The U.S. government had controlled the air transport industries for a long time, including fares, routes, airport facilities, etc. However, the revolutionary changes occurred in 1978. President Carter signed the Airline Deregulation Act (hereafter ADA), which ended the controls of domestic routes, fares, etc. (Bowen, 2010, p. 95).
The main purpose of ADA was to eliminate the intervention from government, and enable the airlines to make decisions from the market instead of government. The impact of ADA has continued to affect air transport industry, and has even spread to other countries. In the 1990s, the U.S. introduced a concept of “Open Skies” into the world, and made another substantial change. Meanwhile, as aircraft technology advances with time, more aircraft can provide long-haul and non-stop services, which also affect the carriers’ decision-making. Even though this chapter mostly focuses on the economic influences after the late 1980s, the discussion of fleet requirement is from 1947, the beginning of the Orient flight, to the 2000s. Fleet plan and requirement are highly related to the profit and long-term plan of airlines. Accordingly, this research brings the discussion of aircraft technology and fleet plan in this chapter.
This chapter will discuss the changes of Northwest’s decision-making, fleet plans and the route network in East Asia after ADA came into force.
5-1 Open Skies Policy
The limitation of air transport industry within the U.S. began in 1938, which was originated from the U.S. Congress passing the Civil Aeronautic Act and establishing Civil Aeronautic Authority (became CAB in 1940). The main function of the authority was (1) to regulate route entry and exit, fares, mergers and acquisitions, etc.; (2) to supervise the airlines and aircraft safety; (3) to encourage the air transport industry (Goetz & Vowles, 2009, p. 252). Although the intention of CAB was to make the air transport industry become better, it came to be a burden and made the industry inefficiency. Therefore, the U.S. Congress passed ADA on October 24th, 1978, and signed by President Carter on October 28th, 1978. The ADA only deregulated
domestic routes. However, international routes were not in the scope of the deregulation. After ADA came into force, the air transport industry was highly competitive. Without the routes and fares controls, airlines could adjust the fares to respond to the highly competitive market. At the same time, in order to attract more passengers, airlines were willing to invest much money in improving their services.
Therefore, consumers could enjoy the lower prices, better services and multiple choices.
The ADA took the U.S. carriers to a more competitive situation in the 1980s, which caused many carriers to have financial problems, and made the entire industry became erratic. Carriers were merged or acquired by each other, which was not only increased instability in employment but also labor strife (Goetz & Vowles, 2009, p.
256). Especially in the years of 1986 and 1987, there were nine carriers being merged or acquired by larger carriers (Table 5-1). Some carriers expanded their domestic networks via the acquisition of other carriers. For instance, Pan American bought National Airlines in 1980. Pan American had a strong international route network; on the contrary, the domestic route network was very weak due to the prevention of monopoly from the U.S. government. After ADA, the U.S. domestic carriers could also provide international services; in consequence, Pan American bought National Airlines for increasing its competitiveness.
Table 5-1
The U.S. Carriers Mergers and Acquisitions in the 1980s
Parent Company Merger/Acquisition Year
Pan American World Airways National Airlines 1980
Northwest Airlines Republic Airlines 1986
US Airways
Pacific Southwest Airline 1986
Piedmont Airlines 1987
Trans World Airlines Ozark Air Lines 1986
American Airlines Air California 1987
Continental Air Lines People Express Airlines 1987
New York Air 1987
Delta Air Lines Western Air Lines 1987
Source: compiled by this study
49
Despite the fact that the merger of National Airlines expanded Pan American’s domestic route network, the inflated prices of acquisition and the excessive salaries for the former National’s employees worsened the Pan American’s financial condition.
As a result, Pan American sold the concession of routes to other carriers in order to rescue the company’s failing finance (Bowen, 2010, p. 119). For example, Pan American sold the U.S. to Asia, Australia, New Zealand routes to United Airlines in 1985, and since then, the main competitor to Northwest became United. Since United got the permission of operating flights to East Asia and Pacific region, Northwest had been threatened by the stronger competitor, and had been under pressure to find a merger for strengthening its domestic routes. Therefore, Northwest bought Republic Airlines, which was also headquartered in Minneapolis-St. Paul, in 1985 (Jouzaitis, 1986).
