed income groups. These people earn the sameamount of money through out unless there is pay increase irrespectiveof whether the country is suffering from inflation or not. Duringperiods of inflation, their salaries are actually less because thevalue of money is actually falling. This has been known as a keyreason of day to day demonstrations by civil workers demanding forpay rise in most developing countries since they experience highlevels of inflation Brezina,(2012).

Thegovernment is also much affected by constant increase in pricelevels. This is simply because, the government obtains its revenuefrom taxes. However the amount of taxes remain constant but the realvalue of this revenue is actually less since the purchasing power ofmoney is actually following. This makes the government to increasethe amount of taxes levied or increasing its borrowing. None of thesetwo options is better option. Too much borrowing makes a country tolose its sovereignty while increased borrowing strains the citizenshence reduced investments Brezina,(2012).


Unemploymentis a situation in which people are actively looking for jobs butcannot secure any. It is usually measured through unemployment ratewhich is the sum of unemployed people divided by the sum of personsin the work force.There are various types of unemployment namely structuralunemployment, frictional unemployment, voluntary unemployment, anddemand deficient unemployment. Unemployment is basically attributedto: inadequate capital, poor skills, lack of entrepreneurial cultureand voluntary unemployment where people prefer to remain unemployedamong others. The government uses tools of macroeconomicstabilization (monetary and fiscal policies) to try and eliminate theproblem of unemployment. According to the United States Bureau ofLabor Statistics, the highest rate of unemployment was recorded inOctober 2009 (10%). The data is contained in figure 1 below:

Figure1:graph showing unemployment rates for the last 10 years


Economicgrowth can be defined as the irreversible quantitative increase in acountry’s productive capacity, as measured by comparing the grossNational Product (GNP) in a certain year with the GNP in the previousyear. It is concerned with the increase in the economy’s output.Economic growth is characterized by expansion of trade and capitalstock, increased growth per capita, technical transformations andsocial and political transformations among others.

GrossDomestic Product (GDP) is the total monetary value of all goods andservices produced within the borders of a given country over a givenperiod of time irrespective of the origin of those producing them(Veseth, 1980).GDP is an essential measure of how healthy a country’s economy is.There are two basic means of measuring a country’s GDP: the incomeapproach, which involves summing up all the income earned by theresidents of a given country and the expenditure approach whichencompasses summing up the amount spent by the people living in acertain nation. However, these two approaches always end up into acommon figure GDP can be either real GDP or current (nominal) GDP(Brezina, 2012).

CurrentGDP, also known as the nominal GDP, is the definite gross domesticproduct, measuredat the current market prices withouttaking into account variables like inflation. The real gross domesticproduct is used to measure total goods and services produced in agiven year expressed in base year prices with regard to theinflationary effects. Real GDP is also referred to as&quotinflation-corrected&quot GDP or &quotconstant dollar” GDP.The major difference that separates the two is the fact that real GDPis adjusted for inflation, while nominal GDP is not. Nominal GDPappears higher compared to real GDP. Figures for real gross domesticproduct are modified with regard to changes in prices levels, whereasthe values for nominal gross domestic remain constant (Tucker, 2008).

TheGDP deflator translates productivity measured at existing amountsinto constant-dollar GDP. This comprises prices for business andgovernment products and facilities and those acquired by consumers.This computation demonstrates the extent by which a variation in thebase year`s GDP depends on variations in the price level. Real grossdomestic product for a specified year in the context of a base yearis calculated by multiplying the nominal gross domestic product for aspecified year by the fraction of the gross domestic product pricedeflator in the base year to the gross domestic product pricedeflator for the agreed year (Tucker, 2008).

Thereare four components of gross domestic product: Private consumptionspending, investment expenses, government procurements of productsand facilities, and net exports. GDP is often calculated annuallybut it can also be calculated on a quarterly basis, using theformula: GDP = C + G + I + NX. In this formula, “C” representstotal private utility, or consumer expenditure, in a country`seconomy “G” represents the total government outlay “I”represents the total nation`s investment, comprising productionscapital expenses and “NX” is the country`s entire net exports,determined as aggregate exports minus aggregate imports (NX =Exports – Imports) (Tucker, 2008).

