An airline provides air transport services for passengers or freight, generally with a recognized operating certificate or license. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit. Airlines vary from those with a single airplane carrying mail or cargo, through full-service international airlines operating many hundreds of airplanes. Airline services can be categorized as being intercontinental, intracontinental, or domestic and may be operated as scheduled services or charters. Tony Jannus conducted the United States' first scheduled commercial airline flight on 1 January 1914 for the St. Petersburg-routes, which would, through time and mergers, evolve into Delta Air Lines, Braniff Airways, American Airlines, United Airlines (originally a division of Boeing), Trans World Airlines, Northwest Airlines, and Eastern Air Lines, to name a few. At the same time, Juan Trippe began a crusade to create an air network that would link America to the world, and he achieved this goal through his airline, Pan American World Airways, with a fleet of flying boats that linked Los Angeles to Shanghai and Boston to London. Pan Am was the only U.S. airline to go international before the 1940s. KLM, the oldest carrier still operating under its original name, was founded in 1919. The first flight (operated on behalf of KLM by Aircraft Transport and Travel) transported two English passengers to Schiphol, Amsterdam from London in 1920. Like other major European airlines of the time (see France and the UK below), KLM's early growth depended heavily on the needs to service links with far-flung colonial possessions (Dutch Indies). It is only after the loss of the Dutch Empire that KLM found itself based at a small country with few potential passengers, depending heavily on transfer traffic, and was one of the first to introduce the hub-system to facilitate easy connections. France began an air mail service to Morocco in 1919 that was bought out in 1927, renamed Aéropostale, and injected with capital to become a major international carrier. In 1933, Aéropostale went bankrupt, was nationalized and merged with several other airlines into what became Air France. In Finland, the charter establishing Aero O/Y (now Finnair, one of the oldest still-operating airlines in the world) was signed in the city of Helsinki on 12 September 1923. Junkers F 13 D-335 became the first aircraft of the company, when Aero took delivery of it on 14 March 1924. The first flight was between Helsinki and Tallinn, capital of Estonia, and it took place on 20 March 1924, one week later. Germany's Lufthansa began in 1926. Lufthansa, unlike most other airlines at the time, became a major investor in airlines outside of Europe, providing capital to Varig and Avianca. German airliners built by Junkers, Dornier, and Fokker were the most advanced in the world at the time. The peak of German air travel came in the mid-1930s, when Nazi propaganda ministers approved the start of commercial zeppelin service: the big airships were a symbol of industrial might, but the fact that they used flammable hydrogen gas raised safety concerns that culminated with the Hindenburg disaster of 1937. The reason they used hydrogen instead of the not-flammable helium gas was a United States military embargo on helium. The British company Aircraft Transport and Travel commenced a London to Paris service on 25 August 1919, this was the world's first regular international flight. The United Kingdom's flag carrier during this period was Imperial Airways, which became BOAC (British Overseas Airlines Co.) in 1939. Imperial Airways used huge Handley-Page biplanes for routes between London, the Middle East, and India: images of Imperial aircraft in the middle of the Rub'al Khali, being maintained by Bedouins, are among the most famous pictures from the heyday of the British Empire. The first country in Asia to embrace air transport was the Philippines. Philippine Airlines was founded on February 26, 1941, making it Asia's oldest carrier still operating under its current name. The airline was started by a group of businessmen led by Andres Soriano, hailed as one of the Philippines' leading industrialists at the time. The airline’s first flight was made on March 15, 1941 with a single Beech Model 18 NPC-54 aircraft, which started its daily services between Manila (from Nielson Field) and Baguio, later to expand with larger aircraft such as the DC-3 and Vickers Viscount. Notably Philippine Airlines leased Japan Airlines their first aircraft, a DC-3 named "Kinsei". On July 31, 1946, a chartered Philippine Airlines DC-4 ferried 40 American servicemen to Oakland,California from Nielson Airport in Makati City with stops in Guam, Wake Island, Johnston Atoll and Honolulu, Hawaii, making PAL the first Asian airline to cross the Pacific Ocean. A regular service between Manila and San Francisco was started in December. It was during this year that the airline was designated as the Philippines flag carrier. Another airline company to begin early operations was Air India, which had its beginning as Tata Airlines in 1932, a division of Tata Sons Ltd. (now Tata Group) by India's leading industrialist JRD Tata. On October 15, 1932, J. R. D. Tata himself flew a single engined De Havilland Puss Moth carrying air mail (postal mail of Imperial Airways) from Karachi to Bombay via Ahmedabad. The aircraft continued to Madras via Bellary piloted by Royal Air Force pilot Nevill Vincent. Following the end of World War II, regular commercial service was restored in India and Tata Airlines became a public limited company on 29 July 1946 under the name Air India. After the Independence of India, 49% of the airline was acquired by the Government of India. In return, the airline was granted status to operate international services from India as the designated flag carrier under the name Air India International. Neighbouring