4. Deregulation and its Consequences
Geographically, a key outcome of airline deregulation has been the emergence of hub-and-spoke networks centered on major airport where a single carrier is often dominant. Such networks existed before deregulation to some degree, but the Civil Aeronautics Board hampered the expansion of airlines and the rationalization of networks. United Airlines, for instance, was allowed to add only one city to its network between 1961 and 1978. Hub-and-spoke systems rely on the usage of an intermediate airport hub. They can either connect a domestic (or regional) air system if the market is large enough (e.g. United States, China, European Union) or international systems through longitudinal (e.g. Dubai, Reykjavik) or latitudinal (Panama City) intermediacy. An important aspect of an intermediate hub concerns maintaining schedule integrity since the majority of passengers are using connecting flights. Airports that are prone to delays due to congestion are not effective hubs since they compromise the schedule integrity.
After deregulation, most of the surviving major carriers tended to construct nationwide hub-and-spoke networks with several hubs to facilitate travel between different regions of the country. The traffic feed through hubs like Atlanta enables Delta and other carriers to offer higher frequency service at higher load factors which in turn lowers the per passenger-kilometer cost. The advantages of large airlines were further deepened when nationwide hub-and-spoke networks were coupled to computer reservations systems and frequent flyer programs. Yet by the late 1990s, large carriers like Delta were on the run. Low cost carriers, especially Southwest Airlines in North American and Ryanair in Europe, cut into the market share of the "legacy" carriers. LCCs are distinguished by several common features:
Fleet simplicity. Legacy carriers operate diverse fleets because they serve many kinds of routes, from long hauls to feeders. LCCs emphasize on relatively short-haul routes. The minimal number of aircraft types (Southwest and Ryanair only flies B737s, though several different models) lowers costs.
Fast turnaround times. LCCs operate their networks in ways that keep their aircraft in the air earning money for a higher number of hours on average compared to legacy carriers. Minimal inflight service, for instance, reduces the time needed to clean and cater flights.
Rapid growth. This is not just a product of the LCCs’ success but an element in it. Fast growth enables the LCCs to continue to add aircraft and staff at a steady pace which keeps the average fleet age and average years of employee service low – both of which help to keep operations costs low.
Emphasis on secondary airports. Secondary airports, such as Houston-Hobby instead of George Bush Houston Intercontinental or Charleroi instead of Brussels National, typically have lower landing and parking fees for airlines as well as a more entrepreneurial approach to recruiting new airline service. However, LCCs have also directly challenged established carriers in major hubs.
Reduced importance of hubs. Most LCCs do have hubs, but for some carriers hubs are substantially less important than they are for legacy carriers. Southwest Airlines, for instance, distributes air traffic more evenly among a ten or so top “focus cities” in its network than is true of any traditional hub-and-spoke airline.
Aggressive use of the Internet. Internet booking has partially neutralized the one-time advantage that legacy carriers enjoyed through their proprietary computer reservations systems. The Internet is an additional way of reducing costs.