The Us Airline Industry in 2012

The case “The US Airline Industry in 2012” covers important aspects that have impacted directly or indirectly in the performance of US Airline Industry. Starting from the history, case covers many significant areas of concerns that show many contributing factors for the less profitability of the industry despite growing and being a major mode of transportation in The US. IATA (The worldwide association of airlines) has depicted that not only US airlines industry, but also the global airlines industry, as a whole, had always been failing to get the returns to cover the capital since 1993(Grant,2013). In context of US, economy of the country has played a vital role for the airlines companies to cut costs, file bankruptcy as well as merge with others. There are other major factors that led to this situation for the Airline Industry in US which will be covered later (Grant,2013).

The major culprits that had dragged down the financial performance of US airlines industry were: 2001 terrorist attacks, high prices for crude oil and the recession of 2008. Despite those influencing factors,in the beginning of 2012, the airlines industry seemed to be doing well in terms of revenue generation compared to the same period of time a year earlier. However, the net income was lowered by 73.6% because of higher costs of operations.

Despite such results, many airlines executives were optimistic that airline industry was becoming more finance oriented by reducing costs and being more cost efficient.In the meantime, orders for new aircraft from US airlines seemed to be a sign for the optimistic future for the industry. However, there were mixed opinions from other executives because of the different situations that led to the uncertainty. International terrorism, high fuel price and the financial crisis were among those uncertainties. During the era of airlines regulation  which lasted till 1978, CIvil Aeronautics Board (CAB) was established in order to monitor the structure of industry and the competition within it. However, CAB was dissolved because new regulation called Airline Deregulation Act was established which created a highly competitive airline industry. However, this new act created several turbulences is airlines industry resulting in widespread of losses, bankruptcies ,mergers and acquisitions. In 1980s, The Hub-and-Spoke system, rerouting strategies were adopted. This system allowed greater efficiency and also allowed major airliners to dominate the regional markets. There were many price cutting strategies used in order to offer customer more price efficient flights and to be more competitive. Air travel was a major long-distance travel option but, the annual growth rate predicted for the air travel from 2010-30 was an average of 2.9% which is the slowest of any of other major markets. At the same time, there were many incurring expenses in the airlines industry which was hard to balance between cost and profit. Labour, fuel, equipment, airport facilities and cost differences between airlines were very challenging. Nevertheless, US airlines industry has been struggling to stay profitable since the very beginning and till 2012, the profitability condition of the industry remained more or less the same because of many different factors(Grant,2013).