Economic Trends and the Airlines Industry

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INDUSTRY PROFILE
The airline industry is inextricably related to the economy of the country and to trade. If there is an increase in trade and globalization, there is an increased demand for airlines and their services. On the other hand if there is sluggishness in growth or the economy there will be a fall in overall industry performance of airlines. Several airlines try to cope by forming alliances. Others are involved in mergers. There is struggle to survive and cost reduction is the key to survival.
This is what the website http://business.guardian.co.uk says: "Airlines are recording their best profits since 2001, but the financial gain is "peanuts" and the industry remains weak, the head of the global airline body has warned.
Giovanni Bisignani, the chief executive of the International Air Transport Association (IATA), said carriers could treat themselves to a "small celebration" after turning years of collective losses into a $5bn (£2.5bn) profit in 2006.

However, he warned that a boom in plane orders was making aircraft more expensive to acquire, while trade union pressure could increase wages and a small economic shock might be enough to cause serious problems for the industry." http://business.guardian.co.uk

ECONOMIC PROFILE
The airlines industry is dependent on economic growth and development to sustain itself. After deregulation the profits of the airlines fell and new entrants who were cost effective put pressure on the current players to reduce prices and improve services. After 9/11 when there was recession and an increase in the competition there were large numbers of employees that were laid off and there were pressures on the existing employees to reduce their salaries.
This is what the website http://www.investor.reuters.com/business says: "The US airline industry posted strong growth in 2006, with total revenues rising to $146 billion. This is reflective of increased public confidence in the safety of air travel, with passenger numbers continuing to recover following the decline resulting from the 9/11 terrorist attacks. Total passenger numbers grew 4.3% in 2006 to reach 760 million, a substantial improvement from 2002 when passenger numbers totaled 614 million.

Many of the larger US airlines returned to profitability in 2006 for the first time since the industrys decline in 2001. The buoyant US economy and increased passenger numbers have allowed airlines to increase ticket prices considerably. Furthermore, the easing of aviation fuel prices during 2006, increased fuel efficiency, and the streamlining of business operations, have allowed airlines to reduce costs significantly.

Considering the return to force of many the industrys leading players, a spate of consolidation is anticipated. Any significant merger or acquisition within the industry is expected to trigger reactive consolidation as companies vie for market share.

Major players in the US industry include American Airlines (AMR Corporation), United Airlines and Continental. There is a ...