Critical Issues Facing the Airline Industry †MyAssignmenthelp.com

Question: Discuss about the Critical Issues Facing the Airline Industry. Answer: Introduction Like any other industry airline industry is faced with quite a number of issues that need to be addressed. The African and American airlines are experiencing difficulties to survive in their best time like in the years 2015 and 2016, (Burestein Rose, 2014, p. 63). Most Countries in Asia, Europe and those in the Middle East operate below the cost of capital that the shareholders and the partners are expected to contribute. The shareholders are expected to reach a certain rate on the invested capital which only the Americans have shown a return on invested capital that is above average, (Teneja, 2017, p. 4). In this essay, the issues that affect the airline industries are discussed as follows: Issues Facing the Airline Industry. Cyclical nature of airline industries Global airline industries follow a business cycle of 8 to 9 years where it goes through a peak and an off-peak period. There are several factors that explain the above phenomenon. During the peak period, the airline industries make large profits, the labor unions become active and the labor charges rise thus increasing the operation cost incurred, (Akamavi et al., 2015, p. 528). Also during this peak period, the airlines have already gained enough profit and they begin to place orders for new aircrafts so as to remain ahead of the competition. The industries borrow financial assistance from financial institutions thus making the cost of interest to rise, the bottom line is affected and the shareholders are forced to return on investment, (Akamavi et al., 2015, p. 528). Decrease of global economy The growth of airline industries goes hand in hand with the growth of the global economy. A decrease in the growth of the global economy normally results into a fall in the airline industries, (Morrison, 2014, p. 15). For example, in the United States of America, the interest rates are currently at the lowest ebb and might begin to increase resulting in a decrease in the growth of the global economy. Moreover, the international trade growth which is already decreasing will further slowdown thus leading to a negative effect in the airline industry, (Teneja, 2017, p. 12). Fuel, technology, and environment The price of fuel has decreased from 140 dollars in 2009 to 2010. In the European and the American countries, the fuel cost is the second largest cost incurred after the labor costs, however, in Asia, the fuel cost is the highest followed by the labor cost, (Draft Albers, 2013, p. 47). In the airline industries, fuel accounts for around 40 percent of the operating costs. Although fuel prices can never be stable, a decrease in the fuel prices is one of the major reasons why the airline industries have been able to rebound, (Draft Albers, 2015, p. 3). Due to the introduction of advanced technology, the engines, and the crafts have been developed which in return has resulted in a reduction in fuel consumption to around 35litres, (Lawton, 2017, p. 12). The 35 liters of fuel consumed is used to transport 100 tons in one kilometer which is a great decrease to one and a half decades ago where 110 liters of fuel were used to transport the 100 tons in one kilometer, (Lawton, 2017, p. 12). Also through new technology certain aircrafts like B-787 and A350 use 20 to 30% less fuel than the aircraft they would replace. An increase in airline capacity will result to environmental damage because of the carbon emitted. The new technology aircraft will do less damage to the environment compared to the old aircraft.in Europe, the introduction of a carbon tax is a major step to motivate industries in coming up with a solution to avoid environmental damage, (Lohmann Koo, 2013, p. 8). Restrictive bilateral regimes The airline business is still among the most regulated industries globally since the emergence of the bilateralism in the year 1944, (Morrison, 2014, p. 13). Most of the states in the world have agreed to accept the open skies bilateral air services. However, some of the countries are still opposed to the idea due to primary pressure from the national airlines. Those states that are against the skies bilateral services are not able to privatize their national airlines due to socio-political reasons, (Teneja, 2017, p. 13). There are also some restrictions regarding shareholding in some parts of the world. For example, states like the Middle East do not allow foreign investment in their airlines. Airspace and airport capacity In busy airports, the arriving aircrafts have to wait for several minutes in the air for their turn to land. During the waiting period cost of around 12% of fuel in average is consumed, (Akamavi et al., 2015, p. 540). Solutions to address the above issues Creation of landing and departure routes The runaway capacity needs to be advanced using the new technology. Through the modern technology, the separation distance between the arrivals and the departures will be reduced, the airport capacity will be increased by creating an exit for the taxiways along the runways. Also, they will separate the arrival and the departure routes hence facilitating continuous descend approach and continuous ascend departures, (Burenstein Rose, 2014, p. 68). This in return will lower fuel consumption and the carbon emitted. Introduction of carbon tax Just like Europe, countries with the airline industries should embrace the use of carbon tax to avoid environmental damage. The carbon tax may force the industries to recycle the carbon being released into the air, (Lawton, 2017, p. 21). Therefore, fewer carbon gases will be released into the air leading to less of air pollution. Awareness of off-peak and peak periods in the industry The airline businesses should be informed about the off-peak and the peak periods so as to avoid falling of the business during the off-peak seasons, (Teneja, 2017, p. 15). During the peak seasons, the profits realized should be used by the industries to cater for the costs during the off-peak period. Maintaining the interest rates of the economy By maintaining the interest rates the global economy will not slow down and the same way the airline business will also not decrease, (Burestein Rose, 2014, p. 132). Conclusion In conclusion, in airline businesses, there are many complicated technologies that can be a burden if not addressed. Due to the sudden changes in technology over the years, the management in the airline industries should ensure that they are updated with the changes that are occurring due to technology. With this, they will curb all the difficulties and also be ahead in terms of competition since they will be having the newest and modern aircrafts produced in the world. Customers will also come in large numbers as they will be eager to use the new technology that has arrived. References Akamavi, R.K., Mohamed, E., Pellmann, K. Xu, Y., 2015. Key Determinants of Passenger Loyalty in the Low-Cost Airline Business. Tourism Management, 46, Pp.528-545. Borenstein, S. Rose, N.L., 2014. How Airline Markets Work or do they? Regulatory Reform in the Airline industry. In Economic Regulation and its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press. Daft, J. Albers, S., 2013. A Conceptual Framework for Measuring Airline Business Model Convergence. Journal of Air Transport Management, 28, Pp.47-54. Daft, J. Albers, S., 2015. An Empirical Analysis of Airline Business Model Convergence. Journal of Air Transport Management, 46, Pp.3-11. Lawton, T.C., 2017. Cleared For Take-Off: Structure and Strategy in The Low Fare Airline Business. Routledge. Pp. 12-28. Lohmann, G. And Koo, T.T., 2013. The Airline Business Model Spectrum. Journal of Air Transport Management, 31, Pp.7-9. Morrison, M., 2014. The Power Of Two: After a Near-Failure to Launch in the 1970s, a Boeing Over Gave CFM an Unstoppable Momentum, Putting the Joint Venture at the Forefront of the Narrowbody Engine Market. Airline Business, 30(8). Pp. 12-18 Taneja, N.K., 2017. Driving Airline Business Strategies through Emerging Technology. Routledge. Pp. 4-15