Essay about Opportunities and Threats facing the U.S Airline Industry

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Opportunities and Threats facing the U.S Airline Industry

The health of the overall U.S airline industry is still tenuous in-spite of the passenger traffic volumes returning to pre-9/11 levels. A survey estimated that from 2001 through 2003, the US airline industry reported to have lost $23.2 billion dollars, compounded by an additional $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period 1995-2000

Drastic changes in the Economic, Political/legal and technological segment of airline’s external environment contributed to some of the major looses seen by the industry. The key factors that heavily contributed to the loses include

• Economic
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A recent survey of the airline economic health suggested that even though the industry hoped to return to some degree of stability, if not profitability, yet new costs beyond the airlines control wiped out recent efforts to cut costs and achieve new efficiencies. Record high oil prices and nation’s on-going war on terrorism have presented new barriers to improving the industry’s financial health.

Another cost factor that is heavily contributing to the overall cost is the Aviation Security Infrastructure fee (ASIF). This fee is enforced after Congress passed the Aviation and Transportation Security Act (ATSA) which necessitated additional security at the airports. This fee is expected to rise to $750million in 2005 from $315 million in 2000. This fee is in additional to the additional federal security mandates imposed since 9/11. The industry argues that impact of federal security mandate and foregone revenue totals $2.8 billion per year.

The statute that directs FAA to extend war-risk insurance to U.S airlines and air cargo carriers is set to expire on August 31st of this year. Since there is no commercial market for this type of insurance, the industry could obtain coverage for only limited utility that could potentially cost the airline industry several hundred millions of dollars annually in
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