Industry overview

Airlines vary from those with a single airplane carrying mail or cargo, through full-service international airlines operating many hundreds of airplanes. Airline services can be categorized as being intercontinental, intracontinental, or domestic and may be operated as scheduled services or charters.

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Patterns
The headquarters of Air India in Mumbai, India.
The pattern of ownership has gone from government owned or supported to independent, for-profit public companies. This occurs as regulators permit greater freedom and non-government ownership, in steps that are usually decades apart. This pattern is not seen for all airlines in all regions.
The demand for air travel services depends on: business needs for cargo shipments, business passenger demand, leisure passenger demand, all influenced by economic activity.
The overall trend of demand has been consistently increasing. In the 1950s and 1960s, annual growth rates of 15% or more were common. Annual growth of 5-6% persisted through the 1980s and 1990s[citation needed]. Growth rates are not consistent in all regions, but countries with a de-regulated airline industry have more competition and greater pricing freedom. This results in lower fares and sometimes dramatic spurts in traffic growth. The U.S., Australia, Japan, Brazil, Mexico,India and other markets exhibit this trend.
The industry is cyclical. Four or five years of poor performance precede five or six years of improved performance. But profitability in the good years is generally low, in the range of 2-3% net profit after interest and tax. In times of profit, airlines lease new generations of airplanes and upgrade services in response to higher demand. Since 1980, the industry has not earned back the cost of capital during the best of times. Conversely, in bad times losses can be dramatically worse.
Warren Buffett once said that despite all the money that has been invested in all airlines, the net profit is less than zero. He believes it is one of the hardest businesses to manage.
As in many mature industries, consolidation is a trend. Airline groupings may consist of limited bilateral partnerships, long-term, multi-faceted alliances between carriers, equity arrangements, mergers, or takeovers. Since governments often restrict ownership and merger between companies in different countries, most consolidation takes place within a country. In the U.S., over 200 airlines have merged, been taken over, or gone out of business since deregulation in 1978. Many international airline managers are lobbying their governments to permit greater consolidation to achieve higher economy and efficiency.

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World's First Airline
LZ 10, a DELAG zeppelin

DELAG, Deutsche Luftschiffahrts-Aktiengesellschaft (German: acronym for "German Airship Transport Corporation") was the world's first airline. It was founded on November 16, 1909 with government assistance, and operated airships manufactured by Zeppelin Corporation. Its headquarters were in Frankfurt. The four oldest non-dirigible airlines are Netherland's KLM, Colombia's Avianca, Australia's Qantas, and Mexico's Mexicana.

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Early development of airlines in the U.S.

Tony Jannus conducted the United State's first scheduled commercial airline flight on 1 January 1914 for the St. Petersburg-Tampa Airboat Line. The 23 minute flight traveled between St. Petersburg, Florida and Tampa, Florida, passing some 50 feet above Tampa Bay in Jannus' Benoist XIV biplane flying boat. Chalk's Airlines (now Chalk's International Airlines) began service between Miami and Bimini in the Bahamas in February 1919. Now based in Ft. Lauderdale, Chalk's claims to be the oldest continuously operating airline in the United States.

Following World War I, the United States found itself swamped with aviators. Many decided to take their war-surplus aircraft on barnstorming campaigns, performing acrobatic maneuvers to woo crowds. In 1918, the United States Postal Service won the financial backing of Congress to begin experimenting with air mail service, initially using Curtiss Jenny aircraft that had been procured by the United States Army for reconnaissance missions on the Western Front. Private operators were the first to fly the mail but due to numerous accidents the US Army was tasked with mail delivery. During the course of the Army's involvement they proved to be too unreliable and lost their air mail duties. By the mid-1920s, the Postal Service had developed its own air mail network, based on a transcontinental backbone between New York and San Francisco. To supplant this service, they offered twelve contracts for spur routes to independent bidders: the carriers that won these routes would, through time and mergers, evolve into Delta Air Lines, Braniff Airways, American Airlines, United Airlines (originally a division of Boeing), Trans World Airlines, Northwest Airlines, and Eastern Air Lines, to name a few.
US airline route structure before World War II

Passenger service during the early 1920s was sporadic: most airlines at the time were focused on carrying bags of mail. In 1925, however, the Ford Motor Company bought out the Stout Aircraft Company and began construction of the all-metal Ford Trimotor, which became the first successful American airliner. With a 12-passenger capacity, the Trimotor made passenger service potentially profitable. Air service was seen as a supplement to rail service in the American transportation network.

At the same time, Juan Trippe began a crusade to create an air network that would link America to the world, and he achieved this goal through his airline, Pan American World Airways, with a fleet of flying boats that linked Los Angeles to Shanghai and Boston to London. Pan Am was the only U.S. airline to go international before the 1940s.

With the introduction of the Boeing 247 and Douglas DC-3 in the 1930s, the U.S. airline industry was generally profitable, even during the Great Depression. This trend continued until the beginning of World War II.