Although the U.S. government deregulated the domestic routes, carriers also cared about international routes. The international routes deregulation was related to the air transport agreement with the U.K. The first air transport agreement between the U.S. and the U.K. was called Bermuda Agreement (hereafter BermudaⅠ), which was signed in 1946. Bermuda I granted the U.S. carriers a large number of beyond rights through the U.K and its territories such as Jamaica, Singapore and Hong Kong to other foreign cities. However, compared to the U.S., the U.K only granted to serve few foreign cities with beyond rights (U.S. Department of State, n.d.). Because of the unfair distribution, the U.K. made every effort to request the U.S. to sign the new agreement. Finally, the U.S. and the U.K. signed the new air transport agreement in 1977, and it was also called Bermuda Agreement (hereafter BermudaⅡ) in 1977.
BermudaⅡ made the U.S. lose most of the beyond rights through the U.K. and its territories. As a result, the U.S. carriers asked the U.S. government to sign more liberal air transport agreements with other countries to make up for the loss from the U.K. (Bowen, 2010, p. 103). This can be seen as the beginning of the international routes deregulation.
The U.S. had signed new air transport agreements with many countries such as the Netherlands, Belgium, Singapore and R.O.C. in the 1980s. From the case of R.O.C., the new air transport agreement with the U.S. in 1980 was in response to the breakup of diplomatic relations between the two countries, but the U.S. used this opportunity to negotiate the more liberal agreement. The most important changes of
the new agreement between the U.S. and R.O.C. were:
(1) Each party could designate as many airlines as it wishes to provide passenger services.
(2) Airlines could operate flights without any limitation, including the number or type of aircraft.
(3) The U.S. carriers could operate flights from the U.S. via intermediate points to Taipei and Kaohsiung and beyond, the beyond-points had no limitation.
Taiwanese carriers could operate flights from Taipei and Kaohsiung via intermediate points in the Pacific to Guam, Honolulu, San Francisco, Los Angeles, Seattle, New York and Dallas, and beyond to a point in Europe and a point in either Central or South America. (Ministry of Foreign Affairs, 1982)
Even though the U.S. acquired many beyond rights from the new liberal agreements, it still sought completely free market of international air transportation.
In 1992, the U.S. and the Netherlands signed a new type of air transport agreement, which was named “Open Skies”. Eliminating all the governmental interference is the main goal of Open Skies, for this reason, most of the Open Skies agreement state unlimited designated carriers, flight frequencies, beyond rights, capacity, and aircraft type. Since then, the U.S. has signed Open Skies agreement with other countries aggressively. As of the end of 2013, the U.S. has achieved Open Skies with 113 countries or regions (Figure 5-1). As to the East Asian countries, R.O.C signed the Open Skies with the U.S. in February 1997, South Korea was in April, 1998, and Japan was in October, 2010.
51 Figure 5-1 The Open Skies Partners with the U.S.
Note: Some countries or regions cannot show on the map, which are: Singapore, Aruba, Netherlands Antilles, Samoa, Cook Islands, and St. Kitts.
Source: U.S. Department of State (2014) Open Skies Agreements. Retrieved [2014/03/03]
from http://www.state.gov/e/eb/tra/ata/
Japan, as the most important country in East Asia to American carriers, rejected to sign the Open Skies agreement with the U.S. for many times. Japan complained that the U.S. carriers such as Northwest and United (operating flights to Asia since Pan American sold the right in 1985) had too many beyond rights through Japan, especially Tokyo. In addition to beyond rights, American carriers accounted for most of proportion on the U.S.-Japan routes. Matthew (1998) indicated that, as of summer 1997, American carriers operated 271 round trips per week to and from Japan, which accounted 154 of Northwest, 87 of United and 30 of other American carriers (Figure 5-2). On the contrary, Japanese carriers only operated 134 round trips in total.
