Air Transportation, Scheduled

SIC 4512

Companies in this industry

Industry report:

The scheduled air transportation industry has been engaged primarily in furnishing passenger air transportation over regular routes and on regular schedules. This industry includes Alaskan carriers operating over regular or irregular routes.

Industry Snapshot

The passenger air transportation industry provides air travel to domestic and international destinations. What began as a mode of transport for the U.S. mail has become a multibillion dollar industry, which in 2011 contributed more than $1.2 trillion in economic activity (or 4.9 to 5.2 percent of the U.S. GDP) and about 11 million jobs, according to Airlines for America (A4A). In fiscal year 2010, net profits for U.S. commercial air carriers (passengers and cargo) totaled $3 billion. This followed a dismal 2009, with the industry, among many others, negatively affected by the economic recession at the end of the first decade of the 2000s. According to Airports Council International, 1.5 billion passengers arrived and departed from North American airports in 2010, an increase of 3.5 percent from the previous year. Commercial aviation was expected to surpass 1 billion passengers by 2015. The U.S. commercial airline industry consisted of 20 mainline air carriers operating large jets with revenue of at least $1 billion, 30 midsize carriers with revenue between $100 million and $1 billion, and 100 small carriers with revenue below $100 million.

The airline industry experienced uninterrupted growth in revenues throughout the 1990s. However, a weakening global economy, coupled with the terrorist attacks on the United States on September 11, 2001, drastically reduced airline traffic. As a result, the industry posted unprecedented losses of $7.7 billion for 2001, as revenue dropped 13.5 percent from a record high of $93.6 billion in 2000. The slowdown continued into 2002 and 2003, as major airlines, faced with reduced sales, continued to reduce their capacity and trim their ranks. Conditions did not improve for the airlines as the price of oil soared to $55 to $60 a barrel in 2004 and remained high into 2007 at more than $95 a barrel and $3.00 a gallon. In 2008 jet fuel increased by the largest amount ever, 96 cents per gallon, to a record $3.07 per gallon. Prices continued to soar in the new century, and according to National Geographic News, by May 2011 the price of jet fuel had risen nearly 50 percent over the 2010 price and 30 percent just since the start of 2011. Figures from the first quarter of 2011 showed that "jet fuel purchases made up 33 percent of costs for major U.S. airlines, surpassing labor costs (25 percent) as their single largest expense."

By 2005 U.S. airlines had endured five straight years of net losses, with a $5.7 billion loss in 2005 and a $35 billion recorded loss from 2001 to 2005, according to the Air Transport Association (ATA). The ATA claimed that the losses were somewhat a result of the airlines being unable to recover expenses, particularly the overwhelming cost of fuel. Looking at the decade as a whole, the industry reported a net loss of $55 billion and 150,000 jobs.

The five largest airports in the United States based on passengers in 2010 were Atlanta (Georgia) Hartsfield (89.3 million), Chicago O'Hare (66.7 million), Los Angeles International (59 million), Dallas/Ft. Worth International (56.9 million), and Denver International (52.2 million). New York John F. Kennedy, George Bush Intercontinental/Houston, Las Vegas McCarran International, San Francisco International, and Phoenix Sky Harbor International rounded out the top 10, according to North America Airports Council International (NAACI).

Organization and Structure

The U.S. Department of Transportation (DOT) has categorized airlines based on their annual revenues into three groups: major, national, and regional/commuter. Major airlines have more than $1 billion in annual revenues. This category once included Eastern, Pan Am, Northwest Airlines, Continental, Republic, America West, and Trans World Airlines (TWA). By the early 1990s, many of these companies were in some form of bankruptcy or had shut down operations. The result of these and other closings was the consolidation of assets among the three strongest majors: American Airlines, Delta, and United. New to this category was Southwest Airlines, formerly a national airline, which offered short-haul, point-to-point service with few amenities.

Airlines with annual revenue of $100 million to $1 billion are generally classified as national airlines. Although this category is called "national," the name is not based on geographic boundaries, as only a small number of carriers actually have nationwide routes.

