Low rates of return on investment persist in the airline industry for several reasons, involving several forces:
Union, employees and suppliers –
From that point of view, Deregulation Act I 1978 by President Carter (line 16, p.2) didn't change anything. Higher salaries and benefits are always on demand, and the unions always have the power to go on strike if they don't get what they want, or supplementing new work rules.
High salary structure which could represent 40% of total earnings in a 15 years career (line 13, p.4) , together with10%-15% of total costs on fuel (line 16, p.4) , 15%-20% of total costs on services, including commissions to outside constructors (line 21-22, p.4) ' and a 15% of total costs on aircraft and facility rental (line 27, p.4) , created a high cost structure.
With only 60%-70% load factor over the years 1978 to 2000, air carriers had a relatively low profits (see Exhibit 1).
Trying to differentiate themselves, major companies always try to improve service offering, offer a variety of flight times, and improving inflight meals and movies, causing high costs (line 12-13, p.2).
Therefore, they had to charge twice as high as their intrastate counterparts (line 14, p.2).
High rivalry among the major companies caused too high costs, and in the intrastate market, major air carriers needed to compete not only with each other, but also with other intrastate small companies of flights of comparable lengths.
Passengers focused on safety, reliability, convenience, service quality, entertainment and food when choosing airlines (line 12-13, p.3).
Therefore air carriers needed to differentiate themselves and give the best in every aspect in order to attract customers, which led to high costs.
The development of the airline reservation system enables an online price comparison, and customers become more aware of low price alternatives.
Online web sites gave customers more efficient access to travel...