“It’s a dire situation,” “says Joe Leonard, chief executive of low-fare carrier Air Tran Airways, who is scheduled to testify”. “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 companies 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 “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 profitably deal with changes in the industry such as, the government deregulation that occurred in the early ’80s. The results of such events are larger than average declines in profit compared to higher profit margin industries.
This fact can be seen in the annual reports published by the Air Transport Association. In 1978 net profit for the industry was 1,196,537,000. This profit dropped sharply over the next four years to (733,435,000). This decrease in profit was due to the government deregulation of the industry in the ’80s. Another example is the industry’s incapability of dealing with rising fuel cost during Desert Storm. Profits went from 1,811,267,000 in 1989 to (2,444,460,000) by 1992. Yet another example is the drop in passengers due to the terrorist attacks. The industry’s profits dropped from 6,998,931,000 in 2000 to (10,063,889,000) in 2002 . However, there are companies such as Southwest who have managed to stay profitable through even the worst times. These companies have done this by maximizing revenue.
Southwest and other profitable companies have achieved their profitability through maximization of revenue. There are several ways to increase revenue. The easiest of which is to increase passenger load factor. Southwest flew at a 68.1 percent load factor in 2001. Non-profitable companies such as United Airlines and U.S. Air Ways flew at less than 50 percent load factor. The passenger load factor is extremely important since “75 percent of the U.S. airline industry’s revenue comes from passengers” according to the Air Transportation Association. Of that 75 percent, “nearly 80 percent comes from domestic travel”. For this reason, airlines should focus more on domestic travel. Southwest currently offers no foreign departure. U.S Air Ways on the other hand fly’s to almost as many foreign destinations as it does domestic destinations. Another way that airlines can increase revenue is by finding a niche in the market.
Southwest does this by targeting price consciences travelers. By finding a niche in the market companies are able to keep ongoing relationships with customers by serving the target markets needs better than the competitor does. Airlines can also increase revenue by cutting out the middleman such as travel agents, who receive a commission on each ticket sold. This idea is important since 80 percent of tickets sold are done so by travel agents. By selling tickets directly, airlines are able to pocket a larger portion of the ticket fare. All airlines have done this through the help of the Internet. Maximizing revenue alone does nothing if the cost is not taken in to effect. To be profitable a company must also be able to minimize costs.
To be profitable the airlines need to minimize their costs. There are a number of ways this task can be achieved. I will focus on the three costs that seem to be troubling the industry the most. Labor costs are the largest cost for the industry. “Labor accounts for 35 percent of the airlines operating expenses and 75 percent of the controllable cost. This high cost is mainly due to the fact that the industry is highly unionized. Many of the troubled airlines will not be able to succeed if they cannot control their labor costs. I believe the best solution for fixing this problem area is to de-unionize the industry.
This action will, of course, be met with much opposition. Costs associated with the operation of aircraft are the second largest cost in the industry. This cost should be watched closely. The troubled airlines need to cut out unprofitable destinations or at least those destinations that do not meet the break-even load factor. Southwest for instance only serves 59 airports while U.S. Air Ways serves 203. The last cost I will discuss was also introduced in my section on revenue. The cost is that of commissions paid to travel agencies. Commission costs are the third largest cost for the industry. Airlines should lower the commission they pay to travel agencies. The result fewer agencies will exist and direct ticket sales through the Internet will increase.
There is one last cost that deserves special attention. The cost I’m referring to is that of security costs. I have saved this for last because of the costs devastating effects on the industry. Security costs have increased drastically since the terrorist attacks. This cost becomes even more troubling when a decrease in revenue resulting from a drop in passengers is taken into effect. I believe that the U.S. Government should pay for the additional security costs incurred by the airlines due to the attacks. My reason for this is that the increase in costs is a result of increased government regulation. Minimizing costs and maximizing revenues alone cannot save the industry. Airlines must also be able to operate in a free market environment.
Free markets are essential to the survival of the airline industry. The economic environment contains many variables for any one person or group of people to control. This has been seen throughout the history of the world. Such an instance is the extreme devaluation of the Peso in the ’90s that occurred in Mexico. The importance of a free market is the reason for the failure of both the Communist and Socialist regimes. The airline industry has seen tremendous growth since the deregulation of the industry starting in 1979. However much of the industry still remains regulated. If the airlines were looking to the future health of the industry, they would be lobbying Congress for more deregulation and not for loans.
The airline industry has entered its most turbulent time in history. Many of the airlines are on the verge of disaster. If they are to survive, the troubled airlines need to start emulating sound carriers such as Southwest and Jet Blue. Troubled airlines such as United Airlines and U.S. 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.
Brannigan, Martha. “As Their losses Mount, Airlines Lobby Government for More Aid.” The Wall Street Journal 23 Sep. 2002: A1.
U.S Airways fact sheet. 2 Oct. 2002 http://www.usairways.com/about /corporate/profile/factsheets/index.htm
Southwest fact sheet. 2 Oct. 2002 http://www.usairways.com/about_dwa/press/factsheet.html
AOL Investment Research. Financials 2 Oct. 2002 Http://research.web.aol.com
Air Transport Association. Publications 1 Oct. 2002 http://www.airlines.org/public/publications/display1.asp?nid=964
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Why Choose Our Academic Writing Service?
- Plagiarism free papers
- Timely delivery
- Any deadline
- Skilled, Experienced Native English Writers
- Subject-relevant academic writer
- Adherence to paper instructions
- Ability to tackle bulk assignments
- Reasonable prices
- 24/7 Customer Support
- Get superb grades consistently
Online Academic Help With Different Subjects
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
What discipline/subjects do you deal in?
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Are your writers competent enough to handle my paper?
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
What if I don’t like the paper?
There is a very low likelihood that you won’t like the paper.
- When assigning your order, we match the paper’s discipline with the writer’s field/specialization. Since all our writers are graduates, we match the paper’s subject with the field the writer studied. For instance, if it’s a nursing paper, only a nursing graduate and writer will handle it. Furthermore, all our writers have academic writing experience and top-notch research skills.
- We have a quality assurance that reviews the paper before it gets to you. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.
In the event that you don’t like your paper:
- The writer will revise the paper up to your pleasing. You have unlimited revisions. You simply need to highlight what specifically you don’t like about the paper, and the writer will make the amendments. The paper will be revised until you are satisfied. Revisions are free of charge
- We will have a different writer write the paper from scratch.
- Last resort, if the above does not work, we will refund your money.
Will the professor find out I didn’t write the paper myself?
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
What if the paper is plagiarized?
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
When will I get my paper?
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
Will anyone find out that I used your services?
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
How our Assignment Help Service Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET A PERFECT SCORE!!!