Airline industry

The U.S. airline industry is responsible for transporting more than 600 million passengers and 18 million pounds of freight per year, and employs approximately 600,000 people nationwide. In 1997, passenger and freight revenues exceeded $89 billion. The industry is comparatively young, just over 80 years old; its robust performance is the result of constant interplay between technological innovations, government regulations, and evolving customer requirements.
The first scheduled air service in the United States was a small Florida air taxi service that began in 1913. However, the modern airline industry dates from 1918, when the U.S. Army inaugurated, and the U.S. Post Office acquired, the Air Mail service. Benefiting from advanced airplanes and engines developed during World War I, the Post Office established a scheduled coast-to-coast network. The Post Office gradually expanded its airmail routes for the next five years.
In the mid-1920s, federal legislation designed to stimulate commercial aviation considerably influenced the development of airlines. The Air Mail Act of 1925 authorized the Post Office to contract with private companies for mail delivery along regional Contract Air Mail (CAM) routes. Ford Air Transport flew the first CAM flight in 1926. Other airlines awarded CAM routes included Western Air Express, Pacific Air Transport, and Varney Speed Lines. Beginning in 1927, PAN AMERICAN AIRWAYS flew international airmail.
Shortly after scheduled services began, the Air Commerce Act of 1926 transferred authority for operating the airmail system to the Department of Commerce. The transfer was complete by 1928. Advances in aviation technology during the 1920s improved the proficiency and reliability of airlines. Blind flying and radio navigation capabilities permitted nighttime and cross-country flights. Many airlines received grants from the Daniel Guggenheim Fund for the Promotion of Aeronautics to finance the development and purchase of airplanes.
Supportive legislation and operating subsidies encouraged financiers to view airlines as sound investments. As a result, larger, more viable regional airlines appeared. When Jack Maddux acquired Transcontinental Air Transport and Western Air Express in November 1929, the resulting company—TWA—became a major national airline.
Charles Lindbergh’s 1927 solo Atlantic flight generated popular interest in air travel. The Air Mail Act of 1930 capitalized on this interest by establishing a premium for airlines that flew passengers as well as mail. Airlines encouraged the AIRPLANE INDUSTRY to develop suitable multiengine aircraft, the ancestors of today’s airliners. Among them were the Douglas DC, the Lockheed “Electra” series, and the BOEING 247. During the mid-1930s, airlines shifted their focus from airmail to passengers as their primary source of revenue.
Further rearrangement came in 1934, when Congress canceled all domestic airmail contracts due to collusion between the postmaster general and several airlines. New bids were eventually sought, but due in part to this scandal antitrust regulations required all airline operators to divest their aircraft and engine manufacturing holdings. For example, United Aircraft & Transport split into United Aircraft Corporation and United Air Lines. This structure has remained the industry’s standard.
Comprehensive federal REGULATION of air commerce began in earnest with the Civil Aeronautics Act of 1938. This act established the Civil Aeronautics Authority (CAA) under the Department of Commerce. One of the purposes of the CAA was to ensure fair competitive practices in the comparatively small industry. Two years later an independent Civil Aeronautics Board was established to control routes, fares, safety, and entry by new airlines.
Developments during World War II significantly influenced the postwar industry. After 1945, airlines had access to larger aircraft with more powerful engines, produced by companies with substantially greater output capabilities. New international agreements and a reorganized CAA favored expansion. Airlines benefited from improved navigation and landing aids. Charter, freight, and regional services appeared, using inexpensive surplus transports.
Jet propulsion, an important wartime technological innovation, significantly altered the industry in the mid-1950s. Fuel efficiency and power initially limited commercial applications, but the development of the Pratt & Whitney JT-3 engine allowed Boeing and Douglas to develop commercial airliners around it: the 707, which entered service in 1958, and the DC-8 in 1959. Though conversion to jetliners proved expensive, by the early 1960s jet aircraft began to dominate air travel and enabled the major airlines to overtake railways and ocean liners as the primary method of long-distance passenger transportation. Concurrent with the development of jetliners, an independent Federal Aviation Agency (later Administration; FAA) superseded the CAA in January 1959. The FAA later became part of the Department of Transportation.


In response to the need to carry more passengers more cost-effectively, wide-body airliners were introduced in the early 1970s. However, the oil crisis and an economic recession slowed airline growth; when airlines sought fare increases to offset losses, industry critics cried that regulation had turned airlines into inefficient, monopolistic sluggards. In 1978, Congress passed the Airline Deregulation Act, which ended more than 50 years of direct federal oversight of the industry. The resulting competition inspired innovations such as hub-and-spoke systems, frequent flier miles, and computer reservation systems.
By 2000, airlines were generally prospering. Despite shakeups and mergers, competition thrived, and airlines turned small but consistent profits. New airlines competed and collaborated with major carriers to provide domestic and international service. Nevertheless, concerns about the quality of safety and service led to increasing tensions between airlines and travelers and even the airlines’ own employees. Concerns about industry competitiveness in the global marketplace inspired a new round of consolidations. Observers are uncertain whether problems will increase now that airlines answer to stockholders rather than to the government or to customers.
The terrorist attacks of September 11, 2001, in which the world watched transcontinental airliners become weapons of mass destruction, will likely alter for at least a generation the relationship of air travel to American life. Increased security and heightened passenger unease appear to be the new norm. In addition, the price of jet fuel has steadily increased, on top of which several airlines have been embroiled in labor disputes with airline employee unions over salaries and pension plans. All of these factors came into play when United Airlines—the third-largest airline in the United States—declared bankruptcy in 2002, from which it is still trying to recover. The larger airlines are also suffering from the competition being presented by low-cost carriers such as Southwest Airlines and Jet Blue. These smaller airlines have found ways to cut costs, lower fares, and remain profitable—forcing the larger airlines to match their lower fares and thereby reducing profits. As the industry recovers from the losses of both revenue and reputation, however, it will likely resume its pattern of change in response to new competitors, markets, and opportunities. See also EASTERN AIRLINES.