A carrier with less than $100 million in annual revenue is classified as a regional/commuter airline. Some of the top regional carriers during the middle of the first decade of the 2000s were American Eagle, Sky West, Express Jet, and US Airways. While the major airlines struggled, regional carriers fared better during the first half of the 2000s, growing at about twice the rate of the national carriers. By 2011 the Regional Airline Association (RAA) reported that there were about 13,000 regional airline flights per day, and regional airlines were operating more than half of the nation's commercial schedule.

Hub-and-Spoke System.
The major airlines operate under the hub-and-spoke system set up after passage of the Airline Deregulation Act of 1978. This system created central hubs across the United States, where feeder flights landed and their passengers transferred to numerous other flights provided at the hub before flying to their final destinations. The hub-and-spoke system was advantageous to the major airlines by creating additional service to more destinations and allowing more efficient use of planes, terminals, ground equipment, and employees.

Unlike governments in many other countries, the U.S. government has not owned or operated an airline in any form. Instead, all U.S. airlines have been either public or privately held companies. Government involvement in the industry has been in the form of regulatory agencies, Congressional acts, and appointed commissions.

Background and Development

The creation of the passenger airline industry was contingent on the development of the aviation industry. The aviation industry began with the first successful flight by the Wright brothers in Kitty Hawk, North Carolina, in 1903. However, the general public did not eagerly embrace air travel, thinking that it was a dangerous mode of transportation. Thus, the development for passengers of an aircraft, which in those days was called a "heavier-than-aircraft," moved slowly.

The country's preparation for an eventual entry into World War I provided the necessary stimulus for developing the aircraft industry, if only for wartime. However, as quickly as the U.S. government supported aviation during the war, it pulled all support and funding after the war, which virtually halted the industry.

The popularity of air travel exploded with the successful overseas flight of Charles Lindbergh in 1927. Various air transport holding companies were created, such as Aviation Corporation, launched by financiers W. Averill Harriman and Robert Lehman. The air transport division of this company was called American Airways. In 1928 Boeing and its air transport division created another holding company--United Aircraft and Transportation Corporation. By 1931 United Air Lines was created as the management company for United Aircraft's four transport companies.

Mail Service Spurred Industry Development.
The airline industry developed in large measure because of efforts to improve the U.S. mail service. Congress appropriated monies for a trial mail run, and flights were originally made by Army planes and pilots. Soon after, the U.S. Post Office put together its own fleet of planes for mail delivery service. By 1920 flights were being made from New York to San Francisco during daytime hours.

Since the post office planes were allowed to carry only mail, political pressure mounted to turn this service over to private airline operators that could expand their cargo. In 1925 the Kelly Airmail Act gave private airlines the opportunity to serve as mail carriers through competitive bidding and subsidies. The first national aviation policy, the Air Commerce Act of 1926, established provisions for the regulation of air traffic, the registration of aircraft, and the production of pilot licenses. Passenger volume grew from 6,000 to 400,000 a year, and carriers flourished, but air traffic across the nation became increasingly disorganized. The McNary-Waters Act of 1930 gave the nation's postmaster general the authority to manage the industry. While the bidding system technically remained in place, Postmaster General Walter Brown arranged a meeting at which the airlines negotiated their own territories. As a result, three primary routes in the north, south, and middle were established across the United States, with United, American, and TWA each controlling one route.

Brown's dictatorial power over the airline industry came under increasing criticism. Congressional hearings were held at the beginning of the Roosevelt administration in 1933 to investigate how mail contracts were awarded. Under pressure from Senator Hugo Black, President Roosevelt cancelled all the mail contracts, deeming them illegal, and turned over the mail delivery service to the Army Air Corps. This decision turned out to be disastrous because the Corps pilots were unfamiliar with the territory and had to fight treacherous winter weather. Five pilots were killed in separate crashes in the first five weeks, and public outcry persuaded President Roosevelt to return the mail service to contractors.

Under the 1934 Air Mail Act, the postmaster general's power over the industry was lessened, and measures to ensure truly competitive bidding were established. New as well as established airlines made low bids in an effort to snare market share, which created stiff competition, and no carrier was able to make a profit.

Civil Aeronautics Act.
The highly competitive industry seemed to be in danger of self-destruction. The government reacted by passing the Civil Aeronautics Act in 1938. The legislation created the Civil Aeronautics Authority (CAA), an independent regulatory bureau that later became the Civil Aeronautics Board (CAB). The CAB regulated passenger fares and airmail routes, monitored acquisitions and mergers, and distributed routes to airlines. The policies implemented by the Board in the 1930s remained intact for nearly 40 years, resulting in stagnation in the industry. No new major carriers established themselves during that time, and the number of major airlines dwindled to nine.

