UNIVERSITY OF CINCINNATI _____________ , 20 _____ I,______________________________________________, hereby submit this as part of the requirements for the degree of: ________________________________________________ in: ________________________________________________ It is entitled: ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ Approved by: ________________________ ________________________ ________________________ ________________________ ________________________ Deregulation, Information Technology, and the Changing Locational Dynamics of the U.S. Airline Industry A dissertation submitted to the Division of Research and Advanced Studies of the University of Cincinnati in partial fulfillment of the requirements for the degree of DOCTORATE OF PHILOSOPHY (Ph.D.) in the Department of Geography of the College of Arts and Sciences 2001 by David L. Butler B.A. Texas A&M University, 1994 M.S. Texas A&M University, 1996 Committee Chair: Nicholas Dunning ABSTRACT This dissertation’s focus is the examination of how the US airline industry adopted advanced information technologies (IT) post-deregulation (1978). In particular this dissertation examines the interactions between information technologies (IT) and three processes: organization, labor, and location. Specifically the dissertation highlights how airlines, by leveraging IT, created spatial concentrations of airline functions due to organizational, labor and locational changes. The final chapter examines how IT has helped enable the development of the multinational airline alliances. ACKNOWLEDGEMENTS I would like to acknowledge the unwavering support of Leslie Butler and the patience of Alyssa and Elizabeth during the many stages and incarnations of this dissertation. Thanks also to my committee: Nicholas Dunning, Byron Miller, Howard Stafford and Tom Moore. Other help came from Bev Mueller, Rubin Response, various airline executives and call center directors and employees. Further thanks to Ilene Payne at the University and Grants Office at the Department of Transportation. Thanks to Claire Gomersall for help with the GIS in Chapter 4 and to Perry Carter for statistical help in Chapter 4. TABLE OF CONTENTS CHAPTER PAGE NUMBER LIST OF FIGURES 2 CHAPTER I: INTRODUCTION AND LITERATURE REVIEW 3 INTRODUCTION 3 RESEARCH QUESTIONS 7 LITERATURE REVIEW 8 CHATPER 2: METHODOLOGY 25 CASE STUDIES 25 EPISTOMOLOGY 28 DATA AND ANALYSIS 34 CHAPTER 3: SPATIAL CONCENTRATION: ORGANIZATION, CONTROL AND LABOR 48 INTRODUCTION 48 DEFINITIONS AND ISSUES 48 DEREGULATION 49 SPATIAL CONCENTRATIONS 52 LABOR 76 CONCLUSIONS 87 CHAPTER 4: SPATIAL CONCENRATION: RES AND CALL CENTERS 89 AIRLINE TICKET AND DISTRIBUTION AND PROCESSING 89 CONCLUSION 117 CHAPTER 5: INTERNATIONAL CORPORATE ALLIANCES 117 EXTERNAL NETWORKS 117 US LAW 118 ANALYSIS 133 CONCLUSIONS 134 CHAPTER 6: CONCLUSIONS 135 QUESTIONS AND ANSWERS 135 ADDITIONS TO THE LITERATURE 141 LIMITS TO THE RESEARCH 142 FUTURE RESEARCH 143 BIBLIOGRAPHY 144 APPENDICIES 148 1 LIST OF FIGURES Figures Page Number FIGURE 1.1 5 FIGURE 1.2 13 FIGURE 2.1 26 FIGURE 2.2 27 FIGURE 2.3 30 FIGURE 2.4 32 FIGURE 2.5 33 FIGURE 2.6 40 FIGURE 3.1 54 FIGURE 3.2 55 FIGURE 3.3 57 FIGURE 3.4 59 FIGURE 3.5 62 FIGURE 3.6 64 FIGURE 3.7 65 FIGURE 3.8 71 FIGURE 3.9 74 FIGURE 3.10 77 FIGURE 3.11 79 FIGURE 3.12 80 FIGURE 3.13 83 FIGURE 3.14 85 FIGURE 3.15 85 FIGURE 3.16 85 FIGURE 3.17 86 FIGURE 4.1 94 FIGURE 4.2 95 FIGURE 4.3 102-103 FIGURE 4.4 104 FIGURE 4.5 105 FIGURE 4.6 106 FIGURE 4.7 106 FIGURE 4.8 107 FIGURE 4.9 113 FIGURE 4.10 114 FIGURE 4.11 116 FIGURE 4.12 116 FIGURE 5.1 123 FIGURE 5.2 124 FIGURE 5.3 125 FIGURE 5.4 131 2 CHAPTER I: INTRODUCTION AND LITERATURE REVIEW INTRODUCTION This dissertation’s focus is the examination of spatial concentration in the US airline industry post-deregulation and in particular the relationship between information technologies (IT) and organizational, labor, and locational changes. The dissertation research began with the reading of Storper and Walkers’ The Capitalist Imperative (1989), in particular chapters three and four, “How industries produce regions” and “Technological change and geographical industrialization” respectively. In these chapters, the authors highlight the locational flexibility of specific firms that commonly result in a pattern of concentration. Specifically, Storper and Walker assert that …there is ample reason to believe that leading firms in a rising industry do not face severe locational specification constraints…It follows that the lead firms in such industrial sectors have substantial freedom to develop where they are, or to locate where they please (p. 74-75). In short, the authors suggest that locational choices of particular