Aviation : The Cost Of Fuel High & Low

At the present time, the airline industry faces many cost pressures. The industry has made remarkable achievements in improving its efficiency. But cost pressures continue, from record high fuel prices to unjustified increases in charges from monopolistic airports, to further taxes imposed by governments (industryspotlight.org.uk). Higher costs inevitably lead to higher prices for airline passengers. Aviation is vital part of the United Kingdom. It is not only crucial in sponsoring almost 1 million jobs and £50 billion of GDP, providing around £8.7 billion in taxes to the Treasury of the country, but aviation is also fundamental to the success of economic benefits from air transport in the United Kingdom (Roberts-Hughes, 2014). Aviation supports exports, services, manufacturing, foreign direct investment and of course tourism. This sector gives us opportunity for the holidays and visits of family and friend in different parts of a country and also around the world.

The Airline industry is a large and constantly growing industry. It facilitates economic growth, international investment and world trade and is therefore central to other industries as well for globalisation. There are various forces which lead to globalisation in airline industry. Key drivers of change are forces likely to affect the structure of an industry; sector or market. (1).

The airline industry has been a major factor in the globalization of the world economy. It connects the sellers and the buyers as well as transports goods across countries. It also breaks the time and distance barriers. In the past, air travel was considered a luxury but it is now a common necessity.

Rising fuel prices has a huge impact on the airline industry. In an article published by the New York Times in 2007, oil prices were hovering ‘near $100 a barrel’ which caused the International Air Transport Association (IATA) to ‘slash’ their predicted profits for 2008 from ‘$7.8 billion to $5 billion’ (Clark, 2007). In 2008 high fuel prices were ‘dominant factor’ in the losses that faced the industry, and continued to same effect in 2009 (Dunn, 2009). Diagram 2 shows how fuel price has increased and fallen over the last 5 years.

| Competition from low cost airlinesGovernment regulationsPrice volatility in petroleum marketIncreasing security and safety concerns

Fuel has consistently been one of the largest expense categories for domestic airlines, ranking second only to personnel expenses. During 2003, fuel costs represented, on average, over 16% of the total operating expenses for all U.S. domestic airlines studied by Richard Cobbs and Alex Wolf (2004). Moreover, airlines are generally unable to increase fares to offset any significant increase in fuel costs. From 2001 to 2003, these same airlines experienced a 25.9% compound annual increase in jet fuel costs while average airline pricing decreased by 0.1%, as measured by revenue per available seat mile (Cobbs and Wolf, 2004). Jet fuel costs have substantially risen over the past several years putting consistent pressure on airlines to maintain positive cash flows. Any saving in fuel costs works out to profit earned.

airline industry has never matched the profitability of even the average U.S. corporation (ATA Report, 2007). In its “”FAA Aerospace Forecast Fiscal Years 2008–2025,” the Federal Aviation Administration (FAA) reported on the industry’s 36 mainline air carriers that use large passenger jets (over 90 seats) and 84 regional carriers that use smaller piston, turboprop, and regional jet aircraft (up to 90 seats) to provide connecting passengers to the larger carriers (FAA, FAA Aerospace Forecast Fiscal Years 2008–2025, A Review of 2007), stating that “three distinct trends have occurred over the past several years that have helped shape today’s U.S. commercial air carrier industry: (1) major restructuring and shrinking by the mainline network carriers; (2) rapid growth by low-cost carriers, particularly in nontraditional long-distance transcontinental markets; and (3) exceptional growth among regional carriers.”

The aviation industry of any nation acts as a contributor to its economic growth, helps in globalisation and creating an international image. It is the best in terms of the fastest, safest and convenient mode of travel. Even though it is an expensive one, it is expanding its markets across the middle-class who are ready to spent money on leisure trips. Thus it is truly stated that aviation forms a vital core infrastructure area without which a country economy is handicapped.

The aviation industry of any nation acts as a contributor to its economic growth, helps in globalisation and creating an international image. It is the best in terms of the fastest, safest and convenient mode of travel. Even though it is an expensive one, it is expanding its markets across the middle-class who are ready to spent money on leisure trips. Thus it is truly stated that aviation forms a vital core infrastructure area without which a country economy is handicapped.

Airlines Industry is large and growing, it is also the most fiercely competitive sector. It facilitates international trade, world economy growth, tourism and international investment. The airline industry has over time with the use of modern technology been able to take advantage of the short haul, high frequency and gained a competitive advantage over other forms of travel, such as buses and railroad travel. Additionally, the airline industry still holds the market for global travel at a low cost and convenient way to travel. The aviation industry gives a good contribution to the GDP which includes the following: airline services, general aviation, civil airport operations, aircraft manufacturing, and

Economy airlines suffer during down economies and reduce their orders, and the industry has become dependent on the Middle East and Asia in recent years to offset this (Crooks & Weitzman, 2010).

In 20th century air travel was exceptional and expensive; travel was restricted for wealthy individuals that tend to travel for special occasions. After the II World War improved design has modernised the industry and allowed to carry more passengers. That resulted in economies of scale that lowered the price of the ticket within reach of a regular person. Ryanair Ltd is an example of low cost carrier that revolutionised the airline industry by offering short-haul flights around the Europe for the lowest fares (Ryanair, 2015). In similarity to other businesses, the airline industry is affected by changes in its external environment. Ryanair as well as other low cost airlines can afford to cut the price of the ticket by reducing operating costs. One of the main

Ryan air’s success can be attributed to a few factors. First would be its ‘Ever-decreasing costs’ mantra, providing low cost, low fares and no frills carrier strategy while achieving operating efficiency and satisfying its customers which gives it a competitive advantage and cost leadership. It targets price sensitive customers and offers them the cheapest short haul service among all its competitors in the market. Ryanair gives much focus on keeping costs low and is constantly examining every area of its operation to implement cost reductions. The initiatives taken to keep costs low include:

The objective of this essay is to examine the growth of the aviation industry, the changes and developments that have transpired, the implications of this changes and how it has affected the demand for air travel. Also, with evidence from current research materials, this essay will show how future innovations will impact commercial aviation.

The success of budget airlines forced traditional operators to lower their prices by adapting internet sales and yield management techniques. However they still struggle to compete with low prices offered by the LCCs. Further reductions in traditional airline ticket prices are expected.