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244 � Transportation Statistics Annual Report 1996 hub-and-spoke system also obviates the need to change airlines, thereby reducing the possibility of losing baggage. Airlines have a strong incentive to increase their control at their connecting hubs. This has encouraged geographic expansion and resulted in intensified service competition in many citypair markets. Although major carriers tend to dominate at the largest hubs, consumer choices have increased significantly since deregulation. More city-pair markets and passengers enjoy competitive service from competing carriers than ever before. Innovative Marketing Strategies The advent of deregulation forced airline management to develop new approaches for marketing air transportation. Several strategies emerged: sophisticated discounting practices, marketing arrangements with travel agents relying on computer reservations systems, incentive commission programs, frequent-flyer programs, and close operating agreements with smaller air carriers. Discount airfares were used to counter lowfare offerings of new, low-cost, often non-union, carriers. Over time, established carriers developed yield management systems in conjunction with CRSs, permitting air carriers to focus on selling, at a discount, seats that would have gone unsold. Airlines use computer-based yield management systems to efficiently market discount fares to different customers such as tourists and business-class and first-class passengers. Yield management systems permit the airline industry to take advantage of the different price sensitivities among classes of passengers so that each flight may have a mix of full-fare, partially discounted, and fully discounted tickets. Furthermore, CRSs permit carriers to target competitors’ seat availability with minimum impact on prices for their own seats. In recent years, the airlines elevated the importance of travel agents, a major distribution channel for tickets. American Airlines and United Airlines pioneered the use of CRSs that enabled travel agents to track frequent changes in service and fares and to reserve flights. Economic incentives were provided to travel agents who reserved flights on CRS carriers even though other carriers were available. Eventually, these two airlines claimed affiliations with nearly 80 percent of automated travel agencies. Travel agents are given further incentives to reserve a seat with a particular airline through the provision of high booking fees— called commission overrides, which are given for achieving specific volumes in ticket sales. Frequent-flyer programs aimed at promoting carrier loyalty proved to be a powerful marketing tool. Introduced in 1981 by American Airlines, frequent-flyer incentives spread throughout the industry as an important way to retain business travelers who are less able to take advantage of deep discount fares, but who might opt for lower fares offered by competitors. The importance of offering frequent-flyer benefits is heightened by the fact that roughly 5 to 6 percent of passengers account for approximately 40 percent of all trips. (TRB 1991, 55) Frequent-flyer programs have been criticized for a variety of reasons. Some have argued that the airlines pay the cost of frequent-flyer programs by charging higher fares to all passengers. Another criticism is that frequent-flyer programs lessen the competitive pressure of deregulation; passengers may reject the lowest fare airline for a frequent-flyer plan in order to get points toward a future free flight. Marketing affiliations, known as codesharing, were originally initiated between large and small carriers. These alliances have proliferated throughout the domestic industry and spread to the international arena (e.g., USAir-British Airways, 1993; Delta-Swissair, 1993; Northwest- KLM, 1993; United-Lufthansa, 1994; American-
Canadian Airlines International, 1995; United-Air Canada, 1995). These arrangements have developed into a succession of relationships, from intercarrier agreements to joint operations to partial ownership in some cases. Codesharing allows airlines to sell tickets and provide service to points beyond their immediate route network. Industry Financial Performance The strength of the industry’s financial condition determines its ability to withstand periods of recession and attract enough capital to replace and expand its fleets. Its financial condition also affects its ability to comply with environmental and energy standards. To date, the airline industry’s financial performance has been mixed. Figure A-11 shows the airline passenger industry’s operating profit and net income from Current dollars (millions) 3,000 2,000 �� 1,000 0 –1,000 Appendix A: An Overview of the U.S. Commercial Airline Industry � 245 1979 to 1994 for the nation’s three largest air carrier groups. Between 1990 and 1992, the airline passenger industry recorded its highest losses in history, but has since rebounded. Similarly, the financial condition of the cargo industry has improved. Figure A-12 shows the passenger and cargo industries’ combined cumulative operating profits 7 and net income from 1979 to 1994. As shown in the figure, cumulative operating profits were $16.9 billion, and cumulative net losses were $15.4 billion. These results stemmed from sporadic profitability from 1979 through 1992, which can be traced to cycles in the national economy driving demand for air travel, the inability to maintain yields in the face of competition, and periods of excess seat capacity. By 1994, industry growth and stable yields resulted in the improved financial performance of most carriers. The rebound can be attributed 7 Cumulative operating profits and net losses are obtained by summing the annual change in operating profits and losses. FIGURE A11: AIRLINE PASSENGER INDUSTRY OPERATING PROFIT AND NET INCOME, 1979–94 �� –2,000 �� –3,000 –4,000 �� Operating profit Net income –5,000 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 NOTE: Operating income is obtained from a company's Statement of Income and is derived by subtracting total operating expenses from total operating income. Net income is derived by deducting income and expenses of nonflight operations (interest, capital gains or losses, depreciation, and taxes) from total transportation revenues. SOURCE: U.S. Department of Transportation, Bureau of Transportation Statistics, Office of Airline Information data.
