Transportation Deployment Casebook/2015/US Airline Departures

Qualitative Analysis

A Brief Description of Airplanes

Passenger air travel has been around since the 1920’s. Since the Wright Brother’s successful endeavor in Kitty Hawk, NC, airplanes have become a one of the quickest means to transport people and goods over long distances. As transportation of the sky, minimal infrastructure is needed on the ground. Thus, their growth was not hindered by the time needed to develop infrastructure. However, since its inception, airplane travel has been affected by the socioeconomic, technological, and cultural state. Thus, influencing the amount of planes and travel. This analysis will briefly address the various usage of airplanes since their inception, followed by a detailed, quantitative departure growth rate analysis. Air travel has a significant advantage here in that the reduced travel time draws customers, and that the fares are relatively low in the 21st century, as compared to the jet age in the 1960’s and 1970’s.

The Scene

In the late 19th Century, people didn’t have too many options for long distance travel. There were two modes that were mostly reliable, trains, or ships. Around this time and the early 20th century, the car was also being developed, but by no means was it ready to compete with trains for cross country travel. For one it didn’t have the infrastructure built yet, like the railroads. When commercial air travel came about in the 1910’s, it was seen as an option that had a future of taking a major market share for long distance travel from the railroads and shipping companies. And when air transportation became more reliable, more affordable, it ultimately became the preferred mode of choice for long distance travel in the United States.

Invention of Airplanes

It should be noted that the Wright Brothers did not invent the airplane, rather they invented the first successful airplane. Aeronautics had been studied for over a century at this point in time and prior to the Wright Flyer 1, in 1896 Samuel P. Langley, Alexander Graham Bell, and their associates catapulted their version of an airplane which has a steam engine powering two propellers from a height of 20 feet. The plane, the “aerodrome,” manages to climb as high as 100 feet before losing steam and managed to cover approximately 3300 feet. This was only the beginning, as World War I and World War II had spurred the development of airplanes because of how advantageous it was to have eyes, and weapons in the sky. Post World War II, the aviation sector continued to experience rapid research and development, with the addition of the turbo-propeller in the early 1950’s, followed by the beginning of the jet age 1958.

Early Market Development

Initially, air travel was only for those who could afford to fly, and for mail services, particularly because the planes were small and couldn’t handle too much passengers or cargo. However, after the World Wars, the desire to remain connected grew and airlines were able to take advantage of new technologies that would allow them to carry more passengers to further destinations. Airplanes had the advantage of reducing the travel time it would take to reach a destination by orders of magnitude as compared to taking an ocean liner or train. Also, more people in the US had money to spend after the wars and having the luxury of air travel reduce the travel time was important. With the jet age, the US produced one of the most successful aircraft at the time with the Boeing 707. These advancements only fueled the market demand for air travel, luxurious air travel even for coach customers. Customers would dress for flights, be served gourmet food, and had ample leg room.

The Role of Policy in Birthing Phase

When the Wright Brothers completed the first successful flight, there were no air regulations because there really wasn’t any aviation to be regulated. With the start of World War I, the US government had seen that the airplane was something worth investing in because of its technological advances in the previous decade and that the new airplanes would be game changers in the war. Further development was spurred by the government after World War I in 1925 with the passage of the Air Mail Act. This allowed the airlines to emerge and become profitable as they began hauling passengers in their newer planes in addition to the mail. In 1926, the Air Commerce Act was passed, which enabled the federal government to issue and enforce air traffic rules, license pilots, and certify aircraft, etc. This created the Aeronautics Branch in the Department of Commerce, a predecessor to the Federal Aviation Administration that we know today. Airplanes were still terrifying to many people in its early stages and a crash in 1931 did not help the demand for flying. To address safety concerns of the public, President Franklin Roosevelt signed the Civil Aeronautics Act in 1938, establishing a safety board that would investigate accidents and make recommendations to prevent them.

The Growth of the Mode

During the late 1960’s, air travel remained a luxury primarily for those who were wealthy, and the number of people that wanted to travel required more airplanes to be built. Air fares during that time were more expensive than they are today and the airlines were regulated until 1978, meaning that they were controlled by the federal government. With airline deregulation, the airlines were allowed to adjust their prices to account for demand, and fuel costs especially, among other things. Allowing more people to fly because they could now afford to, only furthered the demand for more airplanes. In 1991 for instance, after adjusting for inflation, air fares had fell approximately 25% from 1978. In addition, as time marched forward, airplanes typically got more and more efficient, and had more powerful engines that allowed them to fly faster to destinations. This means that airlines could use an aircraft multiple times per day to do round trips versus using several aircraft to achieve the same effect.

Development during the Mature Phase

In 2001, the growth rate of the number of departures began to decrease, largely because of the terrorist attacks. However, due to the oil prices rising and the economic collapse in 2008, the number of US departures began decreasing. Many airlines also began consolidating as a result of unprofitability during the beginning of the 21st century. From 2005, the US airline industry has decreased from 9 major carriers to 4 major carriers. By doing this, the number of departures would decrease as the companies close hubs and reduce service to certain cities that are not profitable.

Quantitative Analysis

Using Microsoft Excel, a regression analysis was performed on a data set from the Bureau of Transportation Statistics on the number of U.S. airline departures from 1954-2014. This analysis shows that prior to 1967, the number of airline departures was still in a birthing phase, and from 1967-2007, it was in the growth-development phase. Since 2008, the number of departures has fallen as it entered its mature phase. These results are shown in Figures 1 and 2. During the birthing phase, the growth rate of departures is low and along with technological advancements and deregulation, the number of departures entered into the growth phase. According to the regression analysis, the inflection year is around 2001 or 2002, like due to the terrorist attacks in September of 2001. The number of departures reached maturity around 2007/2008 as the oil prices had skyrocketed during this time. Many airlines, sought to reduce service in order to fill more empty seats in order to offset some of the fuel costs. This can be seen in both Figures 1 and 2. Since 2008, the number of US departures has only fallen and this is mainly as a result of the oil shock in 2008 and that airlines are using bigger, more efficient jets, in order to further reduce the frequency of service. For example, in 2012 Delta Airlines agreed to lease 88, 110-seat, Boeing 717’s from Southwest Airlines in order to replace some of their smaller 50-seat regional jets.

The S-curve that was generated in Figure 1 was found by using the mixed logit equation: $S(t)=K/[1+exp(-b(t-t0))]$

Where:

   S(t) = the expected number of US airline departures
   t = time [UNITS]
   t0= inflection time (year in which ½ K is reached)
   K = saturation status level
   b = coefficient

As seen in Table 1, the r2 value was 0.9507, and in Figure 1 the s-curve fits the data, but does not easily show that it is indeed an s-curve. The results of this regression analysis could be improved by other regression methods. Figure 2 shows the data of departures as well, but with a polynomial trendline that fits the data more closely to an s-curve. It also produced a similar r2 value.

Regression Results
K	17,000,000
b	0.0305
t0	2001.0555
r^2	0.9507

Figure 1: The life-cycle for US plane departures using a mixed logit equation

Figure 2: The life-cycle for the number of US departures