U.S. Airline industry
U. S. Airline industry contributes greatly to the economy. It generates over $1. 2 trillion to the annual economy as well as creating over ten million jobs. The industry supports new market creation abroad and within the country promoting general trend of GDP growth in the country, (Torres, & Duke, 2005). GDP is the total product of a country that is generated within its boundaries within a given trading period, usually one year. When current GDP is subjected to GDP deflator it is converted to real GDP.
Thus real GDP results from adjustment of GDP to reflect current price or real value of commodities from the trading period rather than a general sum of product output over time. Calculation of real GDP helps in the calculation of GDP growth rate. Different sectors use it to determine their business expansion rate in terms of service delivery. Real GDP is important for the airline industry because it helps in calculation of growth rate. This can be used in comparing the industry’s performance for a number of consecutive years. U. S.
Aviation Industry contributes to about 5% of the national GDP. Consumer Price Index (CPI) is the standard measure of the rate of inflation in consumer goods. It is a very important factor in the airline industry since it helps to determine the current cost of consumer goods used in the industry, (Falcoff, M. 1984). When the CPI is high it is expected that prices of commodities hike. High inflation rate on airline industrial goods and services indicates a drop in the number of consumers in the industry hence less profit and a drop in industry’s performance.
The airline industry was reported to have made some profit in 2000-2002 where the profit was about 6%. At the same time industries other are connected to the Airline industry were reported to have made considerable profits. The catering industry for instance, made about 13% profit while Aircraft manufactures made about 16% where as the airports made about 16%. Nevertheless profits have now decline due to the recent economic crisis. U. S unemployment rate is rising. The U. S the Airline industry is adversely affected and has in the recent past been trying to maintain its employees.
However, by May 2010, the company has reported an increase in job cuts where a number of employees are rendered jobless while those in search of new jobs remain unemployed. This can be attributed to economic crises and now the recession of the economy. Other economic indicators worth discussing include the federal government spending on the Airline industry, interest rates, and oil and fuel prices. The federal government spending subsidizes and finances domestic flights. This positively impacts the Airline industry flying budget.
In the 90s and early 2000s consumer spending was about 0. 73% on internal flights from the average economy of the U. S. Unfortunately, this has dropped to 0. 56% in 2008 and further to 0. 48% recently. This has resulted in higher prices for tickets by more than 15%. (Prado, & Lee, 2005). Interest rates are the net payments or transfer payment from all sectors of the economy which does not include net expense on the financial sector. High interest rates on airline industry means higher cost of operation which may impact negatively on the sector spending budget.
The oil and fuel prices for Airliners and associated transport facilities are relatively higher as compared to other expenditures. Fueling equipment is very expensive and fuel cost itself is high. This cost leads to high costs of tickets and fight services in general. Nevertheless, the government may some time subsidize flight cost in order to boost the industry, (Borenstein, S. 1989). In general the Airline Industry is adversely affected by the global economic crises and current recession.
This has resulted in the increased rate of unemployment and laying off of more employees hence a decline in the industry. Real GDP affects the industry’s performance through affecting all the associated industries such as the catering, airline manufacturing and cargo ferrying practices.
Falcoff, M. (1984). Small Countries, Large Issues: Studies in U. S- Latin American Asymmetries. American Enterprise Institute Prado, M. L. & Lee, D. (2005). The Impact of passenger Mix on Reported “Hub Premiums” in the U. S. Airline Industry.
Southern Economic Journal. Vol. 72. Borenstein, S. (1989). Hubs and High Fares: Dominance and Market Power in the U. S. Airline Industry. Rand Journal of Economics. Vol. 20. Torres, V. & Duke, J. (2005). Multifactor Productivity Change in the Air Transportation industry: Productivity Increases in the U. S. Airline Industry- The Nation’s Primary Intercity Mass Transportation System- Have Played a Significant Role in the Industry’s Cost- Containment Efforts and Its Ability to Accelerate Growth. Monthly Labor Review, Vol. 128.