American carriers dominated almost 67% of the U.S.-Japan market, not to mention their beyond rights to other Asian cities. As a result, Japan was not willing to sign Open Skies with the U.S. due to the unlimited beyond rights and flight frequencies.
Figure 5-2 The Percentage of the Weekly Flights between the U.S. and Japan
Source: Matthew, R. (1998). The New U.S.-Japan Bilateral Aviation Agreement: Airline Competition through the Political process. Journal of Air Transportation World Wide, 3(2), 6.
Northwest, as the largest carrier in the U.S.-Japan market, Tokyo airport and the Open Skies agreement with Japan were vital to them. Accordingly, Northwest lobbied for Open Skies with Japan aggressively and tried to extend the issues to other industries. However, the U.S. and Japan did not sign Open Skies agreement until 2010, Northwest has already merged with Delta.
The concept of Open Skies has not only increased the interest of American carriers, but also spread to other countries and even become a trend to eliminate governmental intervention from air transport industry. From the 1990s to the end of Northwest in 2010, only R.O.C. and South Korea have signed the Open Skies agreements with the U.S. in East Asia. However, the weekly flights of Northwest from and to those two countries did not increase substantially (Figure 5-3). That is to say, although Open Skies agreement is helpful to carriers broadening their route network and increasing capacity, company’s concerns are not necessarily the same with the agreements. Despite different concerns from the carriers, it does not damage the importance of Open Skies and the liberal air transport industry.
Northwest, 154, 38%
United, 87, 22%
Other U.S.
Carriers, 30, 7%
Japanese Carriers, 134, 33%
Northwest United
Other U.S. Carriers Japanese Carriers
53
Figure 5-3 The Number of Northwest Weekly Flights in Taiwan and South Korea from 2000 to 2010
Note: The light gray block shows the data unavailable. It is unable to collect Northwest’s system timetable in 2002. From 2000 to 2003, Northwest operated flights to two destinations in Taiwan, Taipei and Kaohsiung, and only one in South Korea, Seoul. After 2003, Taipei became the only destination in Taiwan, and Northwest added Pusan as the second destinations in South Korea.
Source: Northwest Airlines System Timetables
5-2 The Advance of Aircraft Technology
The Wright Brothers invented powered airplane in December 1903, just within a hundred years, the aircraft can fly across the globe easily. Northwest was a mail carrier in the initial stage, and started providing passenger service in 1927. The first passenger aircraft—Hamilton Metaplane could only carry six passengers. 63 years later, Northwest is the launch customer of the Boeing 747-400, which can carry 420 passengers30 and fly more than 12,000 km (Figure 5-4). The development of aircraft technology changes the way people travel and makes the relationship between different regions more closely. To most of carriers, fleet plan is not only making decisions on buying, leasing or replacing aircraft, but also realted to the competitiveness of the company. Since Northwest started flying to East Asia, the Orient route became their key product when promotion. Meanwhile, the Orient route was also the farthest destinations among the route network from the U.S. As a result,
once Northwest introduced new aircraft, most of them were operated on the Orient route.
Figure 5-4 Hamilton Metaplane and Boeing 747-400 of Northwest Airlines Fleet
Note: Hamilton Metaplane shows on the left picture. Boeing 747-400 shows on the right picture.
Source: Northwest Airlines System Timetables 1928; Northwest Airlines Image Library
Northwest utilized DC-4 and Boeing Stratocruiser (B-377) on the Orient route from 1947. In the mid-1950s, Northwest introduced Lockheed Constellation (L-1049), DC-6 and DC-7 into the Orient route fleets (Table 5-2). The main differences between these aircraft are capacity and speed. For example, DC-4 could carry 60 passengers and cruised at 305 km/hr, in contrast, DC-7 could carry 82 passengers and cruised at 518 km/hr. However, the distance between the U.S. and East Asia was still too far to operate direct flights, even the newer aircraft were larger and faster than before.
