Airline Industry Research Essay

2184 words - 9 pages

Airline Industry Research PAGE \* MERGEFORMAT 9
Airline Industry ResearchWilliam WardAxia College of University of PhoenixECO 205Lydia PorteeAugust 3, 2008IntroductionThe airline industry is highly sensitive to economic cycles, and throughout its history there have been many economic difficulties. Through inflation, skyrocketing fuel prices, terrorist activity and much more the Airline Industry has taken several set backs and still managed to survive. While their financial performance has fluctuated somewhat, the U.S. Airline Industry can claim a steady growth, competitive prices and overall stability. Airlines have also contributed a great deal to the country's economic system. Much like any other business, the success and failure of the industry is dependant largely on the economy in which operates. Currently, the U.S. airline industry is facing a financial crisis and the outlook is not optimistic. Much of the current instability in the airline industry can be traced back to the devastating events of September 11th 2001. The public's confidence in air travel was shaken, which resulted in fewer travelers. Adding to this already unstable situation has been the escalating fuel prices and labor conflicts. Each of these factors has played a major role in creating an unstable airline market.Airline IndustryIn an already intensely competitive market, another factor that contributes to the decrease in air travel is that more passengers continue to look at "deals" and cheap fares. Nearly 80% of business travelers are stating that their company has implemented travel policies that among other things, place restrictions on the class of air service. These factors have the airlines struggling to find new way of attracting business travelers. Airlines are now in the commodity business as the public demands low-priced transportation. Today's travelers know how to surf the web for bargains through a myriad of websites such as Expedia, Orbitz, and Travelocity. As a commodity, airlines cannot increase prices to increase profits, so their only choice is to cut operating costs such as labor costs. Although this may be difficult to understand for some travelers, it makes perfect sense to the airlines considering that a seat on a particular flight is of different value to different people (McCabe, 2007).The airline industry has long relied on the business traveler for their more profitable sales. The problem for the airlines is that the slowdown had already reduced business travel by 30%. Labor costs were increasing by nearly 10%, gas prices were increasing, and business decisions needed serious attention. Only a few airlines were proactive in restructuring their business plan to react to the failing economy. Those airline carriers who chose to do nothing have either filed chapter 11 or are very close to doing so. The industry is at a major turning point. There could be major restructuring, bankruptcy, liquidations, or consolidations of major network carriers....

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