Jet Fuel Cost

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.

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 extremely volatile, with events such as the September 11 attacks and recently the global financial crisis having adverse effects on the profitability of airlines worldwide. Only in 2007 has the international airline industry been able to post a profit since 2001 (Clark 2007), and since more losses have been made, with IATA forecasting overall losses for 2009 of $US11 billion (AFP 2009). With substantial increases in fuel costs over the past 5 years and the constant need to purchase new and maintain existing aircraft, it is rare to find airlines

The airline industry suffers from oversupply as well as fixed costs which served as the foundation for low fare carriers who offer no frill flights in return for discounted fares. This approach effectively pulled the casual traveler and spread to frequent travelers and some classes of business travel for companies seeking to cut costs. Buyer demand is re-shaping the airline industry as a result of these options.

One of the biggest challenge in the airline industry is to attract customers. There are so many domestic airlines that other same service, getting the customer from point A to point B, and the customer has to decide which airline they will chose for their trip. One of the ways of attracting customers is a lower ticket price per

The current increase in fuel price gives impact on airlines all over the world. This lead to bankruptcies, reduction in flight amount, service and operation among airlines globally. Fuel and crew are the two major component in airlines and drives the operating cost.

With the higher oil prices, natural disasters in Japan, discontent in the Middle East, North Africa and can force competitors in the airline industry to increase prices and fuel surcharges which pose major threats to airlines profits and survival of airlines.

The majority of the literature that has analyzed dynamic pricing mechanisms has emphasized its use in the airline industry. cite{stavins2001} examine how airline price dispersion increases with competition. Similarly, cite{borenstein1995} find that there is larger price dispersion on more competitive flight routes. cite{mcafee2006} conduct an empirical analysis of airline pricing through a dynamic pricing model using

In this essay, the ongoing discussion on how airlines can remain competitive is further advanced by investigating the impact that choice and mix of an aircraft fleet has on profitability. Based on past research, it has been suggested that different types of aircraft can influence profitability in different ways. Larger aircrafts have for instance been considered as more profitable when used for long-haul routes. This is as result of greater economies of scale and lower slot constraints. Smaller aircraft are on the other hand considered as more profitable in short-haul routes that are characterised by high competition. Other factors taken into consideration in evaluating potential profitability include type of passengers (business and

Tools like pricing differentiation and over booking contribute to raise airline company revenues without a significant increase, so an efficient use of these tools do not only increase revenues, but also improve benefits.

The demand for air travel is characterised by a very high income elasticity. Therefore, as the world economy grows, so the demand for air travel can be expected to increase too. The political situation in Iraq has helped to drive oil prices to a record high and for BA, the oil price rise might add £100 million to their costs. In response, the cost of fuel surcharges is always at risk (appendix 2). BA is in the business of transporting people to and from worldwide destinations for both business and pleasure. If the international economy slows down, business trades less and fewer business people will use planes. Equally, people may choose less 'exciting ' holidays. 3.1.3 Social Factors

The airline industry exists in an extremely competitive market structure, hence the elasticity of prices. With revenue and demand forecasted to increase substantially over the next three years, the industry appears to have recalibrated from the

The price of fuel is now the greatest cost for many airlines. An upward spike can destabilize the business model.

The S-curve (Figure 3), allows businesses to predict the rise and fall of new product life cycles within their market or industry. Whilst the airline industry in itself is in the maturity stage, the low fare segment is currently in the growth stage. Gaining in popularity over the past few years, the low fare segment is slowly reaching out to the masses and shedding its traditional negative impression of compromising on safety and service quality. A growing middle class in the region, with increased standards of living and disposable income and an appetite for travel combined with increasing fuel prices and resultant ticket prices by traditional carriers have led to growing acceptance and preference for such low cost carriers. Figure 3: S-Curve

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.