Preview

Economic Analysis of the Airline Industry

Best Essays
Open Document
Open Document
2352 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Economic Analysis of the Airline Industry
ec

Economic Analysis of the Airline Industry
Tisha Smith
Axia College of UOP
ECO 305 Economic Theory
George Harris
March 18, 2007

Economic Analysis of the Airline Industry Introduction The airline industry is one that is both costly and necessary to the economy. Costly because of the funding provided by the government, recent layoffs; which has a hand in rising inflation, dealing with negative externalities and high security risks; necessary because the ease and speed of air travel is needed to keep countries productive and competitive. It is a key component to the economy. Many businesses rely on air transportation as well as consumers and individuals employed within the industry. Without this form of accelerated transportation, production necessary for economic growth would decelerate. Businesses would not be able to meet supply demands. The slump in the demand for airline travel has been caused by events such as terrorist activity; war related issues as well as infectious disease outbreaks such as SARS (Leary, 2003). Even before these issues, the airline industry faced financial struggles after the enactment of de-regulation which caused an increase in competition. “The Airline Deregulation Act enacted by Congress in 1978, has allowed the U.S. airline industry to become the primary intercity mass transportation system in this country (Duke & Torres, 2005)” Deregulation eliminated governmental interference in setting the price of fares in the industry.
Labor Supply and Demand Wages in the airline industry have been an issue for many years because they continue to fluctuate up and down depending on current events such as bankruptcies, increased competition, a decline in air travel and terrorist activity. Higher wages in the airline industry could be attributed to the presence of a Union. When unions are present, representatives are able to negotiate higher wages for employees as



References: AFP, (2007) Airline industry slowly emerging from financial turmoil http://www.keepmedia.com/pubs/AFP/2007/01/23/2607505?cl=true&pbl=163 Air Transport Association of America, (2007), ATA 2007 Economic Q&A and Industry Update, Retrieved March 8, 2007 from http://www.airlines.org/economics/review_and_outlook/ATA2007EconOutlookQandA.htm Burson-Marsteller Brussels, (September, 2004) The airline industry - Improving the Climate for European Flag Carriers, Retrieved, February 9, 2007 from http://www.bmbrussels.be/box_bmairline.php Department of Finance Canada, (2004), Air Travel Demand Elasticities: Concepts, Issues and Measurement: 1, Retrieved January 24, 2007 from http://www.fin.gc.ca/consultresp/Airtravel/airtravStdy_1e.html Duke, J., Torres, V., (2005), Monthly Labor Review, Multifactor productivity change in the air transportation industry, Retrieved March 2, 2007, from http://www.bls.gov/opub/mlr/2005/03/art3exc.htm Investopedia, (2007), The Industry Handbook: The Airline Industry, Retrieved March 8, 2007 from http://www.leg.state.mn.us/lrl/issues/nwa.asp Leary, M. (2003), NewsWeek, Flying Above The Clouds, Retrieved, February, 22, 2007, from http://www.keepmedia.com/pubs/Newsweek/2003/06/23/307565/?extID=10047&data=airline_industry&gclid=CL-cwMDG-ooCFRYcSQodvx7dEg Meyer, J. (2003) Labor and the Airline Crisis, Retrieved February 21, 2007 from http://www.laborresearch.org/story.php?id=282 Reed, D., (2006), USA Today, World airline industry recovering, Retrieved, March 11, 2007 from http://www.keepmedia.com/pubs/USATODAY/2006/03/23/1300404?cl=true&pbl=163 Schipper, Y., Rietveld, P., Economic and Environmental Effects of Airline Deregulation Retrieved, February 9, 2007 from http://www.tinbergen.nl/discussionpapers/97031.pdf Wallace, (2007), SeattlePi.com, Airline industry expects to turn profit, Retrieved, March 10, 2007 from, http://seattlepi.nwsource.com/business/306929_iata10.html White, J., (2001), US airlines exploit crisis to slash jobs and benefits, Retrieved, February 22, 2007 from http://www.wsws.org/articles/2001/oct2001/air-o06.shtml

You May Also Find These Documents Helpful

  • Powerful Essays

    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.…

    • 2884 Words
    • 12 Pages
    Powerful Essays
  • Good Essays

    The contribution of the airline sector to the local and world economy is also another economic issue that should be noted. In UK, one of its contributions to the economy is its role in increasing jobs, whereas it was reported that aviation directly provided 180,000 jobs in the UK in 1998 - 0.8% of total employment. 40% of these jobs were in Greater London, where the industry accounted for 2.1% of all jobs (2002). This has increased over the years as attested by DfT. It reported that the aviation industry now directly supports around 200,000 jobs, and indirectly up to three times as many (2006).…

    • 1897 Words
    • 8 Pages
    Good Essays
  • Best Essays

    In the wake of a sizable slump in demand driven by economic downturns, terrorism attacks (especially the events of September 11, 2001) as well as increased competition from low-cost carriers, many incumbent U.S. airlines have been attempting a fundamental restructuring of their operations. Many would argue that a central element in this restructuring should include an overhaul of the labor-management relationship.…

    • 4943 Words
    • 20 Pages
    Best Essays
  • Good Essays

    The U.S. Airline Industry

    • 1205 Words
    • 4 Pages

    The U.S. airline industry provides a unique service to its customers. It transports people and goods with efficiency and convenience which is not achieved by any other service. The purpose of this article is to collect data on the U.S. airline industry and analyze the state of the industry today. Data came from sources such as the Federal Aviation Administration, scholarly articles, and websites such as dallas.culturemap.com and airwise.com. Tools used to analyze the data include P.E.S.T., and Porter’s five forces. The analysis also focuses on the industries’ drivers of change and its key survival factors.…

