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Airline Industry Financial Problems

Autor:   •  March 8, 2011  •  Term Paper  •  1,515 Words (7 Pages)  •  2,221 Views

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Airline industry financial problems

The airline industry faces many financial problems in the current day economic and political climate. The events of 9/11/2001, while more than five years in the past, still cast a shadow over the marketplace for air travel. Subsequent problems in the middle east , together with far greater demand for oil, have led to fuel prices rising sharply. The old airlines, set within what are now inefficient ways are also facing new competitive threats from companies such as JetBlue, SouthWest Airlines and a host of other airline start-ups that have managed to minimize costs (Ben-Yosef, 2005).

In recent years the events of 9/11/2001, in which two planes were flown into the World Trade Center, one into the Pentagon and one into a field in Pennsylvania had a devastating effect upon the financial circumstances of the airline industry, an effect from which they have yet to fully recover ((/11 Commission, 2004) . As a report a year after the 9/11 attacks stated, ?the costs of the terrorist attacks have been borne disproportionately by a few industries, especially airlines, tourism and insurance? (Makinen, 2002). First of all, no airlines flew anywhere in the United States for one week after the 9/11 attacks. This involved a backlog in flights and plane maintenance/positioning that took months to overcome once flights started.

The US Congress gave the airlines access to $15 billion, in the form of $5 billion in short-term emergency assistance and $10 billion in loan guarantees. However, the attacks of 9/11 seem to have sped up economic woes that were already occurring, and led to major reorganizations such as the Chapter 11 bankruptcy of US Airways (Makinen, 2002). Reports for airline finances in 2002 were dismal, with US Airways filing for bankruptcy and United Airlines soon following suit. However, several airlines such as JetBlue reported better earnings than expected, solidifying a trend that had been occurring in recent years (jetblue, 2003).

One of the major results of the 9/11 attacks, and one that has yet to fully return to normal, was the rapid decrease in the amount of business travel on airlines. Business travelers were some of the most profit-making customers for airlines, and these often offset the barely breaking even or loss-making performance associated with vacation related and other consumer travel. This loss of business travel may be related to the fact that telecommunications technology has meant that real-time meetings through video conferencing has become the norm rather than the exception. The fact that 9/11 occurred, making business travelers less certain about flying because of safety concerns may have compounded a situation that was already occurring with the rapid advance in communications technology.

Large corporations have also learne4d that they ?don?t need


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