countries also soon embraced air transport, notably with Cathay Pacific founded in 1946, Singapore Airlines and Malaysian Airlines in 1947 (as Malayan Airways), Garuda Indonesia in 1949 and Japan Airlines founded in 1951. With the outbreak of World War Two, the airline presence in Asia came to a relative halt, with many new flag carriers donating their aircraft for military aid and other uses. World War II, like World War I, brought new life to the airline industry. Many airlines in the Allied countries were flush from lease contracts to the military, and foresaw a future explosive demand for civil air transport, for both passengers and cargo. They were eager to invest in the newly emerging flagships of air travel such as the Boeing Stratocruiser, Lockheed Constellation, and Douglas DC-6. Most of these new aircraft were based on American bombers such as the B-29, which had spearheaded research into new technologies such as pressurization. Most offered increased efficiency from both added speed and greater payload. The next big boost for the airlines would come in the 1970s, when the Boeing 747, McDonnell Douglas DC-10, and Lockheed L-1011 inaugurated widebody ("jumbo jet") service, which is still the standard in international travel. The Tupolev Tu-144 and its Western counterpart, Concorde, made supersonic travel a reality. In 1972, Airbus began producing Europe's most commercially successful line of airliners to date. The added efficiencies for these aircraft were often not in speed, but in passenger capacity, payload, and range. As the business cycle returned to normalcy, major airlines dominated their routes through aggressive pricing and additional capacity offerings, often swamping new startups. Only America West Airlines (which has since merged with US Airways) remained a significant survivor from this new entrant era, as dozens, even hundreds, have gone under. In many ways, the biggest winner in the deregulated environment was the air passenger. Indeed, the U.S. witnessed an explosive growth in demand for air travel, as many millions who had never or rarely flown before became regular fliers, even joining frequent flyer loyalty programs and receiving free flights and other benefits from their flying. New services and higher frequencies meant that business fliers could fly to another city, do business, and return the same day, for almost any point in the country. Air travel's advantages put intercity bus lines under pressure, and most have withered away. Thus the last 50 years of the airline industry have varied from reasonably profitable, to devastatingly depressed. As the first major market to deregulate the industry in 1978, U.S. airlines have experienced more turbulence than almost any other country or region. Today, almost every single legacy carrier except for American Airlines have operated under Chapter 11 bankruptcy provisions or have gone out of business. Many countries have national airlines that the government owns and operates. Fully private airlines are subject to a great deal of government regulation for economic, political, and safety concerns. For instance, the government often intervenes to halt airline labor actions in order to protect the free flow of people, communications, and goods between different regions without compromising safety. The United States, Australia, and to a lesser extent Brazil, Mexico, the United Kingdom and Japan have "deregulated" their airlines. In the past, these governments dictated airfares, route networks, and other operational requirements for each airline. Since deregulation, airlines have been largely free to negotiate their own operating arrangements with different airports, enter and exit routes easily, and to levy airfares and supply flights according to market demand. The entry barriers for new airlines are lower in a deregulated market, and so the U.S. has seen hundreds of airlines start up (sometimes for only a brief operating period). This has produced far greater competition than before deregulation in most markets, and average fares tend to drop 20% or more. The added competition, together with pricing freedom, means that new entrants often take market share with highly reduced rates that, to a limited degree, full service airlines must match. This is a major constraint on profitability for established carriers, which tend to have a higher cost base. Groups such as the International Civil Aviation Organization establish worldwide standards for safety and other vital concerns. Most international air traffic is regulated by bilateral agreements between countries, which designate specific carriers to operate on specific routes. The model of such an agreement was the Bermuda Agreement between the US and UK following World War II, which designated airports to be used for transatlantic flights and gave each government the authority to nominate carriers to operate routes. Bilateral agreements are based on the "freedoms of the air," a group of generalized traffic rights ranging from the freedom to overfly a country to the freedom to provide domestic flights within a country (a very rarely granted right known as cabotage). Most agreements permit airlines to fly from their home country to designated airports in the other country: some also extend the freedom to provide continuing service to a third country, or to another destination in the other country while carrying passengers from overseas. In the 1990s, "open skies" agreements became more common. These agreements take many of these regulatory powers from state governments and open up international routes to further competition. Open skies agreements have met some criticism, particularly within the European Union, whose airlines would be at a comparative disadvantage with the United States' because of cabotage restrictions. One argument is that positive externalities, such as higher growth due to global mobility, outweigh the microeconomic losses and justify continuing government intervention. 