Demand & supply analysis for airline industry

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Present scenario:

The airline industry is highly responsive to economic cycles. Just as most network, airlines are now expected to turn an operating profit, most lost substantial sums in the last several years; The U.S. airline industry remains in the midst of an historic restructuring. Over the last five years, U.S. network airlines have reduced their annualized mainline costs excluding fuel by more than 25%, or nearly $20 billion. While some of the cost savings were the product of identifying greater operational efficiencies, most of the savings were generated by renegotiation of existing contractual arrangements with creditors, aircraft lessors, suppliers and airline employees and achieved either through the bankruptcy process itself or under threat of bankruptcy. 22 percent of industry capacity is still operated in bankruptcy - down from a high of 46 percent in 2005 but still substantial by any measure. The result is that several carriers that were on the precipice of liquidation just five years ago now have much lower cost structures that should allow them to return to profitability over the short term.

Demand & supply analysis for airline industry:

The airline industry has always exhibited cyclicality because travelers' demand is sensitive to the performance of the macro economy yet airlines must predict this demand accurately because of the lead time required to acquire aircraft. When airlines over predict demand, which can happen for any number of reasons, they suffer losses. The main components of demand for airline services are business travelers, tourism, freight transport, and mail transport. Flight schedules tend to be the crucial competitive issues for business travelers, while tourists and personal travel is much more price sensitive. Freight and mail services account for about 15% of airlines total overall revenue, while international freight and mail is closer to one-third of airlines' international revenue. Airline services enable access to other goods, such as vacations, business meetings, or foreign-sourced products. Thus the demand for airline services is closely linked to the demand for these other goods.

Supply of airline industry is influenced by the number of aircrafts, frequency, availability of routes, number of air ports etc. While industry analysts expect continued ...