Assignment 2: Final Report Example Paper - Strayer Universit

Assignment 2: Final Report Example Paper Strayer University ECO100 Dr

The US airline industry is on a winning streak following seventeen consecutive productive quarters. Despite significant operational costs, particularly labor and fuel, the industry continues to perform well due to persistent demand and increasing capacity. This report examines key aspects such as growth projections up to 2036, the impact and trends of government taxation, and the overall outlook of the airline sector, emphasizing the global demand for connectivity.

The International Air Transport Association (IATA) projects that by 2036, approximately 7.8 billion passengers will travel by air globally, nearly doubling the 4 billion anticipated for this year. This prediction is based on an average Compound Annual Growth Rate (CAGR) of 3.6%. Despite economic challenges, including rising fuel prices and sluggish global growth, passenger numbers and industry profits continue to grow, reflecting a robust industry resilient to economic hurdles. The aviation sector is expected to generate up to $33.8 billion in profits by the end of 2018, a significant increase from around $8.3 billion in 2011.

Between 2017 and 2036, the annual growth rate of airline passengers is forecasted at approximately 4.7%, which indicates sustained expansion over the next decades. Monitoring macroeconomic indicators such as inflation, unemployment rates, and the business cycle is essential for understanding and managing industry performance. Inflation, in particular, influences costs and profitability by raising prices for fuel, labor, and operational expenses, which can lead to higher ticket prices or route cancellations to control costs. Elevated inflation reduces purchasing power, resulting in decreased demand, while increases in fuel prices directly impact operating expenses.

Data from 1996 onward shows that real prices for air travel have halved, yet consumers are spending more on air travel overall—estimated to surpass $750 billion in 2018, representing a 15% increase over two years. Elevated fuel costs, which have spiked significantly, threaten airline profitability. For instance, jet fuel prices are projected to reach $84 per barrel in 2018, up from $70 estimated in December 2017. These increases significantly impact airline economics, compelling carriers to pass some of the costs onto consumers through higher fares. The American Airlines CEO, Douglas Parker, highlighted that recent fuel price surges—up 60% from the previous summer—continue to pressure profit margins.

Analyzing ticket pricing data reveals that, from 2000 to 2018, inflation averaged approximately 0.53% annually, resulting in a $10.01 increase in the median airline ticket. Consequently, the overall cost to consumers has risen, challenging airlines to balance fare increases with competitive market demands. Industry players advocate for adjusting fares to offset increased fuel costs, which is critical in maintaining revenue streams amidst rising operational expenses.

Conclusion

Inflation remains a vital macroeconomic indicator influencing the airline industry, affecting costs, demand, and profitability. While GDP growth continues to be an important driver of industry expansion, other factors such as private consumption, international trade, tourism, crude oil prices, and productivity gains significantly influence growth trajectories. The industry’s future hinges on managing these economic variables effectively, especially given the volatility in fuel prices.

Government policies on taxation, security regulations, and infrastructure development are instrumental in shaping industry conditions. While efforts to standardize global regulations aim to facilitate growth and cost efficiency, they also impose additional compliance costs. The increasing fuel costs, combined with global economic uncertainties and trade tensions, pose ongoing challenges. However, the industry’s resilient demand, technological advancements, and strategic adjustments are likely to sustain growth in the foreseeable future.

References

  • International Air Transport Association (IATA). (2017). 2036 Forecast Reveals Air Passengers Will Nearly Double to 7.8 Billion. IATA. https://www.iata.org
  • Statista. (2018). Annual growth in global air traffic passenger demand from 2005 to 2018. https://www.statista.com
  • OpenStax. (2015). The Phillips Curve. OpenStax CNX. https://cnx.org
  • OpenStax. (2018). A Journey Through American Transportation. https://openstax.org
  • OpenStax. (2017). Tracking Real GDP over Time. OpenStax CNX. https://cnx.org
  • IATA. (2018). Air Passenger Market Analysis – April 2018. https://www.iata.org
  • Reid, D. (2018). Airline profits to slump in 2018, industry body says. Industry Week. https://industryweek.com
  • Cameron, D., & Olson, B. (2018). Companies Feel the Impact of Rising Oil Prices. Wall Street Journal. https://wsj.com
  • Bureau of Labor Statistics. (2018). Consumer Price Index - Airline Fares. U.S. Department of Labor. https://bls.gov
  • Hepher, T., & Brown, V. (2018). Global Airlines Issue Warning Over Trade Tensions. Reuters. https://reuters.com

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