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 receive public funding in most parts of the world. Profitability is likely to improve in the future as privatization continues and more competitive low-cost carriers proliferate. Because of the complications in scheduling flights and maintaining profitability, airlines have many loopholes that can be used by the knowledgeable traveler. Many of these airfare secrets are becoming more and more known to the general public, so airlines are forced to make constant adjustments. Most airlines use differentiated pricing, a form of price discrimination, in order to sell air services at varying prices simultaneously to different segments. Factors influencing the price include the days remaining until departure, the booked load factor, the forecast of total demand by price point, competitive pricing in force, and variations by day of week of departure and by time of day. Carriers often accomplish this by dividing each cabin of the aircraft (first, business and economy) into a number of travel classes for pricing purposes. A complicating factor is that of origin-destination control ("O&D control"). Someone purchasing a ticket from Melbourne to Sydney (as an example) for $200 (AUD) is competing with someone else who wants to fly Melbourne to Los Angeles through Sydney on the same flight, and who is willing to pay $1400 (AUD). Should the airline prefer the $1400 passenger, or the $200 passenger plus a possible Sydney-Los Angeles passenger willing to pay $1300? Airlines have to make hundreds of thousands of similar pricing decisions daily. The advent of advanced computerized reservations systems in the late 1970s, most notably Sabre, allowed airlines to easily perform cost-benefit analyses on different pricing structures, leading to almost perfect price discrimination in some cases (that is, filling each seat on an aircraft at the highest price that can be charged without driving the consumer elsewhere). Price discrimination is considered an anti-business practice, and is defined as price discriminations definition: different prices for identical products. Technically this is the total of the specific action of the other airline, without violating laws. The archaic airlines, with hub-systems and unprofitable pricing structures, have legally defined this term as an attack on business, although this act is not outside of law. The low cost carriers (LCC's) are new on the scene and did not have the contacts or resources to outlaw this definition of a purely legal business practice (in which they chose to participate) as a monopolistic practice to those with the aforementioned archaic pricing structure. The national carriers have yet to define how discrimination is an intenionally harmful and volitionally detrimental act upon their business by a competitor. Laws protecting business can be applied, or those who have the greatest impact may insinuate without proof that they are treated unfairly, and can thus use their legal status as the defendant to limit LCC's manuevaribility within the market. An example is that they demand taxes from the US government for specific airports, for which the National's receive exemption or subsidy for either a)seniority/grandfathering treatment, or b)legal status as financially on the brink (i.e. pre-bankruptcy). The intense nature of airfare pricing has led to the term "fare war" to describe efforts by airlines to undercut other airlines on competitive routes. Through computers, new airfares can be published quickly and efficiently to the airlines' sales channels. For this purpose the airlines use the Airline Tariff Publishing Company (ATPCO), who distribute latest fares for more than 500 airlines to Computer Reservation Systems across the world. Full-service airlines have a high level of fixed and operating costs in order to establish and maintain air services: labor, fuel, airplanes, engines, spares and parts, IT services and networks, airport equipment, airport handling services, sales distribution, catering, training, aviation insurance and other costs. Thus all but a small percentage of the income from ticket sales is paid out to a wide variety of external providers or internal cost centers. Moreover, the industry is structured so that airlines often act as tax collectors. Airline fuel is untaxed, however, due to a series of treaties existing between countries. Ticket prices include a number of fees, taxes, and surcharges they have little or no control over, and these are passed through to various providers. Airlines are also responsible for enforcing government regulations. If airlines carry passengers without proper documentation on an international flight, they are responsible for returning them back to the originating country. In contrast, Southwest Airlines has been the most profitable of airline companies since 1970. Indeed, some sources have calculated Southwest to be the best performing stock over the period, outperforming Microsoft and many other high performing companies. The chief reasons for this are their product consistency and cost control. The widespread entrance of a new breed of low cost airlines beginning at the turn of the century has accelerated the demand that full service carriers control costs. Many of these low cost companies emulate Southwest Airlines in various respects, and like Southwest, they are able to eke out a consistent profit throughout all phases of the business cycle. As a result, a shakeout of airlines is occurring in the U.S. and elsewhere. United Airlines, US Airways (twice), Delta Air Lines, and Northwest Airlines have all declared Chapter 11 bankruptcy, and American has barely avoided doing so. Alitalia, Scandinavian Airlines System, SABENA, Swissair, Japan Air