The US Airlane Industry in 2007
Marta Ruiz Heredia
CASE 2: The US Airline Industry in 2007
1. What economic variables describe the performance of the airline industry?Explain
Economic factors are variables that influence a company’s capacity to success in its business.
Air travel has been undergoing a steady metamorphosis since September 9th 2001, withcarriers shrinking legroom, pulling free meals, and even eliminating complimentary pillows. And thanks to high oil prices and intense competition from the new companies, the process is only accelerating.* The income of consumers: depending on the type of consumer, they will invest in one type or other flights. Low income consumers are more likely to change their demand during periods of economicrecession, which reduces the demand for long-haul flights and increase the demand for short-haul prices, they look for the cheaper. Instead, the high-income consumers maintain their demand levelsregardless of price increases, economic crisis or other external factors.
* Consumer confidence: the major companies had to do something to maintain their selves in the top of demand. The mostefficient was to keep having their most confident consumers, offering them free tickets and upgrades on the basis of number of miles flown. Also they have to maintain their loyal business class making theseats more spacious and comfortable for them.
* Fuel: is the most volatile and unpredictable cost item for the airlines due to the fluctuations in the price of crude oil. Is one of the higheritem cost. Depending of the age of its aircraft and its average flight length they will spend more or less in fuel. Newer planes and longer flights equate to higher fuel efficiency.
* Planeservices: such as food and beverage, entertainment and baggage handling. The low-cost companies has eliminated these services to reduce costs but major companies need to maintain them to keep being...