PrivateConsumption Expenditure

Thisis the consumption spending by households that measures the monetaryworth of consumer products and services bought by families andcharitable organizations for use over a specified period of time.These household products and services are categorized into longlasting, semi durables, perishables, and services that have varyingshelf life.


Thisentails the additions to the physical stock of capital during aperiod of time. It also includes all the infrastructural development,purchase of machinery, and construction. Gross investment comprisesvalues of devaluation while net investment is derived by subtractingdevaluation worth from gross venture. Investment is categorized intofour groups: Inventory stock, business fixed asset, public venture,and residential building investment (Tucker, 2008).

GovernmentPurchases of Products and Services

Thiscomprises all the government expenditures on wages and salaries andbuying of intermediate products, excluding transfer outlays toeliminate double accounting (Tucker, 2008).


Netexports is the amount by which a country’s total exports exceedsthe total imports or the difference between a foreign spending on ahome country’s products and services and the home country’sspending on foreign goods and services(Gwartney, Stroup, &ampStudenmund, 1982).The global GDP growth, according to the International Monetary Fundfor 2015, was 3.1 percent and predicted to expand to 3.4 percentinflation adjusted in 2016 and 3.682 percent in the year 2017.Moreover, the U.S. gross domestic product for 2015 was 2.1 percentand predicted to grow to 2.2 percent in the year 2016 and shrink to2.1 percent in the year 2017. This is a shown by the figure below.

Monetaryand fiscal policies as tools of macroeconomic stabilization

Fiscalpolicy is a is an economic tool of stabilization in which thatfocuses on manipulating the level of government expenditure and taxeswith an aim of influencing the aggregate variables in order toachieve macroeconomic goals of price stability, full employment,equilibrium balance of payment and low levels of inflation.Fiscal policy is therefore basedon a balancing act between changing the tax rates and publicspending. Consider a scenario where the economy is stagnant and thegovernment reacts by lowering the taxes. The outcome would be anincrease in inflation. Fiscal policy can be utilized in a situationwhereby an economy has stagnated and the rates of unemployment arehigh. It is also applicable when consumer spending is massivelydecreased. The government can correct such economic conditions bydecreasing the levels of taxation which would in turn give theconsumers more disposable income and the government would spend morein buying goods and services.Onother hand, monetary policy is a macroeconomic stabilization toolthat focusses on regulating the level of money supply in the economywith an aim of influencing the level of economic growth anddevelopment in order to achieve the macroeconomic goals of pricestabilization and reduced inflation. Some monetary tools ofstabilization include: Open Market Operations (OMO), selective creditcontrol, regulation of minimum reserve requirements, moral suasionand regulation of bank reserves among others(Beetsma, 2004).As such, it revolves around the management of money in the economythrough alterations to the interest rates among other guidelines.

Duringthe economic meltdown in 2008, monetary policies were applied as anexpansionary measure. The Federal Reserve level was reduced whichgave companies a motivation to enlarge and employ more personnel andencouraged customers to spend more. Moreover, the Federal Reserveincreasingly dropped its target level from 3.50 percent at thebeginning of the year to below 0.25 percent in December with thetrend still maintained (Fender, 2012). With the joblessness levelstill high and the Federal Reserve level near zero, the Fedsimplemented quantitative facilitation through the acquisition ofmonetary assets like Treasury and mortgage-supported bonds to reducelong-term bank rates, thus raising the money supply level (Fender,2012). The period following the economic crisis of 2008,multinational companies operating within the United States were needin additional capital for expansion purposes. The levels of outputhad also declined massively. To facilitate expansion of the economy,the Federal Reserve lowered the bank rates in order to encourageborrowing by the firms (Fender, 2012).

Therates of unemployment also soared during the period of economicturmoil. To tackle this problem, the government implemented variousfiscal strategies. The main strategy utilized in decreasingunemployment revolved around increasing the aggregate demand and therate of economic growth. The expansionary policies utilized in thiscase include cutting the taxes as well as increasing governmentspending. The decreased taxes lead to increased disposable incomes.This will increase consumption and culminate in an increase in theaggregate demand. An increased demand translates into a boost in thereal GDP. Firms will therefore produce more output and as such willneed to enlarge their labor size as a means of coping with the betteroutput. This will dwindle the levels of unemployment. The higheraggregate demand and strong economic growth will ensure that fewerfirms can go bankrupt and therefore reduce the possibility ofemployees losing their jobs in the process (McKelvey, 2002).

