Transportation Deployment Casebook/US Airlines

By: Joseph DeVore

The Possibilities of Passenger Airlines

When Orville and Wilber Wright first left the ground in December of 1903, airplanes have been thought of as a great means to move people across large distances or across heavy terrain. As aircrafts generally improved with changing technologies, aircrafts could fly further, and carry more passengers between locations than other modes of transportation such as railroads and automobiles. Airplanes could fly at very high speeds between distant places, and by the 1950’s after World War 2 and the jet engine had been developed, airlines had found a market niche for long distant travel. The airlines traveled these long distance trips that took automobiles, trains, or boats days to complete. Unlike these other modes of transit airplanes offered people the ability to travel anywhere in the world. Air New Zealand was able to offer a flight from Hong Kong to London in a matter of 25 hours which are at almost opposite ends of the world . This long distance travel provided in such a short time cannot be matched by any other mode of transportation, and gives airlines passengers who need to travel across country or the world quickly.

Developments in the market

Jet Engine

The Whittle W.2/700 engine flew in the Gloster E.28/39, the first British aircraft to fly with a turbojet engine, and the Gloster Meteor

The jet engine was invented by English aviation engineer and pilot Sir Frank Whittle. Whittle first thought up the idea of a gasoline engine in the 1930’s and by the year 1937 had a patent and the first test of a jet propulsion engine. In the next four years he used this technology to develop an engine to fly an experimental plane that was modified to use the jet engine. In 1941 the Pioneer was one of the first jet propelled aircraft to fly. Although it was not the first jet propelled aircraft to fly, this model of the engine had the fundamental elements of jet engines produced today.

When the Jet engine was put into service on passenger jets, the airline became a viable option for transportation in the US. Unlike the automobile, an airline could fly from city to city across the country in the matter of hours instead of days. Jet engines provided the airline a way to fly at speeds of 900-1150 kilometers per hour. Most interstates in the country only had a speed limit of 110 kilometers per hour. This difference in speed is the main reason why airline ridership took off in the 1950’s and created the fastest mode of transportation in the country.

Airline Fuel

Another key component to providing flight across the country is the jet fuel that is used for the jet engines. Kerosene was the first fuel used in Whittle’s jet engine and is still the primary source for jet fuel today. As planes became more advanced and flew at higher elevations, higher grade kerosene was used that had a lower freezing point and could withstand the low temperatures sometimes near -40 degrees Celsius. Another addition to the fuel standards was enforcing a high flash point to decrease the risk of fire. These fuel standards provided planes with fuel that would increase the safety of the plane.

Boeing’s shift from military planes to passenger airplanes

As aircrafts became more and more suitable for flying, one company revolutionized airplane design and production. After World War two the demand for military planes ended and Boeings production of military aircrafts ended. But instead of letting the company die, Boeing shifted its focus to the development of passenger planes. By the 1950’s and 1960’s Boeing had released some of the first jet aircrafts intended for passenger use in the form of the Boeing – 717 or more commonly known as the DC-9 and DC -10 planes. These aircrafts began transporting millions of people across the country, and by 1965 the annual passengers domestically exceeded 100 million people. This switch between propeller planes and jet airplanes created a market for fast, long distance travel that only an airline could provide.

Development of Airports

As airplanes began to find a market niche in passenger travel across the country, many airports began to spring up and form in major US cities. These airports were initially designed to handle small amounts of air traffic mostly for US mail flights and very scarce passenger flights. But as airplane producers developed passenger jets, airports across the country had to build new terminals for the increased demand for air transport, and add improved runways to handle these new airplanes. Passenger growth during the 1970’s and 1980’s continued to force airports to add additions onto terminals in order to support the increase in passengers trying to fly domestically as well as internationally.

As airports began to shift from handling a few flights a day to handling millions of passengers a year, terminals began to offer services to people who were waiting for flights. Terminals offered restaurants and shopping kiosks to passengers who had time to kill, and many hotels were built either connected to the airport or a short bus ride away. These types of amenities offered by airports attracted more and more passengers to airplanes, and created the image of luxury for air travel. As air travel continues to be a large percentage of transportation across the country, airport terminals will continually adapt to the services that passengers expect.

Market development

Airlines in the 1940’s and 1950’s were almost exclusively for first class businessmen, and the amenities that the airlines provided reflected that. Meals were served on china with linen napkins, there were beverage lounges, and everything about the flight was luxurious . These airlines flew with federal subsides through 1954. These subsides allowed airlines to continue to serve the first class businessmen with the protection against the economy taking a downturn. When this federal subsidy ended, airlines had to expand to offer couch service to offer transportation to the lower market share. Government regulation also hindered new airline companies from entering the market. The same big name companies dominated the market until deregulation in 1978. This allowed many smaller airlines to enter the market, and airline traffic surged throughout the 1980’s. The gulf crisis in 1989 caused airline companies to lose a huge market, and caused many airlines like Pan Am to go into bankruptcy. Chapter 11 bankruptcies have allowed companies like Continental to stay afloat during tough economic times, and by helping out these struggling aircraft companies, service throughout the United States has continued to be affordable.

