Airline Industry Overview
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. From an investor's point of view uncertainty, instability, and mismanagement have made the airline industry an unattractive, if not bad, investment. The terrorist attacks of September 11th generated an economic slowdown that disproportionately hurt carriers. Numerous other factors including soaring fuel prices and labor conflicts have plagued the industry. Analysts and executives are not exaggerating when they say the industry has hit the worst times in its history. The airlines as we have know them are being forced to change, and the revamped industry will differ greatly from its past. Overview The current industry crisis was truly accelerated by the 9/11 disaster which resulted in immediate layoffs and cutbacks of almost 20% in total system capacity. However, the airlines were in serious trouble before the disaster. The economic slowdown had already reduced business travel by 30%. Labor costs were increasing by nearly 10%, fuel prices were increasing, and serious business decisions needed attention. Only a few airlines were proactive in restructuring their business plan to react to the failing economy. Those who chose to do nothing have either filed chapter 11 or are very near to doing so. The industry is at a major turning point. There could be major restructuring, bankruptcy,...
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