Theeconomic performance and growth have an enduring impact on air travelfor passengers and cargo travel. When the economy is performingpoorly, people tend to use alternative modes of transport that arerelatively cheaper like road and water transport. During a financialcrisis, there is low disposable income, hence people tend to minimizeon leisure travelling and tourism. This has a cyclic effect since thelow performance of the airline travel affects the economy to a greatextent (McKelvey, 2002).

Airtransport is a key employer creating 29 million jobs internationally.There are direct, indirect, and induced jobs that are linked to airtransport. Aviation offers an international transportation system,which facilitates worldwide trade and tourism. This serves as astimulus in facilitating economic development. The importation andexportation of goods and services are often facilitated through airtravel, which is considered fast, efficient, reliable, andconvenient. Approximately 40% of tourist travels through airtransport. Air transport expands the efficiency of supply chain andis a stimulus to innovation through global networking. It alsoenhances productivity and enlarges the market, thus assistingbusinesses to benefit from economies of scale through reduced costs.In addition, air transport is a significant tax payer, hencecontributing majorly to economic growth (Aviation, 2011).

Onecommon trend in the relationships between world GDP and the number ofpassengers is that they have a positive connection. As such, duringperiods of economic recession when the GDP is relatively lower, thenumber of passengers using air transport also diminishedconcurrently. The decrease in the world GDPs was caused by factorssuch as the Gulf War, tumbling of the Asian currencies, terrorismwars and the financial crisis between 2008 and 2009. The graph belowshows the relationship between the economy and air transport.

Answerto Question 2

Accordingto the International Air transport association airline industry havebeen experiencing increased profit margins as a result improvedcustomer service and hence increased revenues. The profit had doubledfrom US $369 billion to US $ 746 billion by 2014 and is expected tokeep rising. This drastic growth in the aviation industry has greatlybeen contributed by the rapid expansion of the Low Cost Carrierswhich command about 25 percent of the market share. On a similarline, various political and environmental factors in the aviationindustry have constantly affected the functioning of these airlines.The operation of the aviation industry is controlled by variousfactors in the environment. It is therefore important for therelevant authorities to be conversant with the existing environmentalfactors. Case in point, the current political and economicenvironments have a substantial role to play in ensuring that theaviation industry reacts well to the changing factors. One currenteconomic factor that is affecting the aviation industry is thechanging oil prices and its subsequent effect on other sections ofthe environment. In this regard, it is important to establish thatthe fluctuations of the oil prices have a direct effect on the pricescharged for the air tickets since it is one of the core variablestaken into consideration by the ticket departments and as such, thereis need to incorporate the changes. On the other hand, the majorpolitical factor affecting the airlines includes regulations on theoutbreak of diseases such as Ebola. Various airlines have had to makealterations to their daily routes in order to comply with governmentregulations. Another factor that affects the operations of airlinesin the United States is compliance with the TSA SPOT programregulations. According to the security aviations experts in theUnited States, there is need to alter the existing system from thecurrent behavioral based system to the full body check system as isthe case in the Israeli aviation industry.

Moreover,the impact of climate changes that manifest in varying proportionslike heavy rain, fog, mist, and strong winds often affect visibilityand ultimately affect the performance of aircraft. The effects ofclimatic changes may sometimes cause delays in landing or take off,thus affecting time schedules (Energy and Environmental Concerns,2005).

TheU.S. aviation industry operates in a vibrant political and economicenvironment. The government, through various bodies offersregulatory guidance and incentives to promote the industry. Thegovernment partners with various stakeholders and countries globallyto provide a platform that enables free movement of aircrafts acrossborders. Security is also a function of the government, which isadequately provided through the relevant agencies to curb anysecurity threats. In addition, there are enhanced efforts to providethe necessary economic stimulus to the aviation industry by providinginfrastructural developments, policies, research, training, andglobal agreements that promote free movement, global trade, andtourism, among other benefits. There are also increasing calls forregulations that range from taxation, trading, charges, and airtraffic controls, due to terrorism threats and other securityconcerns (2002 TRB Distinguished Lecture).