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Bureau of Transportation Statistics
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U.S. DEPARTMENT OF TRANSPORTATION F
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5 THE STATE OF TRANSPORTATION STATI
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List of Figures PART I: THE STATE O
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9 AN INTERNATIONAL COMPARISON OF TR
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8 TRANSPORTATION AND AIR QUALITY: A
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well as the condition and performan
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cance of transportation is comparab
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U.S. society over the lifetime of p
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and compile statistical information
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onmental impacts focus on individua
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Angeles recorded 208 unhealthful da
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Part I The State of the Transportat
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4 � Transportation Statistics Ann
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10 � Transportation Statistics An
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To capture the rich interplay betwe
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Tables 2-1 and 2-2 present transpor
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kinds of transportation services co
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counted as products of the manufact
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worth of industrial output to final
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Measures of Transportation’s Impo
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New car Used car Gas and oil Gas ta
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Vehicle Operating Costs Vehicle pur
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Chapter 2 Transportation and the Ec
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federal funds spent on transit, rai
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The total collections from all thes
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classified under the industry in wh
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The airline industry is using fewer
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that businesses that once depended
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Millions of current dollars Annual
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C H A P T E R T H R E E TRANSPORTAT
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Risk exposure means that the more a
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fatality rate will continue to decl
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more than $14 billion in health car
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in terms of fatalities per distance
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that figure had dropped to 14 perce
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ed duty/sleep periods before their
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more seats (Title 14 Code of Federa
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Drivers who ignore warning signs ar
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The lack of accurate, comprehensive
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_____. 1996. 1995 Traffic Crashes,
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100 � Transportation Statistics A
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tion accounts for about one-ninth o
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cases the results have fallen short
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� Water Pollution The major sourc
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vehicles significantly lower the pe
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Total social cost at quantity Q' wh
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such as the Clean Air Act and Amend
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C H A P T E R S E V E N ENVIRONMENT
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CO emissions, 45 percent of all nit
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Index, 1970 = 1.0 2.5 2.0 1.5 1.0 0
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highway vehicles emit only half the
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7-3). VOC emissions from mobile sou
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1988; before 1988, PM-10 was not di
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new CAAA regulations required a red
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that without the improvement, VOC e
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fuels are derived from natural gas
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Gallons (millions) 25 20 15 10 5 B
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The Strategic Targeting and Respons
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EPNdB Large jet—Stage 1 (L) Large
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� Aircraft Noise Aircraft noise b
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Chapter 7 Environmental Trends and
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iron, and other metals, and greater
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Re-use Waste tire inventory Process
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� Transportation of Hazardous Mat
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Netherlands employ compensatory pro
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Billions of 1990 dollars 30 25 20 1
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Developing the information needed f
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_____. 1990. Pollutant Loadings and
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Page 230 and 231: Index, 1980 = 100 A. CO emissions,
Page 248 and 249: Appendices
Page 280 and 281: AAMVA American Association of Motor
Page 282 and 283: ISTEA Intermodal Surface Transporta
Page 284 and 285: U.S. to Metric Length (approximate)
Page 286 and 287: A Aboveground storage tanks, xxi, 1
Page 288 and 289: C CAA. See Clean Air Act CAAA. See
Page 290 and 291: Energy efficiency combination truck
Page 292 and 293: evenues, 53-56 subsidies paid to op
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Page 296 and 297: energy demand projections, 95 exter
Page 298 and 299: Tires burning, 158 disposal, xxi, 1
Page 300: physical condition and performance,
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