Aviation Industry Research Paper

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The aviation industry is defined as the design, manufacture, use, or operation of aircraft; the term aircraft refers to any vehicle capable of flight. Aircraft can either be heavier than air or lighter than air. Lighter than air craft include balloons and airships, and heavier than air craft include airplanes, autogiros, gliders, helicopters, and ornithopters.

As early as 400 BCE the Greek scholar Archytas built a wooden pigeon that moved through the air, which is the earliest aviation experiment. The Americans Orville Wright and Wilbur Wright are generally credited with making the first controlled, powered, heavier than air human flight on December 17, 1903. In 1905 Charles and Gabriel Voisin, two French fliers, started the world’s first aircraft company. The military value of aircraft was quickly recognized during World War I (1914–1918), and production increased significantly to meet the rising demand. More powerful motors, enabling aircraft to reach speeds of up to 130 miles per hour, were developed. After World War I, thousands of military planes were converted to civilian use. By 1917 the U.S. government adopted something totally new: airmail. The Contract Air Mail Act of 1925 was the first major legislative step toward the creation of the private U.S. airline industry. Henry Ford, the automobile manufacturer, jumped into aircraft manufacturing and produced one of the first all-metal planes. On May 21, 1927, the pilot Charles Lindbergh flew across the Atlantic Ocean. This event made aviation an established industry by attracting millions of private investment dollars. For the airlines to attract more passengers away from the railroads, larger, faster, and safer airplanes were needed, and aircraft manufacturers responded to the challenge. There were so many improvements to aircraft in the 1930s that many believe it was the most innovative period in aviation history. Newton’s Third Law theorizes that a rearward-channeled explosion can propel a machine forward at a great rate of speed. The British pilot Frank Whittle applied this law to the first jet engine in 1930. During World War II, aircraft production became the world’s leading manufacturing industry.

Aviation is broadly grouped into three categories: general aviation, air transport aviation, and military aviation. By 1947 all the basic technology needed for aviation had been developed, including jet propulsion, aerodynamics, and radar. Civilian aircraft orders drastically increased from 6,844 in 1941 to 40,000 by the end of 1945. Among the minor military contractors was the Boeing Company, which later became the largest aircraft manufacturer in the world. With all the new technologies developed by this time, airliners were larger and faster and featured pressurized cabins. New aerodynamic designs, metals, and power plants resulted in high-speed turbojet airplanes. By 1950 the airliner was well on the way to replacing the railroad and the ocean liner as the primary means of long-distance travel. The economic, social, and political consequences included the creation of global markets, opportunities for global travel undreamed of a generation before, and increasing cultural homogeneity.

In 1938 the Civil Aeronautics Authority, an independent regulatory bureau, was developed. The airline industry resembled a public utility, with a government agency determining the routes each airline flew and overseeing the prices charged. On October 24, 1978, the Airline Deregulation Act was approved, and the industry became market driven, with customer demand determining the levels of service and price. A major development that followed deregulation was the widespread development of hub-and-spoke networks, which enable the airlines to serve far more markets than they could with the same size fleet if they offered only direct, point-to-point service. Another important development following deregulation was the advent of computer reservation systems. These systems help airlines and travel agents keep track of fare and service changes, which occur rapidly. The systems also enable airlines and travel agents to efficiently process the millions of passengers who fly each day. In manufacturing, several mergers in the 1990s led to the disappearance of several historic U.S. airplane builders, such as McDonnell Douglas, which merged into Boeing. International partnerships became increasingly significant, with Airbus capturing one-third of the world market in jet airliner sales in the 1990s.

A number of researchers examined the impact of the 1978 Deregulation Act on the productivity of U.S. carriers and the demand for their services as well as how the international deregulation of the industry that accelerated in the ensuing years impacted the supply and demand for airline service worldwide. The studies pointed to an increase in efficiency of airline carriers due to increased competition, a provision of more service at lower prices, and an eroding of service quality as carriers competed on the basis of price instead of on the basis of in-flight amenities and flight frequency with relative low load factors.

On September 11, 2001, terrorists hijacked four commercial airplanes and deliberately crashed two into the towers of the World Trade Center in New York City and one into the Pentagon building in Washington, D.C. The fourth hijacked plane crashed in Somerset County, Pennsylvania. After the hijackings, U.S. airports and airlines sought new ways to protect against terrorist attacks. Congress passed legislation requiring federal employees to handle all passenger and baggage inspection in U.S. airports by the end of 2002.

Fears of terrorism and a sluggish world economy contributed to a decline in air travel in the early 2000s. In 2003 British Airways and Air France discontinued all Concorde flights because the flights were no longer profitable.

