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Airline Industry Essay

The first airplane to successful take a flight was by the Wright brothers in December 17 1903. Actual facts from the ‘Air craft year book for 1934’ www. hse. govt. uk/ air transport show that it kept growing with time. It was the most efficient since it was the fastest reliable and comfortable. Air transport improved communication and trade. Airmail was the backbone of aviation in the 1930’s and the government expenditure reduced as time passed by. Trading goods that were perishable like foodstuff and flowers was made easier as they could be delivered fast.

Air transport was critical because of its speed and mobility and could be of great impact in times of war. Of great significance in air transport history is 1976 when the Civil Aeronautic Board (CAB) allowed forces to take charge. The deregulation Act 1978 saw the entry of private entrepreneurs in the industry they had freedom to decide which route to follow and what amount of fare to charge. This saw the opening of new routes; more competition and consequently low fares were charged favoring the industry. In 1981 however

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the growth was adversely affected by a strike by the country’s professional air traffic controllers.

Growth however

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resumed after the strike from 20 million to 466 million in a span of 9 years. The Gulf crisis and economic recession also made the sector face drastic losses that some airlines ceased while others sought protection from bankruptcy. There was excess capacity as during the boom years many aeroplanes had been ordered. Some airlines reorganized or restructured and emerged again to offer better fare thus increasing competition. Industry overview Airline industry still remains a very important industry in the economy.

It has been growing rapidly over the years though it is affected by economic recessions of war events. According to (www. bls. gov. oco. cgs016. htm) the industry has recorded a growth of 70% from 1970-2003. The United States is the largest single market in the world and accounts to a tune of approximately 40% of the total scheduled passengers. Today the biggest challenge that airline industries face is to ensure their survival while ensuring that they are making profits. The government of various countries tries to subsidize loss making airline industries to ensure they do not cease to operate.

Negotiations are measures taken between countries to facilitate “open skies” between members by so doing costs and wider markets. This industry is important in globalization and countries will have to relate peacefully for it to succeed. Airlines in operation today have to ensure that they reduce theirs costs and fares. In 1993 US president appointed the National commission which recommended that efficiency should be evident in aviation industry nit should be technologically superior and should have the financial power to access global markets.

Foreign investment should also be encouraged if profits and growth is to continue in this industry. The US for instance allows foreigners to invest to a tune of 40% of the equity in US airlines while offering them 25% voting rights. Privatization is also important in ensuring efficiency in the industry. SWOT Analysis of the airline industry Strengths The key strength of the airline industry is its contribution to trade and economic growth. ? Tourism has also flourished due to this industry. Many people have been utilizing the advantage of reduced fares to tour different parts of the world.

Families have had closer links with their relatives living in distant places as they can just take a flight, which is very fast. Airline industry has greatly contributed to creating a global village. ? Most developing countries have acknowledged tourism and its importance and this consequently led to development of infrastructure roads and resorts. Such has led to the ‘flying in’ of more tourists thus developing the industry. People from the developing countries also travel abroad as they too are tourists. – Large aircrafts like the Boeing 747 are convenient and affordable and have made

it easier for people to travel – Growth in the world trades both dealing with goods and services and the international direct investment have favored the airline industry. – This industry has also contributed to creation of employment both directly and indirectly. Those employed directly include pilots, technical maintance and cabin crew. Indirectly the industry supports taxi drivers, farmers architects, resorts, tour operators, recreational parks, restaurants and museums. In general the airline industry and the entire travel industry contribution is the eighth largest economy in the world.

Opportunities Though the airline industry just like other industries is facing challenges on the path to globalization. It is striving by: – Creating alliances and partnership to reduce cost and increase profits by widening the markets. Trade will grow with a growing airline industry and so will an airline industry grow with a favorable trade. It is also important to maintain peaceful relationships internationally. Airline transport will decline if incidences like the September 11th occurred as people will fear flights.

Partnership will also enhance peaceful relationships. – The government should also intervene in subsidizing the airlines that are currently making losses so as not to close down. They can also be privatized to increase efficiency. – Small low cost carriers should be deregulated to stimulate competition which leads to better quality production at low cost. – More agreement should be made to remove regulation or restrictions to operate certain routes so as to broaden the markets. The industry must target growth and should therefore be swift to react to economic changes.