industries, especially those that are on the rise and undergoing market restructuring, have substantial locational flexibility. Storper and Walker continue to discuss concentration, dispersion, locational choice, and technology in several manufacturing sectors throughout their work. This dissertation will draw upon their work to see if there are relationships between information technologies and concentration, organization, labor and location within the US airline industry. Specifically, this dissertation examines if US airline deregulation led to a market restructuring and adoption of specific information technologies by US airlines thus enabling the reorganization of processes and the creation of a more flexible labor force. Similarly the dissertation will explore the enabling characteristics of IT and if 3 organizational and labor changes associated with IT could have come about independently. With regards to labor changes, the dissertation explores how IT helps enable the organizational-location requirements for labor forces. This dissertation explores whether the related changes in organization and labor has fueled the emergence of international airline alliances and the economies of scale and scope which airlines enjoy from these relationships. As Figure 1.1 demonstrates, airline deregulation not only substantially altered the market for airlines that included more flexibility in route structure and pricing, but also, at the same time initiated a level of economic competition between the airlines that had not existed before. Deregulation acted as a catalyst for a strategic investment in IT by some airlines in the belief that the investment would pay off in terms of the flexibility which then enabled cost and revenue savings. Key flexibilities came in the form of organization change and labor force requirements. As airlines reconfigured after deregulation, the changes adopted in labor and organization had a specific locational effect. Specifically, some of the airlines organizational components and labor force became concentrated, but not all with the same locational requirements. The logic underlying the reorganization and labor force changes yielded specific spatial patterns with the idea that this new flexibility, enabled by IT, would yield lower costs and higher revenues and, thus, a higher level of capital accumulation in this new deregulated market environment. The US airline industry was chosen as the focus of this dissertation for several reasons. One, in 1978 the US federal government deregulated the airlines, creating an environment where market restructuring (deregulation) and the development and 4 Figure 1.1: Outline of Relationships, Source: By Author Changes in Changes to Organization of Deregulation/ IT processes Locational (innovation Market tendencies restructuring adoption) (Concentration Labor Demand and/or Dispersion) adoption of new technologies helped enable new organizational labor changes in the airlines creating new locational flexibilities for the industry. Two, US airlines were one of the first industries to begin experimenting with and incorporating IT into their organizations thus enabling insights into how not only this industry, but other industries as well, respond to technologies over time (Hopper 2000: 3). Last, past familiarity with the industry made the task of understanding the industry and all its nuances less difficult. The US airline industry, like any other economic sector, is a vast web of people and ideas that cannot effectively be examined by any single author or study. For this reason this dissertation will limit its examination to specific changes and processes within the airlines. Deregulation was the logical starting point for the examination of airlines for two reasons: one, deregulation created a major change in market forces thus forcing airlines to initiate changes, and two, airlines just prior to and immediately after deregulation adopted a strategy of strategic investment in IT, thus suggesting that there may be link between deregulation and changes in strategy. IT was chosen as the main 5 lens though which to view processes of organizational change and labor flexibility corresponding to the literature which suggests that IT is beginning to have a fundamental change on production in all sectors (Castells 1996; Dicken 1998). Organizational changes have generally been understood within the context of changing market conditions but only recently have been linked to changes in IT and the flexibilities IT enables in terms of organizational hierarchy and corporate organization, specifically those activities involving low-cost and semi-skilled routine labor (McLoughlin 1999). Within the airlines,