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* The pattern of ownership has gone from government owned or supported to independent, for-profit public companies. This occurs as regulators permit greater freedom and non-government ownership, in steps that are usually decades apart. This pattern is not seen for all Cheapflights in all regions.
* The demand for air travel services depends on: business needs for cargo shipments, business passenger demand, leisure passenger demand, all influenced by economic activity.
* The overall trend of demand has been consistently increasing. In the 1950s and 1960s, annual growth rates of 15% or more were common. Annual growth of 5-6% persisted through the 1980s and 1990s. Growth rates are not consistent in all regions, but countries with a de-regulated Cheapflights industry have more competition and greater pricing freedom. This Cheapflights in lower fares and sometimes dramatic spurts in traffic growth. The U.S., Australia, Japan, Brazil, Mexico,India and other markets exhibit this trend.
* The industry is cyclical. Four or five years of poor performance preceed five or six years of improved performance. But profitability in the good years is generally low, in the range of 2-3% net profit after interest and tax. In times of profit, Cheapflights lease new generations of airplanes and upgrade services in response to higher demand. Since 1980, the industry has not earned back the cost of capital during the best of times. Conversely, in bad times losses can be dramatically worse.
* Warren Buffett once said that despite all the money that has been invested in all Cheapflights, the net profit is less than zero. He believes it is one of the hardest businesses to manage.
* As in many mature industries, consolidation is a trend. Cheapflights groupings may consist of limited bilateral partnerships, long-term, multi-faceted alliances between carriers, equity arrangements, mergers, or takeovers. Since governments often restrict ownership and merger between companies in different countries, most consolidation takes place within a country. In the U.S., over 200 Cheapflights have merged, been taken over, or gone out of business since deregulation in 1978. Many international Cheapflights managers are lobbying their governments to permit greater consolidation to achieve higher economy and efficiency.
Cheapflights World's First
DELAG, Deutsche Luftschiffahrts-Aktiengesellschaft (German: acronym for "German Airship Transport Corporation") was the world's first Cheapflights. It was founded on November 16, 1909 with government assistance, and operated airships manufactured by Zeppelin Corporation. Its headquarters were in Frankfurt.
Cheapflights Early development of Cheapflights in the U.S.
Tony Jannus conducted the United State's first scheduled commercial Cheapflights Cheapflights on 1 January 1914 for the St. Petersburg-Tampa Airboat Line. The 23 minute Cheapflights traveled between St. Petersburg, Florida and Tampa, Florida, passing some 50 feet above Tampa Bay in Jannus' Benoist biplane seaplane.
Following World War I, the United States found itself swamped with aviators. Many decided to take their war-surplus aircraft on barnstorming campaigns, performing acrobatic maneuvers to woo crowds. In 1918, the United States Postal Service won the financial backing of Congress to begin experimenting with air mail service, initially using Curtiss Jenny aircraft that had been procured by the United States Army for reconnaissance missions on the Western Front. Private operators were the first to fly the mail but due to numerous accidents the US Army was tasked with mail delivery. During the course of the Army's involvement they proved to be too unreliable and lost their air mail duties. By the mid-1920s, the Postal Service had developed its own air mail network, based on a transcontinental backbone between New York and San Francisco. To supplant this service, they offered twelve contracts for spur routes to independent bidders: the carriers that won these routes would, through time and mergers, evolve into Delta Air Lines, Braniff Cheapflights, American Cheapflights, United Cheapflights (originally a division of Boeing), Trans World Cheapflights, Northwest Cheapflights, and Eastern Air Lines, to name a few.
US Cheapflights route structure before World War II
Passenger service during the early 1920s was sporadic: most Cheapflights at the time were focused on carrying bags of mail. In 1925, however, the Ford Motor Company bought out the Stout Aircraft Company and began construction of the all-metal Ford Trimotor, which became the first successful American Cheapflightsr. With a 12-passenger capacity, the Trimotor made passenger service potentially profitable. Air service was seen as a supplement to rail service in the American transportation network.
