Economic Impact Of The Development Of Airline Industry Essay Example for Free

Economic Impact Of The Development Of Airline Industry Essay Hardly many inventions can manage to change the way people live and also how they experience the world like the way inventing airplane has done. The airline industry offer air transport for passengers. The airlines companies own the airplanes or may lease them. Airlines Company differs in terms of capacity, some are smaller with one or two airplanes to transport mail and cargo, while other are big multinational companies with hundreds of aircrafts. Majority of airlines are privately owned, though some are government owned. Today, the air travel has grown to an extent that no one can imagine life without it. Air travelling as greatly reduced travelling time and opened up links all over the world. Economic Impact of the development of airline The air airline industry has played a major role in world economic growth; it has improved the mobility and facilitated world supply lines all over the world. The aviation industry not only serves as an economic tool for nations and cities, but also servers as a vital network for transport within the world. The industry creates jobs by providing them directly and also by creating opportunities in the travel and hotel industry. Aviation industry has continued to be critical in the world economy, in terms of creating these job opportunities, and the industry has employed thousands of employees in the whole world. And has the industry continue to grow more jobs are created. This leads to economic growth. Transport plays a major role in making sure that goods reach their destinations. The World Bank estimates that the airline industry contributes to a total of 5% economic growth in the world. Competition Competition in the industry can be traced back when most governments deregulated the industry I order allow competition among the industry to regulate fares. For many years now this resulted in low fares as the airline industry responded to customers needs. Most of the reduced fare also comes from new players on the market, and also from the big airlines themselves. With the growth of economy in many countries, more travellers are using the air, this id due to the fact that the fares have also been reducing gradually. In a report carried out in America by the senate, it was found out that competition has resulted into low fares, and from 1990 the traffic has gone up by over 33%, it was found out that the number of flights had also gone up to over 20%. This of course has a positive impact on economic growth. Competition in the industry has also lead to mergers as small companies fail to compete. This has improved the industry service delivery. It is important to note better service delivery has economic advantage. With the economic development being witnessed in many countries, the amount of travelling has gone up. Many people are travelling to transact their business. The high demand of air passengers has caused resource constraints, on airports and also on airways, especially during the peak travelling periods. Business community usually travels at these times and normally makes last minute bookings. However, main airlines have planned their networks to be able to meet the high rate flight requirement by the business passengers, though; these fares are expensive as the airlines need to cover cost of servicing high number flight. Nevertheless, airline competition and the way they price their tickets causes concerned. It has been noted that, with the emerging of low fare trends that have been occurring since 1996, when smaller airlines enter into this market with low fares, the major airlines drastically reduce their prices. And also avail a high number of low fare seats. This behaviour seems to be ill intended because it aims at repressing competition from the smaller airlines. Increase in fuel prices Oil and fuel prices have continuously increased for the past 10 years, for example, in 2001 the price per barrel was $20, yet in 2006 it had reached $75. The increase in price can be attributed to various such as, high demand of oil, collapse of Yukos Oil Company in Russia and political instability in the Middle East. This high increase in oil prices has affected the aviation industry. The increase in fuel prices has lead to reduction in the global trade. It is estimated that about 40% of goods traded on the world market are transported by the air, and cargo traffic is used to reflect economic growth. Fuel account for 20-30% of the total cost of operation expenses of the airline industry. Due to this high cost in oil the economy has suffered negatively. The microeconomic effect for those countries which import oil will be harsh, in the industry high prices is a big problem; the companies are forced to increase consumers’ fares to upset the fuel price increase, for example if fuel price reached 100$ per barrel, then a gallon of jet fuel will be more than 3$. This will imply that a passenger will have to pay 50$ more to travel than previous. This will result in reduction of passengers and for the case of cargo transporters it may lead to high reduction in demand of their services, which may spell down for the airline companies. The indirect impact on the airline industry caused by high fuel prices in the increase in airline products prices. The overall impact is reduction in international trade. As pointed out by the world trade organisation , increase in oil prices leads to low economic growth as it was observed in 2005. Terrorist threat Since the September 11 terrorist attack, the airline industry suffered so much, the industry experience a reduced number of passengers as many opted to use alternative means. The economic impact on the global level was immerse, has many countries experienced low foreign exchange due reduced business especially in tourism industry. The terrorist attack had a big effect on the aviation industry, and also on the economy. In America alone, more than 2 million passengers travel on air daily. Airline industry and tourism alone account for mote than 8% the world GDP. With the imminent threat of terrorism, the industry has undertaken different security measures. For example in America, the industry has to use over 11$ billion in security improvements. This costs at the end of the day have to be met by the passengers, thus, the fare in the industry have steadily gone up. This has reduced the volume of goods and passengers using the industry and negatively affected the economy. Any small distractions in the industry send shock waves in many other industries. Currently, the industry has experienced a trend by which they are weak economy, insecurity fear and other issues. This has led to reduced number of passengers flying. Even those passengers who are flying they are paying less because most of them are taking economy seats. This trend has resulted in decline of the growth of the industry. In decline in the industry usually result in reduction of economy growth of the world economy. After the September 11 many airline companies grounded their business due to security concerns this was so pronounced in America. The impact of the attack reverberated all over the world. It was estimated that the attack caused a reduction of 1% world economic growth. In this area of global economy the aviation industry all over the world suffered. The industry saw an increase in costs of airline insurance, increased expenses on security, and customer fear to travel using the air due to insecurity. This led to massive losses for the industry in the whole world. This was the worst disaster the industry had suffered in the past 50 years. In whole world more than 400,000 jobs were lost. Decline in the air travel has a direct consequence on number of business which includes tourism, travel agencies and entertainment spots, this is felt global. It is important to note that, in the continuous threat of terrorist, the world economy has been affected badly. The industry had to go through lean times and some companies had to shut down. Conclusion The airline industry is very important in economic development, the airline employees a lot of people directly and indirectly. The industry has developed steadily over the last 50 years, and has continuous grown. Competition, fuel increase and terrorist attack pose a serious challenge to the industry and the industry should come up with ways to controlling these effects to maintain profitable. However, the airline industry will continue to grow though, it will be faced with more challenges.