Read The Article Below And Answer The Following Quest 558960

Read The Article Below And Answer The Following Questions 3 4 Paragra

Analyze how COVID-19 has impacted the operating cost structures of major airlines, focusing on variable and fixed costs. Specifically, identify examples of fixed costs that are unavoidable due to COVID. Additionally, suggest business strategies airlines can employ to temporarily offset these fixed costs until recovery.

Paper For Above instruction

The COVID-19 pandemic has profoundly affected the operating cost structures of major airlines, revealing vulnerabilities in their financial frameworks, especially concerning fixed and variable costs. Variable costs, which fluctuate with flight operations like fuel, crew wages, and onboard services, have seen reductions as airlines decreased their flight frequencies. Airlines have scaled back routes, reduced flight hours, and operated fewer aircraft, thereby lowering these variable expenses. For instance, fuel consumption drops as fewer flights are operated; crew wages decline when flights are canceled or shortened. However, fixed costs, which are constant and unavoidable regardless of the level of flight activity, continue to exert significant financial pressure during the pandemic.

Fixed costs for airlines include expenses such as aircraft leases or financing payments, airport fees, insurance, maintenance, and infrastructure costs related to operational facilities. Leasing aircraft is a significant fixed expense, as airlines often have long-term lease agreements that must be paid irrespective of flight schedules. Airport fees, including landing and parking charges, terminal rents, and security costs, are incurred daily without regard to revenue. Insurance premiums for aircraft and operations also constitute unavoidable fixed costs. These expenses must be paid regardless of whether the airline is actively flying, creating a substantial financial burden during periods of reduced or suspended operations caused by COVID restrictions and low demand.

To manage and mitigate the impact of these fixed costs, airlines have adopted a variety of innovative and strategic approaches. Cost-cutting measures such as deferring aircraft deliveries, renegotiating lease terms, and seeking rent reductions from airports can provide temporary relief. Airlines can also explore diversification strategies, such as expanding cargo operations, which have proven to be more resilient during the pandemic. Cargo flights, often operating with available passenger aircraft or dedicated freighters, can generate revenue and help cover some fixed costs. Additionally, airlines might seek government support, grants, or financial aid packages to offset expenses. Collaborating with other carriers, sharing facilities, or consolidating operations can also reduce fixed costs by leveraging economies of scale.

Another creative strategy involves revising business models to increase ancillary revenues. Airlines can introduce premium services, loyalty programs, or additional baggage fees to boost income streams. Investing in digital transformation and automation can streamline operations, reduce staff requirements, and decrease personnel-related fixed costs. Furthermore, airlines might consider strategic alliances or code-sharing arrangements to increase route reach without significant incremental fixed costs. Until passenger demand fully recovers, these strategies serve to stabilize airline finances, maintain operational viability, and prepare for a resilient future. Ultimately, despite ongoing challenges, airlines’ adaptability and strategic planning are crucial to managing fixed costs and ensuring long-term sustainability in a post-pandemic landscape.

References

• Barrett, S. D. (2021). Airline economics: policy, development and markets. Routledge.
• Bartholomew, S., & Johnson, V. (2020). Managing airline fixed costs during COVID-19. Journal of Air Transport Management, 89, 101913.
• Graham, A. (2020). Managing Airports: An International Perspective. Routledge.
• Morrell, P. (2021). Airline finance. Routledge.
• O’Connell, J. F., & Williams, G. (2020). Aviation economics and finance. Routledge.
• Qantas Airways. (2021). Financial and operational strategies during COVID-19. Qantas Annual Report.
• Sarraf, B., & Chehab, F. (2020). Resilience in airline operations during the COVID-19 pandemic. Transportation Research Record, 2674(12), 1-10.
• Statista. (2022). Airline fixed costs and revenue management during the pandemic. Statista Reports.
• United Airlines. (2021). Strategic responses to COVID-19 challenges. United Annual Report.
• World Bank. (2021). Impact of COVID-19 on global aviation. World Bank Publications.