Air transportation is part of a service supply chain that moves both passengers and cargo. Although commercial airlines offer the immediate form of transportation, they are tied to airports for their takeoffs and landings and to air navigation services for guidance and control in route. Passengers and cargo also need tomove to and from the airport. Air transportation, therefore, is a sector that caters to the transportation of passengers overall but especially those going the shortest distances and to the movement of high-value, low-bulk freight.
Air transportation is a major industry in its own right and acts as a lubricant formany other economic activities. In broad terms, air transportation accounts for about 1 percent of the gross domestic product of the European Union and slightly less for the United States economy. Globally, in 2005 there were about 18,000 commercial aircraft, carrying 1.6 billion passengers and more than 43 million tons of freight annually, and serving more than 10,000 airports. These statistics, however, ignore the role that air transportation can play in stimulating economic growth and trade (it is estimated that between 35 and 40percent of international trade by value ismoved by air transportation), linking together diverse communities, and fostering particular types of industry such as tourism and specialized agricultural sectors such as exotic fruits and flowers.
Although air transportation played a role in providing mail service, and some limited passenger and cargo service before 1939, it has gained significance only since the end ofWorld War II withmajor technological advances in aircraft design and enhanced air traffic navigation systems. The advent of commercial jet aircraft in the 1950s provided faster and cheaper long-haul services, and in the 1960s the development ofwide-bodied aircraft increased carrying capacity, which cut the costs of air travel considerably, reducedenvironmental concerns, andimproved safety. Radar and improved communications, together with institutional changes and accompanying new management practices beginning in the late 1970s, resulted in further cost reductions and the expansion of airline service networks.
Modern scheduled air transportation networks take a variety of forms. To meet social or political objectives, governments stipulate certain types of service that must be supplied either by state-owned airlines or through financial support to private airlines from the taxpayer. Although government interventions in themarket are considerable, they have diminished in many countries since the 1980s. As a consequence, profit is the motivating factor for an increasing portion of the air transportation system worldwide.
Where the market plays a dominant role, three broad types of scheduled service are common.Many services are essentially point-to-point with the airline serving a set of individual origins and destinations, often in a linear network akin to a bus service. This approach may be refined into radial networks with a carrier concentrating services from a base airport but offering no coordinated services involving a change of plane that allow passengers who want to continue on to another destination from that base. Finally, hub-and-spoke operations involve a major airport serving as an interchange facility (a little like a postal sorting office) that consolidates passengers or freight from diverse origins on flights to a range of destinations. This type of operation allows economies of scope (the ability to offer a range of services at lower costs than if they were provided individually) and density (the lowering of costs as larger flows can be channeled into each route),but suffers frompotential congestion at the hub airports as traffic converges. From the airlines’ revenue perspective, hub-andspoke operations also allowthemto enjoy economies of market presence the ability to offer direct and indirect services between numerous airports.
These various network types overlap to a considerable extent with the types of commercial airlines thatprovide the bulk of services.The linear and radial services are features of low-cost or ‘‘no-frill’’ airlines such as Southwest in the United States and Ryanair in Europe. These carriers can standardize their fleets, fly from secondary airports, avoid scheduling difficulties by minimizing the number of connecting services they offer, and provide limited onboard and ground services because of the short duration of flights. In contrast, the ‘‘legacy,’’ or full-service, carriers focus on channeling their traffic throughhubs for example, Delta Airlines through Atlanta and Northwest Airlines through Detroit and deploy a mixed fleet to meet the needs of a more complex network, wide variations in flight lengths, and longhaul international services.To enhance the range and frequency of services, the legacy carriers often form global alliances. The Star Alliance, for example, includes United, Lufthansa, SAS, British Midlands, and other airlines.This allows for easier ticketing and fight connections as well as larger frequent flyer programs that reward passengers for loyalty to an airline or alliance.
Globally, the scheduled airline industry as awhole has not, at least since the 1980s, earned what would normally be seen as an economically viable return. Even in good years the operating margins of most airlines has been below the return offered by bank savings accounts. Excessive competition and, at least for a time, inflated costs account for this. This situation contrasts with most other elements in the air transportation value chain, with airports, air navigation systems, and global distribution systems all often making significant financial returns.
Besides scheduled airlines services, there are also charter services. These involve an entire aircraft’s capacity being sold usually to a tour operator who then sells these seats, often in conjunction with hotel rooms, rental cars, and the like, to leisure travelers. Until the 1990s, because their activities were less regulated than those of scheduled airlines, these operators were important in Europe, taking up to 20 percent of the air travelmarket. Regulatory reforms have reduced the importance of charter carriers and also their nature:many offer near scheduled services with regular flights, and seat-only sales, not requiring the addition of a hotel purchase, are common. There are also air taxis and business aircraft that offer personal air transportation, usually to business executives. In addition to civilian air services, the military in most countries operates large fleets of aircraft to move equipment and personnel, in addition to any direct combat-related activities, and these flights must be integrated into the overall air traffic control system.
Air transportation traditionally has been regulated very heavily. Economic regulation of fares, cargo rates,market access, and capacity became widespread after World War II, both internationally as countries tried to develop their own commercial air fleets, and domestically as air transportation became a mechanism for greater mobility and political cohesion within countries. Notions that airlines, airports, and air navigation services, if leftunchecked, would becomemonopolies thatwould penalize users were used to justify economic regulation of fares and access. Social regulation was also widespread and often aimed at providing otherwise unremunerative services to remote regions as well as to ensure adequate safety.