The U.S. entry into World War II required the country's commercial fleet of planes to be sent overseas, along with flight personnel. The war increased the development of aircraft, not only for wartime use, but also for postwar commercial aviation. The 1950s brought the introduction of the electronic reservations system as well as cross-country jet service. Advances in passenger comfort and plane capacity further aided the industry. During the 1950s and 1960s, companies continued to buy new planes while expanding service to both domestic and international destinations.

The Federal Aviation Act was passed in 1958 after two airplanes collided over the Grand Canyon. The act created the Federal Aviation Agency, which was responsible for developing an air traffic control system. In 1967 the Agency was renamed the Federal Aviation Administration (FAA) and was put under the control of the U.S. Department of Transportation (DOT), which was also created that year.

Industry Deregulation.
Tremendous transformation occurred in the 1970s in the industry. Companies in the industry were rocked by expensive new aircraft purchases and fuel costs that amounted to as much as 30 percent of operating expenses because of concern over oil, and thus fuel, supply. Labor costs soared as well, while service demand remained tepid. The airline industry was in serious trouble.

Simultaneously, calls for the repeal of the 1938 legislation that had frozen the industry for so long increased. Critics contended that the airline industry had become sluggish and ineffective in the regulated environment. They were supported by the events of the mid-1970s, which resulted in The Airline Deregulation Act of 1978, removing governmental control of routes and fare pricing.

The airline industry felt the effects of deregulation almost immediately. New players in the industry proliferated at the national and regional levels. Established regional airlines, meanwhile, viewed deregulation as an opening to expand their influence. Competition quickly became intense across the industry as established companies scrambled to keep pace with new companies that had the latest aircraft that fit their needs as well as strategies that jelled with the concept of the hub-and-spoke.

In the mid-1980s, the industry consolidated and downsized through mergers, acquisitions, and bankruptcies. Mergers were approved by the Department of Transportation rather than the Justice Department, which did not assume power over airline mergers until 1988. The consolidation of the industry left eight airlines controlling more than 90 percent of U.S. air traffic. The industry boomed with increased traffic and first-time passengers because of drastic reductions in fares and the addition of cities served by air transportation. However, the industry encountered significant problems. Demand for new aircraft exceeded manufacturers' supplies, creating a situation by the late 1980s in which 20 percent of U.S. planes in operation were older than the 20-year standard life. Safety concerns increased as well, after several major airplane crashes resulted in the loss of hundreds of lives. Critics contended that the airlines did not pay sufficient attention to maintenance needs because of cost concerns.

However, the biggest presumed threat to the domestic airline industry was the most basic one--the inability to make a profit. Operating costs, especially for labor, coupled with incessant fare wars with ticket prices often slashed as much as 50 percent, battered the industry's major companies.

Nevertheless, customers benefited from deregulation. Between the late 1970s and late 1980s, passenger counts increased more than 70 percent and revenue tripled from $27 billion to more than $77 billion. Nearly 90 percent of all passengers during the 1980s traveled on discounted fares.

Daunting financial difficulties for the carriers persisted into the early 1990s. In 1993 the Clinton administration created the National Commission to Ensure Strong Competitive Airline Industry to compensate for the financial problems challenging the airline industry. The Commission completed a 90-day study of public policy changes that could be enacted to maintain profitability.

Staged Strong Recovery after 1992.
The passenger air transportation industry made an unprecedented turnaround in profitability, traffic, and price stability in the 1990s. The industry had flourished from the late 1950s through the early 1970s as U.S. airline passenger traffic grew 13 percent a year. However, by the early 1990s, the industry was hit hard by the Gulf War, rising fuel prices and other operating costs, fare wars, rising debt service costs, and the slowdown of the U.S. economy. The industry's annual average growth in traffic was less than 1 percent from 1987 through 1992, and even this dismal rate was achieved by selling seats below cost.

Consolidation in the industry increased as the major airlines returned to profitability. In late 1996, American and British Airways, Continental and Delta, and USAir and United considered mergers, but pilots, unions, and government antitrust regulations hampered mergers.

