An Economic Profile Of The Airline Industry

The United States carries over one third of the globe’s total traffic, where Over 1.5 billion passengers fly annually. Over the past 20 years, air travel has grown at an average of about 5% per year, the reason for annual change is usually differences in economic growth, and of course other environmental factors, such as the current war. As a rule, the annual growth in air travel has been about twice the annual growth in GDP. Deregulation, liberalization, and competition have essentially altered the management strategies and practices of airlines. Productivity improvements and cost management have been two of the greatest concerns for US airlines for the past twenty years. As a whole, the airline industry must continue to improve their specialization in terms of fleet utilization, pricing and revenue management, and schedule optimization.

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

Delta airline is one clear example as it is the latest one to make use of the chapter 11. The remaining of this paper will be talking about the different forecasting methods used by the airline industry to make future prediction of passenger demand. The exactness of forecasts is very critical to the revenue management system as lousy prediction of demand can lead to an incorrect decision-making, which in turn leads to a miserable revenue performance. So the airline industry, more than any other industry, needs an accurate forecasting not only because of the September 11 occurrence, but also due to a very high price of crude oil, which tends to increase the price of kerosene highly used by the industry. One study identified as the Improved Forecast Accuracy in Airline Revenue Management (2001, Richard Zeni) shows that airlines divide passengers into two large categories based on their sensitivity to price and travel needs. These included business passengers and leisure passengers. This study has further shown that business travelers have a tendency to make their arrangements close to their departure date staying at their destination for only a short time. However, they did not show much flexibility on their plans at all, but they were willingly to pay more money for their tickets. On the other hand, exactly the opposite happened with leisure travelers. They usually booked their flights well ahead of their travel date; stayed more time

Airlines must operate within a low-margin, high-fixed-cost environment, making profitability particularly sensitive to decreases in volume, either from environmental factors (e.g., the September 11,2001 attacks) or from competition. Moreover, the airline business is labor-intensive. Labor costs as a percentage of revenues ranges from a low of about 25 percent for the low-fare airlines to almost 50

The airline industry is extremely volatile, with events such as the September 11 attacks and recently the global financial crisis having adverse effects on the profitability of airlines worldwide. Only in 2007 has the international airline industry been able to post a profit since 2001 (Clark 2007), and since more losses have been made, with IATA forecasting overall losses for 2009 of $US11 billion (AFP 2009). With substantial increases in fuel costs over the past 5 years and the constant need to purchase new and maintain existing aircraft, it is rare to find airlines

Airline ticket prices can vary from day to day, from airline to airline; with the most important variable being competition. Industry pricing for a market of such a magnitude is a micro-, and macro-economic decision. Its affects will in-turn effect the entire economy of the industry. We all know that when shopping for the cheapest price for an airline ticket, depending on various factors, Seaney (2011) you will pay hundreds of dollars more, or less, than the passenger seated right next to you. That being, the airlines primary goal is to maximize profit(s) on every seat, -on every plane, -on every route. This is the result of supply, demand, and price curve working cohesively

← Terrorism: The effect of terrorism in air travel industry is catastrophic (Shaw 2004). A terrorist attack could seriously decrease in demand for air travel due to safety and security concern (Graham 2006). Similarly, instability policy also is a major challenge for airline marketing which is usually sudden and out of their control (Shaw 2004).

The air travel in the United States grew fast until 2001, which expanded to approximate 642 million passengers compared with 172 million in the 1970s, however, with the combination of the September 11, 2001 event and an economic recession, the total traffic reduced to 1996 levels (Air Transportation, 2006). Today, the United States airline industry shows strong passenger demand since the 2008 economic recession, especially during peak period - holidays, in the contrast, non-peak

The airline industry has exhibited high grow throughout 2016. In 2016, passenger demand grew by 6.3% - above the 5.5% 10-year average annual growth. In North America, demand rose by 2.6%. Alexandre de Juniac, CEO of IATA, said that “air travel was a good news story in 2016. Demand for air travel is still expanding” (“Another Strong Year”, 2017). In the first half of 2017, Juniac’s prediction already came true. In June, the airline market has demonstrated a substantial upward trend. Demand rose by 7.8% with ASK, or ASM, capacity increasing by 6.5% (“Strong Demand Growth”, 2017). Given the expectation of growing demand, the airline industry continues to appear more attractive and

Commercial airlines has been providing a vital service to our society for many years now. For example, a trip which would take three days by car would take only three hour by plane. Society very much appreciate the convenient commercial airline offer. The United States Department of Transportation’s Bureau of Transportation Statistics (BTS) reported that 815.3 million scheduled customers traveled on United States airlines serving the United States in 2012 (Smallen, 2013). More people in our society are flying today than ever before. That’s great right? More customers paying airfare, more profit for the airlines right? If that’s the case, why are the major airlines making some of the decisions they’re making, and in most cases it’s to

The airline industry is a competitive method of travel and continues to grow at a rapid rate globally. In fact, the industry has doubled over the course of a decade from $369 billion in 2004 to $746 billion by 2014 per the International Air Transport Association. However, is the airline industry “hampered by slim profit margins, forcing carriers to focus on both cost reduction and revenue growth through better customer interactions?” (Industry Perspectives, 2015) With revenue growth comes concerns for airline firms like that of Southwest Airlines. Examples of these concerns are the variety of costs. Costs include: fuel, labor, professional services, food and beverage, landing fees, maintenance material, etc. Fuel costs are about 10% to 12%

The airline industry is facing one of its most challenging environments in history. A global economic recession coupled with the terrorist attacks of September 11, 2001 have led to a decrease in passenger traffic, reduction in revenue

The Domestic Airlines industry is affected by key external drivers, such as corporate profit, world price of crude oil, per capita disposable income, inbound trips

According to ATAG, “in 2013, over three billion passengers were carried by the world’s airlines” (Facts & Figures, 2014). This fact demonstrates how the airline industry is a ubiquitous part of our lives. Even if a person has never used an airline for personal transportation, they are still likely to have consumed and/or used an assortment of goods transported by the industry. Still, even with its major impact on the world around it, inside the airline industry, firms must learn to encounter a wide array of external factors that influence their everyday operations and strategies. These factors can come from both the general and local environments that surround the industry. Each of these factors in their own way have an impact on the competitive environment found within the industry.

• The study concluded that increased competition in international air transport markets has put pressures on carriers’ ability to raise prices. However input prices, like labor, fuel, materials, flight equipment, ground property and equipment have been increasing.