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Overview of the Domestic Airline Industry

Overview of the Domestic Airline Industry. James Morrison. What assumptions can you make about the airline industry based on these graphs?. Overview. Domestic airline industry is unstable by any means Net income has steadily declined since 1999 and fuel costs were at an all-time high in 2004

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Overview of the Domestic Airline Industry

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  1. Overview of the Domestic Airline Industry James Morrison

  2. What assumptions can you make about the airline industry based on these graphs?

  3. Overview • Domestic airline industry is unstable by any means • Net income has steadily declined since 1999 and fuel costs were at an all-time high in 2004 • These factors have forced several companies to claim bankruptcy and lay off a large number of employees

  4. Cost of Fuel • Price of Fuel as of 2004 was $1.13 per gallon • From 2003 to 2004 prices rose 33 cents • This represents a 41% increase • Rising fuel costs are eroding profits of domestic airline companies

  5. Ticket Sales • Revenue base of the industry has not faded much in past 5 years • Number of tickets sold in 2003 were roughly the same as the number sold in 1999 • 50 million fewer tickets were sold in 2002 as opposed to 2001 mostly due to incidents of 9/11

  6. Net Income • Rising fuel costs in conjunction with sub par ticket sales have led to a steady decline in profits over the past 5 years • 2004 net income fell 4 billion dollars below the net income level of 1999 • This represents a 200% decrease in profits between the two quarters *Figures represent thousands of dollars for the 2nd quarter of each year.

  7. Bankruptcy • Declining profits have forced several companies to claim bankruptcy • 2 of the 7 major domestic airline companies are currently under Chapter 11 protection • United Airlines filed for bankruptcy in December of 2002 and is still under the protection of Chapter 11. • US Airways filed for bankruptcy twice in the past 3 years

  8. Workforce • Ongoing financial problems have drastically reduced the workforce within the industry • 20% of airline employees have been laid off in the past 5 years • Largest reductions occurred between 2000 and 2004 when over 145,000 people were put out of work

  9. Recommendations • Financially unstable companies within the industry should seek to merge with each other • Reduce ticket prices in an effort to attract more customers • Reduce workforce until ticket sales return to higher levels • Cut all miscellaneous costs in order to offset fuel prices and increase profitability

  10. Questions ?

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