Malaysia Airlines Strategic Analysis

An even more pernicious aspect of the fuel price increase is the relationship between the economy and air travel. The link between fuel prices and the health of the economy is clear. Three of the major recessions of the past thirty years can, in large measure, be attributed to the steep increases in fuel prices that accompanied the 1973 Middle East oil embargo, the 1980 Iran Crisis, and the1990-91 Gulf War.

The airline industry is inextricably tied to the overall economy – even minor recessions result in reduced demand and increased sensitivity to prices for leisure as well as business travelers.

Past fuel spikes and attendant recessions have brought about widespread hardship in the airline industry. As analysis shows, airline profitability suffers as a direct consequence of a weakening economy. During the first Gulf War, almost half of the major airlines filed for protection under Chapter 11 of the Bankruptcy Code, long-standing airlines went out of business, more than 100,000 airline employees lost jobs, and the industry went into a financial tailspin from which it took years to recover.

We all have much at stake – it is not simply a matter of airline finances; it is the national economy. Civil aviation has a profound impact on the U.S. economy. A recently completed analysis performs by DRI-WEFA found that in calendar 2006:

· Civil aviation's total impact on the U.S. economy amounted to 9 percent of GDP.

· $343 billion and 4.2 million jobs were produced in civil aviation or in industries related to civil aviation such as travel and tourism.

· Combined direct, indirect, and induced economic impact of civil aviation totaled $904 billion and 11.2 million jobs.

Unquestionably, the financial situation of the airlines has had a negative effect on the U.S. economy.