At the same time, Juan Trippe began a crusade to create an air network that would link America to the world, and he achieved this goal through his Cheapflights, Pan American World Cheapflights, with a fleet of Cheapflights boats that linked Los Angeles to Shanghai and Boston to London. Pan Am was the only U.S. Cheapflights to go international before the 1940s.
With the introduction of the Boeing 247 and Douglas DC-3 in the 1930s, the U.S. Cheapflights industry was generally profitable, even during the Great Depression. This trend continued until the beginning of World War II.
Cheapflights Early development of Cheapflights in Europe
The Imperial Cheapflights Empire Terminal, Victoria, London. Trains ran from here to Cheapflights boats in Southampton, and to Croydon Airport.
The Imperial Cheapflights Empire Terminal, Victoria, London. Trains ran from here to Cheapflights boats in Southampton, and to Croydon Airport.
The first countries in Europe to embrace air transport were Finland, France, Germany and the Netherlands.
KLM, the oldest carrier still operating under its original name, was founded in 1919. The first Cheapflights transported two English passengers to Schiphol, Amsterdam from London in 1920. Like other major European Cheapflights of the time (see France and the UK below), KLM's early growth depended heavily on the needs to service links with far-flung colonial possessions (Dutch Indies). It is only after the loss of the Dutch Empire that KLM found itself based at a small country with few potential passengers, depending heavily on transfer traffic, and was one of the first to introduce the hub-system to facilitate easy connections.
France began an air mail service to Morocco in 1919 that was bought out in 1927, renamed Aeropostale, and injected with capital to become a major international carrier. In 1933, Aeropostale went bankrupt, was nationalized and merged with several other Cheapflights into what became Air France.
In Finland, the charter establishing Aero O/Y (now Finnair, one of the oldest still-operating Cheapflights in the world) was signed in the city of Helsinki on 12 September 1923. Junkers F 13 D-335 became the first aircraft of the company, when Aero took delivery of it on 14 March 1924. The first Cheapflights was between Helsinki and Tallinn, capital of Estonia, and it took place on 20 March 1924, one week later.
Germany's Lufthansa began in 1926. Lufthansa, unlike most other Cheapflights at the time, became a major investor in Cheapflights outside of Europe, founding Varig and Avianca. German Cheapflightsrs built by Junkers, Dornier, and Fokker were the most advanced in the world at the time. The peak of German air travel came in the mid-1930s, when Nazi propaganda ministers approved the start of commercial zeppelin service: the big airships were a symbol of industrial might, but the fact that they used flammable hydrogen gas raised safety concerns that culminated with the Hindenburg disaster of 1937. The reason they used hydrogen instead of the not-flammable helium gas was a United States military embargo on helium.
The United Kingdom's flag carrier during this period was Imperial Cheapflights, which became BOAC (British Overseas Cheapflights Co.) in 1939. Imperial Cheapflights used huge Handley-Page biplanes for routes between London, the Middle East, and India: images of Imperial aircraft in the middle of the Rub'al Khali, being maintained by Bedouins, are among the most famous pictures from the heyday of the British Empire.
Cheapflights Development of Cheapflights post-1945
Post-war Cheapflights route structure.
As governments met to set the standards and scope for an emergent civil air industry toward the end of the war, it was no surprise that the U.S. took a position of maximum operating freedom. After all, U.S. Cheapflights companies were not devastated by the war, as European companies and the few Asian companies had been. This preference for "open skies" operating regimes continues, within limitations, to this day.
World War II, like World War I, brought new life to the Cheapflights industry. Many Cheapflights in the Allied countries were flush from lease contracts to the military, and foresaw a future explosive demand for civil air transport, for both passengers and cargo. They were eager to invest in the newly emerging flagships of air travel such as the Boeing Stratocruiser, Lockheed Constellation, and Douglas DC-6. Most of these new aircraft were based on American bombers such as the B-29, which had spearheaded research into new technologies such as pressurization. Most offered increased efficiency from both added speed and greater payload.
