Airlines

Airlines provide crucial services in the globalizing world, as they facilitate international business, trade, and tourism. In many countries, governments have traditionally protected their national airlines from competition in international markets. Regulatory barriers in the global aviation industry remain substantial, despite progress toward liberalization.

Airlines are businesses engaged in air transportation of passengers and/or cargo for profit. The airline business is very competitive. The first known airline was formed in Germany in 1909. Its name was DELAG, and it used Zeppelin airships to transport passengers between German cities. In June 2010, Delta Air Lines became the world's biggest airline. The oldest airline of those currently operating is KLM Royal Dutch Airlines, which celebrated its 90th anniversary in 2009.

Airlines differ in size, from carriers owning or leasing a single aircraft to the airline companies owning hundreds of airplanes and offering scheduled transportation to a multitude of destinations in dozens of countries. Some airlines operate solely on the domestic market (e.g., Southwest Airlines in the United States); others (e.g., KLM) perform only international services. Many airlines operate the so-called hub-and-spoke networks, whereby passengers are channeled via one or several airports in the carrier's network, called hubs. Some of the so-called low-cost airlines focus on point-to-point services, selling tickets for nonstop flights only (Ryanair is a vivid example). A number of airlines (e.g., FedEx, Kalita Air) carry only cargo.

The airline business is considered very competitive, with thin profit margins, and airlines often lose considerable amounts of money. Airlines derive revenue by charging their customers fees (known as airfare in case of passenger transportation and cargo charges in case of freight transport). Recently, some airlines have been working to diversify their revenue sources, introducing checked luggage fees, emphasizing on-board sales, and selling advertising. The most important technique used by the airlines to enhance the revenue potential is called yield management, which amounts to using available information about passengers' or freight carriers' demand to practice price discrimination and ensure high load factors to achieve lower average costs.

Airlines' main capital costs relate to purchase or lease of the aircraft. The operating costs include aircraft maintenance, fuel, labor, aircraft and luggage handling, airport charges (takeoff, landing, parking, etc.), navigation charges, and catering. Exact breakdown and relative importance of these costs depend a lot on the airline's business model; however, aircraft maintenance, fuel, and labor costs are typically the most important items.

Oftentimes, the airlines are viewed as countries' symbols and are considered to play an important role in ensuring national security. For example, the U.S. Department of Defense has the authority to request any U.S.-based airlines to provide aircraft for the department's operations. Noncompliance results in the airline losing its operating certificate. Consequently, governments have historically been heavily involved with the airline industry; regulatory barriers in international airline business remain generally high, even though some progress toward liberalization has recently been made.

International airline business still largely operates around a network of bilateral and (a recent phenomenon) multilateral air service agreements. These agreements place varying restrictions on the airlines' operations. The most restrictive ones include very specific constraints, from the number of airlines that can be designated by each party to fly between the countries, to the number of end points to be served, to frequency of service and aircraft capacity, to airfares the airlines are allowed to charge. Until recently, the majority of international airfares have been determined by the airlines at the International Air Transport Association (IATA) semi-annual conferences. Many bilateral air service agreements include provisions requiring the airlines to use IATA-approved airfares.

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