ThePESTEL framework covers the Political, Economic, Social,Technological, Environmental, and Legal external features thatinfluence the airline business. The framework offers a comprehensiveviewpoint on opportunities and threats that affect the airlineindustry.

Politicaland legal factors

Theseaspects contain&nbspgovernment involvement on economic processes ora specific industry. Airlines function in a political setting thatis&nbspcontrolled and regulated. Government intermediation canbe&nbspessential to safeguard the customers’ welfare&nbspandairline procedures’ safety actions


Avigorous economy is a reagent for industrial development. Economicstability&nbspis gauged by numerous economic pointers that includeprogress in gross domestic product, customer confidence, per capitalrevenue, level of trade, disposable earnings, industrial productionand variation in oil charges influences&nbspairlines’profitability.

Socialand Demographic Features

Therehave been significant changes in the demand for air travel over time.This shows&nbspvarying travel inclinations amid the moderngeneration. Classifying&nbspgenerations in the U.S. depending on theyear of birth offers&nbspcomprehension into the varying tendenciesin the travel and tourism business. Demographic features play asignificant role in predicting demand and imminent travelinclinations. In this respect, the prospect of&nbspU.S. travel andtourism is often determined by the progress in the visionarygeneration. The request for air travel has improved considerably overthe years. This&nbspspecifies varying travel inclinations among themodern generation. The U.S. populace is classified by fourgenerations. There is Generation Baby Boom, those born in the yearsbetween 1946 to1964 Generation X, those born in the years between1965 to1979 Generation Y or Millennial Generation, those born in theyears between 1980 to1999 and Generation Z, those born in the yearsafter 2000.

Technologicaland Political Factors

Toendure the powerful competition in the airline trade, corporationsmust embrace the modern technology. Technological innovation has beenthe motivating aspect for refining airlines’&nbspfunctioningeffectiveness. Airlines have been capable to moderate costs andexpand operations by&nbspusing&nbspprogressive aircraft engineexpertise, information technology solutions, and mobile expertise.The technology has generated&nbspimproved connectivity and enrichedcustomers’ travel practice. The use of progressive aircrafttechnology leads&nbspin reduced fuel consumption. Thisenhances&nbspeffectiveness and the price of airline operations.Technology is regarded as one of the four significant factors underthe International Airline Transport Association’s plan to resolveclimate change.

Liberalizationof the airline transportation in the U.S. has resulted inderegulation of prices, capacity, entry, and routes of the airlines.This has led to the emergence of many air transport servicesproviders, due to competition, reduced charges, innovative packages,and delivery of excellent services and customization of differentclasses of clients, for example, VIPs, executives, business class,premier class and economy class, depending on the customer’spreference and income. The market structure also varies with distanceand the enhanced facilities within the carrier. There are numerousairlines that fly to various destinations and offer differentflexible time schedules. There are four types of traffic whichinclude passengers, mail, air freight, and passenger bags. Thecustomers are spoiled since the airlines also vary in size withchoices, including private jets (McKelvey, 2002).

Thereare diverse opportunities in the airline industry which are availablein the U.S. Globalization. It has led to unexploited markets all overthe world, which the U.S. airlines can tap to expand their outreach.There are also national carriers that are willing to partner withinternational carriers to expand their potential for the availableopen market that the U.S. carriers can tap and develop. However, thenegative impacts of noise and air pollution, terrorism risks,hijacking, human trafficking, drug trafficking, and child and forcedlabor are a threat to the air transport system. The government shouldbe in the forefront by regulating the industry by imposing strictsecurity measures to moderate the industry and control any forms ofpollution by employing the regulatory bodies (Peoples, n.d.).Moreover, there are various regulatory bodies and agencies thatadvocate and address environmental issues and their impact on theaviation industry. Security checks and strict compliance regulationshave been enhanced in all airports to prevent numerous securityrisks, and human and drug trafficking, among other vices.

