Assignment 2: Final Report Example - Strayer University

Assignment 2: Final Report Example Paper Strayer University ECO100 Dr. Jean Fonkoua September 8, Final Report: Airline Industry

The US airline industry is on a winning streak following seventeen consecutive productive quarters. Despite significant operational costs such as labor and fuel spikes, persistent demand for increased capacity keeps the industry profitable. This report examines the growth projections of the airline sector up to 2036, the influence of government taxation, and associated trends, highlighting the increasing global connectivity demand.

Alexandre de Juniac, Director General and CEO of the International Air Transport Association (IATA), emphasizes the anticipated doubling of air passenger numbers over the next 20 years, underscoring the need for industry and government preparedness (“The world needs to prepare for a doubling of passengers in the next 20 years,” IATA, 2017). This expanding demand signals a positive outlook for industry growth, with forecasts estimating nearly 7.8 billion travelers in 2036, almost doubling the 4 billion projected for this year. These projections are based on a Compound Annual Growth Rate (CAGR) of approximately 3.6% (IATA, 2018). Despite hurdles such as high jet fuel prices and slow global economic growth, passenger volume increases continue to drive revenue growth, suggesting resilience within the industry.

Size and Growth Rate Assessment

The industry’s growth outlook remains robust up to 2030, with a CAGR of around 4.7%, according to recent reports (IATA, 2018). Even in the face of economic challenges, improvements in passenger numbers have bolstered financial performance, with projected profits reaching approximately $33.8 billion by the end of 2018, up from $8.3 billion in 2011 (IATA, 2018). The industry’s resilience is partly attributable to the growing global GDP—estimated at 3.5%—the strongest since 2010—which supports increased leisure and business travel (World Bank, 2018).

Key Economic Indicators and Their Impact

Monitoring macroeconomic indicators such as inflation, unemployment, and the business cycle is essential for understanding airline industry dynamics. Inflation influences profits significantly; rising costs for fuel, labor, and materials directly translate into higher ticket prices, reduced demand, and profitability challenges. Literature posits an inverse relationship between inflation and unemployment, often described by the Phillips Curve, where higher inflation may temporarily lower unemployment but at the cost of economic stability (OpenStax, 2015).

Specifically, inflation raises the costs of goods and services, notably fuel, which is a primary expense for airlines. Since 1996, inflation-adjusted air travel costs have halved, yet recent trends indicate increasing ticket prices; in 2018, they were 10.01% higher than in 2000, translating into about a $10.01 increase per ticket (Bureau of Labor Statistics, 2018). Fuel prices have spiked over recent years, with estimates suggesting they could reach $84 per barrel in 2018, impacting operational costs and profit margins (IATA, 2018). Airlines are consequently compelled to pass these costs onto consumers, further influencing demand patterns.

Recent Industry Trends

Recent trends highlight a turbulent period characterized by rising fuel costs, labor expenses, and interest rates. In late 2018, the IATA revised its profit forecast downward from $38.4 billion to $33.8 billion, mainly due to these cost pressures. Notably, jet fuel costs surged to levels as high as $84 per barrel, significantly impacting airline budgets and pricing strategies (Reid, 2018). Similarly, airline ticket prices increased on average by over 10% since 2000, reflecting inflation’s impact on consumers’ travel expenses (Bureau of Labor Statistics, 2018). The CEO of American Airlines, Douglas Parker, pointed out the magnitude of this shift, acknowledging that airlines might need to absorb some fuel financial burdens due to rising costs (Cameron & Olson, 2018). These factors collectively threaten profit margins but also stimulate a focus on efficiency and innovation within the industry.

Conclusion

In conclusion, inflation remains a pivotal economic indicator affecting the airline industry’s growth trajectory. The interrelation between GDP, inflation, and employment underscores the complexity of the industry’s macroeconomic environment. While global demand for air travel is poised to double over the coming two decades, increasing fuel costs and inflation pose notable challenges. These factors necessitate strategic adaptations by airlines, including cost management, operational efficiencies, and innovative pricing models. The industry’s ability to navigate these economic factors will determine its future resilience and growth prospects. As governments implement standards on security and taxation, the industry must balance regulatory compliance with cost-effective operations to sustain profitability amidst fluctuating economic conditions (IATA, 2017). Continuous monitoring of economic indicators, resource management, and technological innovation will be essential for maintaining growth and competitiveness in the evolving global airline landscape.

References

• IATA. (2017). 2036 Forecast Reveals Air Passengers Will Nearly Double to 7.8 Billion. International Air Transport Association.
• IATA. (2018). Air Passenger Market Analysis – April 2018. International Air Transport Association.
• OpenStax. (2015). The Phillips Curve. OpenStax CNX.
• Bureau of Labor Statistics. (2018). Consumer Price Index – Airline Fares. U.S. Department of Labor.
• World Bank. (2018). Global Economic Prospects. The World Bank.
• Reid, D. (2018). Airline profits to slump in 2018, industry body says. Reuters.
• Cameron, D., & Olson, B. (2018). Companies Feel the Impact of Rising Oil Prices. The Wall Street Journal.
• Hepher, T., & Brown, V. (2018). Global Airlines Issue Warning Over Trade Tensions. Reuters.
• Statista. (2018). Annual growth in global air traffic passenger demand from 2005 to 2018. Statista Research.
• OpenStax. (2017). Tracking Real GDP over Time. OpenStax CNX.