Therefore, those flights had to land in the middle points of the route for refueling.
From the beginning year of the Orient route, Shemya Island in the Aleutians had become the port of call between Anchorage and Tokyo. For strengthening the national defense of the U.S. mainland, Shemya Island was a military base in the Aleutians;
meanwhile, it provided the civil aircraft with fuel. However, the U.S. government decided to close the Shemya Island military base in 1954, and even removed all the ground facilities in the airport. This decision forced Northwest to move its port of call to Cold Bay, Alaska, where is 1,450 km toward the U.S. mainland (Figure 5-5).
Moving to Cold Bay made an increase in fuel requirement and a decrease in payload.
To solve the problem, Northwest decided to lease Shemya Island from the U.S.
government in 1956 and invested $225,000 U.S. dollars in ground facilities. This was the first time that the U.S. carrier operated their own airport (Ruble, 1986, p. 145).
55 Table 5-2
The Performance of Propeller (螺旋槳) Aircraft in Northwest Airlines Fleet
Type Year Passenger Load Speed Maximal Range
DC-4 1945-1961 50 305 km/hr 4,023 km
Martin 202 1947-1952 36 337 km/hr 1,022 km
B-377 1949-1960 83 408 km/hr 6,760 km
DC-6 1953-1965 76 416 km/hr 4,835 km
L-1049 1955-1957 74 439 km/hr 6,660 km
DC-7 1957-1968 82 518 km/hr 5,810 km
Note: The maximal range of every aircraft is with maximal passenger load.
Source: Ruble, K. D. (1986). Flight to the Top. United States of America: Viking Press, pp.
243-246. Airliners.net (n.d.) Aircraft Technical Data & Specifications. Retrieved [2014/03/06]
from http://www.airliners.net/aircraft-data/
Figure 5-5 The Location of Cold Bay
Note: The solid lines represent the original route between the U.S. and Asia. Because the U.S.
military closed the base on Shemya Island, Northwest was forced to move the refueling stop to Cold Bay. The route was changed from Anchorage via Cold Bay to Tokyo shortly (dotted line).
Northwest introduced DC-8 into its fleet in 1960. DC-8 was the first turbojet engine (渦輪噴射發動機) aircraft that Northwest had. Before that, all of the aircraft were propeller aircraft, which used piston engines (活塞式引擎). DC-8 also increased capacity and speed significantly, which could carry 127 passengers and cruised at 885 km/hr. However, Northwest only purchased five DC-8, and introduced other new aircraft such as Boeing 720B and Boeing 707-320 instead (Table 5-3). Although DC-8, Boeing 720B and Boeing 707-320 were all four-engines aircraft, the latter two used turbofan engines ( 渦輪扇發動機 ), which have been used on most of aircraft nowadays. With the introduction of those new aircraft, Northwest could provide direct flight between Anchorage and Tokyo. As a result, Northwest closed the refueling
airport on Shemya Island in 1961.
Table 5-3
The Performance of Northwest Fleet in the 1960s
Type Year Passenger Load Speed Maximal Range
DC-8 1960-1964 127 885 km/hr 7,681 km
Boeing 720B 1961-1974 111 885 km/hr 6,820 km
Boeing 707-320 1963-1978 165 877 km/hr 9,913 km Note: The maximal range of aircraft are with maximal passenger load.
Source: Ruble, K. D. (1986). Flight to the Top. United States of America: Viking Press, pp.
243-246. Boeing (n.d.) Comprehensive Index of Historical Products. Retrieved [2014/03/06]
from http://www.boeing.com/boeing/history/master_index.page?
The aircraft that mentioned above were all two or four-engine aircraft, but Northwest introduced two kinds of three-engine aircraft (hereafter trijet) in 1964 and 1972. The rise of trijet was related to the evolution of Extended Operation (ETOPS, 雙發動機延程飛行). From 1936, the U.S. government regulated that two-engine aircraft needed to find alternative airports which were located at least at 100-mile (160 km) intervals along the route in case one of the aircraft’s engines was breakdown.