Successful national airlines provided service to a niche market, did not interfere with the majors, and operated from airports with minimal competition. Examples included Southwest Airlines at Dallas Love Field, Midway Airlines at Midway Airport in Chicago, and America West in Phoenix. Alaska Airlines remained the only large, successful national airline in operation, with more than 50 percent of the market share in the Pacific Northwest/Alaska.

Regional airlines continued to flourish for two reasons. First, in an effort to cut costs, the majors gave unprofitable routes to affiliated regional airlines. Customers were encouraged to fly on the regional line with the incentive of accruing frequent flyer miles. With this arrangement, the major airline maintained its name recognition without having to run an unprofitable route.

The withdrawal of jet service to certain markets by the major airlines also created opportunities for non-affiliated regional airlines. Several small airlines, such as Reno Air Inc., Skybus Corp., and Kiwi International Air Lines Inc., defied negative trends and started operations during the early 1990s. Tapping into the glut of planes and unemployed workers created by the industry shakeout of the late 1980s, 17 airlines had applied to become certified for chartered service by the end of 1991.

During the early 1990s, carriers put forth a serious effort to control operating costs by cutting personnel, reducing salaries, trimming flight schedules, and retiring older aircraft. The industry benefited from the diminished capacity glut from 1994 through 1996.

Congress allowed the 10 percent federal excise tax on domestic airline tickets to expire at the end of 1995 but reinstated it on August 17, 1996. As the airlines lowered prices during this time, traffic and profits increased. The tax expired at the end of 1996 only to be reinstated once again in March 1997, when most airlines (except Southwest) raised prices. Wall Street analysts predicted that strong airline traffic and lower fuel costs would have a positive effect on the industry, despite the reinstatement of the federal excise tax and any threat of future price wars.

Fuel prices were at 30-year lows by the end of 1998, which helped support profits in the airline industry, even as the industry was hit by several one-time events that drove down profits compared to 1997. For example, a lengthy pilot strike against Northwest Airlines put the company into the red for 1998. While the industry reported an increase in overall revenue from $88 billion in 1997 to $90.5 billion in 1998, the top nine airlines reported a 15 percent decline in earnings for the year. Cost-cutting measures, including lowering commissions paid to travel agents, helped improve profits in some cases.

America West, which was the ninth-ranked airline in terms of passengers and revenue passenger miles in 1997, was unsuccessfully courted by United Airlines and Delta Airlines in early 1999. Following about a dozen airline mergers in 1986 and 1987, there was no major airline merger during the 1990s, although Northwest took a majority stake in Continental Airlines in 1998.

Instead, airlines joined forces through alliances with other domestic and international carriers. Code sharing, where one carrier's flight schedules are coded under an affiliated carrier's symbol on airline reservation systems, became a popular way to form alliances. The top five airlines formed clusters of code-sharing alliances with international carriers, making it easier for customers to book connecting flights. United Airlines leads the Star Alliance with Lufthansa, Scandinavian Air System, All Nippon Airways, and Air Canada. American's One World Alliance includes British Airways, Qantas, TACT, and other Latin American carriers. Delta was a member of Sky Team with Air France and other European carriers.

Merger negotiations increased among the major airlines in the late 1990s. American Airlines courted US Airways in 1999, a combination that would have resulted in the nation's largest airline, but those negotiations stalled. In 2000 United Airlines announced its intention to acquire US Airways for $4.3 million in cash, as well as the assumption of $7.3 billion in debt. The following year, however, the U.S. Justice Department raised anti-trust concerns that eventually undermined the deal. One major consolidation effort occurred in 2001 when American Airlines paid $740 million for the assets of TWA.

The airline industry experienced a devastating blow in 2001, when terrorists used hijacked planes to destroy the World Trade Center towers in New York City, severely damage the Pentagon in Washington, D.C., and crashed in Shanksville, Pennsylvania, when passengers tried to re-take the plane. Air traffic ground to a halt for several days. Revenue passenger miles dropped 5.9 percent, the largest decline in industry history, to 652 billion in 2001, while passenger boardings fell 6.6 percent to 622 million. When air traffic resumed, it was at severely reduced levels, and most major airlines announced stringent cutbacks that included substantial layoffs and reduced capacity in fleet size and route offerings. Scheduled flights fell from 9 million to 8.8 million from 2000 to 2001, reflecting a reduction of about 600 daily flights Despite the prompt passage of legislation that awarded government assistance to airlines, the industry experienced a loss of $7.7 billion in 2001, its largest loss to date.

