Frank L Mannino Jr.
Axia College of University of Phoenix
ECO/205 Economic Theory
May 09, 2010
Airline Industry and Its Economic Outline
The question can be is. How has the economy of the airline industry performed throughout the many decades it has been? In addition, what did the industry do as it has gone through many events that have challenged its survival? In this type of industry, we can say that it has seen their share of success in profits but has seen its share of overwhelming down trends. You can definitely consider there is this industry depends on the economy around it and solely affected by it too. The airline industry has seen highs when the demand for their services was increased and the decreases when events had a major impact on their survival of the industry. While there are obvious externalities that affect the outcome of this industry, there is more to it. Monetary and fiscal policies affect the industry. Along with everything that has affects this industry, there is a noticeable wage inequality that has intensified.
Over the many decades, this industry has existed; several airlines have declared bankruptcy and struggled to stay alive once on the other end of the bankruptcy. Very few of these chapter 11 filing airlines have truly endured the hard times and succeeded. This industry is facing a financial predicament and the future for the airline industry does not look good. The predicament that these industry faces that were accelerated by external shocks. According to Wilson (2005) the war in Iraq, the terrorist attacks on 9/11, the outbreak of Stars, and the crash of the stock market bubble of the millennium is some of the causes of the financial crisis that the U. S. airlines are facing, which has led to a $32 billion loss for the industry. The rising gas prices are a huge impact on the financial crisis. The cause was not only by the terrorist attacks and other events, but also by a shortage of supply because of Hurricane Katrina caused in August 2005. The terrorist attacks and Hurricane Katrina were by themselves devastating enough to cause a spiraling effect that had a major impact on other industries and still felt today. While this was already a troubled industry, these events added to the distress. This also had a major influence on the demand for travel services provided by the US airlines. Workforce problems, escalating gas prices, and the consolidation of the airlines. The markets have more issues that are significant with the industry having to deal with on top of the troubles they already had. There was already a 30% decrease in company travel caused by industry slowdown; both gas and workforce prices were on the rise, and significant concentration on business decisions desperately needed. The ones that did nothing ended up filing for chapter 11, or will have to file, if they have not done it already. Many of the airline companies in this industry, that have filed chapter 11 still struggle to survive. Wilson (2005) states “even Continental, however, is once again losing money – nearly $1.1bn since mid-2001” and this comes after filing chapter 11. Very few of the airlines reorganized their plans well enough or in a timely manner in which they were able to counteract some of the ailing problems. Now the industry faces a very important period in which the industry could be changing. While some airline companies have done well enough to break even, other companies may have to do some significant reform, file chapter 11, or merge with other companies. One successful airline shining through hard economic times was Southwest. This company has never had to lay off employees and has had a positive revenue inflow. Many of the other major airlines together have lost over $25 billion and had many layoffs to stay afloat (Wilson, 1999). This company had very resourceful management, was efficient and well organized, and focused on...