Airline Industry

6 Pages 1403 Words

“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 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 “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...