– The industry has to invest in quality services like interactive entertainment systems and comfortable seats to attract new customers as well as retain those they already have. It should also invest more in human capital by intensive training for its workers. Today the most profitable airline industry is the one that has invested in modern information technology. – More research should be carried out on freezing rain and icing to enable safe landing on such areas Threats The greatest threats to this industry include peace instability and accidents. According to (www. hse. gov. uk/airtransport/aviatin.

html) major accidents Terrorism is a great blow to airline industry it leads to loss of property and lives. Fear is instilled the minds of people and they shy away from traveling. Bad weather can be a threat as it can result to accidents too especially conditions like icing and freezing rain. Fatigue can cause accidents and therefore crewmembers should have ample rest. Strikes by airline employees can have negative effects on the industry as it leads to delays and cancellation of flights. Weakness/challenges The airline industry is faced by various challenges as it strives to match other industries towards globalization.

– Competition is one factor that airlines have to handle. With competition comes the issue of lower prices. To attract customers the airline industry may lower its prices. This is a challenge as the high costs involved may see some airline operate under losses customers tend to maximize their utility at the least cost and they will opt for airlines that offer lower fares. – The question of offering the best quality services while ensuring costs are minimal is a critical issue the industry has to tackle with. – The airlines have to ensure that they go the extra mile of advertising to ensure it increase its profitability.

This will be made easier if modern information technology. – Taxes by the current government have raised concerns as they are high and considered unfair comparing with taxes on other commodities. the airline industry seems to be unfairly contributing to the government revenue considering it like other industries contributes to the annual $2 billion. Peace is a vital aspect in ensuring this industry thrives and whenever there are incidences that jeopardize peace it faces a huge blow for instance the September 2001 attack. It has to ensure that it protects the passengers and invest more in security-based measures.

Economic indicators are economic measures used to show how the economy is performing they include real Gross Domestic Product[GDP], unemployment rate, inflation, personal income capacity utilization and money supply. Economic indicators are used not only to show how the economy is performing but can be used to forecast how the economy would be in future. Economic indicators could have a positive relationship such that it moves in the same direction as the economy is moving, negative relationship or no relationship at all Impact of the airline industry on economic indicators: Inflation

It refers to the continuous increment in the overall price levels and it is measured by Consumer Price Index [CPI] CPI varies with time. Contribution of the airline industry to GDP directly is US $275 billion and indirectly US $375 billion after the September 11 incident GDP fell with about 3% while the total GDP declined with 0. 6%. . Unemployment rate refers to the percentage of unemployed workers in a country to the total number of people who can work in an economic. The unemployment rate has been fluctuating depending on the prevailing conditions more people were laid off after the 9/11 increasing the rate.

Money supply refers to the amount of currency in the banks or in storage and amount in circulation, which can be used to carry out transactions. Interest rates and money supply are inversely related such that money increases interest rate decline and as money supply decreases interest rates rise in the output increases in money supply brings about employment and the output increases but decrease in money supply causes unemployment and decrease in output. Money supply according to Milton Friedman is a major determinant in business cycle and inflation.

The government should therefore use it as the most effective instrument of government economic policy. Prices prevailing in the market should be allowed to find their natural level and the Federal Reserve should adopt regulatory measures to control money supply. Increase in money supply beyond what is needed creates inflationary effects while decreasing it has recessionary effects. The airline industry contributes to the money supply of the country as more money is given back to the workers as salaries, wages and compensation.

As an industry the compensation rate has been increasing each year this could have contributed to the inflationary effects in the country. Capacity utilization is an economic indicator. To determine if an industry has attained or reached at its capacity utilization two measures are computed one based on the demand and the other on the output. Deregulation enabled the airline industry to thrive, as there was increase competition due to more entry into the market. Competition reduced the fares and the quality of service offered.

This interprets to increased demand the airline industry have to increase their capacity by ensuring maximum load to reduce costs to make profits the industry has to maximize the number of passengers “load” as it can hike the prices. Generally there has been a substantial improvement in this industry over time. Producer price index [PPI] is an economic variable that shows the average variation. Overtime in the selling prices required by domestic producers. The airline has the role of transporting or delivering parcels both locally and internationally.

Time is a very important factor while determining the price at which the service of delivery will be. The prices are determined by the base rate, fuel surcharge and other relevant costs for instance the area the delivery is to be done. The PPI has been increasing over time.


Brian Snow (1997) Macroeconomics: introduction to macroeconomics, Rout ledge publishers, London Philip Hardwick (2004) Introduction to Modern Economics, Pearson Press, New York www. hse. gov. uk/airtransport/aviatin. html wwww. bls. gov. oco. cgs016. htm ww. hse. govt. uk/

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