In 1953, the U.S. government issued new regulation for two-engine aircraft and trijet.
The new regulation changed from 100-mile (160 km) to 60-minutes. That is to say, the alternative airport was located at least 60-minute distance from the proposed route (Figure 5-6). As the aviation technology grew rapidly, turbojet and turbofan engine were more reliable, the U.S. government deregulated trijet in 1964 (Federal Aviation Administration, 2008). As a result, many airplane manufacturers such as Boeing, Lockheed and Douglas launched trijet, which were no longer limited by the regulation and could operate long-haul flights or intercontinental flights. Northwest introduced Boeing 727 in 1964, and it could carry 128 to 148 passengers and cruised at 885 km/hr in 1964. In addition to Boeing 727, Northwest also purchased DC-10 to increase medium-long range fleet. Despite almost the same cruise speed with Boeing 727, DC-10 could carry more passengers than Boeing 727, from 236 to 292 passengers (Table 5-4, Figure5-7).
57 Figure 5-6 ETOPS Route and Non-ETOPS Route
Note: Assuming a propeller or two-engine aircraft takes off from A to B, under the 60 minutes rule, the aircraft needs to follow the route within 60 minutes distance from the alternative airports. But under the ETOPS rule, the trijet or advanced two-engine aircraft (for example, Boeing 777 or Airbus A330) can fly from A to B directly.
Table 5-4
The Performance of Northwest’s Trijet aircraft
Type Year Passenger Load Speed Maximal Range
Boeing 727 1964-2003 128-146 885 km/hr 5,005 km
DC-10 1972-2007 236-292 893 km/hr 9,265 km
Note: The maximal range of aircraft are with maximal passenger load.
Source: Bowen, J. (2010). The Economic Geography of Air Transportation: Space, time and the freedom of the skies. New York: Routledgd.
Figure 5-7 Northwest Boeing 727 and DC-10 aircraft
Note: Boeing 727 shows on the left picture. DC-10 shows on the right picture.
Source: Northwest Airlines Image Library
In the late 1960s, Boeing developed a legendary aircraft that not only changed carriers’ route network, but also became the most popular and the largest aircraft in the next four decades. Due to the high demand of air travel and the congestion in airport terminal, especially in John F. Kennedy international airport in New York, Pan American, the New York-based airline, asked Boeing to develop a larger aircraft to carry more passengers. Therefore, Boeing revamped a freighter plan, which rejected by the U.S. Air Force, into a passenger aircraft and named it as 747 (Leslie, 2005, p.
74). Boeing 747 aircraft have two decks, the upper deck is for cockpit and few passengers seats, but it is much shorter than lower deck. Boeing 747 has many different models such as Boeing 747-100, -200, -300, -400, -8, etc., and every kind of models has different characteristics. Northwest introduced the first Boeing 747-100 in 1970, and operated them on the Orient route immediately. However, because of the extraordinary appearance and giant body of Boeing 747, many airports needed to improve and renovate the terminals and related facilities. For example, R.O.C.
government spent 100 million New Taiwan Dollars to renovate terminal and navigation system of Taipei Song-Shan international airport 31 for meeting Northwest’s 747 aircraft32.
In addition to 747-100, Northwest also bought follow-up models such as 747-200
31 Taipei Song-Shan international airport was the only international airport in Taiwan until 1979.
R.O.C. government decided to build a new airport near Taipei because Song-Shan airport lacked for adequate space to expand runway and terminal. Since Taiwan Taoyuan international airport has started in service in 1979, Song-Shan airport became a domestic airport. After 2008, Song-Shan airport has become international airport again to provide services to Tokyo, Seoul, mainland China and domestic routes.
32 Civil Aeronautics Administration Annouced Expansion at Song-Shan airport (民航局昨宣佈 擴建