System, Viasa, Air Canada, Ansett Australia, and others have flirted with or declared bankruptcy since 1995, as low cost entrants enter their home markets as well. Some argue that it would be far better for the industry as a whole if a wave of actual closures were to reduce the number of "undead" airlines competing with healthy airlines while being artificially protected from creditors via bankruptcy law. On the other hand, some have pointed out that the reduction in capacity would be short lived given that there would be large quantities of relatively new aircraft that bankruptcies would want to get rid of and would re-enter the market either as increased fleets for the survivors or the basis of cheap planes for new startups. Airline financing is quite complex, since airlines are highly leveraged operations. Not only must they purchase (or lease) new airliner bodies and engines regularly, they must make major long-term fleet decisions with the goal of meeting the demands of their markets while producing a fleet that is relatively economical to operate and maintain. Compare Southwest Airlines and their reliance on a single airplane type (the Boeing 737 and derivatives), with the now defunct Eastern Air Lines which operated 17 different aircraft types, each with varying pilot, engine, maintenance, and support needs. A second financial issue is that of hedging oil and fuel purchases, which are usually second only to labor in its relative cost to the company. However, with the current high fuel prices it has become the largest cost to an airline. While hedging instruments can be expensive, they can easily pay for themselves many times over in periods of increasing fuel costs, such as in the 2000-2005 period. In view of the congestion apparent at many international airports, the ownership of slots at certain airports (the right to take-off or land an aircraft at a particular time of day or night) has become a significant tradable asset for many airlines. Clearly take-off slots at popular times of the day can be critical in attracting the more profitable business traveler to a given airline's flight and in establishing a competitive advantage against a competing airline. If a particular city has two or more airports, market forces will tend to attract the less profitable routes, or those on which competition is weakest, to the less congested airport, where slots are likely to be more available and therefore cheaper. Other factors, such as surface transport facilities and onward connections, will also affect the relative appeal of different airports and some long distance flights may need to operate from the one with the longest runway. Code sharing is the most common type of airline partnership; it involves one airline selling tickets for another airline's flights under its own airline code. An early example of this was Japan Airlines' code sharing partnership with Aeroflot in the 1960s on flights from Tokyo to Moscow: Aeroflot operated the flights using Aeroflot aircraft, but JAL sold tickets for the flights as if they were JAL flights. This practice allows airlines to expand their operations, at least on paper, into parts of the world where they cannot afford to establish bases or purchase aircraft. Another example was the Austrian- Sabena partnership on the Vienna-Brussels-New York JFK route during the late 60's, using a Sabena Boeing 707 with Austrian colors. Since airline reservation requests are often made by city-pair (such as "show me flights from Chicago to Düsseldorf"), an airline who is able to code share with another airline for a variety of routes might be able to be listed as indeed offering a Chicago-Düsseldorf flight. The passenger is advised however, that Airline 1 operates the flight from say Chicago to Amsterdam, and Airline 2 operates the continuing flight (on a different airplane, sometimes from another terminal) to Düsseldorf. Thus the primary rationale for code sharing is to expand one's service offerings in city-pair terms so as to increase sales. Often the companies combine IT operations, buy fuel, or purchase airplanes as a bloc in order to achieve higher bargaining power. However, the alliances have been most successful at purchasing invisible supplies and services, such as fuel. Airlines usually prefer to purchase items visible to their passengers to differentiate themselves from local competitors. If an airline's main domestic competitor flies Boeing airliners, then the airline may prefer to use Airbus aircraft regardless of what the rest of the alliance chooses. Each operator of a scheduled or charter flight uses a airline call sign when communicating with airports or air traffic control centers. Most of these call-signs are derived from the airline's trade name, but for reasons of history, marketing, or the need to reduce ambiguity in spoken English (so that pilots do not mistakenly make navigational decisions based on instructions issued to a different aircraft), some airlines and air forces use call-signs less obviously connected with their trading name. For example, British Airways uses a Speedbird call-sign, named after the logo of its predecessor, BOAC while America West used Cactus reflecting that company's home in the state of Arizona and to differentiate itself from numerous other airlines using America and West in their call signs. The industry is cyclical. Four or five years of poor performance precede five or six years of improved performance. But profitability in the good years is generally low, in the range of 2-3% net profit after interest and tax. In times of profit, airlines lease new generations of airplanes and upgrade services in response to higher demand. Since 1980, the industry has not earned back the cost of capital during the best of times. Conversely, in bad times losses can be dramatically worse.
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