Airline Industry Essay

2458 words - 10 pages

PAGE PAGE 1 Airline Industry

The airline business has been in existence for over 75 years. There have been many ups and downs in this particular industry's economy. While history has shown that over 140 airlines have declared Chapter 11; only a few airlines have truly emerged. At Present, the U.S. airline industry is facing a financial crisis and the outlook is bleak. The airline industry crisis was dramatically accelerated by the September 11th attacks; the high and escalating prices of gasoline and recently the shortage that was caused by Hurricane Katrina in late August of the year 2005. Each of these was world shaking events and in relations to the micro and macro economics ...view middle of the document...

What helped keep Southwest Airlines so successful was its company's well-organized, efficient management and superior attitude. They concentrated on keeping their customers happy. They do this through treating their employees how they would want their customers to be treated, and committing themselves to constantly cut-down and reducing costs.

The downward spiral cannot be attributed solely to the September 11th disaster, many other factors contributed to their downfall. Numerous other factors including soaring gas prices and labor conflicts have plagued the airline 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 known them are being forced to change, and the revamped industry will differ greatly from how it was in the past. Assuredly, the government will play a major role in reshaping the future of the airline industry and the national air transportation system. In an effort to head off a decreasing in the number of passengers and rising costs for increased security, companies started to lay off staff and reduce other services. In an already intensely competitive market, the inevitable industry wide shakedown will have far-reaching effects on the industry's trend towards expanding domestic and international services. The ability to generate adequate revenues that cover operating costs has hampered the airlines ability to be profitable.

Another factor that has a major impact on the airline industry is the gas prices; the gas prices are at an all time high. A one dollar increase per barrel of crude oil translates to anywhere from 50 to 80 million dollars annual increase in gas prices, depending on the airline's fleet size. With crude oil topping 50 dollars a barrel, a sluggish economy, and another major airline filing chapter 11, the entire industry has taken a fall. Also the ticket pricing structure is in total chaos. The government and lenders are enabling bankrupt, financially unstable airlines to continue operations by extending loans to keep them in the air. One result is a glut of empty seats in the market. Additional seats are flooding the market with startup airlines and supply is outweighing demand. While these bankrupt airlines continue to fly they reorganize under bankruptcy protection and lower costs through cuts in worker benefits. Major carriers have made several recent attempts to raise ticket prices only to cancel them after customers flocked to low-fare carriers offering the same ticket for as little as one dollar less. This slow economy has forced potential business travelers to look at alternatives such as teleconferencing, less travel, and alternative travel modes.

A weakness for the airline industry is related to replacement and maintenance of aircraft as the planes age. Current issues are directly related to high cost and sagging revenue. Other limitations the airline industry faces are restrictions in the...

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