AMT 489 Midterm Exam 2025

Things that affect the industry - - o Security o Politics o WX o Technology o Fuel prices o MX o On time performances o Labor contracts o Pilot shortage CRS System - -used for ticketing, sales Marketing tool for all carriers Screen science, screen bias Travel agents were marketing arm, paid by how many tickets were sold with commission, Travel agents made millions of dollars 1918 - -U.S. post office took over operation 1920s - -airmail higher priority 1925 - -Kelly Act which authorized the postmaster general to enter into contracts with private entities 1926 - -Air commerce act 1934 - -Airmail act President Franklin D. Roosevelt Awarded airmail contracts based on competitive bidding 1938 to 1978 - -No matter up or down, we were doing good Roosevelt & congress 1938 - -CAB-regulated (up to 1978) Cyclical industry Ask CAB for routes and fares Administrative agency consisting of three partly autonomous bodies - a five member Civil Aeronautics Authority, a three member Air Safety Board, and an Administrator. 1958 - -FAA 1978 - -Deregulation AMT 489 AMT 489 What led to derig? - -Watergate, cab favoritism, investigation of CAB Deregulation - -Promote competition Macroeconomic events Macroeconomic events - -Fuel crisis (1978-88) - PATCO strike (air traffic control strike 1978) - High interest rates - Oil shock - Expensive to get new act 19% - Recession - Labor costs 10% Oligopolistic industry: - -All competing against each other for the same passenger - High Barriers to entry - Mutual Dependence - Price rigidity and non price competition - Economies of Scale - Growth through merger High barriers to entry - -Hard to get into business, hard to get into markets Capital intensive Initial costs, certification, regs, pax loyalty etc. Economies of scale - -The bigger we are, the cheaper things are for us MX utsource, buying power (buying in bulk), spread out costs (fixed= consistent, variable= AC flying or not) Growth through merger - -Advantages - Routes - Schedule - Aircraft - Intellectual property Disadvantages - Debt - Reputation - Combining cultures - Multiple roles Mutual Dependence - -Monkey see, monkey do Price rigidity and non-price competition - -- Service, non-stop, schedule, fees AMT 489 AMT 489 AMT 489 Disadvantages of hub-and-spoke system: - -Inefficient gate and terminal space became scarce. Following the merger wave, several hubs were left overwhelmingly dominated by a single carrier Airports, making them over capacity. And no new airports being built because of the time it took to build them (10 years). Wage concessions: - -help to keep airline afloat, exchange wages for other benefits Mutual aid: - -When employees go on strike other airlines help pay you money, so you are able to stay afloat Frank Lorenzo did this a lot ASM - -available seats per mile (capacity) RPM: - -revenue pax miles (money you make per mile) LF: - -RPM/ASM (#of people/# of seats) Essay: 3 things you learned in HL so far: - -- Frank Lorenzo: he was ruthless in that he did everything possible in his power so that his airline would succeed even if that meant his employees suffered. Even though he was ruthless/aggressive and not liked by his employees he was still able to become very successful in the many different airlines he was at. - The importance of CRS (computer reservation systems) and how the inventions of these make sales, ticketing and promotion easier. Also that some airliners used this system to their advantage through screen biased and having travel agents on commission. Helped make intricate pricing decisions. Helped devise complex fare schemes. On a single day, American used its CRS to make 106,000 fare changes - It was surprising how southwest came to become an airline, it first started out as an idea on a napkin and it is now one of the biggest flying airlines. Their technique was unique and smart so that they did not have to associate as much with the CAB and be able to tailor their airline to the needs of their passengers. 3. During the period of regulation, why did the airlines generally agree to the demands of the labor unions? What effect did this have on the incumbent airlines after deregulation? - -a. Generally, airlines would agree to the demands of labor unions because under regulation b. After deregulation, when the market became more competitive, airlines prices were on more of a downtrend. e. Labor more expensive than market rates 6. What advantage did the new airlines have over the incumbent airlines in terms of fleet selection? - -a. When deregulation came, the trunks found themselves at a disadvantage. AMT 489 i. Their fleets of Boeing 707s and McDonnell Douglas DC-8s, which were built when fuel cost 10 cents per gallon, became gas- guzzlers as the price hit one dollar. The high fuel costs literally prevented any flight on these jets from breaking even (Exhibit 4). b. The regionals operated newer, more adaptable, fuel-efficient, aircraft c. The trunks, on the other hand, had no choice but to reconfigure their fleets. 9. Describe the outcome of unbundling an airline's pricing structure. - -allowed them to maintain high-yield business travelers while offering unsold capac