Thegovernment has been on the forefront in spearheading strategies andregulatory mechanisms and controls that enhances the airline travel.The government works in collaboration with various agencies to ensurethe airline travel is improved. This includes interventions thatimpose strict environmental guidelines and measures that control allforms of pollution. The government also applies measures that ensuremodern technology is embraced which increases efficiency andperformance by the air carriers as well as result in reducedemissions and noise from the aircrafts. In addition, construction ofresidential houses and other infrastructural developments iscontrolled and restricted accordingly to reduce conflict andaccidents.

Answerto Question 3

Thereare various challenges that affect the airline industry, includingdeveloping appropriate and all-inclusive product mixes that satisfythe needs and expectations of the customers. There are variousfactors that are important, both to customers and service providersthat influence preference and choice of one service provider asopposed to the other. These factors include: pricing, convenience,comfort, brand, compliance to time schedules, specialty, customerservice, security, number of different destinations, benefits andperks offered, status and award availability, amongother factors. Customers are influenced by these factors and oftenuse a combined perspective on all of them when making their choicesto derive more utility. This poses a big challenge to airlines whendesigning products that satisfy their customers and come up with costeffective products that comply with the laid down policies andregulations. This calls for a balancing act and implementation ofwell-thought out strategies that are reviewed, according to themarket dynamics.Airlineshave come up with innovative and customized product mixes to satisfycustomers’ desires and prospects. This includes enlarged capacityand efficacy in its facilities and charging low costs, hence thepricing strategy (Aviation, 2011).


Airlinesdesign their products according to the destinations and routes taken.Different airlines offer various stop over and follow certain routes.There are also domestic and international flights. Customers makechoices according to their need. Different airlines have productsthat offer various destinations to entice their customers. Theairlines often maximize on the places that they offer their serviceswhich is a way that improves their competitiveness. Customers in maininstances may tend to use the airlines that fly to many destinationsin order to maximize their utility. The choice of stopoverdestinations is also important in ensuring that customers get thebest services in terms of hospitality. For example, a stopover in atourist destination country can be an advantage to the customer andmay attract clients to the airline.


Mostcustomers often compare and contrast transport charges, variousperks, and benefits offered by the different airlines and make theirchoices accordingly. Most airlines tend to offer competitive pricesto attract more customers. Whereas there are various classes in aplane, customers usually want the best at a competitive price. Thus,prices become an important aspect in providing services by airlines.

Theissue of pricing is often a major factor that is considered by manycustomers when deciding on the airline to choose. Numerous airlinesvary from each with regard to prices. Most travelers choose cheapflights, though some, especially the business people and VIPs, do notcritically look at the price factor. However, many airline travelersspend a considerable amount of their time and energy in comparingthis factor. Some travelers even postpone their travelling to offpeak season when the air fare is cheap especially for non-essentialtravels. This shows how critical the pricing factor is in theaviation industry. With the unpredictable and increasing fuel prices,airlines find it difficult to maintain low air fares. However, toachieve this they have acquired large planes like Boeing with highcapacities to distribute the cost and be able to charge low fares.

Benefitsand Perks

Providingexcellent products or services is not enough. The airlines mustensure that they build customer loyalty through their services. Toachieve this, they establish loyalty cards and bonus programs fortheir clients. For instance, customers earn points every time theyuse the airline and may earn free ticket after making a certainnumber of trips. Besides, the loyalty program allows them to redeemtheir points at specific restaurants, malls, or even for an airticket with the company.

Productand Status

Airlinesdiffer with their specialty on the products and services they offerand the clients they serve. Irrespective of all these services beingoffered by airlines, customers often identify them through marketsegmentation and product differentiation. Some airlines are bestknown and identified with status, hence customers choose them .Thereare airlines that are best suited for VIPs, business people, cargocarriage, and ordinary people. Airlines realign themselves well withtheir flagship products, while offering a package deal that is allinclusive.

