Aviation Costing Methods

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Management Accountin

TERM PAPER

Abstract: Competition today is one of the major threats to an airline industry. Competitive advantage therefore can be achieved by establishing cost leadership. The ultimate challenge faced by any company would be to leverage between the escalating operational costs and falling revenues so as to maximise the profits. Determine the costing procedure of an airline industry and the various possible efforts it takes to reduce the costs. The airline industry employs a trend and horizontal analysis to evaluate its performance and productivity. This industry can be categorised into international, national, regional and cargo operations. The major costs incurred by the airline industry are weather costs, fuel cost and labour costs. Therefore this term paper intends to explain how an increase or decreases in these costs affect the services of the airline industry.

COSTING ANALYSIS: AIRLINE INDUSTRY

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Introduction
Industry has incurred significant losses resulting in airline restructurings and bankruptcies, which could result in changes in the industry. The airline industry has incurred significant losses resulting in airline restructurings and bankruptcies, which could result in changes in the industry. Since 2001, as a result of slower general economic conditions, the continuing impact of the September 11, 2001 terrorist attacks, attempted terrorist attacks, the high price of fuel, military action overseas and intense competition, the airline industry experienced a decline in demand which resulted in record financial losses. In response to the adverse financial results the airline industry has experienced, most airlines have taken actions in an effort to reduce losses, such as reducing capacity, reducing employee headcount, limiting service offerings, renegotiating labor contracts and reconfiguring flight schedules, as well as other efficiency and cost-cutting measures. Despite these actions, financial losses in the airline industry continued into 2006 and it is foreseeable that further airline reorganizations, bankruptcies or consolidations may occur, which could serve to reduce AirTran’s cost advantage. AirTran cannot assure you that the occurrence of these events or potential changes resulting from these events will not harm its business or the airline industry generally. Major airlines are reducing their cost structures through various methods and these changes could reduce AirTran’s cost advantage. The airline industry has incurred significant losses resulting in airline restructurings and bankruptcies, which could result in changes in the industry. Since 2001, as a result of slower general economic conditions, the continuing impact of the September 11, 2001 terrorist attacks, attempted terrorist attacks, the high price of fuel, military action overseas and intense competition, the airline industry experienced a decline in demand which resulted in record financial losses. In response to the adverse financial results the airline industry has experienced, most airlines have taken actions in an effort to reduce losses, such as reducing capacity, reducing employee headcount, limiting service offerings, renegotiating labor contracts and reconfiguring flight schedules, as well as other efficiency and cost-cutting measures. Despite these actions, financial losses in the airline industry continued into 2006 and it is foreseeable that further airline reorganizations, bankruptcies or consolidations may occur, 2|Page

which could serve to reduce AirTran’s cost advantage. AirTran cannot assure you that the occurrence of these events or potential changes resulting from these events will not harm its business or the airline industry generally. Major airlines are reducing their cost structures through various methods and these changes could reduce AirTran’s cost advantage. The airline industry has incurred significant losses resulting in airline restructurings and bankruptcies, which...
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