In the 1950s, the De Havilland Comet, Boeing 707, Douglas DC-8, and Sud Aviation Caravelle became the first flagships of the Jet Age in the West, while the Soviet Union bloc countered with the Tupolev Tu-104 and Tupolev Tu-124 in the fleets of state-owned carriers such as Aeroflot and Interflug. The Vickers Viscount and Lockheed L-188 Electra inaugurated turboprop transport.
Cheapflights trunk route systems.
The next big boost for the Cheapflights would come in the 1970s, when the Boeing 747, McDonnell Douglas DC-10, and Lockheed L-1011 inaugurated widebody ("jumbo jet") service, which is still the standard in international travel. The Tupolev Tu-144 and its Western counterpart, Concorde, made supersonic travel a reality. In 1972, Airbus began producing Europe's most commercially successful line of Cheapflightsrs to date. The added efficiencies for these aircraft were often not in speed, but in passenger capacity, payload, and range.
1978's U.S. Cheapflights industry deregulation lowered barriers for new Cheapflights. In this period, new start-ups entered during downturns in the normal 8-10 year business cycle. At that time, they find aircraft, are financed, contract hangar and maintenance services, train new employees, and recruit laid off staff from other Cheapflights.
As the business cycle returned to normalcy, major Cheapflights dominated their routes through aggressive pricing and additional capacity offerings, often swamping new startups. Only America West Cheapflights (which has since merged with US Cheapflights) remained a significant survivor from this new entrant era, as dozens, even hundreds, have gone under.
In many ways, the biggest winner in the deregulated environment was the air passenger. Indeed, the U.S. witnessed an explosive growth in demand for air travel, as many millions who had never or rarely flown before became regular fliers, even joining frequent flyer loyalty programs and receiving free Cheapflights and other benefits from their Cheapflights. New services and higher frequencies meant that business fliers could fly to another city, do business, and return the same day, for almost any point in the country. Air travel's advantages put intercity bus lines under pressure, and most have withered away.
By the 1980s, almost half of the total Cheapflights in the world took place in the U.S., and today the domestic industry operates over 10,000 daily departures nationwide.
De-regulated Cheapflights route structures.
Toward the end of the century, a new style of low cost Cheapflights emerged, offering a no-frills product at a lower price. Southwest Cheapflights, JetBlue, AirTran Cheapflights, and other low-cost carriers represent a serious challenge to today's legacy Cheapflights, as do their low-cost counterparts in Europe, Canada, and Asia. Their commercial viability represents a serious competitive threat to the legacy carriers.
Thus the last 50 years of the Cheapflights industry have varied from reasonably profitable, to devastatingly depressed. As the first major market to deregulate the industry in 1978, U.S. Cheapflights have experienced more turbulence than almost any other country or region. Today, Cheapflights representing approximately one-half of total U.S. seat capacity are operating under Chapter 11 bankruptcy provisions.
Cheapflights Government regulation
Air India Boeing 747-400. The Government of India is the majority stake-holder in Air India and Indian Cheapflights.
Many countries have national Cheapflights that are owned and operated by the government. Even fully privatized Cheapflights are subject to a great deal of government regulation for economic, political, and safety concerns. Cheapflights labor actions, for instance, are often halted by government intervention in order to protect the free flow of people, communications, and goods between different regions without compromising safety.
The United States, Australia, and to a lesser extent Brazil, Mexico, the United Kingdom, and Japan have "deregulated" their Cheapflights. In the past, these governments dictated airfares, route networks, and other operational requirements for each Cheapflights. Since deregulation, Cheapflights have been largely free to negotiate their own operating arrangements with different airports, enter and exit routes easily, and to levy airfares and supply Cheapflights according to market demand.