The economic downturn that affected the United States as well as the rest of the world undermined the industry's efforts in 2002 to recover from the terrorist attacks. Consumer fears regarding the safety of flying and recession continued to take their toll on airline revenues in 2003.

High fuel costs, overcapacity, and extreme price pressure from low-cost carriers made 2004 an extremely difficult year for the major carriers. Although passenger numbers reached a record high, U.S. airlines lost an estimated $10 billion that year and more than $33 billion over a four-year period. Five large airlines operated under bankruptcy protection and several small carriers closed up shop completely. The high price of oil, which added about $6.2 billion to the airlines' operating expenses, had a critical effect on the U.S. airlines' balance sheets during 2004 and accounted for more than 60 percent of the industry's losses for the year. Oil prices remained high into 2005, which did not give airlines any chance to break even in their operations. For example, American Airlines posted a loss of $162 million for the first quarter of 2005. However, if jet fuel had remained at the same price as the first quarter of 2004, the company would have earned a profit of $184 million.

Major airlines continued to cut costs to minimize losses. The industry also laid off about 100,000 employees during the first half of the first decade of the 2000s. Salaries were also reduced as United's pilots accepted a 30 percent salary cut over three years and Delta's pilots accepted salary reductions of 32.5 percent. Despite these cutbacks, even when flying planes that were full, the legacy airlines lost money, because although tickets were inexpensive, fuel costs were high. Pressured by low-cost airlines, especially Southwest, and increasingly from upstarts JetBlue and AirTran, legacy airlines were forced to keep ticket prices low. The average ticket price had dropped 10 percent from 1991 to 2005.

In September 2005, Northwest Airlines and Delta Air Lines filed for bankruptcy, which meant that four of the top seven U.S. carriers were under bankruptcy protection. Later that month, US Airways emerged from its 2002 filing, having acquired America West. United Airlines emerged from bankruptcy protection in 2006, followed in 2007 by Delta and Northwest.

By 2006 the FAA estimated the number of aircraft in the U.S. commercial fleet, including regional carriers, to be 7,626, a decrease of 58 aircraft from 2005. This figure consisted of 3,886 mainline air carrier passenger aircraft (over 90 seats), 997 mainline air carrier cargo aircraft, and 2,743 regional carrier aircraft (jets, turboprops, and pistons). These cuts represent a loss of 39 aircraft in the mainline carriers' passenger jet fleet in 2006, and a loss of 576 aircraft from 2000.

Amid reports of increased profits by mid-2007, several carriers said that they would slow their growth through 2008 to strengthen and facilitate earnings potential. For passengers, this meant the trend toward higher prices. In 2008, however, fuel prices hit $3.07 a gallon, a record high. Merger talks and hostile takeover threats continued, as did overbooked and cancelled flights, leaving customers bewildered and frustrated, demanding a "Passenger Bill of Rights."

Current Conditions

The economic recession at the end of the first decade of the 2000s put a damper on the air travel industry into the next decade, although by 2011 industry experts were reporting signs of a recovery. According to IBISWorld, profits were expected to improve through the first half of the 2010s due to increased passenger volume. In addition, "New technologies will also drive revenue growth, as new traffic air control systems are implemented."

In 2010 the five U.S. airlines that were among the top 10 in the world (Delta, Southwest, American, Continental, and U.S. Air) carried a total of more than 409 million passengers to domestic and international locations. According to the FAA, reporting passenger carriers had a combined operating profit of $7.4 billion that year. The FAA also predicted passenger traffic would increase, with the number of U.S. passengers traveling internationally rising from 68 million in 2005 to over 111 million by 2016.

Industry Leaders

The U.S. air transportation industry was dominated by the strength and size of three domestic carriers--American Airlines, United Airlines, and Delta Airlines--the industry also was greatly affected by the emergence of national airlines that provided service to niche markets. By late 2011, Southwest Airlines had joined the ranks as one of the United States' top airlines.

