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Airlines are important to the global economy because they link regional economies with the rest of the world. When the economy is doing well, airlines tend to profit but when the economy is not doing well, airlines tend to lose profit often being the first and hardest hit industry in turbulent times.
In order to better understand the aviation industry, it is important to have a global understanding of how the industry functions as well as a regional understanding. just because one region is successful, it does not mean another region is following similar patterns. However, the effects of a region do have positive and negative impacts on other regions causing what is called the domino effect or a chain reaction.
At the end of 2009, the aviation industry continued to suffer from a global economic crisis and the implications of such will never be fully known. According to IATA, airlines worldwide lost a combined $11 billion USD in 2009 due to rising fuel costs and reduced earnings on fares and cargo. Despite indications of certain economies returning to positive environments, the positive impact on air carriers world-wide has been slow to grow. As a result, airlines have been shrinking capacity to accommodate reduced bookings for first and business class travel. Typically, when the economy suffers, the volume of business travel is reduced or eliminated by many corporations negatively impacting high-end fares. IATA forecasted yields (average fare per mile) decreased 12 percent in 2009 compared to the original forecast of 7 percent. Revenue for 2009 decreased 15 percent compared to 2008 to a figure of $455 billion USD. Oil prices continued to rise adding a total of $9 billion USD in costs for the airline industry in 2009. European carriers lost an estimated $3.8 billion USD in 2009 due to reduced travel on long-haul markets while North American carriers lost an estimated $2.6 billion USD. Asia-Pacific carriers lost an estimated $3.6 billion USD while Latin American carriers for the most part broke even. In 2009, Middle Eastern and
African-based airlines lost an estimated $500 million USD each. Unfortunately, the global airline industry will continue to face many financial challenges but it is expected revenue will return to 2008 levels in 2012 assuming the global economy bounces back and fuel prices do not make a drastic leap upwards. Should the airline industry continue on a negative path and rising costs offset increasing demand, global airline profits could in 2011 be half what they were in 2010 according to IATA. In year 2011, rising fuel and oil costs continue to be an issue as a result of instability in the Middle East with a particular chapter 1 the airline industry 7 focus on Libya. For every $1/barrel increase in oil, it costs the airlines $1.6 billion on a global basis.
Table 1-1 highlights current regional regulatory trends. Depending on what direction regional and global economies take, such regulatory trends may change to adapt to the changing environment. It is expected the volume of airline consolidation will increase to compensate for increased operating costs and increased competition in specific markets.