I. Executive Summary
The domestic airlines industry has been unstable over the last 10 years due to several economic factors. Revenue has been barely growing at an annualized rate of close to 0%. Although passenger count has increased and several airlines have posted a profit for the first time in many years there are many challenges that remain. High fuel costs will put a hold on profits and will force airlines to find alternatives way of boosting revenues such as additional fees to passengers. Mergers and acquisitions have created a smaller pool of competitors and the industry participation has shrunk, a few examples were the merger between Delta Airlines and Northwest Airlines in 2008, followed by United Airlines and Continental Airlines in 2011. Many companies therefore find it hard to maintain individual operations and are looking for partnerships to cut costs and maintain flexibility and efficiency. The future looks promising though with a revenue forecasted to increase approximately 2%. Heavier passenger traffic will most likely return as world population increases and incomes rise. There will most likely be many more mergers and partnerships and code sharing flights to stay ahead of the revenue swings seen in the past decade.
II. External Drivers
There are 4 major external drivers for the airline industry in general: 1. Corporate Profits
2. Crude Oil Prices
3. Domestic Travel and Disposable Income
4. Inbound trips
Corporate clientele account for a majority of domestic flights, and when the economy is strong and corporations are profitable that is a key driver for the airline industry. When profits are done, typically so is airline travel. Following the last 3-4 years of economic turmoil in the United States and followed by Europe it is safe to say that the future 3-7 years looks brighter for airlines. Crude Oil Prices
Operating costs are always under scrutiny in the airline industry and corporations and the...
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