The competition air carriers face from other types of transportation is somewhat limited. The ability to provide fats, international service has established the air industry as a unique, relied-upon service. As a result most of the competition faced by air carriers comes from within the same industry. Given the massive start-up costs, entering this industry is difficult (Gowrisankaram, 2002). There are a number of ways, however, in which airlines can differentiate themselves.
Most airline revenue comes from passenger travel (U. S. Department of Transportation, 2005). While some airlines provide passenger and cargo service, others have specialized only in cargo. For these firms, speed is of the utmost importance. Reliability of the service is equally important. Airlines may also compete based upon price. Sensing a void in the low-fare market, several airlines have emerged in recent years.
Southwest Airlines and JetBlue are two examples of no-frills airlines that offer low prices by holding down costs. In the 1970s, the airline industry began a process of deregulation. Price controls and restrictions on mergers were lifted. Deregulation has led to fundamental changes in which airlines compete, although not necessarily in the ways intended.
The regulation of competition that existed prior to the 1980s has been replaced by an emphasis on safety regulation (U.S. Department of Transportation, 2005). This form of regulation does not affect competition as much as the economic regulation of the past since relative costs are equal across the industry. Deregulation has not resulted in huge price increases as some feared. At the same time the number of competitors has not increased. Instead, the airline industry has adopted a new service model that emphasizes profitable regional routes while phasing out less profitable ones.