American Airlines, which was originally named American Airways, began as the air transport division of the holding company Aviation Corporation. In 1934 the company was renamed, and C.R. Smith was appointed president. Smith continued to serve in this position until 1968, when he was named Secretary of Commerce by President Lyndon B. Johnson. As the main subsidiary of AMR Corporation, American had headquarters in Fort Worth, Texas, and was one of the largest carriers in the world through the first decade of the 2000s, serving more than 250 cities worldwide. With about 72,000 employees in 2010, down from 128,000 in the early years of the first decade of the 2000s, American operated from hubs in Chicago, Dallas/Fort Worth, Miami, and San Juan, Puerto Rico. In 2008 revenue passenger miles were 131.7 million, and operating revenue reached $23.7 billion. The company recorded net earnings of $231 million in 2006, compared to a net loss of $857 million in 2005 and even larger losses in the four years prior. In November 2011, the company filed for Chapter 11 bankruptcy, claiming that it would continue normal operations while seeking court protection to reduce costs.

With corporate headquarters near Chicago O'Hare International Airport, United Airlines was another large air carrier in the early 2010s. The company began as Varney Airlines, which later became a part of Pacific Air Transport and National Air Transport. This company merged into Boeing Air Transport, part of Boeing Airplane Company and Pratt & Whitney. In 1931 United Airlines was organized as a management company for the airline division and became a separate business entity three years later. In 1961 United Airlines acquired Capital Airlines, added 7,000 employees, and increased the route system, establishing its claim to the title of the world's largest privately owned airline. However, after the company entered bankruptcy protection in 2002, employee ownership fell from 55 to 20 percent. At the end of the first decade of the 2000s, United offered service to 210 U.S. and international destinations and employed approximately 50,205. In addition to its main Chicago hub, the airline had four other U.S. hubs in Denver, Los Angeles, San Francisco, and Washington, D.C. Revenue passenger miles in 2008 were about 110 million and operating revenues reached $20.2 billion. United Airlines emerged from bankruptcy protection in 2006, recording an 11-month post-exit net profit of $25 million. In 2010 United's parent, Continental Airlines, was acquired by UAL Corp. to create United Continental Holdings.

Delta Air Lines, with headquarters at the Hartsfield Atlanta International Airport in Atlanta, Georgia, offered the most extensive transatlantic service of any carrier in the world. Founded in 1924 in Monroe, Louisiana, as Huff Daland Dusters, a crop-dusting company, the company became Delta Air Service in 1928. Passenger service began in 1929 with flights to Dallas, Texas, and Jackson, Mississippi. The company merged with Northeast Airlines in 1972. In 2007 the airline had flights to 311 cities in 52 countries. At the end of 2008, Delta reported approximately 76,309 employees and listed revenue passenger miles of 176 million. Delta filed for Chapter 11 bankruptcy protection in 2005, emerging in 2007. Delta's 2008 operating revenues were $35 billion. In 2009 Delta became a giant in the industry when it merged with Northwest Airlines in a $2.8 billion transaction. Total sales for the company in fiscal 2010 reached $31.7 billion with about 80,000 employees.

Southwest Airlines had become an industry leader by the early 2010s. Once a regional airline, Southwest was originally a short-haul, low-fare, high frequency, point-to-point carrier. By avoiding hub-and-spoke service, it was able to provide more direct nonstop routings, which minimized connections, delays, and flight times. Based in Dallas, Southwest Airlines initiated service in 1971 with flights to Houston, Dallas, and San Antonio. In 1991 the company became a major as a result of increased revenue. By 2010 the company served 70 cities in 35 states. The airline was noted for its consistent profitability and was the only major carrier from 1990 through 2004 to make a profit. Southwest employed 34,901 in 2010 and was the only airline that increased its workforce at the end of the first decade of the 2000s. In 2011 the company purchased AirTran Holdings, the parent company of AirTran Airways, for about $3.2 billion.


