In the past two decades, rising concentrations through mergers, acquisitions, and bankruptcies has marked the airline industry. “The top airlines have gained greater control over markets since the mid-1990s through code-sharing agreements with regional carriers, and more recently, through global marketing alliances.” 1 The U.S. deregulation of the airline industry in 1978 has dramatically modified the market, which required the carriers to adopt the use of a hub-and-spoke system of airport networks. Control over hub airports has intensified the competition and contributed to big losses, mergers, and several major bankruptcies in the United States. 2
Airlines derive most of their revenue from passenger fares; however, they also earn ancillary revenues from transporting mail, shipping freight, selling in-flight services, and from serving alcoholic beverages. The commercial airline industry concentrates its efforts on attracting the business traveler segment because it is the primary revenue for airline companies. Business travelers yield higher margins because they typically book flights that are paid for by their companies. Therefore, business travelers have a tendency to be price inelastic with regard to airfares. Consequently, airlines offer special deals to attract business travelers. These special services can include priority check-in, expedited baggage handling, luxury lounges, and in-flight amenities such as cellular phones, faxes, and outlets for laptop computer usage.
In contrast, leisure travelers are highly price conscious. They usually try to save money by using the Internet for comparisons, looking for discounted airfare, and accepting unusual flight schedules.