Thesegmentation based on product and status is usually an element thatembraces comfort, privacy, entertainment, and sometimes security. Theissue of comfort is crucial especially for long and non-stop distanttravels. This is often characterized by comfortable seats and widerooms to relax and to ensure the customers enjoy the journey. Inaddition, the concept of entertainment differs and is oftencharacterized by listening music and TV, among other forms ofamusement that draws customers to their airline. Moreover, variousclients have different preferences that include eating, drinking,working, and playing various games. Most airlines offer interestingamenities and facilities to attract customers. However, specialty isnot always safe. Airlines must be able to tap the broader market ofbusiness people, VIPs, and private citizens to increase their market.Some airlines prefer to beat their competitors by ensuring that mostof their customers regardless of their class get some form of specialtreatment, including drinks and snacks, music, and movies. Althoughthe level of such services may differ, customers feel that they arewell taken care of.

Complianceto time schedules

Toa traveler, there is nothing as important as keeping time. Mosttravelers travel within busy schedules and like when the airlinerespect their time. Airlines therefore work hard to maintainpunctuality by following their time schedules. Even though there areinconveniences caused by traffic snarl ups, airlines must ensure thattime is minimally lost.

Manyairlines combine various attractive mixes to draw the attention ofthe customers and also ensure they remain competitive and profitableat the same time. The hard economic times and the increasing fuelprices usually affect the aviation industry, but with a proper mix ofproducts, a company can succeed in the industry.


Theseare airlines that had already established routes before theimplementation of the Airline Deregulation Act in 1978. As a result,the changes made in the new legislation drastically affected theiroperations. Oneway in which the Deregulation Act affected the Legacy Carriers was inthe form of airfares that fell significantly. In order to tackle suchchanges, Continental Airlines, Northwest Airlines, U.S. Airwaysdeveloped complex pricing models that incorporated factors such asservice quality and price sensitivities (Vasigh,Fleming, &amp Mackay, 2010).Some of the characteristics of the legacy carriers are that theyprovide higher quality of services in comparison to the low-costcarrier and a frequent-flyer program. Theyoffer business and first class seating.In addition, they are members of an airline alliance that enablesthem to partner with other airlines in their quest for serviceprovision. Examples of legacy carriers include American Airlines,United Airlines, Delta Airlines, and Alaska Airlines. However,Legacy Carriers such Continental Airlines, Northwest Airlines andU.S. Airways has been forced to adjust their prices as theyincreasingly face competition from the Low Cost Carriers.


Theseare airlines that are considered to have relatively lower fares andfewer comforts. As a means of making up for the revenues lost throughthe cheaper tickets, such airlines are known to have additionalcharges for food, seat allocation, and priority boarding. One of theworld’s largestlow-cost carriers in the United States is known as SouthwestAirlines. Southwestairlines permits free flight for the first two checked bags as longas they do not exceed 50Ibs and 62 inches in both length, width andheight. Any items that weigh between 51 and 100 pounds and weigh morethan 62 inches but less than 80 inches are approved for carriage at afee of 75 US dollars each for one-way. Items that weigh more than 100pounds are not accepted and are required to be transported via aircargo(Vasigh, Fleming, &ampMackay, 2010). Some of theprinciples of operations include primary point-to-point operations,fleets that are composed of one type of airline, and low averagefares.

Ultra-LowCost Carriers

Thesetypes of airlines have experienced an increase in the number ofcustomers for a number of reasons in the past. The primary incentivefor these passengers is cheap base fares that have a gone a long wayin encouraging individuals to the big airlines. However, theseairlines have a history of being inconvenient in addition todiscomfort. Additionally, they have additional charges for items suchas carry-on bags and they lack toll-free phone numbers for customerservice products. examples of the ultra-low cost airlines includeSpirits Airlines, Allegiant Airlines and Frontier Airlines. Recently,there has been a great succession in the leadership of the spiritairlines with C.E.O Ben Baldanza being replaced by Robert Fornaro whohad led the Air Tran Airways for some time and finally selling it toSouthwest airline. Many people view this sudden change of leadershipas a chance of South Airlines merging with Frontier airlines althoughBaldanza described it as an ‘orderly succession plan’. Mostanalyst relate this sudden resignation of Southwest airline with theloss in value of southwest airline stock. However, it is expectedthat this airline will grow at a rate between 25 and 30 percent(Thomas, 2015).


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