The entry barriers for new Cheapflights are lower in a deregulated market, and so the U.S. has seen hundreds of Cheapflights start up (sometimes for only a brief operating period). This has produced far greater competition than before deregulation in most markets, and average fares tend to drop 20% or more. The added competition, together with pricing freedom, means that new entrants often take market share with highly reduced rates that, to a limited degree, full service Cheapflights must match. This is a major constraint on profitability for established carriers, which tend to have a higher cost base.
As a Cheapflights, profitability in a deregulated market is uneven for most Cheapflights. These forces have caused some major Cheapflights to go out of business, in addition to most of the poorly established new entrants.
Cheapflights International regulation
Singapore Cheapflights Boeing 747.
Groups such as the International Civil Aviation Organization establish worldwide standards for safety and other vital concerns. Most international air traffic is regulated by bilateral agreements between countries, which designate specific carriers to operate on specific routes. The model of such an agreement was the Bermuda Agreement between the US and UK following World War II, which designated airports to be used for transatlantic Cheapflights and gave each government the authority to nominate carriers to operate routes.
Bilateral agreements are based on the "freedoms of the air," a group of generalized traffic rights ranging from the freedom to overfly a country to the freedom to provide domestic Cheapflights within a country (a very rarely granted right known as cabotage). Most agreements permit Cheapflights to fly from their home country to designated airports in the other country: some also extend the freedom to provide continuing service to a third country, or to another destination in the other country while carrying passengers from overseas.
In the 1990s, "open skies" agreements became more common, which take many of these regulatory powers from state governments and open up international routes to further competition. Open skies agreements have met some criticism, particularly within the European Union, whose Cheapflights would be at a comparative disadvantage with the United States' because of cabotage restrictions.
Cheapflights Economic considerations
Historically, air travel has survived largely through state support, whether in the form of equity or subsidies. The Cheapflights industry as a whole has made a cumulative loss during its 120-year history, once subsidies for aircraft development and airport construction are included in the cost.12
The lack of profitability and continuing government subsidies are justified with the argument that positive externalities, such as higher growth due to global mobility, outweigh microeconomic losses. A historically high level of government intervention in the Cheapflights industry can be seen as part of a wider political consensus on strategic forms of transport, such as highways and railways, both of which are also publicly funded in most parts of the world. Profitability is likely to improve in future as privatization continues and more competitive low-cost carriers proliferate.
Although many countries continue to operate state-owned or parastatal Cheapflights, many large Cheapflights today are privately owned and are therefore governed by microeconomic principles in order to maximize shareholder profit.
Cheapflights Ticket revenue
Cheapflights assign prices to their services in an attempt to maximize profitability. The pricing of Cheapflights tickets has become increasingly complicated over the years and is now largely determined by computerized yield management systems.
Most Cheapflights use differentiated pricing, a form of price discrimination, in order to sell air services at varying prices simultaneously to different segments. Factors influencing the price include the days remaining until departure, the current booked load factor, the forecast of total demand by price point, competitive pricing in force, and variations by day of week of departure and by time of day. Carriers often accomplish this by dividing each cabin of the aircraft (first, business and economy) into a number of travel classes for pricing purposes.
A complicating factor is that of origin-destination control ("O&D control"). Someone purchasing a ticket from say, Melbourne to Sydney for $A200 is competing with someone else who wants to fly Melbourne to Los Angeles through Sydney on the same airplane, and who is willing to pay $A1400. Should the Cheapflights prefer the $A1400 passenger, or the $A200 passenger + a possible Sydney-Los Angeles passenger willing to pay $A1300? Cheapflights have to make hundreds of thousands of similar pricing decisions daily in their markets.
