The United States airline industry has demonstrated significant economic development for the last few years. The sector has witnessed a radical advancement in both the supply and demand domains. Contrary to other industries, factors contributing to such growth do not entirely rest on technological aspects, but on improvements in legal, organizational and cultural strategies (Wensveen, 2011). Moreover, industrial changes and new laws have comprehensively altered the market structure, while the cultural domain has affected geographical mobility and its economic characteristics. Analyzing the economic aspect of the airline industry is essential since it enables companies operating in it to understand their capital structure, cash flow and mutual dependency (Vasigh & Fleming, 2013).
High barriers to entry are the key economic aspect of the U.S. airlines. Accessibility to a significant number of markets has become immensely challenging since the late 1990s due to the dilemma of getting the relevant terminal space at the center of an airport (Wensveen, 2011). Problems associated with stiff competition for one of the main runaways among air carriers also present financial difficulties regarding the accessibility of the U.S. airline industry to many existing markets. Therefore, facilitating a healthy competitive level of services at airports is a hefty task.
Progressive economies of scale are another primary economic characteristic of the U.S. airlines (Wensveen, 2011). The flight industry needs to increase the number of services and flights to reduce the associated expense per unit of output and to attain significant economies of scale in manufacturing. For instance, job specialization in the airline sector has led to massive reliance on professionalism and often unionization. In line with this, job unions hinder work progress and gradual income flexibility, as well as may restrict industrial development and income responsiveness. To deal with this issue, Alaska Airlines has established stringent policies concerning what workers should do and cannot do (Vasigh & Fleming, 2013).
Oligopolies significantly rely on firms' mergers to achieve monetary growth. Dependence on unions among many U.S. airlines, such as Frontier and Delta, is a crucial aspect, which explains the great number of smaller flight firms in the industry creating an oligopoly (Shaw, 2011). Such strategy allows most U.S. airlines to improve the market share and gain advantage over its competitors. In line with this, larger flight companies, such as American Airlines, annually attain greater economies of scale. For instance, U.S. airlines mergers promote the establishment of a highly competitive international aviation industry, which allows overseas airlines to serve customers at the U.S. local markets (Wensveen, 2011). This strategic approach facilitates flight competition, and passengers gain from reduced fares and service enhancement. Consequently, such mergers in the American airlines industry have never posed a significant threat to the security of the state and travelers.
The airlines are mutually dependent in the sphere of service acquisition, pricing and flight routes. It has facilitated the current higher pricing strategy and endless price wars. Such cases have led to severe competition witnessed in strategic actions of reducing costs of flights in the industry, which causes a chain reaction of its primary competitors (Shaw, 2011). Because of this, the majority of smaller U.S. airlines has experienced a subsequent decrease in net profits and has been forced to reduce traveling fares to survive in the market.
Adopting the latest technological advancements is a noteworthy unique economic feature of the flight industry. Modern technological and fuel-efficient improvements in the aviation sector have forced engineers to initiate the re-equipment phase. Moreover, such innovations come with huge amounts of capital investments and heavy costs of recruiting and training the staff and customizing the existing equipment to integrate into the new aircraft (Wensveen, 2011). However, engineers and airline researchers develop subsequent technologies, which offer huge savings in the long run. A crucial example is wingtip fuel tanks installed on today's aircrafts, which promote aerodynamic efficiency and minimize fuel usage (Shaw, 2011).
The airline industry is characterized by uniquely high labor and fuel costs. It requires the staff with expertise, which is expensive to finance and manage. The commercial U.S. airline industry is experiencing a drastic increase in fuel prices that has been frequent for the last few years. Analyzing the U.S. airlines, the fuel cost accumulates roughly 28% of the total operating cost , while the labor cost takes approximately 25% of the overall operating expenditures (Rodrigues, 2016). Labor expenses also comprise roughly 75% of the total expenditures on non-current assets. This analysis implies that fuel and labor costs are the main expenses in the airline industry.
Complying with the government regulations and getting state financial assistance are other compelling economic aspects influencing the operation of the airlines. Contrary to other oligopolistic industries, several governmental institutions have played fundamental roles in funding the advancement of the airways system. For instance, the Federal Aviation Administration controls all American civil flights and manages their safety (Vasigh & Fleming, 2013). In line with this, safe air transportation is guaranteed by governmental regulations.
In conclusion, the U.S. airline industry is undergoing a significant improvement in both demand and supply chains. The economic and financial characteristics of this industry have enhanced its overall improvement. High barriers to market entry, continuous economies of scale, merger and acquisition method, and the mutual dependency of these airlines are notable economic aspects of oligopolies in general. However, high technological costs, huge labor, high fuel expenses, government regulations and financial assistance are unique commercial characteristics of the modern airlines industry in particular. Thus, the support of the government can improve the services and performance of this sector.