Although many countries continue to operate stateowned airlines, most large airlines in the early twenty-first century are privately owned and therefore governed by microeconomic principles to maximize shareholder profits. The airline industry as a whole has a cumulative loss during its history, once subsidies for aircraft development and airport construction are included in the cost. The lack of profitability and continuing government subsidies are justified with the argument that positive externalities, such as higher growth due to global mobility, outweigh microeconomic losses. A historically high level of government intervention in the airline industry can be seen as part of a wider political consensus on strategic forms of transport, such as highways and railways, both of which are also publicly funded in most parts of the world.

U.S. airlines face substantial upheavals in the forms of mergers, failures, bankruptcy filings, reorganizations, and operating loss reports. This situation has raised concern that the future is bleak in terms of the number of carriers that will survive and prosper. Profitability is likely to improve as carriers find ways to be more cost-efficient and more competitive low-cost carriers proliferate.

Bibliography:

  1. Ahn, Seun, David H. Good, and Robin C. Sickles. 1998. Assessing the Relative Efficiency of Asian and North American Airline Firms. In Economic Efficiency and Productivity Growth in the Asia-Pacific Region, ed. Tsu-Tan Fu, Cliff J. Huang, and C. A. Knox Lovell, 65–89. Northamptom, MA: Elgar.
  2. Captain, Purvez, and Robin C. Sickles. 1997. Competition and Market Power in the European Airline Industry: 1976–1990. Managerial and Decision Economics 18: 209–225.
  3. Färe, Rolf, Shawna Grosskopf, and Robin C. Sickles. 2007. Productivity? of U.S. Airlines after Deregulation. Journal of Transport Economics and Policy 41: 93–112.
  4. Good, David H., M. Ishaq Nadiri, and Robin C. Sickles. 1993. Efficiency and Productivity Growth Comparisons of European and U.S. Air Carriers: A First Look at the Data. Journal of Productivity Analysis 4: 115–125.
  5. Good, David H., Lars-Hendrik Röller, and Robin C. Sickles. U.S. Airline Deregulation: Implications for European Transport. Economic Journal, Royal Economic Society 103: 1028–1041. Reprinted in Recent Developments in Transport Economics, ed. Kenneth Button. Northhampton, MA: Elgar, 2003.
  6. Good, David H., Lars-Hendrik Röller, and Robin C. Sickles. Integration and the Structure of the Franco-AmericanAirline Industries: Implications for Efficiency and Welfare. In Models and Measurement of Welfare and Inequity, ed. Wolfgang Eichhorn, 643–665. Heidelberg, Germany: Springer-Verlag.
  7. Good, David H., Lars-Hendrik Röller, and Robin C. Sickles. Airline Efficiency Differences between Europe and the U.S.: Implications for the Pace of EC Integration and Domestic Regulation. European Journal of Operations Research 80: 508–518.
  8. Longyard, William H. 1994. Who’s Who in Aviation History: 500 Biographies. Shrewsbury, MA: Airlife.
  9. McAllister, Bruce, and Jesse Davidson. 2004. Wings across America: A Photographic History of the U.S. Air Mail. Boulder, CO: Roundup.
  10. Morrison, Stephen, and Clifford Winston. 1986. The Economic Effects of Airline Deregulation. Washington, DC: Brookings Institution.
  11. Morrison, Stephen, and Clifford Winston. 1995. The Evolution of the Airline Industry. Washington, DC: Brookings Institution.
  12. Perloff, Jeffrey, Robin C. Sickles, and Jesse Weiher. 2002. An Analysis of Market Power in the U.S. Airline Industry. In Measuring Market Power, ed. Daniel J. Slottje, 309–323. Amsterdam: Elsevier.
  13. Postert, Anthony, and Robin C. Sickles. 1999. Air Liberalization: The Record in Europe. In Taking Stock of Air Liberalization, ed. Marc Gaudry and Robert Mayes, 39–59. Boston: Kluwer Academic.
  14. Sickles, Robin C. 1987. Allocative Inefficiency in the U.S. Airlines: A Case for Deregulation. In Studies in Productivity Analysis, vol. 7, ed. by Ali Dogramaci, 149–162. Boston: Kluwer-Nijhoff.
  15. Sickles, Robin C., David H. Good, and Richard L. Johnson. 1986. Allocative Distortions and the Regulatory Transition of the U.S. Airline Industry. Journal of Econometrics 33: 143–163.
  16. Williams, James W. 2005. A History of Army Aviation: From Its Beginnings to the War on Terror. IUNIVERSE.

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