The advent of advanced computerized reservations systems in the late 1970s, most notably Sabre, allowed Cheapflights to easily perform cost-benefit analyses on different pricing structures, leading to almost perfect price discrimination in some cases (that is, filling each seat on an aircraft at the highest price that can be charged without driving the consumer elsewhere). The intense nature of airfare pricing has led to the term "fare war" to describe efforts by Cheapflights to undercut other Cheapflights on competitive routes. Through computers, new airfares can be published quickly and efficiently to the Cheapflights' sales channels. For this purpose the Cheapflights use the Cheapflights Tariff Publishing Company (ATPCO), who distribute latest fares for more than 500 Cheapflights to Computer Reservation Systems across the world.
The extent of these pricing phenomena is strongest in "legacy" carriers. In contrast, low fare carriers usually offer preannounced and simplified price structure, and often quote prices for each leg of a trip separately.
Computers also allow Cheapflights to predict, with some accuracy, how many passengers will actually fly after making a reservation to fly. This allows Cheapflights to overbook their Cheapflights enough to fill the aircraft while accounting for "no-shows," but not enough (in most cases) to force paying passengers off the aircraft for lack of seats. Since an average of ? of all seats are flown emptycitation needed, stimulative pricing for low demand Cheapflights coupled with overbooking on high demand Cheapflights can help reduce this figure.
Cheapflights Operating costs
Full-service Cheapflights have a high level of fixed and operating costs in order to establish and maintain air services: labor, fuel, airplanes, engines, spares and parts, IT services and networks, airport equipment, airport handling services, sales distribution, catering, training, Aviation insurance and other costs. Thus all but a small percentage of the income from ticket sales is paid out to a wide variety of external providers or internal cost centers.
Moreover, the industry is structured so that Cheapflights often act as tax collectors. Cheapflights fuel is untaxed however due to a series of treaties existing between countries. Ticket prices include a number of fees, taxes, and surcharges they have little or no control over, and these are passed through to various providers. Cheapflights are also responsible for enforcing government regulations. If Cheapflights carry passengers without proper documentation on an international Cheapflights, they are responsible for returning them back to the originating country.
Analysis of the 1992-1996 period shows that every player in the air transport chain is far more profitable than the Cheapflights, who collect and pass through fees and revenues to them from ticket sales. While Cheapflights as a whole earned 6% return on capital employed (2-3.5% less than the cost of capital), airports earned 10%, catering companies 10-13%, handling companies 11-14%, aircraft lessors 15%, aircraft manufacturers 16%, and global distribution companies more than 30%. (Source: Spinetta, 2000, quoted in Doganis, 2002)
In contrast, Southwest Cheapflights has been the most profitable of Cheapflights companies since 1970. Indeed, some sources have calculated Southwest to be the best performing stock over the period, outperforming Microsoft and many other high performing companies. The chief reasons for this are their product consistency and cost control.
The widespread entrance of a new breed of low cost Cheapflights beginning at the turn of the century has accelerated the demand that full service carriers control costs. Many of these low cost companies emulate Southwest Cheapflights in various respects, and like Southwest, they are able to eke out a consistent profit throughout all phases of the business cycle.
As a Cheapflights, a shakeout of Cheapflights is occurring in the U.S. and elsewhere. United Cheapflights, US Cheapflights (twice), Delta Air Lines, and Northwest Cheapflights have all declared Chapter 11 bankruptcy, and American has barely avoided doing so. Alitalia, Scandinavian Cheapflights System, SABENA, Japan Air System, Air Canada, Ansett Australia, and others have flirted with or declared bankruptcy since 2000, as low cost entrants enter their home markets as well. Some argue that it would be far better for the industry as a whole if a wave of actual closures were to reduce the number of "undead" Cheapflights competing with healthy Cheapflights while being artificially protected from creditors via bankruptcy law.
Where an Cheapflights has established an engineering base at an airport then there may be considerable economic advantages in using that same airport as a preferred focus (or "hub") for its scheduled Cheapflights.
