Eastern Airlines was a major American airline that operated from 1926 to 1991. It played a significant role in the context of the Great Deregulation Experiment, which was a period of significant changes in the airline industry in the United States during the late 1970s and 1980s.
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Eastern Airlines was one of the largest and most influential airlines in the United States prior to deregulation, operating a extensive route network across the country.
The company faced significant challenges during the deregulation era, including increased competition, rising fuel costs, and labor disputes, which ultimately led to its bankruptcy and eventual shutdown in 1991.
Eastern Airlines was known for its innovative marketing strategies, such as its 'Wings of Man' advertising campaign, which highlighted the airline's commitment to customer service.
The company's hub-and-spoke system, centered around major airports in cities like Atlanta, Miami, and New York, was a key part of its business model before deregulation.
Eastern Airlines was accused of engaging in predatory pricing tactics in an attempt to drive out smaller, regional competitors during the deregulation era.
Review Questions
Explain how the Airline Deregulation Act of 1978 impacted the operations and business model of Eastern Airlines.
The Airline Deregulation Act of 1978 significantly changed the landscape of the airline industry in the United States. Prior to deregulation, the government closely regulated fares, routes, and market entry, which had allowed Eastern Airlines to maintain a dominant position in the industry. However, with the removal of these regulations, Eastern Airlines faced increased competition from both established and new airlines, forcing the company to adapt its hub-and-spoke system and pricing strategies to remain competitive. The deregulation era ultimately led to the downfall of Eastern Airlines, as it struggled to adapt to the new, more competitive environment.
Analyze how Eastern Airlines' use of a hub-and-spoke system influenced its operations and response to deregulation.
Eastern Airlines' reliance on a hub-and-spoke system, with major hubs in cities like Atlanta, Miami, and New York, was a key part of its business model prior to deregulation. This system allowed the airline to efficiently utilize its aircraft and resources, but also made it vulnerable to increased competition. After deregulation, other airlines were able to challenge Eastern's dominance by establishing their own hubs and competing on routes that had previously been protected. Eastern's inability to quickly adapt its hub-and-spoke system to the new competitive landscape contributed to its eventual downfall, as it struggled to maintain market share and profitability in the face of growing competition.
Evaluate the role of predatory pricing tactics in Eastern Airlines' response to the deregulation of the airline industry.
In an effort to maintain its dominant position in the industry, Eastern Airlines was accused of engaging in predatory pricing tactics during the deregulation era. This involved setting fares artificially low on certain routes in order to drive out smaller, regional competitors. While this strategy may have been effective in the short term, it ultimately proved unsustainable for Eastern Airlines. The company's reliance on predatory pricing tactics was a sign of its inability to adapt to the new, more competitive environment created by deregulation. This, combined with other factors such as rising fuel costs and labor disputes, contributed to Eastern Airlines' eventual bankruptcy and shutdown in 1991.
A 1978 U.S. federal law that eliminated government control over fares, routes, and market entry of airlines, leading to increased competition and lower prices.
Hub-and-Spoke System: An airline route network where flights are routed through a central hub airport, allowing for more efficient use of aircraft and resources.