Out Of Control Operating Costs

9 Pages 2187 Words

Out of Control Operating Costs
and the Major Airlines
BY
























Abstract

Out of control operating costs is one reason that the major airlines today are having the financial difficulties they do. The industry has changed dramatically in the last few years, and those that don’t change with it will not survive. The lower cost airlines seem to have captured the changing market and been able to benefit during the evolution. Many reasons are to blame for the majors being on the loosing end of the stick, but in this paper I will only discuss a few of the most important ones.

















The airline industry today faces more financial problems than ever before. Since 2001, the U.S. airline industry has confronted financial losses of previously unseen proportions. From 2001 to 2003, the industry lost $23 billion, and two of the nation’s biggest airlines have gone into bankruptcy. In the first quarter of 2004, only two of the seven major airlines, American and Southwest, made profits (Bond 2004). In addition to rising fuel and equipment costs, fares have stayed extremely low because of fierce competition with low cost carriers. US Airways, the seventh largest carrier, based out of Charlotte, NC seems to have the biggest problem. The airline emerged out of bankruptcy only a year ago and takes in revenues that would produce a profit at most other airlines, yet continues to be in the red. In order to see possible solutions for the major airline industries out of control operating cost this paper will analyze the problems facing the industry.
Before the Deregulation Act of 1978, the airlines were heavily controlled by the Civil Aeronautics Board (CAB). This Board controlled ticket prices as well as routes and flight frequency. Ticket prices at that time were too high to truly promote the air industry. Other modes of transportation were far more cost effective to the c...