Free Essays on Airline Industry

â€Å"It’s a dire situation,† â€Å"says Joe Leonard, chief executive of low-fare carrier Air Tran Airways, who is scheduled to testify†. â€Å"I’ve never seen anything like it†. This excerpt comes from an article written by Martha Brannigan, which sums up the hostile economic environment that airline carriers play in . Playing is just what the majority of the airlines are doing. However at the other end of the table sit such sound companies as Jet Blue and Southwest. The mere existence of such company’s proves that airline carriers can be viable business entities. I aim to prove that troubled airlines such as United Airlines and US Airways can see brighter skies in the future, by minimizing costs and maximizing revenues. Nevertheless lowering costs and raising revenues cannot effectively fix the struggling airlines problems if the airlines are not able to operate in a free market environment. The airline industry is a service industry. The airlines are in the business of transporting people and their belongings as well as products. The major characteristics of the industry include the following: capital intensive, high cash flows, labor intensive, highly unionized, seasonal. These characteristics are the cause of the industry’s then profit margin. In fact â€Å"airlines, through the years, have earned a net profit between one and two percent, compared to an average of above five percent for U.S. industry’s as a whole†. Due to the industry’s thin profit margin, it comes as no surprise that the history of airlines has been a rocky one. The airline industry has been for the most part profitable for the last sixty years. However a thin profit margin has been a major problem throughout the industry’s history. The majority of the airlines are unable to profitably deal with extreme economic events such as depression, recession, war, and of course the September 11 attacks. Furthermore they are unable to profitabl... Free Essays on Airline Industry Free Essays on Airline Industry The airline industry has been subject of intense price competition since it was deregulated, and the result has been a number of new carriers which specialize in regional service and no-frills operations. These carriers typically purchase older aircraft and often operate outside the industry-wide computerized reservations system. In exchange for these inconveniences, passengers receive low fares relative to the industry as a whole. This research examines two low fare air carriers, ValuJet and Southwest Airlines. By investigating these air carriers, we can better understand the economic impacts of price versus service in the airline industry as a whole, as well as, the impacts on passenger and investor confidence. Until 1978, air transport rates were approved by the government, which meant that price was not a primary competitive factor. Instead, airlines would compete on service and image. The airline industry was dominated by giants (American, United, TWA) which offered nationwide and some international service, and by regional carriers, such as Southwest, which offered short trips between airports not served by the nationals. Deregulation of the airline industry brought about in 1978 introduced a situation in which the national and regional carriers were suddenly able to compete in an environment that resembled a free market. Rate schedules were lifted, price fixing was eliminated and route management was removed. The main factors that affected whether an airline could serve a particular city was whether or not that city had enough gates for the new carrier, and whether the carrier was able to afford to purchase them. Companies such as Southwest recognized potential for low fares, and began building a niche for themselves by offering low fares with equivalent low levels of service. Southwest?s success gave rise to a new generation of low fare airlines, with ValuJet entering the market in the early 1990?s. Unfortu... Free Essays on Airline Industry â€Å"It’s a dire situation,† â€Å"says Joe Leonard, chief executive of low-fare carrier Air Tran Airways, who is scheduled to testify†. â€Å"I’ve never seen anything like it†. This excerpt comes from an article written by Martha Brannigan, which sums up the hostile economic environment that airline carriers play in . Playing is just what the majority of the airlines are doing. However at the other end of the table sit such sound companies as Jet Blue and Southwest. The mere existence of such company’s proves that airline carriers can be viable business entities. I aim to prove that troubled airlines such as United Airlines and US Airways can see brighter skies in the future, by minimizing costs and maximizing revenues. Nevertheless lowering costs and raising revenues cannot effectively fix the struggling airlines problems if the airlines are not able to operate in a free market environment. The airline industry is a service industry. The airlines are in the business of transporting people and their belongings as well as products. The major characteristics of the industry include the following: capital intensive, high cash flows, labor intensive, highly unionized, seasonal. These characteristics are the cause of the industry’s then profit margin. In fact â€Å"airlines, through the years, have earned a net profit between one and two percent, compared to an average of above five percent for U.S. industry’s as a whole†. Due to the industry’s thin profit margin, it comes as no surprise that the history of airlines has been a rocky one. The airline industry has been for the most part profitable for the last sixty years. However a thin profit margin has been a major problem throughout the industry’s history. The majority of the airlines are unable to profitably deal with extreme economic events such as depression, recession, war, and of course the September 11 attacks. Furthermore they are unable to profitabl... Free Essays on Airline Industry Airline Industry General Environmental Analysis The airline industry is very stable and unlikely to change in the near future. There are many reasons for this. Air travel continues to grow and will continue in this fashion as long as the economy stays in an upward trend. US domestic air traffic grew 2.3% in 1998 and 3.5% in the first six months of 1999 according to Air Transportation Association. The percentage of flyers has increased an average of 2% each year and the percentage of people who have ever flown before increased from 73% in 1993 to 81% in 1997. (Airport Transport Association, Internet). The top three reasons that people fly are business trips (47%), visiting relatives (38%) and going on vacation (13%). Most airline revenues are gained from the fares they charge these passengers, but they also earn ancillary revenues from transporting mail, shipping freight, selling in-flight services and from serving alcoholic beverages (Airport Transportation Association, Internet). The primary target market of airline passengers to day is the business traveler because business trips account for the majority (47% ) of airline flights. Though this percentage of business trips is slowly declining, the actual number of business travelers is increasing. The business traveler fits the description of the average airline passenger of being male, between the ages of 35 and 54, having a household of $60,000 or more and lives in the western region of the country (Airport Transportation Association, Internet). The business traveler tends to be very price inelastic in terms of plane fares and as a result, airlines provide benefits to them such as priority check-in, expedited baggage handling, frequent flier miles and in-flight cell phones to business people to entice them to fly with their carrier. The other segment of the airline market is that of leisure travelers. These passengers tend to be extremely price sensitive which is exactly opposite...