Following deregulation in 1978, employment in the airline industry increased from 340,000 jobs to more than 530,000 jobs in the early 1990s. Deregulation caused disagreements between the airlines and the various unions that filled 90 percent of all industry jobs at the end of the 1970s. New airlines operated with much lower labor costs than established carriers, and the industry giants quickly decided that they had to reduce their labor costs to remain competitive. Some airlines were able to reach agreements, such as equity for wage concessions, between unions and management, but others resorted to measures that brought turmoil across the industry. Continental Airlines and others used Chapter 11 bankruptcy regulations in the early 1980s to nullify existing labor contracts. Chapter 11 regulations enabled the companies to return to business without union employees, if they so desired. In Continental's case, the company fired its employees after filing for bankruptcy, then rehired them as non-union employees at wages that were, in some cases, more than 50 percent lower than pre-Chapter 11 wages. This maneuvering galvanized unions across the industry, forcing them to find legal protection.

With the exception of American Airlines, company relationships with labor unions significantly improved in 1995 and 1996 from earlier years. Management of major carriers, such as United Airlines and American Airlines, demanded concessions from unions to cut costs. The unions dug in their heels and the airlines resolved the issues, United with an employee buyout and American with the striking flight attendants. Northwest Airlines was able to reach an agreement with labor in July 1993 with wage reductions and other concessions in exchange for 30 percent of the airline's preferred stock and an increased voice in operations. United's successful employee stock ownership plan (ESOP) was touted as a model of employer-employee relationships by the Clinton administration.

Differences between labor unions and the airlines are sometimes exacerbated by the airlines' practice of taking two to three years to negotiate a labor contract. Labor costs as a percentage of the airlines' operating expenses increased steadily during the 1990s, from 31.6 percent in 1990 to 35.5 percent in 1998. As the airlines slowed contract negotiations, groups of employees often worked without a contract. Unions have resorted to tactics such as informational pickets at airports, presenting their cases to the general public, rather than going on strike. Northwest Airlines was hit by a costly airline pilots' strike in 1998, and pilots at American Airlines staged a sickout in early 1999. Although the airlines' profitability in the late 1990s was partly the result of earlier wage and benefits concessions by union workers, the airlines seemed reluctant to make suitable offers to unions representing their pilots, flight attendants, and machinists.

Future trends in hiring airline industry employees were expected to continue to be contingent on the strength and pace of the industry's economic outlook. While airlines are making good money, job security will probably always be tenuous, especially at the less-profitable carriers. The prospect of future airline mergers may also have a negative effect on industry employment. The emergence of new regional airlines provided some employment opportunities, but wages were lower than the industry standard due to the large number of unemployed experienced airline workers. Computer-related jobs, such as systems analysts and reservations and keyboard operators, were expected to continue to be in demand as companies become increasingly automated.

Industry employment reached almost 672,000 in 2001 before plummeting to 404,600 by March 2006. In desperate attempts to control costs and avoid bankruptcy, American and Delta reduced pilot salaries about one-third. Only Southwest could boast that no layoffs had occurred, although the company reduced its employee base through retirements and soft hiring freezes.

However airlines began hiring again at the end of 2007, when U.S. airlines had approximately 450,500 employees and regional airlines had added about 3,200 employees, bringing the regional workforce to about 59,000. Additionally, those airlines categorized as low-cost added 3,000 workers, an increase of 4.4 percent, bringing that employee total to 71,700.

Research and Technology

High-tech amenities for the business traveler became a battleground for customer service among the major domestic carriers in the 2000s. Satellite-based telephone systems capable of handling calls to and from anywhere in the world were placed onboard planes, and in-flight faxes, computer, and data transmission services were commonplace.

The most significant advances in communications technology continued to be in the design, development, and operation of the airplanes themselves. Hands-off piloting, navigation, and landing, and the guidance of satellites in the process of landing had become routine by the turn of the twenty-first century.

Modern aircraft had become so automated that some pilots and even some aircraft manufacturers were concerned about excessive reliance on the automated systems. New training programs were established to combat this fear of over-reliance. Although advances in technology were expected to continue to assist in the creation of safer and more fuel-efficient planes, the captain of a plane cannot be eliminated or automated out of the cockpit.

In addition, the Airports Council International reported that, "The new generation of large aircraft currently on the drawing boards of aircraft manufacturers could reduce airport capacity and have considerable cost implications for the world's airports." Approximately $105 million in infrastructure modifications may be needed to accommodate these new planes. The 600-plus passenger aircraft lower the unit operating costs and increase capacity for the airlines, but the modifications to runways, taxiways, and aprons could cost an average of $62 million per airport. Changes to passenger terminals and operational facilities could add another $43 million in costs.

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