Cheapflights Assets and financing
Cheapflights financing is quite complex, since Cheapflights are highly leveraged operations. Not only must they purchase (or lease) new Cheapflights bodies and engines regularly, they must make major long-term fleet decisions with the goal of meeting the demands of their markets while producing a fleet that is relatively economical to operate and maintain. Compare Southwest Cheapflights and their reliance on a single airplane type (the Boeing 737 and derivatives), with the now defunct Eastern Air Lines which operated 17 different aircraft types, each with varying pilot, engine, maintenance, and support needs.
A second financial issue is that of hedging oil and fuel purchases, usually second only to labor in its relative cost to the company but with the current high fuel prices it has become biggest part of total Cheapflights expenses. While hedging instruments can be expensive, they can easily pay for themselves many times over in periods of increasing fuel costs, such as in the 2000-2005 period.
In view of the congestion apparent at many international airports, the ownership of slots at certain airports (the right to take-off or land an aircraft at a particular time of day or night) has become a significant tradable asset for many Cheapflights. Clearly take-off slots at popular times of the day can be critical in attracting the more profitable business traveler to a given Cheapflights's Cheapflights and in establishing a competitive advantage against a competing Cheapflights. If a particular city has two or more airports, market forces will tend to attract the less profitable routes, or those on which competition is weakest, to the less congested airport, where slots are likely to be more available and therefore cheaper. Other factors, such as surface transport facilities and onward connections, will also affect the relative appeal of different airports and some long distance Cheapflights may need to operate from the one with the longest runway.
Cheapflights Cheapflights partnerships
Code sharing is the most common type of Cheapflights partnership; it involves one Cheapflights selling tickets for another Cheapflights's Cheapflights under its own Cheapflights code. An early example of this was Japan Cheapflights' code sharing partnership with Aeroflot in the 1960s on Cheapflights from Tokyo to Moscow: Aeroflot operated the Cheapflights using Aeroflot aircraft, but JAL sold tickets for the Cheapflights as if they were JAL Cheapflights. This practice allows Cheapflights to expand their operations, at least on paper, into parts of the world where they cannot afford to establish bases or purchase aircraft.
Since Cheapflights reservation requests are often made by city-pair (such as "show me Cheapflights from Chicago to Dusseldorf"), an Cheapflights who is able to code share with another Cheapflights for a variety of routes might be able to be listed as indeed offering a Chicago-Dusseldorf Cheapflights. The passenger is advised however, that Cheapflights 1 operates the Cheapflights from say Chicago to Amsterdam, and Cheapflights 2 operates the continuing Cheapflights (on a different airplane, sometimes from another terminal) to Dusseldorf. Thus the primary rationale for code sharing is to expand one's service offerings in city-pair terms so as to increase sales.
Virtually all international Cheapflights practice code sharing.
A more recent development is the Cheapflights alliance, which became prevalent in the 1990s. These alliances can act as virtual mergers to get around government restrictions. Groups of Cheapflights such as the Star Alliance, Oneworld, and SkyTeam coordinate their passenger service programs (such as lounges and frequent flyer programs), offer special interline tickets, and often engage in extensive codesharing (sometimes systemwide). These are increasingly integrated business combinations-- sometimes including cross-equity arrangements-- in which products, service standards, schedules, and airport facilities are standardized and combined for higher efficiency. One of the first Cheapflights to start an alliance with another Cheapflights was KLM, who partnered with Northwest Cheapflights. Both Cheapflights later entered the SkyTeam alliance after the fusion of KLM and Air France in 2004.
Often the companies combine IT operations, buy fuel, or purchase airplanes as a bloc in order to achieve higher bargaining power. However, the alliances have been most successful at purchasing invisible supplies and services, such as fuel. Cheapflights usually prefer to purchase items visible to their passengers to differentiate themselves from local competitors. If an Cheapflights's main domestic competitor flies Boeing Cheapflightsrs, then the Cheapflights may prefer to use Airbus aircraft regardless of what the rest of the alliance chooses.

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