SIC 4512 Air Transportation, Scheduled

 
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SIC 4512

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

NAICS CODE(S)

481111

Scheduled Passenger Air Transportation

481112

Scheduled Freight Air Transportation

INDUSTRY SNAPSHOT

The passenger air transportation industry provides air travel to both domestic and international destinations. What once began as a mode of transport for the U.S. mail has become a multibillion dollar industry. For 2004, the industry had estimated revenues of $130.8 billion. According to the Federal Aviation Administration (FAA), 688 million American took to the skies during 2004, up from 642 million the previous year. Commercial aviation is expected to surpass one billion passengers by 2015. In 2004 the U.S. commercial airline industry consists of 43 mainline air carriers operating large jets (over 70 passengers) and 79 regional or commuter carriers operating smaller aircraft (up to 90 seats).

The airline industry experienced uninterrupted growth in revenues throughout the 1990s. However, a weakening global economy, coupled with the September 11, 2001, terrorist attacks, drastically reduced airline traffic by the end of 2001. As a result, the industry posted unprecedented losses of $7.7 billion for the year, as revenues 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. United Airlines, the second largest airline in the world, filed for bankruptcy at the end of 2002. In 2004 conditions did not improve for the airlines as the price of oil soared to $55 to $60 a barrel. Despite record passenger numbers, on the year airlines lost about $10 billion.

The five largest airports in the United States based on domestic passenger boarding in 2004 were Atlanta Hartsfield (37.7 million), Chicago O'Hare (30.9 million), Dallas/Ft. Worth International (25.7 million), Los Angeles International (21.3 million), and Denver International (19.6 million). Las Vegas McCarran International, Phoenix Sky Harbor International, Minneapolis/St. Paul International, Detroit Metro-Wayne County, and Orlando International rounded out the top ten.

Three carriers have historically dominated the industry. American Airlines, United Airlines, and Delta Air Lines have become the best-known domestic carriers, leading the industry in terms of revenue passenger miles. In the mid-2000s, all three industry leaders continued to struggle with difficult economic conditions, exacerbated by the high price of oil, increased security costs after 9/11, overcapacity, and low ticket fares. Between 2001 and 2004 American Airlines posted a net loss of over $7.26 billion. During the same time period, United Airlines, which won court approval in May 2005 to dump $5 billion in pension obligations as part of its bankruptcy restructuring plan, reported a net loss of $9.89 billion. Like American and United, Delta underwent significant downsizing in both 2002 and 2003 but by 2004 had posted a four-year net loss of $8.46 billion.

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 are carriers with 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 completely. The result of these and other closings was the consolidation of assets among the three strongest majors: American Airlines, Delta, and United. Also new to this category was Southwest Airlines, formerly a national airline, which offers short-haul, point-to-point service with few amenities.

Airlines with annual revenues of $100 million to $1 billion are generally categorized as national airlines. Although this category has been 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 has been classified as a regional/commuter airline, according to the DOT. Some of the top regional carriers during the mid-2000s were American Eagle, Sky West, Express Jet, and Comair. 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.

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 were directed. Passengers from the feeder flights transferred to numerous other flights provided at the hub to their final destinations. The hub-and-spoke system has been advantageous to the major airlines in 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. With the first successful flight by the Wright brothers in Kitty Hawk, North Carolina, in 1903 the aviation industry began. 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 and eventual entry into World War I provided the necessary stimulus for developing the aircraft industry, if only for wartime usage. But 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, though, 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, via a system of competitive bidding and subsidies, the opportunity to serve as mail carriers. 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 per year grew from 6,000 to 400,000, and carriers proliferated. Air traffic across the nation grew increasingly disorganized, however. The McNary-Waters Act of 1930 gave the nation's postmaster general the authority to manage the industry. While the bidding system nominally remained in place, Postmaster General Walter Brown, who had lobbied for his expanded powers, arranged a meeting wherein the airlines negotiated territories among themselves. As a result, three primary routes were established—north, middle, and south—across the United States, with United, American, and TWA controlling one route each.

Brown's dictatorial power over the airline industry, however, came under increasing criticism. With the entrance of the Roosevelt administration in 1933, congressional hearings were held that included the investigation into the awarding of mail contracts. Under pressure from Senator Hugo Black, President Roosevelt cancelled all of the mail contracts, deeming them illegal, and turned over the mail delivery service to the Army Air Corps. This decision turned out to be a disastrous mistake because the Corps pilots were unfamiliar with the territory and had to fight treacherous winter weather. By the third week, five pilots had been killed in various crashes, 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 diluted, and measures to ensure truly...

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