Growth of Airlines

Pan Am Boeing 747

Airlines started out mainly for the purpose of airmail, and because of federal funding and support the growth of airplane service to cities grew. One of the first airline companies Pan Am began flying between the southern US and Latin American countries in the Caribbean. These planes acted as island hoppers, and connected the islands together. Pan Am was also the first company to adapt the Boeing 707 which was the first jet plane in production. Although these jets offered fast reliable service, the price was still very high. Juan Trippe the president of Pan Am pressured Boeing to build a larger plane that could carry more passengers so that the price of an airline ticket could be dropped.. Trippe and Boeing’s CEO William Allen worked out a deal to mass produce the new Boeing 747. Although the 747 was a great airplane for providing customers with cheaper flights, the fixed costs of the plane almost bankrupted both Pan Am and Boeing.

Attempts were made to expand on the technology that made airplanes so convenient for domestic travel in order to serve international travel needs. The United States along with the English and French governments all funded the Concorde program which was a supersonic jet that could fly between Europe and the United States in the matter of 2-3 hours. This shorter travel time was a huge innovation over a conventional airplane that could take upwards of 8 hours to make the Atlantic crossing. Because of high ticket prices needed to pay for the costs, Concorde was unable to stay in operation and the fleet was retired in 2003. This shows that although the technology is available to improve travel time on airplanes, the costs are too high to implement any of these technologies on a wide scale.

Methodology

In order to understand the amount of passengers using airlines and to estimate the future demand of the airlines industry, we developed an S-curve to fit the number of passenger enplanements in the United States annually. We found this curve by fitting an equation with three independent variables to the data by using a sum of squares regression. We used Microsoft Excel’s Solver feature to derive the values for our inflection time t_0, our global maximum for passenger enplanements K, and a shape variable b. Using the following equation, we fit the curve to the data with an R2 value that is greater than .99
N(t) = K/[1+exp(-b(t-t_0)]
This high R2 value shows that this S curve is a very good fit for the given data. The following values were found using the solver derivation in excel.

Table 1: Regression Statistics for Predicted Model

K Value	676,250,000
Multiple R	0.9952
R Square	0.9904
Adjusted R Square	0.9902
Standard Error	20519700
Observations	57

Using the data calculated from our s-curve equation, we then preformed a regression analysis on the data. This regression analysis found the R squared value along with the standard error and the upper and lower 95th percentiles.

Table 2: ANOVA Statistics for Predicted Model

	df	SS	MS	F Score	Significance F
Regression	1	2.388E+18	2.388E+18	5674	3.512E-57
Residual	55	2.315E+16	4.210E+14
Total	56	2.412E+18

Table 3: Statistical Results for Predicted Model

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	2891000	5277350	0.54781	0.58604	-7685070	13467000
X Variable 1	0.9810	0.0130	75.3230	3.512E-57	0.9549	1.0071

Table 4: S-curve Model Parameters

Using the equation for the S-curve S(t) = K/[1+exp(-b(t-t0)] , and using solver in Excel to find the least sum of squares of the differences in the data and the curve, we estimated the values for the S-curve below.

K value	676,248,778
b	0.098891674
t0	1982.477415

We plotted this calculated S-Curve vs the given data from the RITA data set. As you can see from the figure, the fit line accurately represents our R squared value of .99. This curve fits the data very well, and should be a good estimate of the passenger enplanements in the coming years.

Potential Kilometers per International Flight

Maturity of the Mode

This data confirmed that the S-curve fit the data, and was a good estimate for the passenger enplanement in the future. Since our calculated K value was equal to 676,248,778 annual passengers, this is a good estimate for the amount of people who will be traveling in the next 5-10 years. Depending on the market and other technology improvements in other transportation modes, airlines could be near its maximum annual passengers or it could continue to grow. The biggest conclusion we can make from the S-curve is that policy makers should not plan for airlines to keep growing at the pace seen in the 1970’s and 1980’s. Policy makers and planners should plan on airlines being a major part of domestic and international travel for many years to come, but since the rate of growth has been shown to decrease, domestic airlines have reached their saturation point.

Conclusion

By looking at both the qualitative and quantitative sections, airlines can be seen as a very effective mode of transportation for long distance trips. They offer passengers long distance travel in the shortest amount of time for a reasonable price. These three factors have made airplanes a series mode of transportation in the last decade, and will be a major mode of transportation for years to come. The data that we have calculated show that the rate at which airlines have been growing has leveled out. Over the last 8 years, domestic airline passengers have stayed relatively steady at 650 million annual trips. From our given S-Curve and knowledge that most modes of transportation follow this type of growth, we can state that airlines will not increase in domestic passengers unless there is a new technology or major incentive introduced.