The Factors That Influnce Airline Industry

Topics: Airline, Air France, Civil aviation Pages: 6 (1766 words) Published: February 10, 2011
In recent years, affected by natural disasters, emergencies, oil price volatility, the international financial crisis and other factors, especially the oil price, that is the most major factor of the airline cost, and still increasing, made the airline industry’s production decline shaply.

The main source of profit for the airline industry are passenger and cargo revenue primarily, in addition, the fuel surcharges and exchange gains constitute the major part of its profits. According to these factors, airline companies will make a expection development whether they can benefit or loss, and they will expect how much they will benefit or loss. However, the question that over the past 10 years, airline has lost $50bn, but it is less than the expected losses shows that the expect losses larger than actural losses. So, as the following we will discuss from the economy factor, fuel price, aviation industry internal adjuetment and economic policy adjustment, ect. these determines to explain why the expected losses more than actural losses.

the factors that influnce airline profit

The determines that influnce airline expected losses more than actural losses. 1. Economy development.
Sustained economic development, frequent travel between regions, rising national income will further enhance the community's demand for air transport services. 2008, Chinese urban residents per capita disposable income reached 15,781 RMB, in nominal terms, it was 2.9 times larger than in 1988; the same time, the 2007 cash income of rural residents in nominal terms, was 2.3 times more than in 1998. This directly expanded the choice of the national travel outside, expanding the potential development of air transport. (Source: Bureau of Economic Analysis)

Statistics show that air turnover and GDP growth is positively related, and higher volatility. Decline in the GDP growth trend, the growth rate of airline’s total turnover is often decreased faster, for example: in 1992, GDP growth reached 14.2%, the corresponding growth of civil aviation total turnover is 32%, but started to decline in 1993, when GDP growth , the civil aviation total turnover dropped to 19%. ( Source: Bureau of Economic Analysis and Bureau of Transportation Statistics) 2. Fluctuations in oil prices

The airline suffered the unstable oil prices’ negative effect, surge in oil prices lead to airlines’ cost increase sharply. when the oil prices fell sharply due to price volatility has led to airlines hedging done by the depth of lock-in. So many airlines substantial loss. When the change of fuel price increased, the cost burden of the airlines will decrease. For example, according to the latest statistics from the General Aviation Bureau, because of the fuel price surging, in the recent years, the cost of fuel of major business of airline’s from 22% to 31%, now reached more than 40%. The whole airline industry has afforded 1.27 billion RMB additional cost expenditure. Since 2008, the financial turmoil, soaring international oil prices, airline prices were up 210RMB per ton in January 21, up 720RMB per ton in July, a direct result of airline costs increasing, and suffered serious losses. In order to reduce the airlines burden, since December 19, the ex-factory price of jet fuel by 7,450RMB per ton to 5,050 RMB per ton, down 32%. A part of the airline’s cost pressures eased. As the decrease of fuel price, the need of the aircraft increase as the diagram below.

3. Adjustment within the aviation industry
The current global economic downturn, resulting in all sectors, particularly the airline industry, faced with enormous challenges. In order to overcome the crisis, India's Jet Airways has adjusted its route network, and take a number of internal measures, to control the costs. Jet Airways will, as always, by virtue of superior products, services and personnel to focus on creating world-class airlines. Meanwhile, Jet Airways also assessed and...
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