Airline Industry

We talked about why we manage risk last week in RMI4150. As we all know, the goal of managing risk is to minimize the cost of risk. Furthermore, we discussed the airline industry on Thursday. It kept me wondering what really makes an airline profitable. Is the airline industry as profitable as it used to be? Probably not. Think about it. As the oil price goes up, ticket prices become more competitive. Do you remember back in the days when you would get a hot meal on an airplane? Service used to be fabulous and seats used to be so much more comfortable. Now, the passengers only get some crackers or peanuts instead and service quality is very low. Seats are tight and narrow that they make you miserable. Obviously, all the airlines are trying to cut their costs back.

I believe airline travel will be more convenient and enjoyable as time goes by. IATA, International Air Transport Association, forecasts international air travel to grow by an average of 6.6% a year to the end of the decade and over 5% a year from 2000 to 2010. The future of the airline is globalization and consolidation. Airlines need to reduce their costs to ensure they survive an economic recession. Improving service, maximizing capacity, and selling commercial products to passengers will help airlines boost profits.

http://adg.stanford.edu/aa241/intro/airlineindustry.html