    • 1205 Words
    • 4 Pages
    Good Essays
  • Better Essays

    "Good times for the Airline Industry." The Economist. The Economist Newspaper, 27 Dec. 2013. Web. 16 Feb. 2015.…

    • 835 Words
    • 4 Pages
    Better Essays
  • Good Essays

    Air Canada - Risk Management

    • 2529 Words
    • 11 Pages

    Mergers and consolidations were a key to the survival of the airline industry in recent history. The United Airlines and Continental Airlines merger created the world’s largest airline in 2010. After decades of misery for airline passengers, employees and shareholders alike, the proposed United-Continental merger offers an opportunity to rethink long-held assumptions about what the industry needs. The airline industry has lacked the kind of stability necessary to make long-term investments and long-term decisions necessary to serve fliers. It operates in an environment where a seat on a plane has become a commodity for which people will generally pay the lowest price to any airline they think will get them to their destination alive. Letting the number of legacy carriers shrink to a sustainable level of as few as three healthy ones might be the best way to ensure that fliers can get services they have lacked for so long. In the long run, fliers might be better off with fewer, stronger carriers rather than a bunch of small sickly ones.…

    • 2529 Words
    • 11 Pages
    Good Essays
  • Powerful Essays

    The domestic US airline industry has been intensely competitive since it was deregulated in 1978. In a regulated environment, most of the cost increases were passed along to consumers under a fixed rate-of-return based pricing scheme. This allowed labor unions to acquire a lot of power and workers at the major incumbent carriers were overpaid. After deregulation, the incumbent carriers felt the most pain, and the floodgates had opened for newer more nimble carriers with lower cost structures to compete head-on with the established airlines. There were several bankruptcies followed by a wave of consolidation with the fittest carriers surviving and the rest being acquired or going out of business.…

    • 2475 Words
    • 10 Pages
    Powerful Essays
  • Better Essays

    The airline industry is facing one of its most difficult times in history. A worldwide recession along with the terrorist attacks of September 11, 2001 have led to a decrease in passenger traffic, reduction in revenue and rising fuel prices. Additionally, airline companies face the increase competition from new entrants. The shortage of pilots has also caused problems for the airline companies.…

    • 2432 Words
    • 10 Pages
    Better Essays
  • Satisfactory Essays

    In theory both supply and demand can have an effect on growth in air travel. However, the biggest influence usually arises from price factors, such as rise in price of substitute goods or general fall in air travel. Supply factors include, emerge of lower cost airlines and increased number of airports. These and other supply and demand factors can be analysed closely in order to evaluate the reasons for increased growth in air travel.…

    • 321 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Steven A. Morrison and Clifford Winston, "The Remaining Role for Government Policy in the Deregulated Airline Industry", in Deregulation of Network Industries: What 's Next, edited by S. Peltzman and C. Winston, Washington, D.C., AEI-Brookings Joint Center for Regulatory Studies, 2000.…

    • 1572 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    Economical can be one of the major factors for the airline industry. Due to the rate of war and terrorist event, the growth rate of economy dramatic slowdown, capacity demand, which gains the low yield to the airline industry. Moreover, oil prices increase also affect their profits. The social sector, which are strongly from employment perspective and safety.…

    • 476 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Airline Industry Overview

    • 1521 Words
    • 7 Pages

    History – The airline business has been in existence for over 75 years. There have been many upward and downward swings in the overall airline business economy. History has recorded that while 140 airlines have declared Chapter 11; only two have emerged. Today, the U.S. airline industry is facing an unprecedented financial crisis and the outlook is bleak. Only one major carrier that has shown a profit over the past four years and, in the same timeframe, the other major carriers show a combined total loss in excess of 25 billion dollars. This downward spiral cannot be attributed solely to the 9/11 disaster, many other factors contributed to their downfall.…

    • 1521 Words
    • 7 Pages
    Good Essays
  • Powerful Essays

    The U.S. airline industry has been in a chaotic state for a number of years. In 1993, a U.S. government report indicated that the industry had “Lost huge amounts of money in the past three years, and it has never made a sustained, substantial return on investment…” According to the Air Transport Association, the airline industry trade association, the loss from 1990 through 1994 was about $13 billion, while from 1995 through 2000, the airlines earned about $23 billion and then lost about $35 billion from 2001 through 2005. Early in 2006 the association expected about a $10 billion loss in 2005.…

    • 1337 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Delta Airlines Essay

    • 4692 Words
    • 19 Pages

    Hurt by poor profits and scarred from likely terrorist attacks against the US due to the US involvement in the Iraq war, the airline industry finds itself on a bumpy course. In an effort to head off a drop in the number of passengers and rising costs for security , companies laid off staff and trimmed services. In an already intensely competitive market, the ¡°inevitable¡± industry wide shakedown will have far-reaching effects on the industry's trend towards expanding domestic and international…

    • 4692 Words
    • 19 Pages
    Powerful Essays
  • Best Essays

    For many people, air travel is a luxury good. This means that in times of hardship, where the consumer is reducing their spending, air travel will be an area that is very hard hit, as many people are not taking holidays. For some consumers, air travel is for business purposes, as opposed to recreational. This area of the market has not been hit as hard, although many people are now flying in economy class, where they might previously have flown in business or first class. Business and first class passengers have played a large part in BA’s profitability, as they account for a large proportion of the company’s profit. Low-cost, budget airlines such as Ryan Air have done comparatively well, producing profits in a market where very few businesses have been able to. Budget airlines are supplying an “inferior good”. This means that as consumer income…

    • 2536 Words
    • 11 Pages
    Best Essays

Related Topics