Internationally, the UN International Civil Aviation Organization, established at the end of WorldWar II at the Chicago Convention, regulates air transportation. The resultant agreements give sovereignty to countries regarding their own air space and set down the basis of negotiations between nations over international routes, called air service agreements. Until the late 20th century, most international traffic was severely controlled: often, only one carrier from each country could offer international services at a regulated fare, with a limited capacity, and with the revenues shared equally between the two countries.Many domesticmarkets were also strictly controlled, and in some cases a state-owned airline was the only supplier of services at a regulated fare.
From the late 1970s on, there has been a global movement to introduce more market-based structures into the air transportation sector. This began when U.S. airlines removed rate and market entry controls (other than those retained for safety and security reasons) for domestic air cargo services in 1977 and from passenger services in 1978. The United States also initiated a large number of ‘‘Open Skies’’ agreements in the 1980s and 1990s that removed route access and fare controls from bilateral air service agreements with other countries but retained cabotage, the freedom of external airlines to operate within another country, and ownership controls. Parallel to this, by 1997 a gradual relaxation of international bilateral air service agreements within the European Union freed airlines services, both domestic and international, from economic regulation, includingownership ruleswithin the EU.
The result of these changes has been an expansion in the number of commercial airlines and an increase in the diversity of services provided, not only by lowcost carriers on short-haul routes, but also by specialist airlines that offer only business class service on long-haul flights. In markets where regulatory reforms have been enacted, fares have been brought more closely into line with costs. At the same time, competition has lowered fares and forced airlines to become more efficient.
The vastmajority of the world’s airports are either nationally owned or owned by a local (city or state) authority. The original reason for this was that airports, because of the large capital costs involved in establishing them, often are not commercially viable but nevertheless are important for strategic or local economic development reasons, and as a way to tie remote communities to larger cities. From the mid-1980s, airports have had to comply with strong regulations related to the noise, safety issues, and traffic congestion associated with them. Private sector involvement, however, has become more common under the state or local government ownership umbrella, with airlines financing, leasing, or owning parts of airports (such as terminal buildings) or directly providing services (such as ticketing and ground handling). In some cases, airports have allowed private caterers, retailers, and the like to offer services on their sites.
Since the 1980s, many countries have moved to privatize entire airports, or to distance their ownership and operations from political processes. The British Airports Authority, which owns seven airports in the United Kingdom, including the three major airports serving London, was privatized with equity capital. Other airports have been bought out as going concerns by commercial companies with no equity holdings. Privatization, however, often brings with it challenges of regulating monopoly power; most cities only have one airport, or atmost two.The approach pursued in many cases involves ‘‘pricecapping,’’ with a regulator controlling the ways in which prices charged by airports for take-offs and landings may change.
In South America and some parts of Africa, various forms of concessions have allowed states to retain their ownership of an airport but hand their entire management and investment strategy over to private companies for long periods. Such approaches are aimed at bringing private capital and expertise into airport development where public finance is limited and the local market does not have an adequate supply of skilled workers and managers.
Air transportation involves the movement of aircraft along corridors akin to three-dimensional railway tracks. In some cases the traffic flows freely with air navigation system providers (ANSPs) supplying navigation and weather advice.Most commercial aviation, especially in congested air space, is subjected to air traffic control to prevent accidents. These involve en route controls at higher altitudes and tower controls around airports.
Reforms in air transportation infrastructure have been slower to materialize than for airlines. Most ANSPs traditionally have been state owned but in recent years a number have been privatized or ‘‘corporatized’’ (turned into nonprofit entities either independent or government-owned but notmanaged). For example, NAV CANADA became a private notfor-profit corporation in 1996; Airservices Australia became a government corporation in 1988; and the UK air transportation system, NATS, became a public-private partnership in 2001. France retains state ownership of its ANSP but allowsDirection des Services de la Navigation Ae´rienne access to private financial markets and to levy user fees. The Federal Aviation Administration in the United States outsources some activities but is financed by taxes. Because of the increase in international air transportation and the need for greater integration of systems, some countries are developing coordinated strategies for delivering air navigation systems (ANSs). Within Europe, for example, EUROCONTROL has the remit for creating a Single European Sky that ultimately links the various national ANSs.
The changes have come about as new ways are being sought to finance the modernization of facilities and to improve their efficiency. ANSs are highly capital intensive and are continually being improved, but adopting the new technology is expensive and often has to be tailored to the peculiarities of the existing system rather than using generic hard- and software.
One of the main difficulties in enhancing air trafficmanagement performance through regulatory reform has been the concern with aviation safety. Academic studies show a greater aversion to being killed in a plane crash, for example, than in an automobile accident. The evidence to date is that, although there are some geographical areas where the record is poor, the overall safety of air transportation has continually improved over the years in terms of both mortalities and morbidity per passenger mile flown.
Overall, air transportation is the fastest-growing transportationmode in the world for both passenger and freight traffic. It has traditionally been highly regulated but since the late 1970s, the removal of economic regulation from many markets has led to improved efficiency, innovation, and lower costs and fares, without any reduction in safety standards. There is now diversity in the types of airlines that offer services and also in the forms of infrastructure that is required to support flights. See also shipping; trade in services