A Note on the US Airline Industry

There were no easy solutions to the problems of the airline industry. However, some analysts believed that making certain operational and strategic changes would go a long way towards dealing with some of the more pressing challenges. For instance, experts said that the hub and spoke system of airlines used by most FSCs was outdated as it cost more to operate than the point to point system favored by the LCCs. However, they also acknowledged that it would not be easy for all airlines to abruptly abandon their hubs in favor of point to point flights (Refer Exhibit XI for a figure of the two systems). Analysts also believed that airlines would be able to obtain considerable savings if they simplified their fleets and operated similar aircraft models...

It was also likely that some of the majors would relinquish their domestic routes, while focusing on overseas routes, which were relatively more profitable. They also expected the LCCs to dominate the market by 2005-2006. They saw the market share of the LCCs go up to 35 percent or more by around 2007-2008. While they did not think that the industry would go back into regulation, they believed that the government was likely to play a greater role in the industry in the future. Another important development they expected was the entry of foreign owned airlines. Richard Branson, founder of the UK-based Virgin Group, was considering setting up a domestic airline in the US in the early 2000s, and analysts expected that by 2005-2006, the government would lift the restrictions on foreign ownership in the industry, giving it a much needed boost...