AIRLINE BUSINESS

Airline Industry

Table of Contents

Introduction3

Economic Characteristics of International Airline Industry3

The Current Financial Crisis and Airline Industry4

The Underlying Business Cycle and Airline Industry7

The Availability of Funds to Airline Industry9

Changes in the Oil Prices and Airline Industry9

Conclusion11

Airline Industry

Introduction

The study is related to international airline industry which focuses on the important economic characteristics of the industry as these are the factors that affect the performance of industry in terms of its sales volume and profit margin. Moreover, the study particularly focuses on the some important aspects of airline industry which are imperative and crucial to study to know, how airlines are likely to be affected over the next 5 to 10 years. These aspects of airline industry include the underlying business cycle, the current financial crisis, the availability of funds for investment and also the rise in the oil prices over the period.

Economic Characteristics of International Airline Industry

The international airline industry is based on high volume of sales and low profit margins. It has high fixed costs and a demand variable, sensitive to economic cycles and external factors. It is a very competitive market, thus encouraging price wars and competition for routes, making those who fail do not have a smart business strategy based on flexibility and efficiency. Moreover, the international airline industry depends on a demanding logistics and service, so the support is a key technology to provide customer service and internal efficiency as most airlines carry cargo and passengers. In addition to this, the international airline industry has accumulated millions in losses in recent years due to the competing product, the current financial crisis, the underlying business cycle, the availability of funds for investment and also the rise in the oil prices over the period.

The international airline industry consists of all activities that are related to the civil aviation include airlines, travel agents, airports, infrastructure and aircraft manufacturers etc. The airline business has total revenues estimated at 450,000 million, representing $ 2.9 trillion in economic activity according to figures from IATA to 2006. The International Air Transport Association noted that due to the increased terrorism activities, international airline industry have accumulated losses of 41,000 million dollars. Losses in 2005 alone amounted to 3,200 million dollars and for 2006 are estimated at 500 million. However, earnings estimate for 2007 of 2,500 million calculated based on a $ 20 drop in the price of a barrel, and stagnation for subsequent years in driving the global economy. In the beginning of 2001 the crisis transformed the air transport. Between 2001 and 2005 global airline losses endured for more than 40 billion dollars. In 2006 it expects to suffer losses of 1.7 billion, an improvement from losses of $ 3.2 trillion in 2005. Note that the airlines were able to improve its profits despite fuel prices soared.

Fuel expense of international airline industry increased from 43 billion in 2001 to 91 billion dollars in 2005 and is expected to fuel costs of 115 billion dollars this year. Another point to consider is that since 2001 ...