Airline Industry Analysis

Good Essays
Air transportation is essential for business and leisure traveling. People travel by air for many reasons such as various destinations to choose from, shorter traveling times, and safety. No matter the reason, air traveling carries direct and indirect expense and cost to the industry and customers. Some direct cost to the air industry is labor and fuel. Both variables can cause ticket prices to increase or decrease depending on how each airline company decides to allocate their profits. Many people may think if fuel premiums are down, ticket charges should drop as well. However, there is more to consider besides the cost of fuel. Labor and maintenance is not cheap. Such as any other industry, there are rules and regulations that must be followed. In order to comply, employees have to be properly trained which is an additional cost to employers. The bottom line is revenue; how should it be spent? One mistake could cause a company many months of economic heartache. The air industry must consider the effects of variable and fixed expenses, when deciding to increase or decrease consumer ticket prices. …show more content…
Investopedia (2015) states, the two key expenditures of the airline industry are labor and fuel. Most labor rates account for nearly 35 percent of airline total operating cost. The operating cost covers approximately 75 percent of all non-fixed totals (p. 1). FAA (2013) documented cost are either direct or indirect, variable or fixed. Some of the expenditures fall into more than one category. Aircraft operating cost is a direct expense (p 4-3). Indirect operating expense encompass a variety of expense such as advertising, aircraft servicing, administrative fees, passenger services, traffic servicing, reservations, and sales (FAA, 2013, p. 4-3). Variable cost include fuel, oil, maintenance, and crew

Related Documents

  • Decent Essays

    Travel analysis and trends A good analysis and understanding of the travel features and trends of the passengers is very important to build up a successful business model for airlines. In the following, we will try to discuss this topic from the aspects of elasticity of passenger demand, popular destinations, mode of transport and the booking patterns. 1. Elasticity of Passenger Demand At the present time, the competition in the air travel industry is becoming more and more intense. The passenger is more price sensitive in the worldwide.…

    • 1638 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    Therefore, there would be more of passengers wanting, but unable to book a desired flight, that results in revenue loss for an airline. Beside stochastic delay and revenue, the load factor has direct influence on airline costs, too, in a way that higher load factor generates lower costs per passenger and vice versa. The importance of introducing the route length as a parameter that drives the network strategy is seen in its impact on airline operating costs because unit costs generally fall as route length increases. Therefore, the defined parameters ensure that the chosen network structure attains two goals - profit maximization and targeted level of service, taking into account…

    • 2131 Words
    • 9 Pages
    Decent Essays
  • Decent Essays

    However, there will be also some decrease in overall travel performance which includes casual or budget travellers. Besides, Air Asia have created some opportunity to partner with other low cost airlines as Virgin to tap into their existing strengths or competitive advantages. For examples brand name, landing rights and landing slots in other meaning is time to land on the ground. Meanwhile, the population of middle class consumers has been continuously increased and hence it can create a larger market and a huge opportunity for all low costs airlines in this region including Air Asia…

    • 1263 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    PEST Analysis Of Air Asia

    • 1987 Words
    • 8 Pages

    Together with increased in trade and tourism within and into Asia, demand for air travel increased; more people were willing to compromise on food and other services in exchange for lower prices. The attractiveness of budget airlines is primarily their low ticket prices, which can be as low as 10-20% of those charged by full-service airlines. This presents AirAsia with opportunities to differentiate itself from competitors by adding customer services or operation as full service airline with low fare, giving it a competitive advantage (i.e. provision of in-flight food and drinks, and online sales of hotel, car, and holiday reservations, as well as travel insurance), and corporate travel services, with its own branded credit card; further increasing brand awareness and value for…

    • 1987 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Swot Analysis Of Airasia

    • 1893 Words
    • 8 Pages

    (Azleen,2015). Branding is one of the marketing to present their concept of the product or company (Marketingschool, 2012). The name of AirAsia is to present about the company will be concern on the Asia airline market and the tagline for the AirAsia is “Now Everyone Can Fly” to present about everyone can travel with the cheapest price. Moreover, the customer buy the ticket in group will get the discount rates so that airasia can get more customers. (Codewit,2008) Besides that, social media is one of the important media to promote AirAsia and it is also giving the convenience the customer to book the ticket anytime (The Economist, 2012).…

    • 1893 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Passengers who use air travel for tourism are more likely to be sensitive to the cost of travel than those who travel for business purposes because tourism is a luxury, however; this does not mean business travelers are insensitive to changes in airfare prices. Therefore, low cost operators have become favorable with frequent fliers. As you can see in the graph, business travel has also expanded the demand for air travel because more companies are investing internationally (The Airline Industry, 2016). International trade has contributed…

    • 916 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    6). It is therefore imperative that through consideration goes into a proposed outsourcing of any kind especially if it involves client contact like in the airline industry. If a customer experiences sub-par service, there is the potential to lose that customer to a competitor which takes revenue away defeating the purpose of the outsourcing. In addition to the customer related jobs United Airlines plans to outsource engineering jobs from its maintenance hub in San Francisco to other parts of the world. However, United employees along with others, question how the move will impact the quality of repair work and aircraft safety.…

    • 1188 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    The implication of the straight line depreciation with airlines, such as Delta, is taking a more liberal accounting approach. Management has to anticipate which accounting method would be more profitable to the airline. This can be difficult due to the uncertainty of the economy, wear and tear on the aircraft and proper book keeping methods. As flight hours increase the maturity factor, or costs increases. With only 5% residual value, Delta is looking to recognize gains later as opposed to Singapore that is taking their expenses up front over 15 years.…

    • 1056 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    To ensure effective and efficient operations, globally airlines will spend $174 billion dollars on operating costs, or 25% of total revenue (Cros, 2015). The vast majority of these expenses will be in the form of payroll. Unlike the other industries, the airline industry is highly unionized. In 2006, 49% of air workers were unionized…

    • 787 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Air Force Flyer

    • 8707 Words
    • 35 Pages

    For the Deferred Revenue Method, major estimates are related to the mix of redemption activity (i.e. the proportion of awards redeemed for travel in first class versus coach, the proportion of awards redeemed on the sponsoring airline versus a partner airline, and the proportion of awards redeemed for travel versus nontravel awards). Because deferred revenue liabilities are accrued at fair value, and each of the aforementioned…

    • 8707 Words
    • 35 Pages
    Decent Essays